Investor Relations

Press Release

Korn Ferry Announces Second Quarter Fiscal 2020 Results of Operations

December 5, 2019

LOS ANGELES, Dec. 5, 2019 /PRNewswire/ --

Highlights

  • Korn Ferry reports fee revenue of $492.4 million in Q2 FY'20.
  • Net income attributable to Korn Ferry was $42.8 million in Q2 FY'20.
  • Operating income was $61.9 million in Q2 FY'20 with an operating margin of 12.6%. Adjusted EBITDA was $78.3 million with Adjusted EBITDA margin of 15.9%.
  • Q2 FY'20 diluted earnings per share and adjusted diluted earnings per share was $0.77 and $0.81, respectively.
  • The Company continued with its balanced approach to capital allocation, buying back 1.3 million shares or $49.2 million of stock during the quarter and declaring a quarterly dividend of $0.10 per share on December 4, 2019 payable on January 15, 2020 to stockholders of record on December 20, 2019.

Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced second quarter fee revenue of $492.4 million.  Second quarter diluted earnings per share was $0.77 and Adjusted diluted earnings per share was $0.81.  Adjusted diluted earnings per share for the second quarter excludes $2.6 million, or $0.04 per share, related to integration/acquisition costs associated with the recently completed acquisition of Miller Heiman Group, AchieveForum and Strategy Execution.

"For Korn Ferry's recently completed second quarter, we generated fee revenue of approximately $492 million (down 1% using actual rates; up 1% on a constant currency basis) and consistent profitability with an Adjusted EBITDA margin of almost 16%.  Despite the confused socio-political climate, we continued to have a long-term balanced approach to capital deployment, acquiring three leadership development companies while repurchasing almost $50 million of stock during the quarter in addition to our normal quarterly dividend," said Gary D. Burnison, CEO, Korn Ferry.

"We have historically only focused on a 10 percent subset of the $300 billion market for learning and development. The recent acquisitions of Miller Heiman, Strategy Execution and AchieveForum add professional development capabilities that will leverage our Korn Ferry Digital platform, tapping a much broader market opportunity.  Last month we celebrated our 50th anniversary, capping an unprecedented moment in Korn Ferry's history as the preeminent global organizational consulting firm.  As our recent acquisitions attest, we continue to evolve our business to help clients synchronize their strategy, operations and talent.  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'20

 

FY'19

 

FY'20

 

FY'19

Fee revenue

$

492.4

 

$

495.2

 

$

976.9

 

$

960.8

Total revenue

$

504.2

 

$

506.8

 

$

1,000.4

 

$

985.2

Operating income

$

61.9

 

$

71.0

 

$

122.2

 

$

15.9

Operating margin

 

12.6%

   

14.3%

   

12.5%

   

1.7%

Net income attributable to Korn Ferry

$

42.8

 

$

46.0

 

$

85.8

 

$

7.4

Basic earnings per share

$

0.78

 

$

0.82

 

$

1.54

 

$

0.13

Diluted earnings per share

$

0.77

 

$

0.81

 

$

1.54

 

$

0.13

 

EBITDA Results (b):

Second Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

EBITDA

$

75.7

 

$

77.5

 

$

150.7

 

$

38.6

EBITDA margin

 

15.4%

   

15.7%

   

15.4%

   

4.0%

 

Adjusted Results (c):

Second Quarter

 

Year to Date

         

FY'20

 

FY'19

 

FY'20

 

FY'19

Adjusted EBITDA (b)

$

78.3

 

$

80.3

 

$

153.3

 

$

151.1

Adjusted EBITDA margin (b)

 

15.9%

   

16.2%

   

15.7%

   

15.7%

Adjusted net income attributable to Korn Ferry

$

44.8

 

$

48.2

 

$

87.7

 

$

92.4

Adjusted basic earnings per share

$

0.81

 

$

0.86

 

$

1.58

 

$

1.65

Adjusted diluted earnings per share

$

0.81

 

$

0.85

 

$

1.57

 

$

1.62

________________________

(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 and integration/acquisition costs.  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'20

 

FY'19

 

FY'20

 

FY'19

Tradename write-offs

$

 

$

 

$

 

$

106.6

Integration/acquisition costs

$

2.6

 

$

2.8

 

$

2.6

 

$

5.9

Fee revenue was $492.4 million in Q2 FY'20, a decrease of 1% (1% increase on a constant currency basis) compared to Q2 FY'19.  The decrease in fee revenue was due to lower fee revenue in Executive Search and Advisory, partially offset by growth in RPO and Professional Search.

Net income attributable to Korn Ferry was $42.8 million in Q2 FY'20 as compared to $46.0 million in Q2 FY'19.  The decrease in net income attributable to Korn Ferry resulted from a decrease in fee revenue and an increase in general and administrative expenses.

Operating margin was 12.6% in Q2 FY'20 compared to 14.3% in the year-ago quarter.  The decrease in operating margin was primarily due an increase in general and administrative expenses and lower fee revenue.

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

Results by Segment

Selected Advisory Data
(dollars in millions) (a)

 

Second Quarter

 

Year to Date

 
 

FY'20

 

FY'19

 

FY'20

 

FY'19

 

Fee revenue

$

209.8

 

$

217.1

 

$

405.3

 

$

412.5

 

Total revenue

$

213.9

 

$

221.4

 

$

413.2

 

$

421.6

 

Operating income (loss)

$

28.4

 

$

29.4

 

$

54.2

 

$

(53.7)

 

Operating margin

 

13.5%

   

13.6%

   

13.4%

   

(13.0%)

 
                         

Ending number of consultants and execution staff (b)

 

1,776

   

1,636

   

1,776

   

1,636

 

Staff utilization (c)

 

69%

   

67%

   

68%

   

67%

 
   

EBITDA Results (d):

Second Quarter

 

Year to Date

 
 

FY'20

 

FY'19

 

FY'20

 

FY'19

 

EBITDA

$

37.0

 

$

36.7

 

$

71.5

 

$

(38.4)

 

EBITDA margin

 

17.6%

   

16.9%

   

17.6%

   

(9.3%)

 
   

Adjusted Results (e):

Second Quarter

 

Year to Date

 
         

FY'20

 

FY'19

 

FY'20

 

FY'19

 

Adjusted EBITDA (d)

$

37.0

 

$

39.4

 

$

71.5

 

$

73.9

 

Adjusted EBITDA margin (d)

 

17.6%

   

18.2%

   

17.6%

   

17.9%

 

________________________

 

(a)  

Numbers may not total due to rounding.

 

(b)

Represents number of employees originating, delivering and executing advisory 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'20

 

FY'19

 

FY'20

 

FY'19

 

Tradename write-offs

$

 

$

 

$

 

$

106.6

 

Integration/acquisition costs

$

 

$

2.8

 

$

 

$

5.8

 
 

Fee revenue was $209.8 million in Q2 FY'20 compared to $217.1 million in Q2 FY'19, a decrease of $7.3 million or 3% (down 1% on a constant currency basis). 

Operating income was $28.4 million in Q2 FY'20 with an operating margin of 13.5% compared to $29.4 million and an operating margin of 13.6%, respectively, in the year-ago quarter.

Adjusted EBITDA was $37.0 million in Q2 FY'20 with an Adjusted EBITDA margin of 17.6% compared to $39.4 million and 18.2%, respectively, in the year-ago quarter.

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

   

Second Quarter

 

Year to Date

   

FY'20

 

FY'19

 

FY'20

 

FY'19

Fee revenue

 

$

187.9

 

$

197.6

 

$

381.1

 

$

390.6

Total revenue

 

$

192.0

 

$

202.0

 

$

390.0

 

$

400.1

Operating income

 

$

41.2

 

$

51.5

 

$

86.9

 

$

92.3

Operating margin

   

21.9%

   

26.0%

   

22.8%

   

23.6%

                         

Ending number of consultants

   

585

   

556

   

585

   

556

Average number of consultants

   

577

   

550

   

575

   

548

Engagements billed

   

3,848

   

3,968

   

6,086

   

6,144

New engagements (b)

   

1,719

   

1,757

   

3,414

   

3,465

EBITDA and Adjusted Results (c):

 

Second Quarter

 

Year to Date

   

FY'20

 

FY'19

 

FY'20

 

FY'19

EBITDA and Adjusted EBITDA

 

$

44.0

 

$

49.2

 

$

92.9

 

$

96.0

EBITDA and Adjusted EBITDA margin

   

23.4%

   

24.9%

   

24.4%

   

24.6%

________________________

(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).

Fee revenue was $187.9 million and $197.6 million in Q2 FY'20 and Q2 FY'19, respectively, a decrease of $9.7 million or 5% (3% decrease on a constant currency basis).  The decrease in fee revenue was attributable to a decline in fee revenue in all regions.

Operating income was $41.2 million in Q2 FY'20 compared to $51.5 million in Q2 FY'19.  Operating margin was 21.9% in Q2 FY'20 compared to 26.0% in the year-ago quarter.  The decrease in operating income was mainly due to a decrease in fee revenue.

EBITDA was $44.0 million in Q2 FY'20 with an EBITDA margin of 23.4% compared to $49.2 million and 24.9%, respectively, in the year-ago quarter, mainly due to a decline in fee revenue.

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

   

Second Quarter

 

Year to Date

   

FY'20

 

FY'19

 

FY'20

 

FY'19

Fee revenue

 

$

94.8

 

$

80.5

 

$

190.6

 

$

157.8

Total revenue

 

$

98.3

 

$

83.4

 

$

197.2

 

$

163.5

Operating income

 

$

15.1

 

$

12.5

 

$

30.1

 

$

24.2

Operating margin

   

15.9%

   

15.6%

   

15.8%

   

15.3%

                         

Engagements billed (b)

   

1,441

   

1,338

   

2,274

   

2,134

New engagements (c)

   

693

   

731

   

1,460

   

1,502

 

EBITDA and Adjusted Results (d):

 

Second Quarter

 

Year to Date

   

FY'20

 

FY'19

 

FY'20

 

FY'19

EBITDA and Adjusted EBITDA

 

$

16.1

 

$

13.2

 

$

32.2

 

$

25.7

EBITDA and Adjusted EBITDA margin

   

17.0%

   

16.4%

   

16.9%

   

16.3%

________________________

(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 $94.8 million in Q2 FY'20, an increase of $14.3 million or 18% (20% increase on a constant currency basis), compared to the year-ago quarter.  The higher fee revenue was primarily driven by an increase in fee revenue in recruitment process outsourcing and professional search of $11.6 million and $2.7 million, respectively, in Q2 FY'20 compared to Q2 FY'19.

Operating income was $15.1 million in Q2 FY'20, an increase of $2.6 million compared to Q2 FY'19 operating income of $12.5 million.  Operating margin was 15.9% in the current quarter compared to 15.6% in the year-ago quarter.  The increase in operating income was due to higher fee revenue in Q2 FY'20 compared to Q2 FY'19, partially offset by an increase in compensation and benefits expense driven by a 28% increase in average headcount.

EBITDA was $16.1 million during Q2 FY'20, an increase of $2.9 million compared to Q2 FY'19.  EBITDA margin was 17.0% in Q2 FY'20 and 16.4% in Q2 FY'19.

Outlook

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

  • Q3 FY'20 fee revenue is expected to be in the range of $490 million and $510 million; and
  • Q3 FY'20 diluted earnings per share is expected to range between $0.35 to $0.52.

On a consolidated adjusted basis:

  • Q3 FY'20 adjusted diluted earnings per share is expected to be in the range from $0.70 to $0.78.

 

 

Q3 FY'20

Earnings Per Share Outlook (1)

 

Low

 

High

           

Consolidated diluted earnings per share

$

0.35

 

$

0.52

Restructuring charges, net

 

0.40

   

0.32

Integration/acquisition costs

 

0.06

   

0.03

Tax rate impact

 

(0.11)

   

(0.09)

Consolidated Adjusted diluted earnings per share

$

0.70

 

$

0.78

_______________________

 (1)

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

Earnings Conference Call Webcast

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

 

About Korn Ferry

Korn Ferry is 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 and costs of attracting and retaining qualified and experienced consultants, our ability to maintain relationships with customers and suppliers and retain key employees, maintaining our brand name and professional reputation, potential legal liability and regulatory developments, the portability of client relationships, consolidation of the industries we serve, 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, dependence on third parties for the execution of critical functions, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, technical guidance relating to the Tax Act, impairment of goodwill and other intangible assets, deferred tax assets that we may not be able to use, our indebtedness, the phase-out of the London Interbank Offered Rate, expansion of social media platforms, seasonality, ability to effect acquisition and integrate recently acquired companies, including those of Miller Heiman Group, AchieveForum, and Strategy Execution (collectively, the "acquired companies"); the ability to recognize the anticipated benefits of the acquisition of the acquired companies; the costs related to the acquisition of the companies; 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 integration/acquisition costs and tradename write-offs, net of income tax effect;
  • Adjusted basic and diluted earnings per share, adjusted to exclude integration/acquisition costs and tradename write-offs, net of income tax effect; and in the case of the outlook section, also adjusted for restructuring charges, net and tax rate impact;
  • Constant currency (calculated using a quarterly average) percentages that represent the percentage change that would have resulted had exchange rates in the prior period been the same as those in effect in the current period;
  • EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin; and
  • Adjusted EBITDA, which is EBITDA further adjusted to exclude integration/acquisition costs 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 that may not be indicative of Korn Ferry's ongoing operating results.  These non-GAAP financial measures are performance measures and are not indicative of the liquidity of Korn Ferry.  These charges represent 1) costs we incurred to acquire and integrate a portion of our Advisory business and 2) 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 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. 

[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,

 

2019

 

2018

 

2019

 

2018

                       
       

(unaudited)

     

 Fee revenue

$

492,389

 

$

495,205

 

$

976,938

 

$

960,773

 Reimbursed out-of-pocket engagement expenses

 

11,788

   

11,588

   

23,437

   

24,382

           Total revenue

 

504,177

   

506,793

   

1,000,375

   

985,155

                       

 Compensation and benefits

 

337,382

   

335,835

   

665,878

   

657,740

 General and administrative expenses

 

62,009

   

57,738

   

127,816

   

226,462

 Reimbursed expenses

 

11,788

   

11,588

   

23,437

   

24,382

 Cost of services

 

18,414

   

19,627

   

35,549

   

37,954

 Depreciation and amortization

 

12,715

   

11,018

   

25,492

   

22,749

           Total operating expenses

 

442,308

   

435,806

   

878,172

   

969,287

                       

 Operating income

 

61,869

   

70,987

   

122,203

   

15,868

 Other income (loss), net

 

1,133

   

(4,500)

   

2,959

   

20

 Interest expense, net

 

(4,210)

   

(4,337)

   

(8,267)

   

(8,440)

         Income before provision (benefit) for income taxes

 

58,792

   

62,150

   

116,895

   

7,448

 Income tax provision (benefit)

 

15,760

   

14,833

   

30,213

   

(1,277)

 Net income

 

43,032

   

47,317

   

86,682

   

8,725

           Net income attributable to noncontrolling interest

 

(228)

   

(1,283)

   

(927)

   

(1,302)

 Net income attributable to Korn Ferry

$

42,804

 

$

46,034

 

$

85,755

 

$

7,423

                       

 Earnings per common share attributable to Korn Ferry:

                     

      Basic

$

0.78

 

$

0.82

 

$

1.54

 

$

0.13

      Diluted

$

0.77

 

$

0.81

 

$

1.54

 

$

0.13

                       

 Weighted-average common shares outstanding:

                     

      Basic

 

54,568

   

55,461

   

54,917

   

55,420

      Diluted

 

54,716

   

56,239

   

55,170

   

56,306

                       

 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,

 

2019

       

2018

 

% Change

 

2019

       

2018

 

% Change

                                               

Fee revenue:

                                             

Advisory

$

209,760

       

$

217,089

   

(3.4%)

 

$

405,286

       

$

412,464

   

(1.7%)

Executive Search:

                                             
 

North America

 

113,818

         

115,863

   

(1.8%)

   

225,540

         

227,960

   

(1.1%)

 

EMEA

 

39,821

         

44,928

   

(11.4%)

   

86,351

         

91,582

   

(5.7%)

 

Asia Pacific

 

25,944

         

27,936

   

(7.1%)

   

53,306

         

54,231

   

(1.7%)

 

Latin America

 

8,272

         

8,907

   

(7.1%)

   

15,857

         

16,785

   

(5.5%)

Total Executive Search

 

187,855

         

197,634

   

(4.9%)

   

381,054

         

390,558

   

(2.4%)

RPO and Professional Search

 

94,774

         

80,482

   

17.8%

   

190,598

         

157,751

   

20.8%

 

Total fee revenue

 

492,389

         

495,205

   

(0.6%)

   

976,938

         

960,773

   

1.7%

Reimbursed out-of-pocket engagement expenses

 

11,788

         

11,588

   

1.7%

   

23,437

         

24,382

   

(3.9%)

 

Total revenue

$

504,177

       

$

506,793

   

(0.5%)

 

$

1,000,375

       

$

985,155

   

1.5%

                                                 

Operating income (loss):

     

Margin

       

Margin

       

Margin

       

Margin

Advisory

$

28,391

   

13.5%

 

$

29,426

   

13.6%

 

$

54,182

   

13.4%

 

$

(53,653)

   

(13.0%)

Executive Search:

                                             
 

North America

 

28,124

   

24.7%

   

35,328

   

30.5%

   

58,446

   

25.9%

   

61,842

   

27.1%

 

EMEA

 

6,511

   

16.4%

   

7,319

   

16.3%

   

13,822

   

16.0%

   

14,288

   

15.6%

 

Asia Pacific

 

5,803

   

22.4%

   

6,767

   

24.2%

   

12,796

   

24.0%

   

13,408

   

24.7%

 

Latin America

 

791

   

9.6%

   

2,053

   

23.0%

   

1,801

   

11.4%

   

2,807

   

16.7%

Total Executive Search

 

41,229

   

21.9%

   

51,467

   

26.0%

   

86,865

   

22.8%

   

92,345

   

23.6%

RPO and Professional Search

 

15,094

   

15.9%

   

12,516

   

15.6%

   

30,135

   

15.8%

   

24,161

   

15.3%

Corporate

 

(22,845)

         

(22,422)

         

(48,979)

         

(46,985)

     
 

 Total operating income

$

61,869

   

12.6%

 

$

70,987

   

14.3%

 

$

122,203

   

12.5%

 

$

15,868

   

1.7%

 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 
 

October 31,

 

April 30,

 

2019

 

2019

 

(unaudited)

     

ASSETS

         

Cash and cash equivalents

$

464,423

 

$

626,360

Marketable securities

 

6,508

   

8,288

Receivables due from clients, net of allowance for doubtful accounts of $23,165 and $21,582 at October 31, 2019 and April 30, 2019, respectively

 

458,263

   

404,857

Income taxes and other receivables

 

40,506

   

26,767

Unearned compensation

 

48,195

   

42,003

Prepaid expenses and other assets

 

31,603

   

28,535

Total current assets

 

1,049,498

   

1,136,810

           

Marketable securities, non-current

 

138,055

   

132,463

Property and equipment, net

 

140,685

   

131,505

Operating lease right-of-use assets, net

 

214,421

   

-

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

 

128,626

   

126,000

Deferred income taxes

 

36,779

   

43,220

Goodwill

 

578,307

   

578,298

Intangible assets, net

 

76,288

   

82,948

Unearned compensation, non-current

 

101,308

   

80,924

Investments and other assets

 

22,314

   

22,684

Total assets

$

2,486,281

 

$

2,334,852

           

LIABILITIES AND STOCKHOLDERS' EQUITY

         

Accounts payable

$

30,599

 

$

39,156

Income taxes payable

 

15,018

   

21,145

Compensation and benefits payable

 

198,284

   

328,610

Operating lease liability, current

 

48,493

   

-

Other accrued liabilities

 

158,071

   

162,047

Total current liabilities

 

450,465

   

550,958

           

Deferred compensation and other retirement plans

 

274,241

   

257,635

Operating lease liability, non-current

 

200,266

   

-

Long-term debt

 

273,310

   

222,878

Deferred tax liabilities

 

1,064

   

1,103

Other liabilities

 

28,444

   

58,891

Total liabilities

 

1,227,790

   

1,091,465

           

Stockholders' equity

         

Common stock: $0.01 par value, 150,000 shares authorized, 73,120 and 72,442 shares issued and 55,315 and 56,431 shares outstanding at October 31, 2019 and April 30, 2019, respectively

 

601,686

   

656,463

Retained earnings

 

734,891

   

660,845

Accumulated other comprehensive loss, net

 

(80,646)

   

(76,652)

Total Korn Ferry stockholders' equity

 

1,255,931

   

1,240,656

Noncontrolling interest

 

2,560

   

2,731

Total stockholders' equity

 

1,258,491

   

1,243,387

Total liabilities and stockholders' equity

$

2,486,281

 

$

2,334,852

 

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,

 

2019

 

2018

 

2019

 

2018

                       
       

(unaudited)

     

 Net income attributable to Korn Ferry

$

42,804

 

$

46,034

 

$

85,755

 

$

7,423

 Net income attributable to non-controlling interest

 

228

   

1,283

   

927

   

1,302

 Net income

 

43,032

   

47,317

   

86,682

   

8,725

 Income tax provision (benefit)

 

15,760

   

14,833

   

30,213

   

(1,277)

 Income before provision (benefit) for income taxes

 

58,792

   

62,150

   

116,895

   

7,448

 Other (income) loss, net

 

(1,133)

   

4,500

   

(2,959)

   

(20)

 Interest expense, net

 

4,210

   

4,337

   

8,267

   

8,440

 Operating income

 

61,869

   

70,987

   

122,203

   

15,868

 Depreciation and amortization

 

12,715

   

11,018

   

25,492

   

22,749

 Other income (loss), net

 

1,133

   

(4,500)

   

2,959

   

20

         EBITDA

 

75,717

   

77,505

   

150,654

   

38,637

 Integration/acquisition costs (1)

 

2,615

   

2,835

   

2,615

   

5,942

 Tradename write-offs (2)

 

-

   

-

   

-

   

106,555

         Adjusted EBITDA

$

78,332

 

$

80,340

 

$

153,269

 

$

151,134

                       

 Operating margin

 

12.6%

   

14.3%

   

12.5%

   

1.7%

 Depreciation and amortization

 

2.6%

   

2.3%

   

2.6%

   

2.3%

 Other income (loss), net

 

0.2%

   

(0.9%)

   

0.3%

   

-

         EBITDA margin

 

15.4%

   

15.7%

   

15.4%

   

4.0%

 Integration/acquisition costs (1)

 

0.5%

   

0.5%

   

0.3%

   

0.6%

 Tradename write-offs (2)

 

-

   

-

   

-

   

11.1%

         Adjusted EBITDA margin

 

15.9%

   

16.2%

   

15.7%

   

15.7%

                       

 Net income attributable to Korn Ferry

$

42,804

 

$

46,034

 

$

85,755

 

$

7,423

 Integration/acquisition costs (1)

 

2,615

   

2,835

   

2,615

   

5,942

 Tradename write-offs (2)

 

-

   

-

   

-

   

106,555

 Tax effect on the adjusted items (3)

 

(668)

   

(634)

   

(668)

   

(27,527)

         Adjusted net income attributable to Korn Ferry

$

44,751

 

$

48,235

 

$

87,702

 

$

92,393

                       

 Basic earnings per common share

$

0.78

 

$

0.82

 

$

1.54

 

$

0.13

 Integration/acquisition costs (1)

 

0.05

   

0.05

   

0.05

   

0.11

 Tradename write-offs (2)

 

-

   

-

   

-

   

1.92

 Tax effect on the adjusted items (3)

 

(0.02)

   

(0.01)

   

(0.01)

   

(0.51)

         Adjusted basic earnings per share

$

0.81

 

$

0.86

 

$

1.58

 

$

1.65

                       

 Diluted earnings per common share

$

0.77

 

$

0.81

 

$

1.54

 

$

0.13

 Integration/acquisition costs (1)

 

0.05

   

0.05

   

0.04

   

0.11

 Tradename write-offs (2)

 

-

   

-

   

-

   

1.88

 Tax effect on the adjusted items (3)

 

(0.01)

   

(0.01)

   

(0.01)

   

(0.50)

         Adjusted diluted earnings per share

$

0.81

 

$

0.85

 

$

1.57

 

$

1.62

                       
                       

Explanation of Non-GAAP Adjustments

(1) Costs associated with completing acquisitions, such as legal and professional fees, retention awards and the on-going integration expenses to combine the companies.

(2) The Company implemented 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 implemented 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.

(3) Tax effect on 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, 2019

       

Executive Search

                 
 

Advisory

 

North America

 

EMEA

 

Asia Pacific

 

Latin America

 

Subtotal

 

RPO and Professional Search

 

Corporate

 

Consolidated

                                                     

Fee revenue

$

209,760

 

$

113,818

 

$

39,821

 

$

25,944

 

$

8,272

 

$

187,855

 

$

94,774

 

$

-

 

$

492,389

Total revenue

$

213,922

 

$

117,077

 

$

40,441

 

$

26,168

 

$

8,273

 

$

191,959

 

$

98,296

 

$

-

 

$

504,177

                                                     

Net income attributable to Korn Ferry

                                               

$

42,804

Net income attributable to noncontrolling interest

                                                 

228

Other income, net

                                                 

(1,133)

Interest expense, net

                                                 

4,210

Income tax provision

                                                 

15,760

Operating income (loss)

$

28,391

 

$

28,124

 

$

6,511

 

$

5,803

 

$

791

 

$

41,229

 

$

15,094

 

$

(22,845)

   

61,869

Depreciation and amortization

 

8,042

   

869

   

450

   

329

   

315

   

1,963

   

990

   

1,720

   

12,715

Other income (loss), net

 

520

   

637

   

107

   

72

   

30

   

846

   

54

   

(287)

   

1,133

EBITDA

 

36,953

   

29,630

   

7,068

   

6,204

   

1,136

   

44,038

   

16,138

   

(21,412)

   

75,717

EBITDA margin

 

17.6%

   

26.0%

   

17.7%

   

23.9%

   

13.7%

   

23.4%

   

17.0%

         

15.4%

                                                     

Integration/acquisition costs

 

-

   

-

   

-

   

-

   

-

   

-

   

-

   

2,615

   

2,615

Adjusted EBITDA

$

36,953

 

$

29,630

 

$

7,068

 

$

6,204

 

$

1,136

 

$

44,038

 

$

16,138

 

$

(18,797)

 

$

78,332

Adjusted EBITDA margin

 

17.6%

   

26.0%

   

17.7%

   

23.9%

   

13.7%

   

23.4%

   

17.0%

         

15.9%

                                                     
                                                     
 

Three Months Ended October 31, 2018

       

Executive Search

                 
 

Advisory

 

North America

 

EMEA

 

Asia Pacific

 

Latin America

 

Subtotal

 

RPO and Professional Search

 

Corporate

 

Consolidated

Fee revenue

$

217,089

 

$

115,863

 

$

44,928

 

$

27,936

 

$

8,907

 

$

197,634

 

$

80,482

 

$

-

 

$

495,205

Total revenue

$

221,419

 

$

119,322

 

$

45,636

 

$

28,146

 

$

8,912

 

$

202,016

 

$

83,358

 

$

-

 

$

506,793

                                                     

Net income attributable to Korn Ferry

                                               

$

46,034

Net income attributable to noncontrolling interest

                                                 

1,283

Other loss, net

                                                 

4,500

Interest expense, net

                                                 

4,337

Income tax provision

                                                 

14,833

Operating income (loss)

$

29,426

 

$

35,328

 

$

7,319

 

$

6,767

 

$

2,053

 

$

51,467

 

$

12,516

 

$

(22,422)

   

70,987

Depreciation and amortization

 

6,964

   

968

   

95

   

375

   

101

   

1,539

   

761

   

1,754

   

11,018

Other income (loss), net

 

265

   

(3,981)

   

22

   

77

   

93

   

(3,789)

   

(79)

   

(897)

   

(4,500)

EBITDA

 

36,655

   

32,315

   

7,436

   

7,219

   

2,247

   

49,217

   

13,198

   

(21,565)

   

77,505

EBITDA margin

 

16.9%

   

27.9%

   

16.6%

   

25.8%

   

25.2%

   

24.9%

   

16.4%

         

15.7%

                                                     

Integration/acquisition costs

 

2,755

   

-

   

-

   

-

   

-

   

-

   

-

   

80

   

2,835

Adjusted EBITDA

$

39,410

 

$

32,315

 

$

7,436

 

$

7,219

 

$

2,247

 

$

49,217

 

$

13,198

 

$

(21,485)

 

$

80,340

Adjusted EBITDA margin

 

18.2%

   

27.9%

   

16.6%

   

25.8%

   

25.2%

   

24.9%

   

16.4%

         

16.2%

 

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, 2019

       

Executive Search

           
 

Advisory

 

North America

 

EMEA

 

Asia Pacific

 

Latin America

 

Subtotal

 

RPO and Professional Search

 

Corporate

 

Consolidated

                                                     

Fee revenue

$

405,286

 

$

225,540

 

$

86,351

 

$

53,306

 

$

15,857

 

$

381,054

 

$

190,598

 

$

-

 

$

976,938

Total revenue

$

413,242

 

$

232,523

 

$

87,753

 

$

53,836

 

$

15,860

 

$

389,972

 

$

197,161

 

$

-

 

$

1,000,375

                                                     

Net income attributable to Korn Ferry

                                               

$

85,755

Net income attributable to noncontrolling interest

                                                 

927

Other income, net

                                                 

(2,959)

Interest expense, net

                                                 

8,267

Income tax provision

                                                 

30,213

Operating income (loss)

$

54,182

 

$

58,446

 

$