Investor Relations

Press Release

Korn Ferry Announces Second Quarter Fiscal 2019 Results of Operations

December 6, 2018

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

Highlights

  • Korn Ferry reports fee revenue of $495.2 million in Q2 FY'19, an 11.8% increase (14.6% on a constant currency basis) from Q2 FY'18, driven by organic growth in all segments.
  • Operating income was $71.0 million in Q2 FY'19 with an operating margin of 14.3%. Adjusted EBITDA was $80.3 million with Adjusted EBITDA margin of 16.2%.
  • Q2 FY'19 diluted earnings per share was $0.81 compared to diluted earnings per share of $0.64 in Q2 FY'18. Adjusted diluted earnings per share was $0.85 in Q2 FY'19 compared to Adjusted diluted earnings per share of $0.67 in Q2 FY'18.
  • The Company continued with its balanced approach to capital allocation, buying back $22.7 million of stock during the quarter and declaring a quarterly dividend of $0.10 per share on December 5, 2018 payable on January 15, 2019 to stockholders of record on December 20, 2018.
  • In connection with the previously announced rebranding, the firm also announced that it will be formally changing its name from Korn/Ferry International to Korn Ferry, effective January 1, 2019 – a move reflecting the transformation of the organization to one unified brand.

Korn/Ferry International (NYSE: KFY), a global organizational consulting firm, today announced first quarter fee revenue of $495.2 million.  Second quarter diluted earnings per share was $0.81 and Adjusted diluted earnings per share was $0.85.  Adjusted diluted earnings per share for the second quarter excludes $2.8 million related to retention awards from a prior acquisition, or $0.04 per share.

"For Korn Ferry's recently completed second quarter, we achieved the highest top line and bottom line results in our history, with fee revenue of approximately $495 million and Adjusted EBITDA and Adjusted EBITDA margin of approximately $80 million and 16.2%, respectively.  Our fee revenue grew approximately 12% year-over-year in the second quarter, 14.6% at constant currency, with strong growth across all of our geographies and solutions.  Additionally, during the quarter we continued to effectively deploy capital, repurchasing over $22 million of our shares.  Our return on invested capital continues to accelerate. From the end of FY'18 to the end of Q2 FY'19, our return on invested capital has now increased by over 200 basis points," said Gary D. Burnison, CEO, Korn Ferry.

"Calendar year 2018 is the year we established ourselves as the preeminent global organizational consulting firm, a company whose purpose is to enable people and organizations to exceed their potential.  When looking at the one professional we put in a new job every three minutes, the 1.2 million people we develop each year and 98% of the Fortune 500 who work with us – it is clear we are making a notable impact. I look forward to what the future holds as we ring in a New Year."

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

       

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

Fee revenue

$

495.2

 

$

443.0

 

$

960.8

 

$

844.3

Total revenue

$

506.8

 

$

455.5

 

$

985.2

 

$

870.4

Operating income

$

71.0

 

$

52.5

 

$

15.9

 

$

94.4

Operating margin

 

14.3%

   

11.8%

   

1.7%

   

11.2%

Net income attributable to Korn Ferry

$

46.0

 

$

36.3

 

$

7.4

 

$

65.4

Basic earnings per share

$

0.82

 

$

0.65

 

$

0.13

 

$

1.16

Diluted earnings per share

$

0.81

 

$

0.64

 

$

0.13

 

$

1.15

                       

EBITDA Results (b):

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

EBITDA

$

77.5

 

$

68.4

 

$

38.6

 

$

126.0

EBITDA margin

 

15.7%

   

15.4%

   

4.0%

   

14.9%

                       

Adjusted Results (c):

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

Adjusted EBITDA (b)

$

80.3

 

$

70.6

 

$

151.1

 

$

131.0

Adjusted EBITDA margin (b)

 

16.2%

   

15.9%

   

15.7%

   

15.5%

Adjusted net income attributable to Korn Ferry

$

48.2

 

$

37.8

 

$

92.4

 

$

69.0

Adjusted basic earnings per share

$

0.86

 

$

0.68

 

$

1.65

 

$

1.23

Adjusted diluted earnings per share

$

0.85

 

$

0.67

 

$

1.62

 

$

1.21

___________

(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 (recoveries) 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):

   
       

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

Tradename write-offs

$

-

 

$

-

 

$

106.6

 

$

-

Integration/acquisition costs

$

2.8

 

$

2.4

 

$

5.9

 

$

5.0

Restructuring (recoveries) charges, net

$

-

 

$

(0.2)

 

$

-

 

$

0.1

Fee revenue was $495.2 million in Q2 FY'19, an increase of 11.8% (14.6% increase on a constant currency basis) compared to Q2 FY'18.  The increase in fee revenue was due to organic growth in all segments.

Operating margin was 14.3% in Q2 FY'19 compared to 11.8% in the year-ago quarter.  The increase in operating income was primarily due to the increase in fee revenue, partially offset by an increase in compensation and benefits.

Adjusted EBITDA margin was 16.2%, compared to 15.9% in the year-ago quarter. 

Results by Segment

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

           

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

Fee revenue

$

197.6

 

$

176.8

 

$

390.6

 

$

338.0

Total revenue

$

202.0

 

$

180.6

 

$

400.1

 

$

346.4

Operating income

$

51.5

 

$

35.3

 

$

92.3

 

$

68.2

Operating margin

 

26.0%

   

20.0%

   

23.6%

   

20.2%

                       

Ending number of consultants

 

556

   

538

   

556

   

538

Average number of consultants

 

550

   

535

   

548

   

528

Engagements billed

 

3,968

   

3,723

   

6,144

   

5,752

New engagements (b)

 

1,757

   

1,578

   

3,465

   

3,171

                       

EBITDA Results (c):

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

EBITDA

$

49.2

 

$

37.7

 

$

96.0

 

$

73.0

EBITDA margin

 

24.9%

   

21.4%

   

24.6%

   

21.6%

                       

Adjusted Results (d):

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

Adjusted EBITDA (c)

$

49.2

 

$

38.0

 

$

96.0

 

$

73.3

Adjusted EBITDA margin (c)

 

24.9%

   

21.5%

   

24.6%

   

21.7%

___________

(a)

Numbers may not total due to rounding.

(b)

Represents new engagements opened in the respective period.

(c)

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

(d)

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

   
           

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

Restructuring charges, net

$

 

$

0.3

 

$

 

$

0.3

Fee revenue was $197.6 million in Q2 FY'19, an increase of $20.8 million or 11.8% (14.0% on a constant currency basis) compared to Q2 FY'18.  The increase in fee revenue was attributable to higher fee revenue in all regions.

Operating income was $51.5 million in Q2 FY'19 compared to $35.3 million in Q2 FY'18.  Operating margin was 26.0% in Q2 FY'19 compared to 20.0% in the year-ago quarter.  The increase in operating income was due to higher fee revenue in Q2 FY'19 compared to Q2 FY'18, partially offset by an increase in compensation and benefits expense driven by an increase in performance related bonus expense and an increase in average headcount.

Adjusted EBITDA was $49.2 million in Q2 FY'19 with an Adjusted EBITDA margin of 24.9% compared to $38.0 million and 21.5%, respectively, in the year-ago quarter.

Selected Advisory Data
(dollars in millions) (a)

           

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

Fee revenue

$

217.1

 

$

200.0

 

$

412.5

 

$

379.4

Total revenue

$

221.4

 

$

203.8

 

$

421.6

 

$

387.1

Operating income (loss)

$

29.4

 

$

26.3

 

$

(53.7)

 

$

45.4

Operating margin

 

13.6%

   

13.2%

   

(13.0)%

   

12.0%

                       

Ending number of consultants (b)

 

570

   

594

   

570

   

594

Staff utilization (c)

 

67%

   

67%

   

67%

   

65%

                       

EBITDA Results (d):

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

EBITDA

$

36.7

 

$

34.9

 

$

(38.4)

 

$

62.5

EBITDA margin

 

16.9%

   

17.5%

   

(9.3)%

   

16.5%

                       

Adjusted Results (e):

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

Adjusted EBITDA (d)

$

39.4

 

$

36.8

 

$

73.9

 

$

67.1

Adjusted EBITDA margin (d)

 

18.2%

   

18.4%

   

17.9%

   

17.7%

 ___________

(a)

Numbers may not total due to rounding.

(b)

Represents number of employees originating consulting services. 

(c)

Calculated by dividing the number of hours our full-time 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):

   
           

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

Tradename write-offs

$

 

$

 

$

106.6

 

$

Integration/acquisition costs

$

2.8

 

$

2.3

 

$

5.8

 

$

4.9

Restructuring recoveries, net

$

 

$

(0.5)

 

$

 

$

(0.2)

Fee revenue was $217.1 million in Q2 FY'19 compared to $200.0 million in Q2 FY'18, an increase of $17.1 million or 8.6% (11.8% on a constant currency basis) compared to Q2 FY'18.  The increase in fee revenue was primarily driven by Consulting across each of our Advisory solution areas.

Operating income was $29.4 million in Q2 FY'19 with an operating margin of 13.6% compared to operating income of $26.3 million and an operating margin of 13.2% in the year-ago quarter.  The increase in operating income was primarily due to higher fee revenue compared to the year-ago quarter, partially offset by an increase in compensation and benefits expense driven by an increase in performance related bonus expense.

Adjusted EBITDA was $39.4 million in Q2 FY'19 with an Adjusted EBITDA margin of 18.2% compared to $36.8 million and 18.4%, respectively, in the year-ago quarter.

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

 

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

Fee revenue

$

80.5

 

$

66.3

 

$

157.8

 

$

126.9

Total revenue

$

83.4

 

$

71.0

 

$

163.5

 

$

136.9

Operating income

$

12.5

 

$

9.4

 

$

24.2

 

$

17.7

Operating margin

 

15.6%

   

14.2%

   

15.3%

   

13.9%

                       

Engagements billed (b)

 

1,338

   

1,228

   

2,134

   

1,907

New engagements (c)

 

731

   

711

   

1,502

   

1,443

 

EBITDA Results (d):

Second Quarter

 

Year to Date

 

FY'19

 

FY'18

 

FY'19

 

FY'18

EBITDA

$

13.2

 

$

10.2

 

$

25.7

 

$

19.3

EBITDA margin

 

16.4%

   

15.4%

   

16.3%

   

15.2%

___________

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

Fee revenue was $80.5 million in Q2 FY'19, an increase of $14.2 million or 21.4% (24.4% 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 professional search and recruitment process outsourcing of $8.2 million and $6.0 million, respectively, in Q2 FY'19 compared to Q2 FY'18.

Operating income was $12.5 million in Q2 FY'19, an increase of $3.1 million compared to Q2 FY'18 operating income of $9.4 million.  Operating margin was 15.6% in the current quarter compared to 14.2% in the year-ago quarter. 

EBITDA was $13.2 million during Q2 FY'19, an increase of $3.0 million compared to Q2 FY'18. EBITDA margin was 16.4% in Q2 FY'19 and 15.4% in Q2 FY'18.

Outlook

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

  • Q3 FY'19 fee revenue is expected to be in the range of $470 million and $490 million; and
  • Q3 FY'19 diluted earnings per share is likely to range between $0.76 to $0.84.

On a consolidated adjusted basis:

  • Q3 FY'19 Adjusted diluted earnings per share is expected to be in the range from $0.77 to $0.85.

 

   

Q3 FY'19
Earnings Per Share Outlook (1)

 
   

Low

   

High

 

Consolidated diluted earnings per share

 

$

0.76

   

$

0.84

 

Retention bonuses

   

0.01

     

0.01

 

Tax rate impact

   

     

 

Consolidated Adjusted diluted earnings per share

 

$

0.77

   

$

0.85

 

___________

(1)

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

Earnings Conference Call Webcast

The earnings conference call will be held today at 11:00 AM (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 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 International, adjusted to exclude 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 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) costs we incurred to acquire and integrate a portion of our Advisory business, 2) charges we incurred or recoveries we received to restructure the combined company due to the acquisition of a portion of our Advisory business, and 3) tradename write-offs associated with the rebranding plan initiated by Korn Ferry.  The use of non-GAAP financial measures facilitates comparisons to Korn Ferry's historical performance.  Korn Ferry includes non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.  Management further believes that EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company.  In the case of constant currency amounts, management believes the presentation of such information provides useful supplemental information regarding Korn Ferry's performance as excluding the impact of exchange rate changes on Korn Ferry's financial performance allows investors to make more meaningful period-to-period comparisons of the Company's operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making. 

[Tables attached]

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 
 

Three Months Ended

 

Six Months Ended

 

October 31,

 

October 31,

 

2018

 

2017

 

2018

 

2017

 

(unaudited)

 Fee revenue

$

495,205

 

$

443,018

 

$

960,773

 

$

844,272

 Reimbursed out-of-pocket engagement expenses

 

11,588

   

12,450

   

24,382

   

26,113

           Total revenue

 

506,793

   

455,468

   

985,155

   

870,385

                       

 Compensation and benefits

 

335,835

   

299,819

   

657,740

   

572,575

 General and administrative expenses

 

57,738

   

58,603

   

226,462

   

116,864

 Reimbursed expenses

 

11,588

   

12,450

   

24,382

   

26,113

 Cost of services

 

19,627

   

19,883

   

37,954

   

35,696

 Depreciation and amortization

 

11,018

   

12,447

   

22,749

   

24,656

 Restructuring (recoveries) charges, net

 

-

   

(202)

   

-

   

78

           Total operating expenses

 

435,806

   

403,000

   

969,287

   

775,982

                       

 Operating income

 

70,987

   

52,468

   

15,868

   

94,403

 Other (loss) income, net

 

(4,600)

   

3,447

   

(109)

   

6,801

 Interest expense, net

 

(4,337)

   

(3,624)

   

(8,440)

   

(7,304)

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

 

62,050

   

52,291

   

7,319

   

93,900

 Equity in earnings of unconsolidated subsidiaries

 

100

   

60

   

129

   

90

 Income tax provision (benefit)

 

14,833

   

15,619

   

(1,277)

   

27,829

 Net income

 

47,317

   

36,732

   

8,725

   

66,161

           Net income attributable to noncontrolling interest

 

(1,283)

   

(401)

   

(1,302)

   

(789)

 Net income attributable to Korn/Ferry International

$

46,034

 

$

36,331

 

$

7,423

 

$

65,372

                       

 Earnings per common share attributable to Korn/Ferry International:

                     

      Basic

$

0.82

 

$

0.65

 

$

0.13

 

$

1.16

      Diluted

$

0.81

 

$

0.64

 

$

0.13

 

$

1.15

                       

 Weighted-average common shares outstanding:

                     

      Basic

 

55,461

   

55,390

   

55,420

   

55,592

      Diluted

 

56,239

   

55,978

   

56,306

   

56,252

                       

 Cash dividends declared per share:

$

0.10

 

$

0.10

 

$

0.20

 

$

0.20

 

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

 
   

Three Months Ended October 31,

 

Six Months Ended October 31,

   

2018

     

2017

 

%
Change

 

2018

     

2017

 

%
Change

                                         

Fee revenue:

                                     

Executive Search:

                                     
 

North America

$

115,863

     

$

101,544

 

14.1%

 

$

227,960

     

$

193,377

 

17.9%

 

EMEA

 

44,928

       

41,346

 

8.7%

   

91,582

       

81,467

 

12.4%

 

Asia Pacific

 

27,936

       

25,912

 

7.8%

   

54,231

       

47,490

 

14.2%

 

Latin America

 

8,907

       

7,964

 

11.8%

   

16,785

       

15,623

 

7.4%

Total Executive Search

 

197,634

       

176,766

 

11.8%

   

390,558

       

337,957

 

15.6%

Advisory

 

217,089

       

199,953

 

8.6%

   

412,464

       

379,406

 

8.7%

RPO and Professional Search

 

80,482

       

66,299

 

21.4%

   

157,751

       

126,909

 

24.3%

 

Total fee revenue

 

495,205

       

443,018

 

11.8%

   

960,773

       

844,272

 

13.8%

Reimbursed out-of-pocket engagement expenses

 

11,588

       

12,450

 

(6.9)%

   

24,382

       

26,113

 

(6.6)%

 

Total revenue

$

506,793

     

$

455,468

 

11.3%

 

$

985,155

     

$

870,385

 

13.2%

 

Operating income (loss):

     

Margin

       

Margin

       

Margin

       

Margin

Executive Search:

                                     
 

North America

$

35,328

 

30.5%

 

$

23,039

 

22.7%

 

$

61,842

 

27.1%

 

$

45,109

 

23.3%

 

EMEA

 

7,319

 

16.3%

   

6,345

 

15.3%

   

14,288

 

15.6%

   

13,020

 

16.0%

 

Asia Pacific

 

6,767

 

24.2%

   

4,381

 

16.9%

   

13,408

 

24.7%

   

7,522

 

15.8%

 

Latin America

 

2,053

 

23.0%

   

1,527

 

19.2%

   

2,807

 

16.7%

   

2,553

 

16.3%

Total Executive Search

 

51,467

 

26.0%

   

35,292

 

20.0%

   

92,345

 

23.6%

   

68,204

 

20.2%

Advisory

 

29,426

 

13.6%

   

26,347

 

13.2%

   

(53,653)

 

(13.0)%

   

45,402

 

12.0%

RPO and Professional Search

 

12,516

 

15.6%

   

9,418

 

14.2%

   

24,161

 

15.3%

   

17,663

 

13.9%

Corporate

 

(22,422)

       

(18,589)

       

(46,985)

       

(36,866)

   
 

 Total operating income

$

70,987

 

14.3%

 

$

52,468

 

11.8%

 

$

15,868

 

1.7%

 

$

94,403

 

11.2%

 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 
 

October 31,

 

April 30,

 

2018

 

2018

 

(unaudited)

     

ASSETS

         

Cash and cash equivalents

$

387,679

 

$

520,848

Marketable securities

 

6,686

   

14,293

Receivables due from clients, net of allowance for doubtful accounts of $20,197 and $17,845 at October 31, 2018 and April 30, 2018, respectively

 

433,557

   

384,996

Income taxes and other receivables

 

29,009

   

29,089

Unearned compensation

 

41,804

   

37,333

Prepaid expenses and other assets

 

32,953

   

27,700

Total current assets

 

931,688

   

1,014,259

           

Marketable securities, non-current

 

128,913

   

122,792

Property and equipment, net

 

126,242

   

119,901

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

 

123,205

   

120,087

Deferred income taxes

 

37,776

   

25,520

Goodwill

 

579,863

   

584,222

Intangible assets, net

 

89,662

   

203,216

Unearned compensation, non-current

 

94,927

   

78,295

Investments and other assets

 

22,191

   

19,622

Total assets

$

2,134,467

 

$

2,287,914

           

LIABILITIES AND STOCKHOLDERS' EQUITY

         

Accounts payable

$

34,764

 

$

35,196

Income taxes payable

 

19,453

   

23,034

Compensation and benefits payable

 

231,688

   

304,980

Term loan

 

26,629

   

24,911

Other accrued liabilities

 

153,088

   

170,339

Total current liabilities

 

465,622

   

558,460

           

Deferred compensation and other retirement plans

 

234,098

   

227,729

Term loan, non-current

 

197,997

   

211,311

Deferred tax liabilities

 

1,751

   

9,105

Other liabilities

 

58,402

   

61,694

Total liabilities

 

957,870

   

1,068,299

           

Stockholders' equity

         

Common stock: $0.01 par value, 150,000 shares authorized, 72,202 and 71,631 shares issued and 56,511 and 56,517 shares outstanding at October 31, 2018 and April 30, 2018, respectively

 

664,486

   

683,942

Retained earnings

 

577,333

   

572,800

Accumulated other comprehensive loss, net

 

(68,581)

   

(40,135)

Total Korn/Ferry International stockholders' equity

 

1,173,238

   

1,216,607

Noncontrolling interest

 

3,359

   

3,008

Total stockholders' equity

 

1,176,597

   

1,219,615

Total liabilities and stockholders' equity

$

2,134,467

 

$

2,287,914

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

 
 

Three Months Ended

 

Six Months Ended

 

October 31,

 

October 31,

 

2018

 

2017

 

2018

 

2017

 

(unaudited)

 Operating income

$

70,987

 

$

52,468

 

$

15,868

 

$

94,403

 Depreciation and amortization

 

11,018

   

12,447

   

22,749

   

24,656

 Other (loss) income, net

 

(4,600)

   

3,447

   

(109)

   

6,801

 Equity in earnings of unconsolidated subsidiaries, net

 

100

   

60

   

129

   

90

           EBITDA

 

77,505

   

68,422

   

38,637

   

125,950

 Restructuring (recoveries) charges, net (1)

 

-

   

(202)

   

-

   

78

 Integration/acquisition costs (2)

 

2,835

   

2,393

   

5,942

   

4,981

 Tradename write-offs (3)

 

-

   

-

   

106,555

   

-

           Adjusted EBITDA

$

80,340

 

$

70,613

 

$

151,134

 

$

131,009

                       

 Operating margin

 

14.3%

   

11.8%

   

1.7%

   

11.2%

 Depreciation and amortization

 

2.3%

   

2.8%

   

2.3%

   

2.9%

 Other (loss) income, net

 

(0.9)%

   

0.8%

   

-

   

0.8%

 Equity in earnings of unconsolidated subsidiaries, net

 

-

   

-

   

-

   

-

            EBITDA margin

 

15.7%

   

15.4%

   

4.0%

   

14.9%

 Restructuring (recoveries) charges, net (1)

 

-

   

-

   

-

   

-

 Integration/acquisition costs (2)

 

0.5%

   

0.5%

   

0.6%

   

0.6%

 Tradename write-offs (3)

 

-

   

-

   

11.1%

   

-

           Adjusted EBITDA margin

 

16.2%

   

15.9%

   

15.7%

   

15.5%

                       

 Net income attributable to Korn/Ferry International

$

46,034

 

$

36,331

 

$

7,423

 

$

65,372

 Restructuring (recoveries) charges, net (1)

 

-

   

(202)

   

-

   

78

 Integration/acquisition costs (2)

 

2,835

   

2,393

   

5,942

   

4,981

 Tradename write-offs (3)

 

-

   

-

   

106,555

   

-

 Tax effect on the above items (4)

 

(634)

   

(681)

   

(27,527)

   

(1,405)

           Adjusted net income attributable to Korn/Ferry International

$

48,235

 

$

37,841

 

$

92,393

 

$

69,026

                       

 Basic earnings per common share

$

0.82

 

$

0.65

 

$

0.13

 

$

1.16

 Restructuring (recoveries) charges, net (1)

 

-

   

-

   

-

   

-

 Integration/acquisition costs (2)

 

0.05

   

0.04

   

0.11

   

0.10

 Tradename write-offs (3)

 

-

   

-

   

1.92

   

-

 Tax effect on the above items (4)

 

(0.01)

   

(0.01)

   

(0.51)

   

(0.03)

           Adjusted basic earnings per share

$

0.86

 

$

0.68

 

$

1.65

 

$

1.23

                       

 Diluted earnings per common share

$

0.81

 

$

0.64

 

$

0.13

 

$

1.15

 Restructuring (recoveries) charges, net (1)

 

-

   

-

   

-

   

-

 Integration/acquisition costs (2)

 

0.05

   

0.04

   

0.11

   

0.09

 Tradename write-offs (3)

 

-

   

-

   

1.88

   

-

 Tax effect on the above items (4)

 

(0.01)

   

(0.01)

   

(0.50)

   

(0.03)

           Adjusted diluted earnings per share

$

0.85

 

$

0.67

 

$

1.62

 

$

1.21

   

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

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 
 

Three Months Ended October 31, 2018

 

Executive Search

                       
 

North
America

 

EMEA

 

Asia
Pacific

 

Latin
America

 

Subtotal

 

Advisory

 

RPO and
Professional
Search

 

Corporate

 

Consolidated

                                                     

Fee revenue

$

115,863

 

$

44,928

 

$

27,936

 

$

8,907

 

$

197,634

 

$

217,089

 

$

80,482

 

$

-

 

$

495,205

Total revenue

$

119,322

 

$

45,636

 

$

28,146

 

$

8,912

 

$

202,016

 

$

221,419

 

$

83,358

 

$

-

 

$

506,793

                                                     

Net income attributable to Korn/Ferry International

                                               

$

46,034

Net income attributable to noncontrolling interest

                                                 

1,283

Other loss, net

                                                 

4,600

Interest expense, net

                                                 

4,337

Equity in earnings of unconsolidated subsidiaries, net

                                                 

(100)

Income tax provision

                                                 

14,833

Operating income (loss)

$

35,328

 

$

7,319

 

$

6,767

 

$

2,053

 

$

51,467

 

$

29,426

 

$

12,516

 

$

(22,422)

   

70,987

Depreciation and amortization

 

968

   

95

   

375

   

101

   

1,539

   

6,964

   

761

   

1,754

   

11,018

Other (loss) income, net

 

(4,081)

   

22

   

77

   

93

   

(3,889)

   

265

   

(79)

   

(897)

   

(4,600)

Equity in earnings of unconsolidated subsidiaries, net

 

100

   

-

   

-

   

-

   

100

   

-

   

-

   

-

   

100

EBITDA

 

32,315

   

7,436

   

7,219

   

2,247

   

49,217

   

36,655

   

13,198

   

(21,565)

   

77,505

EBITDA margin

 

27.9%

   

16.6%

   

25.8%

   

25.2%

   

24.9%

   

16.9%

   

16.4%

         

15.7%

                                                     

Integration/acquisition costs

 

-

   

-

   

-

   

-

   

-

   

2,755

   

-

   

80

   

2,835

Adjusted EBITDA

$

32,315

 

$

7,436

 

$

7,219

 

$

2,247

 

$

49,217

 

$

39,410

 

$

13,198

 

$

(21,485)

 

$

80,340

Adjusted EBITDA margin

 

27.9%

   

16.6%

   

25.8%

   

25.2%

   

24.9%

   

18.2%

   

16.4%

         

16.2%

                                                     
 

Three Months Ended October 31, 2017

 

Executive Search

                       
 

North
America

 

EMEA

 

Asia
Pacific

 

Latin
America

 

Subtotal

 

Advisory

 

RPO and
Professional
Search

 

Corporate

 

Consolidated

                                                     

Fee revenue

$

101,544

 

$

41,346

 

$

25,912

 

$

7,964

 

$

176,766

 

$

199,953

 

$

66,299

 

$

-

 

$

443,018

Total revenue

$

104,329

 

$

42,073

 

$

26,187

 

$

7,994

 

$

180,583

 

$

203,836

 

$

71,049

 

$

-

 

$

455,468

                                                     

Net income attributable to Korn/Ferry International

                                               

$

36,331

Net income attributable to noncontrolling interest

                                                 

401

Other income, net

                                                 

(3,447)

Interest expense, net

                                                 

3,624

Equity in earnings of unconsolidated subsidiaries, net

                                                 

(60)

Income tax provision

                                                 

15,619

Operating income (loss)

$

23,039

 

$

6,345

 

$

4,381

 

$

1,527

 

$

35,292

 

$

26,347

 

$

9,418

 

$

(18,589)

   

52,468

Depreciation and amortization

 

984

   

459

   

371

   

111

   

1,925

   

8,143

   

784

   

1,595

   

12,447

Other income, net

 

290

   

43

   

94

   

39

   

466

   

455

   

-

   

2,526

   

3,447

Equity in earnings of unconsolidated subsidiaries, net

 

60

   

-

   

-

   

-

   

60

   

-

   

-

   

-

   

60

EBITDA

 

24,373

   

6,847

   

4,846

   

1,677

   

37,743

   

34,945

   

10,202

   

(14,468)

   

68,422

EBITDA margin

 

24.0%

   

16.6%

   

18.7%

   

21.1%

   

21.4%

   

17.5%

   

15.4%

         

15.4%

                                                     

Restructuring (recoveries) charges, net

 

-

   

-

   

273

   

-

   

273

   

(481)

   

6

   

-

   

(202)

Integration/acquisition costs

 

-

   

-

   

-

   

-

   

-

   

2,313

   

-

   

80

   

2,393

Adjusted EBITDA

$

24,373

 

$

6,847

 

$

5,119

 

$

1,677

 

$

38,016

 

$

36,777

 

$

10,208

 

$

(14,388)

 

$

70,613

Adjusted EBITDA margin

 

24.0%

   

16.6%

   

19.8%

   

21.1%

   

21.5%

   

18.4%

   

15.4%

         

15.9%

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 
 

Six Months Ended October 31, 2018

 

Executive Search

                       
 

North
America

 

EMEA

 

Asia
Pacific

 

Latin
America

 

Subtotal

 

Advisory

 

RPO and
Professional
Search

 

Corporate

 

Consolidated