Investor Relations

Press Release

Korn Ferry Announces Third Quarter Fiscal 2020 Results of Operations

March 10, 2020

LOS ANGELES, March 10, 2020 /PRNewswire/ --

Highlights

  • Korn Ferry reports fee revenue of $515.3 million in Q3 FY'20.
  • Net income attributable to Korn Ferry was $20.0 million in Q3 FY'20.
  • Operating income was $31.6 million in Q3 FY'20 with an operating margin of 6.1%. Adjusted EBITDA was $78.1 million with an Adjusted EBITDA margin of 15.2%.
  • Q3 FY'20 diluted earnings per share and adjusted diluted earnings per share was $0.36 and $0.75, respectively.
  • During the third quarter, the Company completed the acquisition of Miller Heiman Group, AchieveForum and Strategy Execution ("acquired companies") that are part of a newly branded reporting segment­— Korn Ferry Digital (formerly the Products Group).
  • During the third quarter, the Company renegotiated its existing revolving line of credit on more favorable terms and conditions and repaid the outstanding balance using proceeds from the issuance of $400 million, 4.625% Senior Notes.
  • The Company continued with its balanced approach to capital allocation, buying back 0.2 million shares or $6.1 million of stock during the quarter and declaring a quarterly dividend of $0.10 per share on March 10, 2020 payable on April 15, 2020 to stockholders of record on March 26, 2020.

Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced third quarter fee revenue of $515.3 million.  Third quarter diluted earnings per share was $0.36 and adjusted diluted earnings per share was $0.75.  Adjusted diluted earnings per share for the third quarter excludes an aggregate of $27.4 million, or $0.39 per share, of restructuring charges, net, and integration/acquisition costs, both associated with the recently completed acquisition of the acquired companies, separation costs and debt refinancing costs.

"For Korn Ferry's recently completed third quarter, we generated fee revenue of approximately $515 million (up 8.6 percent using actual rates; up 9.4 percent on a constant currency basis) with net income attributable to Korn Ferry of $20 million and solid Adjusted EBITDA of $78 million," said Gary D. Burnison, CEO, Korn Ferry.

"Organically and through M&A, our global scope and capability continues to expand.  Today Korn Ferry is much more diversified and balanced, with almost two-thirds of our fee revenue generated outside of our historical core Executive Search business," added Burnison.  "We believe the expansion of our business into larger addressable markets offers higher growth potential and more durable and visible revenue streams.  More recently, the acquisitions of Miller Heiman, Strategy Execution and AchieveForum have added professional development and upskill capabilities to our Korn Ferry Digital business, giving us a bigger presence in the learning and development space.  Indeed, today's Korn Ferry is the firm that synchronizes a client's talent and strategy which will enable individuals, teams and organizations to exceed their potential. Finally, as we manage our way through the global COVID-19 situation, our unwavering commitment to protecting the health and safety of our colleagues, as well as our focus on our clients' success remain, as always, our top priorities."

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

 

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

Fee revenue

$

515.3

 

$

474.5

 

$

1,492.3

 

$

1,435.3

Total revenue

$

528.0

 

$

486.2

 

$

1,528.4

 

$

1,471.3

Operating income

$

31.6

 

$

62.7

 

$

153.8

 

$

78.6

Operating margin

 

6.1%

   

13.2%

   

10.3%

   

5.5%

Net income attributable to Korn Ferry

$

20.0

 

$

45.0

 

$

105.7

 

$

52.4

Basic earnings per share

$

0.37

 

$

0.81

 

$

1.92

 

$

0.94

Diluted earnings per share

$

0.36

 

$

0.80

 

$

1.90

 

$

0.92

                       
                       

EBITDA Results (b):

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

EBITDA

$

51.5

 

$

76.9

 

$

202.2

 

$

115.5

EBITDA margin

 

10.0%

   

16.2%

   

13.5%

   

8.0%

                       
                       

Adjusted Results (c):

Third Quarter

 

Year to Date

           

FY'20

 

FY'19

 

FY'20

 

FY'19

Adjusted EBITDA (b)

$

78.1

 

$

77.7

 

$

231.4

 

$

228.8

Adjusted EBITDA margin (b)

 

15.2%

   

16.4%

   

15.5%

   

15.9%

Adjusted net income attributable to Korn Ferry

$

41.0

 

$

45.8

 

$

128.7

 

$

138.2

Adjusted basic earnings per share

$

0.75

 

$

0.82

 

$

2.33

 

$

2.47

Adjusted diluted earnings per share

$

0.75

 

$

0.81

 

$

2.31

 

$

2.43

___________

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

   
   
           

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

Integration/acquisition costs

$

6.7

 

$

0.8

 

$

9.3

 

$

6.7

Restructuring charges, net

$

18.1

 

$

 

$

18.1

 

$

Separation costs

$

1.8

 

$

 

$

1.8

 

$

Tradename write-offs

$

 

$

 

$

 

$

106.6

Debt refinancing costs

$

0.8

 

$

 

$

0.8

 

$

Fee revenue was $515.3 million in Q3 FY'20, an increase of 9% (9% increase on a constant currency basis) compared to Q3 FY'19.  The increase in fee revenue was primarily due to the fee revenue generated by the acquired companies and the increase in fee revenue in RPO and Professional Search, partially offset by a decline in Executive Search.

Net income attributable to Korn Ferry was $20.0 million in Q3 FY'20 as compared to $45.0 million in Q3 FY'19.  The decrease in net income attributable to Korn Ferry was primarily due to restructuring charges, net and integration/acquisition costs, both associated with the acquisition of the acquired companies, management separation costs, and an increase in interest expense related to the newly issued 4.625% Senior Notes.

Operating margin was 6.1% in Q3 FY'20 compared to 13.2% in the year-ago quarter. 

Adjusted EBITDA margin was 15.2%, compared to 16.4% in the year-ago quarter.

Results by Segment

Selected Consulting Data(a)
(dollars in millions) (b)

 

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

Fee revenue

$

140.5

 

$

139.0

 

$

422.1

 

$

424.0

Total revenue

$

144.3

 

$

143.2

 

$

433.8

 

$

437.2

Operating income (loss)

$

2.7

 

$

11.8

 

$

24.3

 

$

(47.4)

Operating margin

 

1.9%

   

8.5%

   

5.8%

   

(11.2%)

                       

Ending number of consultants and execution staff (c)

 

1,792

   

1,832

   

1,792

   

1,832

Hours worked in thousands (d)

 

428

   

406

   

1,344

   

1,263

Average billed rate (e)

$

328

 

$

342

 

$

314

 

$

336

                       
                       

EBITDA Results (f):

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

EBITDA

$

7.6

 

$

16.4

 

$

38.9

 

$

(34.1)

EBITDA margin

 

5.4%

   

11.8%

   

9.2%

   

(8.0%)

                                 
                       

Adjusted Results (g):

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

Adjusted EBITDA (f)

$

18.7

 

$

17.0

 

$

50.0

 

$

48.2

Adjusted EBITDA margin (f)

 

13.3%

   

12.2%

   

11.8%

   

11.4%

 ___________

(a)

In the third quarter of fiscal 2020, the Company changed the composition of its global segments.  Consulting segment represents the consulting business that was previously included in the Advisory segment.  Segment data for Q3 FY'19 and YTD FY19 have been recast to reflect the division of the Advisory segment into the Consulting and Digital segments.

(b)

Numbers may not total due to rounding.

(c)

Represents number of employees originating, delivering and executing consulting services.

(d)

The number of hours worked by consultant and execution staff during the period.

(e)

The amount of fee revenue divided by the number of hours worked by consultants and executive staff.

(f)

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

(g)

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

   
   
           

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

Integration/acquisition costs

$

 

$

0.7

 

$

 

$

5.3

Restructuring charges, net

$

11.1

 

$

 

$

11.1

 

$

Tradename write-offs

$

 

$

 

$

 

$

77.0

Fee revenue was $140.5 million in Q3 FY'20 compared to $139.0 million in Q3 FY'19, an increase of $1.5 million or 1% (up 2% on a constant currency basis).

Operating income was $2.7 million in Q3 FY'20 with an operating margin of 1.9% compared to $11.8 million and an operating margin of 8.5%, respectively, in the year-ago quarter.  The decrease in operating income was primarily due to restructuring charges, net incurred in Q3 FY'20.

Adjusted EBITDA was $18.7 million in Q3 FY'20 with an Adjusted EBITDA margin of 13.3% compared to $17.0 million and 12.2%, respectively, in the year-ago quarter.

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

 

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

Fee revenue

$

99.4

 

$

62.5

 

$

223.1

 

$

190.0

Total revenue

$

100.7

 

$

62.5

 

$

224.4

 

$

190.0

Operating income

$

8.5

 

$

17.5

 

$

41.0

 

$

23.1

Operating margin

 

8.5%

   

28.0%

   

18.4%

   

12.1%

                       

Ending number of consultants

 

464

   

370

   

464

   

370

Subscription & License fee revenue

$

21.3

 

$

14.2

 

$

52.7

 

$

42.6

                       
                       

EBITDA Results (c):

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

EBITDA

$

14.5

 

$

21.0

 

$

54.7

 

$

33.1

EBITDA margin

 

14.6%

   

33.6%

   

24.5%

   

17.4%

       

Adjusted Results (d):

Third Quarter

 

Year to Date

           

FY'20

 

FY'19

 

FY'20

 

FY'19

Adjusted EBITDA (c)

$

25.9

 

$

21.1

 

$

66.1

 

$

63.9

Adjusted EBITDA margin (c)

 

26.0%

   

33.8%

   

29.6%

   

33.6%

 

___________

(a)

In the third quarter of fiscal 2020, the Company changed the composition of its global segments.  Digital segment represents the products business that was previously included in the Advisory segment.  Segment data for Q3 FY'19 and YTD FY19 have been recast to reflect the division of the Advisory segment into the Consulting and Digital segments.

(b)

Numbers may not total due to rounding. 

(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 adjust for the following (see attached reconciliations):

   
   
           

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

Integration/acquisition costs

$

4.3

 

$

0.1

 

$

4.3

 

$

1.3

Restructuring charges, net

$

7.0

 

$

 

$

7.0

 

$

Tradename write-offs

$

 

$

 

$

 

$

29.6

 

 Fee revenue was $99.4 million in Q3 FY'20 compared to $62.5 million in Q3 FY'19, an increase of $36.9 million or 59% (up  61% on a constant currency basis).  The increase in fee revenue was primarily due to fee revenue generated by the acquired companies.

Operating income was $8.5 million in Q3 FY'20 with an operating margin of 8.5% compared to $17.5 million and an operating margin of 28.0% in the year-ago quarter.  The decrease in operating income was due to restructuring charges, net incurred in Q3 FY'20 and an increase in integration/acquisition costs incurred in Q3 FY'20, both associated with the acquisition of the acquired companies, compared to the year-ago quarter.

Adjusted EBITDA was $25.9 million in Q3 FY'20 with an Adjusted EBITDA margin of 26.0% compared to $21.1 million and 33.8%, respectively, in the year-ago quarter.

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

 

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

Fee revenue

$

183.6

 

$

193.4

 

$

564.6

 

$

584.0

Total revenue

$

188.0

 

$

198.0

 

$

578.0

 

$

598.0

Operating income

$

32.7

 

$

44.7

 

$

119.6

 

$

137.0

Operating margin

 

17.8%

   

23.1%

   

21.2%

   

23.5%

                                 

Ending number of consultants

 

582

   

552

   

582

   

552

Average number of consultants

 

583

   

554

   

573

   

546

Engagements billed

 

3,767

   

3,849

   

8,077

   

8,201

New engagements (b)

 

1,565

   

1,608

   

4,835

   

5,073

                       
                       

EBITDA Results (c):

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

EBITDA

$

38.9

 

$

48.2

 

$

131.8

 

$

144.1

EBITDA margin

 

21.2%

   

24.9%

   

23.3%

   

24.7%

                       
                       

Adjusted Results (d):

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

Adjusted EBITDA (c)

$

40.7

 

$

48.2

 

$

133.6

 

$

144.1

Adjusted EBITDA margin (c)

 

22.1%

   

24.9%

   

23.7%

   

24.7%

________

(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 adjust for the following (see attached reconciliations):

   
   
           

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

Separation costs

$

1.8

 

$

 

$

1.8

 

$

Fee revenue was $183.6 million and $193.4 million in Q3 FY'20 and Q3 FY'19, respectively, a decrease of $9.8 million or 5% (5% 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 $32.7 million in Q3 FY'20 compared to $44.7 million in Q3 FY'19.  Operating margin was 17.8% in Q3 FY'20 compared to 23.1% in the year-ago quarter.  The decrease in operating income was mainly due to a decrease in fee revenue and an increase in compensation and benefits expense due to management separation costs incurred in Q3 FY'20.

Adjusted EBITDA was $40.7 million in Q3 FY'20 with an Adjusted EBITDA margin of 22.1% compared to $48.2 million and 24.9%, respectively, in the year-ago quarter.

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

 

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

Fee revenue

$

91.9

 

$

79.6

 

$

282.4

 

$

237.4

Total revenue

$

95.0

 

$

82.5

 

$

292.2

 

$

246.1

Operating income

$

14.1

 

$

12.2

 

$

44.3

 

$

36.3

Operating margin

 

15.4%

   

15.3%

   

15.7%

   

15.3%

                       

Engagements billed (b)

 

1,375

   

1,296

   

3,030

   

2,809

New engagements (c)

 

711

   

652

   

2,171

   

2,154

                       
                       

EBITDA and Adjusted Results (d):

Third Quarter

 

Year to Date

 

FY'20

 

FY'19

 

FY'20

 

FY'19

EBITDA and Adjusted EBITDA

$

15.2

 

$

13.1

 

$

47.5

 

$

38.8

EBITDA and Adjusted EBITDA margin

 

16.6%

   

16.4%

   

16.8%

   

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 $91.9 million in Q3 FY'20, an increase of $12.3 million or 15% (16% 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 $9.1 million and $3.2 million, respectively, in Q3 FY'20 compared to Q3 FY'19.

Operating income was $14.1 million in Q3 FY'20, an increase of $1.9 million compared to Q3 FY'19 operating income of $12.2 million.  Operating margin was 15.4% in the current quarter compared to 15.3% in the year-ago quarter.  The increase in operating income was due to higher fee revenue in Q3 FY'20 compared to Q3 FY'19, partially offset by an increase in compensation and benefits expense driven by a 24% increase in average headcount.

EBITDA was $15.2 million during Q3 FY'20, an increase of $2.1 million compared to Q3 FY'19.  EBITDA margin was 16.6% in Q3 FY'20 and 16.4% in Q3 FY'19.

Outlook

The uncertainty caused by the coronavirus, primarily due to the largescale efforts being taken to contain its continued spread and the number of conflicting and rapidly changing datapoints regarding the impact of the virus on society, has clouded the near-term predictability of our business.  In recent weeks and days, out of an abundance of caution, select governments and companies have implemented social distancing - limiting either travel or in person individual or group face-to-face interaction.  The extent to which further, incremental measures are put in place or additional authoritative bodies adopt such measures is a major unknown.  The measures taken to date will most certainly impact our business for the fiscal fourth quarter and potentially beyond and due to the rapidly changing nature of this crisis, combined with the lack of visibility with respect to further measures to be taken, it is too difficult for us to accurately assess and quantify the impact at this point.  Consequently, we will not be issuing any specific revenue and earnings guidance for the fourth quarter.  We will reassess the suspension of our guidance once we are comfortable that the coronavirus uncertainties have passed.

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 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 as well as the expected benefits of the acquisition of the acquired companies (as defined below, the timing and expected benefits of our recently adopted restructuring plan and the potential negative impact of the coronavirus (COVID-19) outbreak on our business, employees, customers and our ability to provide services in affected regions.  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, the potential negative impact of the coronavirus (COVID-19) outbreak on our business, employees, customers and our ability to provide services in affected regions, expansion of social media platforms, seasonality, ability to effect acquisition and integrate recently acquired companies, including those of Miller Heiman Group, AchieveForum, and Strategy Execution (collectively, the "acquired companies"); the ability to recognize the anticipated benefits of the acquisition of the acquired companies; the costs related to the acquisition of the acquired companies; 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, restructuring charges, separation costs, tradename write-offs, and debt refinancing costs, net of income tax effect;
  • Adjusted basic and diluted earnings per share, adjusted to exclude integration/acquisition costs, restructuring charges, separation costs, tradename write-offs, and debt refinancing costs, net of income tax effect;
  • Constant currency (calculated using a quarterly average) percentages that represent the percentage change that would have resulted had exchange rates in the prior period been the same as those in effect in the current period;
  • EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin; and
  • Adjusted EBITDA, which is EBITDA further adjusted to exclude integration/acquisition costs, restructuring charges, separation 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, which are described in the footnotes in the attached reconciliations, represent 1) costs we incurred to acquire and integrate a portion of our Digital business, 2) charges we incurred to restructure the Company due to acquisition of the acquired companies, 3) separation costs, 4) tradename write-offs associated with the rebranding plan initiated by Korn Ferry and 5) debt refinancing costs.  The use of non-GAAP financial measures facilitates comparisons to Korn Ferry's historical performance.  Korn Ferry includes non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.  Adjusted net income attributable to Korn Ferry, adjusted basic and diluted earnings per share and Adjusted EBITDA, exclude certain charges that management does not consider on-going in nature and allows management and investors to make more meaningful period-to-period comparisons of the Company's operating results.  Management further believes that EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company.  In the case of constant currency percentages, management believes the presentation of such information provides useful supplemental information regarding Korn Ferry's performance as excluding the impact of exchange rate changes on Korn Ferry's financial performance allows investors to make more meaningful period-to-period comparisons of the Company's operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making. 

[Tables attached]

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 
 

Three Months Ended

 

Nine Months Ended

 

January 31,

 

January 31,

 

2020

 

2019

 

2020

 

2019

 

(unaudited)

 Fee revenue

$

515,325

 

$

474,504

 

$

1,492,263

 

$

1,435,277

 Reimbursed out-of-pocket engagement expenses

 

12,654

   

11,668

   

36,091

   

36,050

           Total revenue

 

527,979

   

486,172

   

1,528,354

   

1,471,327

                       

 Compensation and benefits

 

348,597

   

321,835

   

1,014,475

   

979,575

 General and administrative expenses

 

71,355

   

61,179

   

199,171

   

287,641

 Reimbursed expenses

 

12,654

   

11,668

   

36,091

   

36,050

 Cost of services

 

30,822

   

17,066

   

66,371

   

55,020

 Depreciation and amortization

 

14,863

   

11,741

   

40,355

   

34,490

 Restructuring charges, net

 

18,093

   

-

   

18,093

   

-

           Total operating expenses

 

496,384

   

423,489

   

1,374,556

   

1,392,776

                       

 Operating income

 

31,595

   

62,683

   

153,798

   

78,551

 Other income, net

 

5,055

   

2,463

   

8,014

   

2,483

 Interest expense, net

 

(6,919)

   

(4,282)

   

(15,186)

   

(12,722)

         Income before provision for income taxes

 

29,731

   

60,864

   

146,626

   

68,312

 Income tax provision

 

8,775

   

15,420

   

38,988

   

14,143

 Net income

 

20,956

   

45,444

   

107,638

   

54,169

           Net income attributable to noncontrolling interest

 

(963)

   

(480)

   

(1,890)

   

(1,782)

 Net income attributable to Korn Ferry

$

19,993

 

$

44,964

 

$

105,748

 

$

52,387

                       

 Earnings per common share attributable to Korn Ferry:

                     

      Basic

$

0.37

 

$

0.81

 

$

1.92

 

$

0.94

      Diluted

$

0.36

 

$

0.80

 

$

1.90

 

$

0.92

                       

 Weighted-average common shares outstanding:

                     

      Basic

 

53,999

   

55,233

   

54,611

   

55,358

      Diluted

 

54,264

   

55,753

   

55,006

   

56,181

                       

 Cash dividends declared per share:

$

0.10

 

$

0.10

 

$

0.30

 

$

0.30

 

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

 
   

Three Months Ended January 31,

 

Nine Months Ended January 31,

   

2020

     

2019

 

% Change

 

2020

     

2019

 

% Change

                                         

Fee revenue:

                                     

Consulting

$

140,525

     

$

139,029

 

1.1 %

 

$

422,103

     

$

423,958

 

(0.4%)

Digital

 

99,389

       

62,473

 

59.1 %

   

223,097

       

190,008

 

17.4%

Executive Search:

                                     
 

North America

 

106,888

       

114,215

 

(6.4%)

   

332,428

       

342,175

 

(2.8%)

 

EMEA

 

44,301

       

45,940

 

(3.6%)

   

130,652

       

137,522

 

(5.0%)

 

Asia Pacific

 

25,089

       

25,687

 

(2.3%)

   

78,395

       

79,918

 

(1.9%)

 

Latin America

 

7,283

       

7,554

 

(3.6%)

   

23,140

       

24,339

 

(4.9%)

Total Executive Search

 

183,561

       

193,396

 

(5.1%)

   

564,615

       

583,954

 

(3.3%)

RPO and Professional Search

 

91,850

       

79,606

 

15.4%

   

282,448

       

237,357

 

19.0%

 

Total fee revenue

 

515,325

       

474,504

 

8.6%

   

1,492,263

       

1,435,277

 

4.0%

Reimbursed out-of-pocket engagement expenses

 

12,654

       

11,668

 

8.5%

   

36,091

       

36,050

 

0.1%

 

Total revenue

$

527,979

     

$

486,172

 

8.6%

 

$

1,528,354

     

$

1,471,327

 

3.9%

                                         

Operating income (loss):

     

Margin

       

Margin

       

Margin

       

Margin

Consulting

$

2,663

 

1.9%

 

$

11,782

 

8.5%

 

$

24,272

 

5.8%

 

$

(47,431)

 

(11.2%)

Digital

 

8,463

 

8.5%

   

17,497

 

28.0%

   

41,036

 

18.4%

   

23,057

 

12.1%

Executive Search:

                                     
 

North America

 

21,808

 

20.4%

   

30,596

 

26.8%

   

80,254

 

24.1%

   

92,438

 

27.0%

 

EMEA

 

4,644

 

10.5%

   

7,525

 

16.4%

   

18,466

 

14.1%

   

21,813

 

15.9%

 

Asia Pacific

 

5,070

 

20.2%

   

5,929

 

23.1%

   

17,866

 

22.8%

   

19,337

 

24.2%

 

Latin America

 

1,198

 

16.4%

   

653

 

8.6%

   

2,999

 

13.0%

   

3,460

 

14.2%

Total Executive Search

 

32,720

 

17.8%

   

44,703

 

23.1%

   

119,585

 

21.2%

   

137,048

 

23.5%

RPO and Professional Search

 

14,144

 

15.4%

   

12,176

 

15.3%

   

44,279

 

15.7%

   

36,337

 

15.3%

Corporate

 

(26,395)

       

(23,475)

       

(75,374)

       

(70,460)

   
 

 Total operating income

$

31,595

 

6.1%

 

$

62,683

 

13.2%

 

$

153,798

 

10.3%

 

$

78,551

 

5.5%

 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 
 

January 31,

 

April 30,

 

2020

 

2019

 

(unaudited)

     

ASSETS

         

Cash and cash equivalents

$

563,708

 

$

626,360

Marketable securities

 

41,022

   

8,288

Receivables due from clients, net of allowance for doubtful accounts of $25,168 and $21,582 at January 31, 2020 and April 30, 2019, respectively

 

472,261

   

404,857

Income taxes and other receivables

 

38,656

   

26,767

Unearned compensation

 

46,386

   

42,003

Prepaid expenses and other assets

 

35,094

   

28,535

Total current assets

 

1,197,127

   

1,136,810

           

Marketable securities, non-current

 

143,789

   

132,463

Property and equipment, net

 

143,230

   

131,505

Operating lease right-of-use assets, net

 

209,236

   

-

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

 

145,305

   

126,000

Deferred income taxes

 

44,928

   

43,220

Goodwill

 

615,513

   

578,298

Intangible assets, net

 

116,882

   

82,948

Unearned compensation, non-current

 

93,934

   

80,924

Investments and other assets

 

29,705

   

22,684

Total assets

$

2,739,649

 

$

2,334,852

           

LIABILITIES AND STOCKHOLDERS' EQUITY

         

Accounts payable

$

36,044

 

$

39,156

Income taxes payable

 

17,128

   

21,145

Compensation and benefits payable

 

258,789

   

328,610

Operating lease liability, current

 

53,592

   

-

Other accrued liabilities

 

194,838

   

162,047

Total current liabilities

 

560,391

   

550,958

           

Deferred compensation and other retirement plans

 

283,293

   

257,635

Operating lease liability, non-current

 

194,209

   

-

Long-term debt

 

393,986

   

222,878

Deferred tax liabilities

 

837

   

1,103

Other liabilities

 

29,280

   

58,891

Total liabilities

 

1,461,996

   

1,091,465

           

Stockholders' equity

         

Common stock: $0.01 par value, 150,000 shares authorized, 73,210 and 72,442 shares issued and 55,258 and 56,431 shares outstanding at January 31, 2020 and April 30, 2019, respectively

 

604,609

   

656,463

Retained earnings

 

749,301

   

660,845

Accumulated other comprehensive loss, net

 

(78,810)

   

(76,652)

Total Korn Ferry stockholders' equity

 

1,275,100

   

1,240,656

Noncontrolling interest

 

2,553

   

2,731

Total stockholders' equity

 

1,277,653

   

1,243,387

Total liabilities and stockholders' equity

$

2,739,649

 

$

2,334,852

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

 
 

Three Months Ended

 

Nine Months Ended

 

January 31,

 

January 31,

 

2020

 

2019

 

2020

 

2019

 

(unaudited)

 Net income attributable to Korn Ferry

$

19,993

 

$

44,964

 

$

105,748

 

$

52,387

 Net income attributable to non-controlling interest

 

963

   

480

   

1,890

   

1,782

 Net income

 

20,956

   

45,444

   

107,638

   

54,169

 Income tax provision

 

8,775

   

15,420

   

38,988

   

14,143

 Income before provision for income taxes

 

29,731

   

60,864

   

146,626

   

68,312

 Other income, net

 

(5,055)

   

(2,463)

   

(8,014)

   

(2,483)

 Interest expense, net

 

6,919

   

4,282

   

15,186

   

12,722

 Operating income

 

31,595

   

62,683

   

153,798

   

78,551

 Depreciation and amortization

 

14,863

   

11,741

   

40,355

   

34,490

 Other income, net

 

5,055

   

2,463

   

8,014

   

2,483

         EBITDA

 

51,513

   

76,887

   

202,167

   

115,524

 Integration/acquisition costs (1)

 

6,704

   

804

   

9,319

   

6,746

 Restructuring charges, net (2)

 

18,093

   

-

   

18,093

   

-

 Separation costs (3)

 

1,783

   

-

   

1,783

   

-

 Tradename write-offs (4)

 

-

   

-

   

-

   

106,555

         Adjusted EBITDA

$

78,093

 

$

77,691

 

$

231,362

 

$

228,825

                       

 Operating margin

 

6.1%

   

13.2%

   

10.3%

   

5.5%

 Depreciation and amortization

 

2.9%

   

2.5%

   

2.7%

   

2.4%

 Other income, net

 

1.0%

   

0.5%

   

0.5%

   

0.1%

         EBITDA margin

 

10.0%

   

16.2%

   

13.5%

   

8.0%

 Integration/acquisition costs (1)

 

1.3%

   

0.2%

   

0.7%

   

0.5%

 Restructuring charges, net (2)

 

3.5%

   

-

   

1.2%

   

-

 Separation costs (3)

 

0.4%

   

-

   

0.1%

   

-

 Tradename write-offs (4)

 

-

   

-

   

-

   

7.4%

         Adjusted EBITDA margin

 

15.2%

   

16.4%

   

15.5%

   

15.9%

                       

 Net income attributable to Korn Ferry

$

19,993

 

$

44,964

 

$

105,748

 

$

52,387

 Integration/acquisition costs (1)

 

6,704

   

804

   

9,319

   

6,746

 Restructuring charges, net (2)

 

18,093

   

-

   

18,093

   

-

 Separation costs (3)

 

1,783

   

-

   

1,783

   

-

 Tradename write-offs (4)

 

-

   

-

   

-

   

106,555

 Debt refinancing costs (5)

 

828

   

-

   

828

   

-

 Tax effect on the adjusted items (6)

 

(6,451)

   

31

   

(7,119)

   

(27,496)

         Adjusted net income attributable to Korn Ferry

$

40,950

 

$

45,799

 

$

128,652

 

$

138,192

                       

 Basic earnings per common share

$

0.37

 

$

0.81

 

$

1.92

 

$

0.94

 Integration/acquisition costs (1)

 

0.12

   

0.01

   

0.17

   

0.12

 Restructuring charges, net (2)

 

0.34

   

-

   

0.33

   

-

 Separation costs (3)

 

0.03

   

-

   

0.03

   

-

 Tradename write-offs (4)

 

-

   

-

   

-

   

1.92

 Debt refinancing costs (5)

 

0.02

   

-

   

0.02

   

-

 Tax effect on the adjusted items (6)

 

(0.13)

   

-

   

(0.14)

   

(0.51)

         Adjusted basic earnings per share

$

0.75

 

$

0.82

 

$

2.33

 

$

2.47

                       

 Diluted earnings per common share

$

0.36

 

$

0.80

 

$

1.90

 

$

0.92

 Integration/acquisition costs (1)

 

0.12

   

0.01

   

0.17

   

0.12

 Restructuring charges, net (2)

 

0.34

   

-

   

0.33

   

-

 Separation costs (3)

 

0.03

   

-

   

0.03

   

-

 Tradename write-offs (4)

 

-

   

-

   

-

   

1.89

 Debt refinancing costs (5)

 

0.02

   

-

   

0.02

   

-

 Tax effect on the adjusted items (6)

 

(0.12)

   

-

   

(0.14)

   

(0.50)

         Adjusted diluted earnings per share

$

0.75

 

$

0.81

 

$

2.31

 

$

2.43

 

 Explanation of Non-GAAP Adjustments

(1)

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

(2)

Restructuring plan implemented in order to rationalize our cost structure by eliminating redundant positions due to the acquisition of Miller Heiman Group, AchieveForum and Strategy Execution on November 1, 2019.

(3)

Costs associated with certain senior management separation charges.

(4)

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.

(5)

Costs to write-off debt issuance costs and interest rate swap as a result of replacing our prior Credit Agreement with a new senior secured Credit Agreement.

(6)

Tax effect on integration/acquisition costs, restructuring charges, net, separation costs, tradename write-offs and write-off of debt issuance cost.

 

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 January 31, 2020

             

Executive Search

               
 

Consulting

 

Digital

 

North
America

 

EMEA

 

Asia
Pacific

 

Latin
America

 

Subtotal

 

RPO and
Professional
Search

 

Corporate

 

Consolidated

                                                           

Fee revenue

$

140,525

 

$

99,389

 

$

106,888

 

$

44,301

 

$

25,089

 

$

7,283

 

$

183,561

 

$

91,850

 

$

-

 

$

515,325

Total revenue

$

144,298

 

$

100,663

 

$

110,230

 

$

45,077

 

$

25,365

 

$

7,351

 

$

188,023

 

$

94,995

 

$

-

 

$

527,979

                                                           

Net income attributable to Korn Ferry

                                                     

$

19,993

Net income attributable to noncontrolling interest

                                                       

963

Other income, net

                                                       

(5,055)

Interest expense, net

                                                       

6,919

Income tax provision

                                                       

8,775

Operating income (loss)

$

2,663

 

$

8,463

 

$

21,808

 

$

4,644

 

$

5,070

 

$

1,198

 

$

32,720

 

$

14,144

 

$

(26,395)

   

31,595

Depreciation and amortization

 

4,417

   

5,832

   

847

   

422

   

329

   

295

   

1,893

   

979

   

1,742

   

14,863

Other income (loss), net

 

558

   

193

   

3,963

   

29

   

106

   

162

   

4,260

   

88

   

(44)

   

5,055

EBITDA

 

7,638

   

14,488

   

26,618

   

5,095

   

5,505

   

1,655

   

38,873

   

15,211

   

(24,697)

   

51,513

EBITDA margin

 

5.4%

   

14.6%

   

24.9%

   

11.5%

   

21.9%

   

22.7%

   

21.2%

   

16.6%

         

10.0%

                                                           

Integration/acquisition costs

 

-

   

4,332

   

-

   

-

   

-

   

-

   

-

   

-

   

2,372

   

6,704

Restructuring, charges, net

 

11,061

   

7,032

   

-

   

-

   

-

   

-

   

-

   

-

   

-

   

18,093

Separation costs

 

-

   

-

   

-

   

1,783

   

-

   

-

   

1,783

   

-

   

-

   

1,783

Adjusted EBITDA

$

18,699

 

$

25,852

 

$

26,618

 

$

6,878

 

$

5,505

 

$

1,655

 

$

40,656

 

$

15,211

 

$

(22,325)

 

$

78,093

Adjusted EBITDA margin

 

13.3%

   

26.0%

   

24.9%

   

15.5%

   

21.9%

   

22.7%

   

22.1%

   

16.6%