Investor Relations

Press Release

Korn Ferry Announces Fourth Quarter and Fiscal 2019 Results of Operations

June 20, 2019

LOS ANGELES, June 20, 2019 /PRNewswire/ --

Highlights

  • Korn Ferry reports annual fee revenue of $1,926.0 million, an increase of 9% year-over-year (12% increase on a constant currency basis), with growth coming from all three lines of business.
  • Net income attributable to Korn Ferry was $102.7 million in FY'19 with an operating margin of 7.3% and Adjusted EBITDA margin of 16.1%.
  • Fee revenue was $490.8 million in Q4 FY'19, an increase of 3% (8% increase on a constant currency basis) from Q4 FY'18.
  • Net income attributable to Korn Ferry was $50.3 million and operating income was $62.3 million in Q4 FY'19 with an operating margin of 12.7%. Q4 FY'19 Adjusted EBITDA was $82.2 million with an Adjusted EBITDA margin of 16.7%.
  • Q4 FY'19 diluted earnings per share was $0.89 compared to diluted earnings per share of $0.73 in Q4 FY'18. Adjusted diluted earnings per share was $0.88 in Q4 FY'19 compared to Adjusted diluted earnings per share of $0.80 in Q4 FY'18.
  • The Company continued with its balanced approach to capital allocation, buying back $37.4 million of stock during the year and declaring a quarterly dividend of $0.10 per share on June 20, 2019 payable on July 31, 2019 to stockholders of record on July 2, 2019.

Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced fourth quarter and annual fee revenue of $490.8 million and $1,926.0 million, respectively.  In addition, fourth quarter diluted earnings per share was $0.89 and Adjusted diluted earnings per share was $0.88.

"I am pleased to report fee revenue of $491 million and strong profitability, with diluted earnings per share and Adjusted diluted earnings per share of $0.89 and $0.88 during our recently completed fourth quarter.  Net income attributable to Korn Ferry was $50.3 million and operating margin was 12.7%.  Adjusted EBITDA was $82.2 million and EBITDA margin was 16.7% -- both all-time highs.  We achieved the highest fiscal year fee revenue in our firm's history – up 9% on a US GAAP basis year-over-year and 12% at constant currency," said Gary D. Burnison, CEO of Korn Ferry.

"We have made tremendous progress in the recently completed fiscal year.  Korn Ferry is now the organizational consultancy that helps companies look at talent and strategy together.  We help companies make sure they have the right people, in the right places and for the right rewards.  We bring their strategies to life by redesigning their organizational structure, helping them hire, motivate and hold on to the best people, with the right skills and mindset for the future.  In the fiscal year ahead, we will continue to bridge our clients' talent and organizational strategies, unlocking their potential and driving superior performance." 

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

   

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

Fee revenue

 

$

490.8

 

$

475.4

 

$

1,926.0

 

$

1,767.2

Total revenue

 

$

502.5

 

$

488.4

 

$

1,973.9

 

$

1,819.5

Operating income

 

$

62.3

 

$

64.2

 

$

140.8

 

$

208.4

Operating margin

   

12.7%

   

13.5%

   

7.3%

   

11.8%

Net income attributable to Korn Ferry

 

$

50.3

 

$

41.2

 

$

102.7

 

$

133.8

Basic earnings per share

 

$

0.90

 

$

0.74

 

$

1.84

 

$

2.39

Diluted earnings per share

 

$

0.89

 

$

0.73

 

$

1.81

 

$

2.35

 

EBITDA Results (b):

 

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

EBITDA

 

$

82.2

 

$

72.8

 

$

197.7

 

$

268.5

EBITDA margin

   

16.7%

   

15.3%

   

10.3%

   

15.2%

                         

Adjusted Results (c):

 

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

Adjusted EBITDA (b)

 

$

82.2

 

$

75.6

 

$

311.0

 

$

278.0

Adjusted EBITDA margin (b)

   

16.7%

   

15.9%

   

16.1%

   

15.7%

Adjusted net income attributable to Korn Ferry

 

$

49.7

 

$

45.6

 

$

187.9

 

$

154.6

Adjusted basic earnings per share

 

$

0.89

 

$

0.82

 

$

3.36

 

$

2.76

Adjusted diluted earnings per share

 

$

0.88

 

$

0.80

 

$

3.31

 

$

2.72

         
   

(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 tradename write-offs, integration/acquisition costs and restructuring charges, net.  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):

   
           

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

Income tax impact due to the enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act")

 

$

 

$

2.2

 

$

 

$

13.6

Tradename write-offs

 

$

 

$

 

$

106.6

 

$

Integration/acquisition costs

 

$

 

$

2.8

 

$

6.7

 

$

9.4

Restructuring charges, net

 

$

 

$

 

$

 

$

0.1

Fiscal 2019 Fourth Quarter Results

The Company reported fee revenue in Q4 FY'19 of $490.8 million, an increase of 3% (8% increase on a constant currency basis) compared to Q4 FY'18.  The increase in fee revenue was mainly due to organic growth in RPO and Professional Search of 20%.

Net income attributable to Korn Ferry was $50.3 million in Q4 FY'19 as compared to $41.2 million in Q4 FY'18.  The increase in net income attributable to Korn Ferry resulted from an increase in fee revenue partially offset by an increase in compensation and benefits primarily due to an increase in average headcount and an increase in general and administrative expenses.

Operating income was $62.3 million in Q4 FY'19 with an operating margin of 12.7% as compared to $64.2 million and 13.5%, respectively, in the year-ago quarter.  The decrease in operating income resulted from an increase in compensation and benefits and general and administrative expenses, partially offset by higher fee revenue. The increase in compensation and benefits was primarily driven by an increase in amounts owed under certain deferred compensation and retirement plans due to increases in the fair value of participants' accounts in Q4 FY'19 compared to decreases in the year-ago quarter and to a lesser extent an increase in average headcount.

Adjusted EBITDA was $82.2 million in Q4 FY'19 with an Adjusted EBITDA margin of 16.7%, as compared to $75.6 million and 15.9%, respectively, in Q4 FY'18.  The increase in Adjusted EBITDA was impacted by higher fee revenue, partially offset by increases in compensation and benefits expense and general and administrative expenses.

Fiscal 2019 Results

The Company reported record fee revenue in FY'19 of $1,926.0 million, an increase of $158.8 million or 9% (12% increase on a constant currency basis) compared to FY'18.  The organic growth was driven by all three lines of business:

RPO and Professional Search

 

21%

Executive Search

 

9%

Advisory

 

5%

Net income attributable to Korn Ferry was $102.7 million in FY'19 as compared to $133.8 million in FY'18.  The decrease in net income attributable to Korn Ferry was primarily due to the tradename write-off and an increase in compensation and benefits expense, partially offset by an increase in fee revenue and a lower income tax provision.

Operating income was $140.8 million in FY'19 with an operating margin of 7.3% compared to $208.4 million and 11.8% in FY'18.  The decrease in operating income was primarily due to the $106.6 million tradename write-off and an increase of $112.1 million in compensation and benefits expense, partially offset by an increase of $158.8 million in fee revenue.

Adjusted EBITDA was $311.0 million in FY'19 with Adjusted EBITDA margin of 16.1%, compared to $278.0 million and 15.7%, respectively, in the year-ago period.

Results by Segment

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

           

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

Fee revenue

 

$

190.9

 

$

190.7

 

$

774.8

 

$

709.0

Total revenue

 

$

195.3

 

$

195.4

 

$

793.4

 

$

727.3

Operating income

 

$

42.0

 

$

47.0

 

$

179.1

 

$

149.6

Operating margin

   

22.0%

   

24.6%

   

23.1%

   

21.1%

                         

Ending number of consultants

   

565

   

541

   

565

   

541

Average number of consultants

   

558

   

539

   

553

   

529

Engagements billed

   

3,943

   

3,792

   

10,318

   

9,706

New engagements (b)

   

1,717

   

1,590

   

6,790

   

6,325

         

EBITDA Results (c):

 

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

EBITDA

 

$

49.7

 

$

48.7

 

$

193.8

 

$

159.0

EBITDA margin

   

26.0%

   

25.5%

   

25.0%

   

22.4%

         

Adjusted Results (d):

 

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

Adjusted EBITDA (c)

 

$

49.7

 

$

48.7

 

$

193.8

 

$

159.3

Adjusted EBITDA margin (c)

   

26.0%

   

25.5%

   

25.0%

   

22.5%

___________

   

(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):

 
           

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

Restructuring charges, net

 

$

 

$

 

$

 

$

0.3

Fee revenue was $190.9 million in Q4 FY'19, an increase of $0.2 million (3% increase on a constant currency basis) compared to Q4 FY'18. 

Operating income was $42.0 million in Q4 FY'19 compared to $47.0 million in Q4 FY'18.  Operating margin was 22.0% in Q4 FY'19 compared to 24.6% in the year-ago quarter.  The decrease in operating income was due to an increase in compensation and benefits expense primarily from amounts owed under certain deferred compensation and retirement plans driven by increases in the fair value of participants' accounts in Q4 FY'9 compared to decreases in the year-ago quarter, partially offset by a decline in performance related bonus expense.

Adjusted EBITDA was $49.7 million in Q4 FY'19 with an Adjusted EBITDA margin of 26.0% compared to $48.7 million and 25.5%, respectively, in the year-ago quarter.

Selected Advisory Data
(dollars in millions) (a)

           

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

Fee revenue

 

$

207.1

 

$

207.6

 

$

821.0

 

$

785.0

Total revenue

 

$

211.4

 

$

211.9

 

$

838.6

 

$

801.0

Operating income

 

$

30.0

 

$

28.1

 

$

5.6

 

$

100.5

Operating margin

   

14.5%

   

13.5%

   

0.7%

   

12.8%

                         

Ending number of consultants (b)

   

579

   

577

   

579

   

577

Staff utilization (c)

   

68%

   

70%

   

66%

   

66%

                         

EBITDA Results (d):

 

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

EBITDA

 

$

38.9

 

$

36.3

 

$

37.9

 

$

134.6

EBITDA margin

   

18.8%

   

17.5%

   

4.6%

   

17.1%

                         

Adjusted Results (e):

 

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

Adjusted EBITDA (d)

 

$

38.9

 

$

39.0

 

$

151.0

 

$

143.5

Adjusted EBITDA margin (d)

   

18.8%

   

18.8%

   

18.4%

   

18.3%

___________

   

(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 Advisory 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 (see attached reconciliations):

 
           

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

Tradename write-offs

 

$

 

$

 

$

106.6

 

$

Integration/acquisition costs

 

$

 

$

2.7

 

$

6.6

 

$

9.2

Restructuring recoveries, net

 

$

 

$

 

$

 

$

(0.2)

Fee revenue was essentially flat at $207.1 million in Q4 FY'19 compared to $207.6 million in Q4 FY'18 (5% increase on a constant currency basis). 

Operating income was $30.0 million in Q4 FY'19 with an operating margin of 14.5% compared to operating income of $28.1 million and an operating margin of 13.5% in the year-ago quarter.  The increase in operating income was primarily due to a decrease in compensation and benefits expense driven by lower performance related bonus expense in Q4 FY'19 compared to the year-ago quarter.

Adjusted EBITDA was $38.9 million in Q4 FY'19 with an Adjusted EBITDA margin of 18.8% compared to $39.0 million and 18.8%, respectively, in the year-ago quarter.

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

   

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

Fee revenue

 

$

92.8

 

$

77.1

 

$

330.1

 

$

273.2

Total revenue

 

$

95.8

 

$

81.1

 

$

341.9

 

$

291.2

Operating income

 

$

14.5

 

$

11.7

 

$

50.9

 

$

39.4

Operating margin

   

15.7%

   

15.1%

   

15.4%

   

14.4%

                         

Engagements billed (b)

   

1,409

   

1,313

   

3,595

   

3,423

New engagements (c)

   

781

   

748

   

2,935

   

2,824

                         

EBITDA and Adjusted Results (d):

 

Fourth Quarter

 

Year to Date

   

FY'19

 

FY'18

 

FY'19

 

FY'18

EBITDA and Adjusted EBITDA

 

$

15.6

 

$

12.6

 

$

54.4

 

$

42.6

EBITDA and Adjusted EBITDA margin

   

16.9%

   

16.3%

   

16.5%

   

15.6%

___________

   

(a)

Numbers may not total due to rounding.

(b)

Represents professional search engagements billed.

(c)

Represents new professional search engagements opened in the respective period.

(d)

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

Fee revenue was $92.8 million in Q4 FY'19, an increase of $15.7 million or 20% (25% increase on a constant currency basis), compared to the year-ago quarter.  The higher fee revenue was driven by an increase in fee revenue in recruitment process outsourcing and professional search of $11.0 million and $4.7 million, respectively, in Q4 FY'19 compared to Q4 FY'18.

Operating income was $14.5 million in Q4 FY'19, an increase of $2.8 million compared to Q4 FY'18 operating income of $11.7 million.  The increase in operating income resulted from higher fee revenue offset by increases in compensation and benefits expense driven by a 29% increase in average headcount and higher performance related bonus expense. Operating margin was 15.7% in the current quarter compared to 15.1% in the year-ago quarter. 

EBITDA was $15.6 million during Q4 FY'19, an increase of $3.0 million compared to Q4 FY'18.  EBITDA margin was 16.9% in Q4 FY'19 and 16.3% in Q4 FY'18.

Outlook

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

  • Q1 FY'20 fee revenue is expected to be in the range of $466 million and $486 million; and
  • Q1 FY'20 diluted earnings per share is likely to range between $0.73 to $0.81.

Earnings Conference Call Webcast

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

About Korn Ferry

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

Forward-Looking Statements

Statements in this press release and our conference call that relate to future results and events ("forward-looking statements") are based on Korn Ferry's current expectations.  These statements, which include words such as "believes", "expects" or "likely", include references to our outlook.  Readers are cautioned not to place undue reliance on such statements.  Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties that are beyond the control of Korn Ferry.  The potential risks and uncertainties include those relating to competition, changes in demand for our services as a result of automation, the dependence on attracting and retaining qualified and experienced consultants, our ability to maintain relationships with customers and suppliers and retain key employees, maintaining our brand name and professional reputation, potential legal liability and regulatory developments, the portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, changes to data security, data privacy and data protection laws, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, the utilization and billing rates of our consultants, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, tax accounting effects of the Tax Act, impairment of goodwill and other intangible assets, deferred tax assets that we may not be able to use, seasonality, risks related to the integration of recently acquired businesses, employment liability risk, the impact of rebranding on the Company's products and services; the expected timing of the Company's rebranding and entity rationalization plan, and the costs of the Company's rebranding and entity rationalization plan.  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 CommissionKorn 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 the tax impact associated with the Tax Act, restructuring (recoveries) charges, net, integration/acquisition costs and tradename write-offs, net of income tax effect;
  • Adjusted basic and diluted earnings per share, adjusted to exclude the tax impact associated with the Tax Act, restructuring (recoveries) charges, net, integration/acquisition costs and tradename write-offs, net of income tax effect; and in the case of the outlook section, also adjusted for tax rate impact;
  • Constant currency (calculated using a quarterly average) amounts that represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period;
  • EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin; and
  • Adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring (recoveries) charges, net, integration/acquisition costs and tradename write-offs, and Adjusted EBITDA margin.

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

Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn Ferry's performance by excluding certain charges and other items that may not be indicative of Korn Ferry's ongoing operating results.  These non-GAAP financial measures are performance measures and are not indicative of the liquidity of Korn Ferry.  These charges and other items represent 1) the tax impact associated with the Tax Act, 2) costs we incurred to acquire and integrate a portion of our Advisory business, 3) charges we incurred or recoveries we received to restructure the combined company due to the acquisition of a portion of our Advisory business, and 4) tradename write-offs associated with the rebranding plan initiated by Korn Ferry.  The use of non-GAAP financial measures facilitates comparisons to Korn Ferry's historical performance.  Korn Ferry includes non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.  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 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

 

Year Ended

   

April 30,

 

April 30,

   

2019

 

2018

 

2019

 

2018

   

(unaudited)

           

 Fee revenue

 

$

490,756

 

$

475,364

 

$

1,926,033

 

$

1,767,217

 Reimbursed out-of-pocket engagement expenses

   

11,779

   

13,000

   

47,829

   

52,302

           Total revenue

   

502,535

   

488,364

   

1,973,862

   

1,819,519

                         

 Compensation and benefits

   

331,665

   

316,955

   

1,311,240

   

1,199,057

 General and administrative expenses

   

64,350

   

62,010

   

351,991

   

237,390

 Reimbursed expenses

   

11,779

   

13,000

   

47,829

   

52,302

 Cost of services

   

20,467

   

20,495

   

75,487

   

73,658

 Depreciation and amortization

   

11,999

   

11,707

   

46,489

   

48,588

 Restructuring charges, net

   

-

   

-

   

-

   

78

           Total operating expenses

   

440,260

   

424,167

   

1,833,036

   

1,611,073

                         

 Operating income

   

62,275

   

64,197

   

140,826

   

208,446

 Other income (loss), net

   

7,802

   

(3,192)

   

10,094

   

11,119

 Interest expense, net

   

(4,169)

   

(2,818)

   

(16,891)

   

(13,832)

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

   

65,908

   

58,187

   

134,029

   

205,733

 Equity in earnings of unconsolidated subsidiaries, net

   

120

   

110

   

311

   

297

 Income tax provision

   

15,401

   

15,988

   

29,544

   

70,133

 Net income

   

50,627

   

42,309

   

104,796

   

135,897

           Net income attributable to noncontrolling interest

   

(363)

   

(1,149)

   

(2,145)

   

(2,118)

 Net income attributable to Korn Ferry

 

$

50,264

 

$

41,160

 

$

102,651

 

$

133,779

                         

 Earnings per common share attributable to Korn Ferry:

                       

      Basic

 

$

0.90

 

$

0.74

 

$

1.84

 

$

2.39

      Diluted

 

$

0.89

 

$

0.73

 

$

1.81

 

$

2.35

                         

 Weighted-average common shares outstanding:

                       

      Basic

   

55,173

   

55,266

   

55,311

   

55,426

      Diluted

   

55,666

   

56,147

   

56,096

   

56,254

                         

 Cash dividends declared per share:

 

$

0.10

 

$

0.10

 

$

0.40

 

$

0.40

 

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

 
   

Three Months Ended April 30,

 

Year Ended April 30,

   

2019

     

2018

 

% Change

 

2019

     

2018

 

% Change

                                         

Fee revenue:

                                     

Executive Search:

                                     
 

North America

$

113,651

     

$

112,005

 

1.5%

 

$

455,826

     

$

408,098

 

11.7%

 

EMEA

 

45,307

       

45,476

 

(0.4%)

   

182,829

       

173,725

 

5.2%

 

Asia Pacific

 

24,373

       

24,612

 

(1.0%)

   

104,291

       

96,595

 

8.0%

 

Latin America

 

7,557

       

8,576

 

(11.9%)

   

31,896

       

30,624

 

4.2%

Total Executive Search

 

190,888

       

190,669

 

0.1%

   

774,842

       

709,042

 

9.3%

Advisory

 

207,082

       

207,551

 

(0.2%)

   

821,048

       

785,013

 

4.6%

RPO and Professional Search

 

92,786

       

77,144

 

20.3%

   

330,143

       

273,162

 

20.9%

 

Total fee revenue

 

490,756

       

475,364

 

3.2%

   

1,926,033

       

1,767,217

 

9.0%

Reimbursed out-of-pocket engagement expenses

 

11,779

       

13,000

 

(9.4%)

   

47,829

       

52,302

 

(8.6%)

 

Total revenue

$

502,535

     

$

488,364

 

2.9%

 

$

1,973,862

     

$

1,819,519

 

8.5%

 

Operating income (loss):

     

Margin

       

Margin

       

Margin

       

Margin

Executive Search:

                                     
 

North America

$

28,316

 

24.9%

 

$

33,880

 

30.2%

 

$

120,754

 

26.5%

 

$

100,397

 

24.6%

 

EMEA

 

8,161

 

18.0%

   

6,419

 

14.1%

   

29,974

 

16.4%

   

26,768

 

15.4%

 

Asia Pacific

 

5,027

 

20.6%

   

5,614

 

22.8%

   

24,364

 

23.4%

   

18,425

 

19.1%

 

Latin America

 

538

 

7.1%

   

1,061

 

12.4%

   

3,998

 

12.5%

   

4,022

 

13.1%

Total Executive Search

 

42,042

 

22.0%

   

46,974

 

24.6%

   

179,090

 

23.1%

   

149,612

 

21.1%

Advisory

 

29,991

 

14.5%

   

28,076

 

13.5%

   

5,617

 

0.7%

   

100,535

 

12.8%

RPO and Professional Search

 

14,547

 

15.7%

   

11,669

 

15.1%

   

50,884

 

15.4%

   

39,396

 

14.4%

Corporate

 

(24,305)

       

(22,522)

       

(94,765)

       

(81,097)

   
 

 Total operating income

$

62,275

 

12.7%

 

$

64,197

 

13.5%

 

$

140,826

 

7.3%

 

$

208,446

 

11.8%

 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 
   

April 30,

 

April 30,

   

2019

 

2018

             

ASSETS

           

Cash and cash equivalents

 

$

626,360

 

$

520,848

Marketable securities

   

8,288

   

14,293

Receivables due from clients, net of allowance for doubtful accounts of $21,582 and $17,845 at April 30, 2019 and 2018, respectively

   

404,857

   

384,996

Income taxes and other receivables

   

26,767

   

29,089

Unearned compensation

   

42,003

   

37,333

Prepaid expenses and other assets

   

28,535

   

27,700

Total current assets

   

1,136,810

   

1,014,259

             

Marketable securities, non-current

   

132,463

   

122,792

Property and equipment, net

   

131,505

   

119,901

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

   

126,000

   

120,087

Deferred income taxes

   

43,220

   

25,520

Goodwill

   

578,298

   

584,222

Intangible assets, net

   

82,948

   

203,216

Unearned compensation, non-current

   

80,924

   

78,295

Investments and other assets

   

22,684

   

19,622

Total assets

 

$

2,334,852

 

$

2,287,914

             

LIABILITIES AND STOCKHOLDERS' EQUITY

           

Accounts payable

 

$

39,156

 

$

35,196

Income taxes payable

   

21,145

   

23,034

Compensation and benefits payable

   

328,610

   

304,980

Current portion of long-term debt

   

-

   

24,911

Other accrued liabilities

   

162,047

   

170,339

Total current liabilities

   

550,958

   

558,460

             

Deferred compensation and other retirement plans

   

257,635

   

227,729

Long-term debt

   

222,878

   

211,311

Deferred tax liabilities

   

1,103

   

9,105

Other liabilities

   

58,891

   

61,694

Total liabilities

   

1,091,465

   

1,068,299

             

Stockholders' equity

           

Common stock: $0.01 par value, 150,000 shares authorized, 72,442 and 71,631 shares issued and 56,431 and 56,517 shares outstanding at April 30, 2019 and 2018, respectively

   

656,463

   

683,942

Retained earnings

   

660,845

   

572,800

Accumulated other comprehensive loss, net

   

(76,652)

   

(40,135)

Total Korn Ferry stockholders' equity

   

1,240,656

   

1,216,607

Noncontrolling interest

   

2,731

   

3,008

Total stockholders' equity

   

1,243,387

   

1,219,615

Total liabilities and stockholders' equity

 

$

2,334,852

 

$

2,287,914

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

 
     

Three Months Ended

 

Year Ended

     

April 30,

 

April 30,

     

2019

 

2018

 

2019

 

2018

     

(unaudited)

           
 

 Net income attributable to Korn Ferry

 

$

50,264

 

$

41,160

 

$

102,651

 

$

133,779

 

 Net income attributable to non-controlling interest

   

363

   

1,149

   

2,145

   

2,118

 

 Net income

   

50,627

   

42,309

   

104,796

   

135,897

 

 Income tax provision

   

15,401

   

15,988

   

29,544

   

70,133

 

 Equity in earnings of unconsolidated subsidiaries, net

   

(120)

   

(110)

   

(311)

   

(297)

 

 Income before provision for income taxes and equity of unconsolidated subsidiaries

   

65,908

   

58,187

   

134,029

   

205,733

 

 Other (income) loss, net

   

(7,802)

   

3,192

   

(10,094)

   

(11,119)

 

 Interest Expense

   

4,169

   

2,818

   

16,891

   

13,832

 

 Operating income

   

62,275

   

64,197

   

140,826

   

208,446

 

 Depreciation and amortization

   

11,999

   

11,707

   

46,489

   

48,588

 

 Other income (loss), net

   

7,802

   

(3,192)

   

10,094

   

11,119

 

 Equity in earnings of unconsolidated subsidiaries, net

   

120

   

110

   

311

   

297

 

           EBITDA

   

82,196

   

72,822

   

197,720

   

268,450

 

 Restructuring charges, net (1)

   

-

   

-

   

-

   

78

 

 Integration/acquisition costs (2)

   

-

   

2,776

   

6,746

   

9,430

 

 Tradename write-offs (3)

   

-

   

-

   

106,555

   

-

 

           Adjusted EBITDA

 

$

82,196

 

$

75,598

 

$

311,021

 

$

277,958

                           
 

 Operating margin

   

12.7%

   

13.5%

   

7.3%

   

11.8%

 

 Depreciation and amortization

   

2.4%

   

2.5%

   

2.4%

   

2.8%

 

 Other income (loss), net

   

1.6%

   

(0.7%)

   

0.6%

   

0.6%

 

 Equity in earnings of unconsolidated subsidiaries, net

   

-

   

-

   

-

   

-

 

            EBITDA margin

   

16.7%

   

15.3%

   

10.3%

   

15.2%

 

 Restructuring charges, net (1)

   

-

   

-

   

-

   

-

 

 Integration/acquisition costs (2)

   

-

   

0.6%

   

0.4%

   

0.5%

 

 Tradename write-offs (3)

   

-

   

-

   

5.4%

   

-

 

           Adjusted EBITDA margin

   

16.7%

   

15.9%

   

16.1%

   

15.7%

                           
 

 Net income attributable to Korn Ferry

 

$

50,264

 

$

41,160

 

$

102,651

 

$

133,779

 

 Restructuring charges, net (1)

   

-

   

-

   

-

   

78

 

 Integration/acquisition costs (2)

   

-

   

2,776

   

6,746

   

9,430

 

 Tradename write-offs (3)

   

-

   

-

   

106,555

   

-

 

 Tax effect on the adjusted items (4)

   

(598)

   

(541)

   

(28,094)

   

(2,314)

 

 Tax effect on impact of new tax law (5)

   

-

   

2,237

   

-

   

13,582

 

           Adjusted net income attributable to Korn Ferry

 

$

49,666

 

$

45,632

 

$

187,858

 

$

154,555

                           
 

 Basic earnings per common share

 

$

0.90

 

$

0.74

 

$

1.84

 

$

2.39

 

 Restructuring charges, net (1)

   

-

   

-

   

-

   

-

 

 Integration/acquisition costs (2)

   

-

   

0.05

   

0.12

   

0.17

 

 Tradename write-offs (3)

   

-

   

-

   

1.93

   

-

 

 Tax effect on the adjusted items (4)

   

(0.01)

   

(0.01)

   

(0.53)

   

(0.04)

 

 Tax effect on impact of new tax law (5)

   

-

   

0.04

   

-

   

0.24

 

           Adjusted basic earnings per share

 

$

0.89

 

$

0.82

 

$

3.36

 

$

2.76

                           
 

 Diluted earnings per common share

 

$

0.89

 

$

0.73

 

$

1.81

 

$

2.35

 

 Restructuring charges, net (1)

   

-

   

-

   

-

   

-

 

 Integration/acquisition costs (2)

   

-

   

0.05

   

0.12

   

0.17

 

 Tradename write-offs (3)

   

-

   

-

   

1.88

   

-

 

 Tax effect on the adjusted items (4)

   

(0.01)

   

(0.01)

   

(0.50)

   

(0.04)

 

 Tax effect on impact of new tax law (5)

   

-

   

0.03

   

-

   

0.24

 

           Adjusted diluted earnings per share

 

$

0.88

 

$

0.80

 

$

3.31

 

$

2.72

                           
 

Explanation of Non-GAAP Adjustments

(1)

Restructuring plan implemented in order to rationalize our cost structure by eliminating redundant positions and consolidating office space due to a previous acquisition that took place on December 1, 2015.

(2)

Costs associated with completing a previous acquisition, such as legal and professional fees, retention awards and the on-going integration expenses to combine the companies.

(3)

The Company is implementing a plan to go to market under a single, master brand architecture to simplify the Company's organizational structure by eliminating and/or consolidating certain legal entities and implementing a rebranding of the Company to offer the Company's current products and services using the "Korn Ferry" name, branding and trademarks. As a result of this the Company was required under U.S. generally accepted accounting principles to record a one-time, non-cash tradename write-offs.

(4)

Tax effect on restructuring charges, net, integration/acquisition costs and tradename write-offs.

(5)

The tax impact due to provisional tax charge recorded as a result of the Tax Act.

 

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 April 30, 2019

   

Executive Search

                       
   

North
America

 

EMEA

 

Asia
Pacific

 

Latin
America

 

Subtotal

 

Advisory

 

RPO and
Professional
Search

 

Corporate

 

Consolidated

                                                       

Fee revenue

 

$

113,651

 

$

45,307

 

$

24,373

 

$

7,557

 

$

190,888

 

$

207,082

 

$

92,786

 

$

-

 

$

490,756

Total revenue

 

$

116,939

 

$

46,107

 

$

24,726

 

$

7,572

 

$

195,344

 

$

211,377

 

$

95,814

 

$

-

 

$

502,535

                                                       

Net income attributable to Korn Ferry

                                                 

$

50,264

Net income attributable to noncontrolling interest

                                                   

363

Other income, net

                                                   

(7,802)

Interest expense, net

                                                   

4,169

Equity in earnings of unconsolidated subsidiaries, net

                                                   

(120)

Income tax provision

                                                   

15,401

Operating income (loss)

 

$

28,316

 

$

8,161

 

$

5,027

 

$

538

 

$

42,042

 

$

29,991

 

$

14,547

 

$

(24,305)

   

62,275

Depreciation and amortization

   

973

   

387

   

345

   

105

   

1,810

   

7,355

   

930

   

1,904

   

11,999

Other income, net

   

5,433

   

44

   

163

   

59

   

5,699

   

1,577

   

165

   

361

   

7,802

Equity in earnings of unconsolidated subsidiaries, net

   

120

   

-

   

-

   

-

   

120

   

-

   

-

   

-

   

120

EBITDA and Adjusted EBITDA

 

$

34,842

 

$

8,592

 

$

5,535

 

$

702

 

$

49,671

 

$

38,923

 

$

15,642

 

$

(22,040)

 

$

82,196

EBITDA and Adjusted EBITDA margin

   

30.7%

   

19.0%

   

22.7%

   

9.3%

   

26.0%

   

18.8%

   

16.9%

         

16.7%

                                                       
   

Three Months Ended April 30, 2018

   

Executive Search

                       
   

North
America

 

EMEA

 

Asia
Pacific

 

Latin
America

 

Subtotal

 

Advisory

 

RPO and
Professional
Search

 

Corporate

 

Consolidated

                                                       

Fee revenue

 

$

112,005

 

$

45,476

 

$

24,612

 

$

8,576

 

$

190,669

 

$

207,551

 

$

77,144

 

$

-

 

$

475,364

Total revenue

 

$

115,394

 

$

46,340

 

$

25,053

 

$

8,603

 

$

195,390

 

$

211,912

 

$

81,062

 

$

-

 

$

488,364

                                                       

Net income attributable to Korn Ferry

                                                 

$

41,160

Net income attributable to noncontrolling interest

                                                   

1,149

Other loss, net

                                                   

3,192

Interest expense, net

                                                   

2,818

Equity in earnings of unconsolidated subsidiaries, net

                                                   

(110)

Income tax provision

                                                   

15,988

Operating income (loss)

 

$

33,880

 

$

6,419

 

$

5,614

 

$

1,061

 

$

46,974

 

$

28,076

 

$

11,669

 

$

(22,522)

   

64,197

Depreciation and amortization

   

1,007

   

344

   

356

   

124

   

1,831

   

7,417

   

741

   

1,718

   

11,707

Other (loss) income, net

   

(312)

   

32

   

(11)

   

82