Investor Relations

Press Release

Korn Ferry International Announces Fourth Quarter and Fiscal 2017 Results of Operations

June 20, 2017

LOS ANGELES, June 20, 2017 /PRNewswire/ --

Highlights

  • Korn Ferry reports record fee revenue of $406.1 million in Q4 FY'17, driven by organic growth in Futurestep and the North America region of Executive Search.
  • Korn Ferry reports record annual fee revenue of $1,565.5 million, driven by the Legacy Hay acquisition and organic growth in Futurestep.
  • Operating income was $32.8 million in Q4 FY'17 with an operating margin of 8.1%.  Adjusted EBITDA was $60.1 million with Adjusted EBITDA margin of $14.8%.
  • Q4 FY'17 diluted earnings per share was $0.47 and Adjusted diluted earnings per share was $0.62.
  • The Company continued to repurchase shares in the open market with cumulative share repurchases of 1.1 million since the Company began repurchasing in October 2016, representing a reduction of approximately 2% of outstanding shares of common stock.
  • The Company declared a quarterly dividend of $0.10 per share on June 20, 2017 payable on July 14, 2017 to stockholders of record on June 30, 2017.

Korn/Ferry International (NYSE: KFY), the preeminent global people and organizational advisory firm, today announced fourth quarter and annual fee revenue of $406.1 million and $1,565.5 million, respectively.  Fourth quarter diluted earnings per share and adjusted diluted earnings per share were $0.47 and $0.62, respectively.  Adjusted diluted earnings per share for the fourth quarter excluded $8.2 million, or $0.15 per share, of restructuring charges, net, integration/acquisition costs and separation costs.

"I am pleased to report record fee revenue of $406 million and strong profitability, with diluted earnings per share and adjusted diluted earnings per share of $0.47 and $0.62 and adjusted EBITDA of approximately $60 million during our recently completed fourth quarter. With continued momentum in all business lines, we achieved the highest fiscal year fee revenue in our firm's history – up 20% year over year," said Gary D. Burnison, CEO of Korn Ferry. "There is notable runway in this market for broader talent offerings. We continue to benefit from strong demand for our holistic approach – from our anchor executive search offering to organizational advisory services, leadership development, compensation and rewards and more. As we increasingly extend our brand, broaden our solutions and attract top talent to our firm, Korn Ferry is well-positioned for the future."

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

 

Fourth Quarter

 

Year to Date

   
 

FY'17

 

FY'16

 

FY'17

 

FY'16

   

Fee revenue

$       406.1

 

$      399.9

 

$ 1,565.5

 

$  1,292.1

   

Total revenue

$       419.6

 

$      417.1

 

$ 1,621.7

 

$  1,346.7

   

Operating income

$         32.8

 

$          4.9

 

$    114.4

 

$       52.7

   

Operating margin

8.1%

 

1.2%

 

7.3%

 

4.1%

   

Net income attributable to Korn Ferry

$         26.9

 

$          5.8

 

$     84.2

 

$       30.9

   

Basic earnings per share

$         0.48

 

$        0.10

 

$     1.48

 

$       0.58

   

Diluted earnings per share

$         0.47

 

$        0.10

 

$     1.47

 

$       0.58

   
                   

EBITDA Results (b):

Fourth Quarter

 

Year to Date

   
 

FY'17

 

FY'16

 

FY'17

 

FY'16

   

EBITDA

$        49.5

 

$       21.9

 

$    173.9

 

$     86.3

   

EBITDA margin

12.2%

 

5.5%

 

11.1%

 

6.7%

   
                   

Adjusted Results (c):

Fourth Quarter

 

Year to Date

   
 

FY'17

 

FY'16

 

FY'17

 

FY'16

   

Adjusted fee revenue

$       406.1

 

$     405.0

 

$1,569.1

 

$  1,303.1

   

Adjusted EBITDA (b)

$         60.1

 

$       54.8

 

$   235.0

 

$     190.2

   

Adjusted EBITDA margin (b)

14.8%

 

13.5%

 

15.0%

 

14.6%

   

Adjusted net income attributable to Korn Ferry

$         35.2

 

$       32.8

 

$   128.8

 

$     110.9

   

Adjusted basic earnings per share

$         0.62

 

$       0.58

 

$     2.27

 

$      2.10

   

Adjusted diluted earnings per share

$         0.62

 

$       0.58

 

$     2.24

 

$      2.08

   

_______________

                 

(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 restructuring charges, net, integration/acquisition costs, separation costs and Venezuelan foreign currency loss and includes the deferred revenue adjustment related to the acquisition of HG (Luxembourg) S.à.r.l ("Legacy Hay")).  EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).

(c)

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

 

Fourth Quarter

 

Year to Date

 
 

FY'17

 

FY'16

 

FY'17

 

FY'16

 

Restructuring charges, net

$               6.3

 

$             2.4

 

$         34.6

 

$           33.0

 

Integration/acquisition costs

$               3.7

 

$           11.7

 

$         22.4

 

$           45.5

 

Deferred revenue adjustment related to the Legacy Hay acquisition

$                —

 

$             5.1

 

$           3.5

 

$           11.0

 

Separation costs

$               0.6

 

$               —

 

$           0.6

 

$             0.7

 

Write-off of debt issuance costs

$                —

 

$               —

 

$           1.0

 

$              —

 

Venezuelan foreign currency loss

$                —

 

$           13.7

 

$            —

 

$           13.7

 

Fiscal 2017 Fourth Quarter Results

Fee revenue was $406.1 million in Q4 FY'17, an increase of 1.6% (3.2% increase on a constant currency basis) compared to Q4 FY'16.  Adjusted fee revenue was $406.1 million in Q4 FY'17, an increase of 0.3% (1.9% increase on a constant currency basis) compared to Q4 FY'16.  The increase in fee revenue was due to organic growth in Futurestep and the North America region of Executive Search.

Operating margin was 8.1% in Q4 FY'17 compared to 1.2% in the year-ago quarter.  In Q4 FY'17, the increase in operating margin was primarily due to decreases in integration/acquisition costs, lower foreign currency loss relating to the devaluation of the Venezuelan currency in Q4 FY'16 and a decrease in compensation expense.

Adjusted EBITDA margin was 14.8%, compared to 13.5% in the year-ago quarter.  The increase in Adjusted EBITDA margin was primarily due to the improvement in margins in Executive Search due to higher fee revenue while operating expenses were relatively flat and higher margins in the Hay Group segment due to the synergies achieved in connection with the Legacy Hay acquisition.

Fiscal 2017 Results

Fee revenue was $1,565.5 million in FY'17, an increase of 21.2% (23.3% increase on a constant currency basis) compared to FY'16.  Adjusted fee revenue was $1,569.1 million in FY'17, an increase of 20.4% (22.6% increase on a constant currency basis) compared to FY'17.  The growth was primarily due to an increase in fee revenue associated with the acquisition of Legacy Hay that was completed on December 1, 2015, and organic growth in Futurestep fee revenue.

Operating margin was 7.3% in FY'17 compared to 4.1% in FY'16.  In FY'17, the increase in operating margin was primarily due to higher fee revenue of $273.4 million and decreases in integration/acquisition costs due to the Legacy Hay acquisition and the foreign currency loss relating to the devaluation of the Venezuelan currency in FY'16.

Adjusted EBITDA margin was 15.0%, compared to 14.6% in FY'16.  The increase in Adjusted EBITDA margin was primarily due to the improvement in margins in the Hay Group segment due to the synergies achieved in connection with the Legacy Hay acquisition.

Results by Segment

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

 

Fourth Quarter

 

Year to Date

   
 

FY'17

 

FY'16

 

FY'17

 

FY'16

   

Fee revenue

$       162.3

 

$   159.7

 

$       617.7

 

$    622.9

   

Total revenue

$       167.0

 

$   165.4

 

$       636.2

 

$    644.5

   

Operating income

$         30.6

 

$     23.0

 

$       124.3

 

$    131.7

   

Operating margin

18.8%

 

14.4%

 

20.1%

 

21.1%

   
                   

Ending number of consultants

517

 

488

 

517

 

488

   

Average number of consultants

512

 

490

 

503

 

470

   

Engagements billed

3,530

 

3,395

 

9,008

 

8,375

   

New engagements (b)

1,525

 

1,463

 

5,933

 

5,517

   
                   

EBITDA Results (c):

Fourth Quarter

 

Year to Date

   
 

FY'17

 

FY'16

 

FY'17

 

FY'16

   

EBITDA

$         33.6

 

$       25.1

 

$    132.8

 

$     138.3

   

EBITDA margin

20.7%

 

15.7%

 

21.5%

 

22.2%

   
                   

Adjusted Results (d):

Fourth Quarter

 

Year to Date

   
 

FY'17

 

FY'16

 

FY'17

 

FY'16

   

Adjusted EBITDA (c)

$        34.2

 

$       31.7

 

$    137.4

 

$     152.2

   

Adjusted EBITDA margin (c)

21.1%

 

19.9%

 

22.2%

 

24.4%

   

_____________

                 

(a) 

Numbers may not total due to rounding.

(b)

Represents new engagements opened in the respective period.

(c) 

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

(d)

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

 

Fourth Quarter

 

Year to Date

 
 

FY'17

 

FY'16

 

FY'17

 

FY'16

 

Restructuring charges, net

$             0.6

 

$                 —

 

$             4.6

 

$               7.3

 

Venezuelan foreign currency loss

$              —

 

$                6.6

 

$              —

 

$               6.6

 

Fee revenue was $162.3 million in Q4 FY'17, an increase of $2.6 million or 1.6% (an increase of $5.0 million or 3.1% on a constant currency basis) compared to Q4 FY'16.  The overall increase in fee revenue was primarily attributable to higher fee revenue in our North America region.

Operating income was $30.6 million in Q4 FY'17 compared to $23.0 million in Q4 FY'16.  Operating margin was 18.8% in Q4 FY'17 compared to 14.4% in the year-ago quarter.  The increase in operating income was due to a decrease in general and administrative expenses as a result of lower foreign currency losses relating to the devaluation of the Venezuelan currency in FY'16 and higher fee revenue in Q4 FY'17 compared to Q4 FY'16.

Adjusted EBITDA was $34.2 million in Q4 FY'17 with an Adjusted EBITDA margin of 21.1% compared to $31.7 million and 19.9%, respectively, in Q4 FY'16.  The increase in Adjusted EBITDA and Adjusted EBITDA margin was due to an increase in fee revenue while operating expenses remained relatively flat in Q4 FY'17 compared to Q4 FY'16.

Selected Hay Group Data
(dollars in millions) (a)

 

 

Fourth Quarter

 

Year to Date

   
 

FY'17

 

FY'16

 

FY'17

 

FY'16

   

Fee revenue

$      185.1

 

$    187.7

 

$     724.2

 

$    471.1

   

Total revenue

$      188.7

 

$    194.7

 

$     741.5

 

$    488.2

   

Operating income (loss)

$        16.1

 

$        2.9

 

$       47.3

 

$      (3.4)

   

Operating margin

8.7%

 

1.5%

 

6.5%

 

(0.7)%

   
                   

Ending number of consultants (b)

557

 

562

 

557

 

562

   

Staff utilization (c)

69%

 

70%

 

67%

 

67%

   
                   

EBITDA Results (d):

Fourth Quarter

 

Year to Date

   
 

FY'17

 

FY'16

 

FY'17

 

FY'16

   

EBITDA

$        24.3

 

$     10.5

 

$       79.9

 

$      17.5

   

EBITDA margin

13.1%

 

5.6%

 

11.0%

 

3.7%

   
                   

Adjusted Results (e):

Fourth Quarter

 

Year to Date

   
 

FY'17

 

FY'16

 

FY'17

 

FY'16

   

Adjusted fee revenue

$      185.1

 

$    192.8

 

$     727.7

 

$    482.1

   

Adjusted EBITDA (d)

$        33.0

 

$      30.7

 

$     128.2

 

$      78.9

   

Adjusted EBITDA margin (d)

17.8%

 

15.9%

 

17.6%

 

16.4%

   

___________

                 

(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 Hay Group professional staff record to engagements during the period, by the total available working hours during the same period.

(d)

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

(e)

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

 

Fourth Quarter

 

Year to Date

 
 

FY'17

 

FY'16

 

FY'17

 

FY'16

 

Restructuring charges, net

$                 5.7

 

$               2.5

 

$             29.7

 

$             25.7

 

Integration/acquisition costs

$                 2.4

 

$                5.5

 

$             14.4

 

$             17.6

 

Deferred revenue adjustment related to the Legacy Hay acquisition

$                  —

 

$                5.1

 

$               3.5

 

$             11.0

 

Venezuelan foreign currency loss

$                  —

 

$                7.1

 

$                 —

 

$               7.1

 

Separation costs

$                 0.6

 

$                 —

 

$               0.6

 

$                —

 

Fee revenue was $185.1 million in Q4 FY'17 compared to $187.7 million in Q4 FY'16, a decrease of $2.6 million or 1.4% (an increase of $0.5 million or 0.3% on a constant currency basis) compared to the year-ago quarter.  Adjusted fee revenue was $185.1 million in Q4 FY'17 compared to $192.8 million in Q4 FY'16, a decrease of $7.7 million or 4.0% (a decrease of $4.6 million or 2.4% on a constant currency basis) compared to the year-ago quarter.

Operating income was $16.1 million in Q4 FY'17, resulting in an operating margin of 8.7% in the current quarter compared to 1.5% in the year-ago quarter.  Operating income increased by $13.2 million from operating income of $2.9 million in Q4 FY'16.  The change in operating income was primarily due to a decrease in compensation and benefit expense and lower foreign currency losses relating to the devaluation of the Venezuelan currency in FY'16.

Adjusted EBITDA was $33.0 million in Q4 FY'17, an increase of $2.3 million compared to Q4 FY'16, resulting in Adjusted EBITDA margin of 17.8% in the current quarter. 

Selected Futurestep Data
(dollars in millions) (a)

 

Fourth Quarter

 

Year to Date

   
 

FY'17

 

FY'16

 

FY'17

 

FY'16

   

Fee revenue

$       58.7

 

$       52.5

 

$     223.7

 

$    198.1

   

Total revenue

$       63.9

 

$       57.0

 

$     243.9

 

$    214.0

   

Operating income

$         8.1

 

$         7.0

 

$       30.0

 

$      26.7

   

Operating margin

13.9%

 

13.3%

 

13.4%

 

13.5%

   
                   

Engagements billed (b)

1,095

 

978

 

2,800

 

2,149

   

New engagements (c)

576

 

547

 

2,193

 

1,913

   
                   

EBITDA Results (d):

Fourth Quarter

 

Year to Date

   
 

FY'17

 

FY'16

 

FY'17

 

FY'16

   

EBITDA

$         8.8

 

$         7.9

 

$       32.7

 

$      29.5

   

EBITDA margin

15.0%

 

15.0%

 

14.6%

 

14.9%

   
                   

Adjusted Results (e):

Fourth Quarter

 

Year to Date

   
 

FY'17

 

FY'16

 

FY'17

 

FY'16

   

Adjusted EBITDA (d)

$         8.8

 

$         7.9

 

$        32.8

 

$      29.5

   

Adjusted EBITDA margin (d)

15.0%

 

15.0%

 

14.7%

 

14.9%

   

_____________

                 

(a)

Numbers may not total due to rounding.

(b)

Represents search engagements billed.

(c)

Represents new search engagements opened in the respective period.

(d)

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

(e)

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

 

Fourth Quarter

 

Year to Date

 
 

FY'17

 

FY'16

 

FY'17

 

FY'16

 

Restructuring charges, net

$                —

 

$                 —

 

$             0.1

 

$                —

 

Fee revenue was $58.7 million in Q4 FY'17, an increase of $6.2 million or 11.8% (a $7.2 million or 13.7% increase on a constant currency basis), compared to the year-ago quarter.  The higher fee revenue was driven by an increase in recruitment process outsourcing and professional search of $3.5 million and $2.7 million, respectively, in Q4 FY'17 compared to Q4 FY'16.

Operating income was $8.1 million in Q4 FY'17, an increase of $1.1 million compared to Q4 FY'16 operating income of $7.0 million.  Operating margin was 13.9% in the current quarter compared to 13.3% in the year-ago quarter. 

Adjusted EBITDA was $8.8 million during Q4 FY'17, an increase of $0.9 million compared to Q4 FY'16. Adjusted EBITDA margins were 15.0% in Q4 FY'17 and Q4 FY'16.

Outlook

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

  • Q1 FY'18 fee revenue is expected to be in the range of $382 million and $400 million; and
  • Q1 FY'18 diluted earnings per share is likely to range between $0.43 to $0.51.

On a consolidated adjusted basis:

  • Q1 FY'18 adjusted diluted earnings per share is expected to be in the range from $0.48 to $0.56.
 

Q1 FY'18
Earnings Per Share Outlook (1)

 
 

Low

 

High

 

Consolidated diluted earnings per share

$0.43

 

$0.51

 

  Restructuring charges, net

0.01

 

0.02

 

  Retention bonuses

0.05

 

0.05

 

  Tax rate impact

(0.01)

 

(0.02)

 

Consolidated adjusted diluted earnings per share

$0.48

 

$0.56

 

______________

       

(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 (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 the preeminent global people and organizational advisory firm.  We help leaders, organizations and societies succeed by releasing the full power and potential of people.  Our nearly 7,000 colleagues deliver services through Executive Search, Hay Group and Futurestep divisions. 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, the dependence on attracting and retaining qualified and experienced consultants, our ability to successfully integrate acquired businesses including Legacy Hay, our ability to recognize the anticipated benefits of the acquisition of Legacy Hay which may be affected by, among other things, competition, our ability to grow and manage growth profitability, maintain relationships with customers and suppliers and retain key employees, costs related to the acquisition of Legacy Hay, maintaining our brand name and professional reputation, potential legal liability, 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 with our growth, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, consolidation of industries we serve, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, impairment of goodwill and other intangible assets, deferred tax assets, seasonality, our ability to successfully rationalize our cost structure and employment liability risk.  For a detailed description of risks and uncertainties that could cause differences, please refer to Korn Ferry's periodic filings with the Securities and Exchange 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 charges, net, integration/acquisition costs, separation costs, write-off of debt issuance costs and Venezuelan foreign currency loss and to include the deferred revenue adjustment related to the Legacy Hay acquisition, net of income tax effect;
  • adjusted basic and diluted earnings per share, adjusted to exclude restructuring charges, net, integration/acquisition costs, separation costs, write-off of debt issuance costs and Venezuelan foreign currency loss and to include the deferred revenue adjustment related to the Legacy Hay acquisition, net of income tax effect; and in the case of the outlook section, also adjusted for tax rate impact;
  • constant currency 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;
  • Adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring charges, net, integration/acquisition costs, separation costs and Venezuelan foreign currency loss and to include the deferred revenue adjustment related to the Legacy Hay acquisition and Adjusted EBITDA margin; and
  • Adjusted fee revenue, which includes revenue that Hay Group would have realized over the ensuing year if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue.

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 represent 1) costs we incurred to acquire and integrate the Legacy Hay acquisition, 2) charges we incurred to restructure the combined company due to the acquisition of Legacy Hay, 3) separation costs, 4) debt issuance costs written-off upon replacement of our credit facility and 5) revenue that Hay Group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue.  As such, reported fee revenue can make fee revenue and operating results appear to fluctuate more than they would if business combination accounting did not require deferred revenue to be written off. Adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of GAAP, rather, it is an adjustment for a short period of time that will provide better comparability in the current and future periods.  Management believes the presentation of adjusted fee revenue assists management in its evaluation of ongoing operations and provides useful information to investors because it 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 distorted by write-offs required under business combination accounting 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.  Management no longer has adjusted fee revenue after Q1 FY'17.  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 

 

 Year Ended Ended 

   

 April 30 

 

 April 30 

   

2017

 

2016

 

2017

 

2016

   

 (unaudited) 

       

 Fee revenue 

 

$ 406,065

 

$ 399,960

 

$ 1,565,521

 

$ 1,292,112

 Reimbursed out-of-pocket engagement expenses 

 

13,522

 

17,201

 

56,148

 

54,602

           Total revenue 

 

419,587

 

417,161

 

1,621,669

 

1,346,714

                 

 Compensation and benefits 

 

275,493

 

286,852

 

1,071,507

 

897,345

 General and administrative expenses 

 

59,938

 

73,569

 

226,232

 

213,018

 Reimbursed expenses 

 

13,522

 

17,201

 

56,148

 

54,602

 Cost of services 

 

19,231

 

20,974

 

71,482

 

59,824

 Depreciation and amortization 

 

12,290

 

11,287

 

47,260

 

36,220

 Restructuring charges, net 

 

6,279

 

2,436

 

34,600

 

33,013

           Total operating expenses 

 

386,753

 

412,319

 

1,507,229

 

1,294,022

                 

 Operating income 

 

32,834

 

4,842

 

114,440

 

52,692

 Other income (loss), net 

 

4,240

 

5,645

 

11,820

 

(4,167)

 Interest (expense) income, net 

 

(2,052)

 

1,452

 

(10,251)

 

237

           Income before provision for income taxes 

               

               and equity in earnings of unconsolidated subsidiaries 

 

35,022

 

11,939

 

116,009

 

48,762

 Equity in earnings of unconsolidated subsidiaries 

 

112

 

185

 

333

 

1,631

 Income tax provision 

 

7,398

 

5,749

 

29,104

 

18,960

 Net income 

 

27,736

 

6,375

 

87,238

 

31,433

           Net income attributable to noncontrolling interest 

 

(812)

 

(520)

 

(3,057)

 

(520)

 Net income attributable to Korn/Ferry International 

 

$   26,924

 

$     5,855

 

$      84,181

 

$      30,913

                 

 Earnings per common share attributable to Korn/Ferry International: 

               

      Basic 

 

$       0.48

 

$       0.10

 

$           1.48

 

$           0.58

      Diluted 

 

$       0.47

 

$       0.10

 

$           1.47

 

$           0.58

                 

 Weighted-average common shares outstanding: 

               

      Basic 

 

55,845

 

56,012

 

56,205

 

52,372

      Diluted 

 

56,571

 

56,574

 

56,900

 

52,929

                 

 Cash dividends declared per share: 

 

$       0.10

 

$       0.10

 

$           0.40

 

$           0.40

 

 

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

 (unaudited) 

                                 
         
   

Three Months Ended April 30,

 

Year Ended Ended April 30,

   

2017

     

2016

 

% Change

 

2017

     

2016

 

% Change

                                 

Fee Revenue:

                             

Executive search:

                             
 

North America

$   97,264

     

$   94,678

 

2.7%

 

$    356,625

     

$    371,345

 

(4.0%)

 

EMEA 

37,210

     

36,161

 

2.9%

 

146,506

     

144,319

 

1.5%

 

Asia Pacific

20,061

     

21,199

 

(5.4%)

 

80,169

     

80,506

 

(0.4%)

 

Latin America

7,731

     

7,661

 

0.9%

 

34,376

     

26,744

 

28.5%

Total executive search

162,266

     

159,699

 

1.6%

 

617,676

     

622,914

 

(0.8%)

Hay Group

185,100

     

187,795

 

(1.4%)

 

724,186

     

471,145

 

53.7%

Futurestep

58,699

     

52,466

 

11.9%

 

223,659

     

198,053

 

12.9%

 

Total fee revenue

406,065

     

399,960

 

1.5%

 

1,565,521

     

1,292,112

 

21.2%

 Reimbursed out-of-pocket engagement expenses 

13,522

     

17,201

 

(21.4%)

 

56,148

     

54,602

 

2.8%

 

Total revenue

$ 419,587

     

$ 417,161

 

0.6%

 

$ 1,621,669

     

$ 1,346,714

 

20.4%

                                 

Operating Income (Loss):

   

Margin

     

Margin

     

Margin

     

Margin

Executive search:

                             
 

North America

$   21,092

 

21.7%

 

$   19,857

 

21.0%

 

$      81,550

 

22.9%

 

$    100,381

 

27.0%

 

EMEA

6,805

 

18.3%

 

5,695

 

15.7%

 

27,854

 

19.0%

 

20,607

 

14.3%

 

Asia Pacific

2,364

 

11.8%

 

2,904

 

13.7%

 

8,580

 

10.7%

 

12,572

 

15.6%

 

Latin America

302

 

3.9%

 

(5,498)

 

(71.8%)

 

6,268

 

18.2%

 

(1,854)

 

(6.9%)

Total executive search

30,563

 

18.8%

 

22,958

 

14.4%

 

124,252

 

20.1%

 

131,706

 

21.1%

Hay Group

16,114

 

8.7%

 

2,871

 

1.5%

 

47,302

 

6.5%

 

(3,415)

 

(0.7%)

Futurestep

8,137

 

13.9%

 

6,987

 

13.3%

 

29,986

 

13.4%

 

26,702

 

13.5%

Corporate

(21,980)

     

(27,974)

     

(87,100)

     

(102,301)

   
 

 Total operating income

$   32,834

 

8.1%

 

$     4,842

 

1.2%

 

$    114,440

 

7.3%

 

$      52,692

 

4.1%

                                 

 

 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (in thousands, except per share amounts) 

         
         
   

April 30,

   

2017

 

2016

ASSETS

       

Cash and cash equivalents

 

$    410,882

 

$    273,252

Marketable securities

 

4,363

 

11,338

Receivables due from clients, net of allowance for doubtful accounts 

       

of $15,455 and $11,292, respectively

 

345,314

 

315,975

Income taxes and other receivables

 

31,573

 

20,579

Prepaid expenses and other assets

 

51,542

 

43,130

Total current assets

 

843,674

 

664,274

         

Marketable securities, non-current

 

115,574

 

130,092

Property and equipment, net

 

109,567

 

95,436

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

 

113,067

 

107,296

Deferred income taxes

 

20,175

 

27,163

Goodwill

 

576,865

 

590,072

Intangible assets, net

 

217,319

 

233,027

Investments and other assets

 

66,657

 

51,240

Total assets

 

$ 2,062,898

 

$ 1,898,600

         

LIABILITIES AND STOCKHOLDERS' EQUITY

       

Accounts payable

 

$      37,481

 

$      26,634

Income taxes payable

 

4,526

 

8,396

Compensation and benefits payable

 

248,354

 

266,211

Term loan

 

19,754

 

30,000

Other accrued liabilities

 

148,464

 

145,023

Total current liabilities

 

458,579

 

476,264

         

Deferred compensation and other retirement plans

 

219,905

 

216,113

Term loan, non-current

 

236,222

 

110,000

Deferred tax liabilities

 

7,014

 

5,088

Other liabilities

 

54,130

 

43,834

Total liabilities

 

975,850

 

851,299

         

Stockholders' equity

       

Common stock: $0.01 par value, 150,000 shares authorized, 70,811 and 69,273 shares issued and 56,938 and 57,272 shares outstanding, respectively

       
 

692,527

 

702,098

Retained earnings

 

461,976

 

401,113

Accumulated other comprehensive loss, net

 

(71,064)

 

(57,911)

Total Korn/Ferry International stockholders' equity

 

1,083,439

 

1,045,300

Noncontrolling interest

 

3,609

 

2,001

Total stockholders' equity

 

1,087,048

 

1,047,301

Total liabilities and stockholders' equity

 

$ 2,062,898

 

$ 1,898,600

         

 

 

 

KORN FERRY AND SUBSIDIARIES

 RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES 

 (in thousands, except per share amounts) 

 
                 
   

 Three Months Ended 

 

 Year Ended Ended 

   

 April 30, 

 

 April 30, 

   

2017

 

2016

 

2017

 

2016

   

 (unaudited) 

       

 Fee revenue 

 

$ 406,065

 

$ 399,960

 

$ 1,565,521

 

$ 1,292,112

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

5,096

 

3,535

 

10,967

           Adjusted fee revenue 

 

$ 406,065

 

$ 405,056

 

$ 1,569,056

 

$ 1,303,079

                 

 Operating income 

 

$   32,834

 

$     4,842

 

$    114,440

 

$      52,692

 Depreciation and amortization 

 

12,290

 

11,287

 

47,260

 

36,220

 Other income (loss), net 

 

4,240

 

5,645

 

11,820

 

(4,167)

 Equity in earnings of unconsolidated subsidiaries, net 

 

112

 

185

 

333

 

1,631

           EBITDA 

 

49,476

 

21,959

 

173,853

 

86,376

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

5,096

 

3,535

 

10,967

 Restructuring charges, net (2) 

 

6,279

 

2,436

 

34,600

 

33,013

 Integration/acquisition costs (3) 

 

3,702

 

11,594

 

22,379

 

45,409

 Separation costs (4) 

 

609

 

-

 

609

 

744

 Venezuelan foreign currency loss (6) 

 

-

 

13,720

 

-

 

13,720

           Adjusted EBITDA 

 

$   60,066

 

$   54,805

 

$    234,976

 

$    190,229

                 

 Operating margin 

 

8.1%

 

1.2%

 

7.3%

 

4.1%

 Depreciation and amortization 

 

3.0%

 

2.8%

 

3.0%

 

2.8%

 Other income (loss), net 

 

1.1%

 

1.4%

 

0.8%

 

(0.3%)

 Equity in earnings of unconsolidated subsidiaries, net 

 

-

 

0.1%

 

-

 

0.1%

            EBITDA margin 

 

12.2%

 

5.5%

 

11.1%

 

6.7%

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

1.2%

 

0.2%

 

0.8%

 Restructuring charges, net (2) 

 

1.5%

 

0.6%

 

2.2%

 

2.5%

 Integration/acquisition costs (3) 

 

0.9%

 

2.8%

 

1.4%

 

3.5%

 Separation costs (4) 

 

0.2%

 

-

 

0.1%

 

0.1%

 Venezuelan foreign currency loss (6) 

 

-

 

3.4%

 

-

 

1.0%

           Adjusted EBITDA margin 

 

14.8%

 

13.5%

 

15.0%

 

14.6%

                 

 Net income attributable to Korn/Ferry International 

 

$   26,924

 

$     5,855

 

$      84,181

 

$      30,913

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

5,096

 

3,535

 

10,967

 Restructuring charges, net (2) 

 

6,279

 

2,436

 

34,600

 

33,013

 Integration/acquisition costs (3) 

 

3,702

 

11,594

 

22,379

 

45,409

 Separation costs (4) 

 

609

 

-

 

609

 

744

 Write-off of debt issuance costs (5) 

 

-

 

-

 

954

 

-

 Venezuelan foreign currency loss (6) 

 

-

 

13,720

 

-

 

13,720

 Tax effect on the above items (7) 

 

(2,364)

 

(5,846)

 

(17,438)

 

(23,819)

           Adjusted net income attributable to Korn/Ferry International 

 

$   35,150

 

$   32,855

 

$    128,820

 

$    110,947

                 

 Basic earnings per common share 

 

$       0.48

 

$       0.10

 

$           1.48

 

$           0.58

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

0.09

 

0.06

 

0.20

 Restructuring charges, net (2) 

 

0.10

 

0.04

 

0.61

 

0.63

 Integration/acquisition costs (3) 

 

0.07

 

0.21

 

0.40

 

0.87

 Separation costs (4) 

 

0.01

 

-

 

0.01

 

0.01

 Write-off of debt issuance costs (5) 

 

-

 

-

 

0.02

 

-

 Venezuelan foreign currency loss (6) 

 

-

 

0.24

 

-

 

0.26

 Tax effect on the above items (7) 

 

(0.04)

 

(0.10)

 

(0.31)

 

(0.45)

           Adjusted basic earnings per share 

 

$       0.62

 

$       0.58

 

$           2.27

 

$           2.10

                 

 Diluted earnings per common share 

 

$       0.47

 

$       0.10

 

$           1.47

 

$           0.58

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

0.09

 

0.06

 

0.20

 Restructuring charges, net (2) 

 

0.10

 

0.04

 

0.60

 

0.62

 Integration/acquisition costs (3) 

 

0.07

 

0.21

 

0.39

 

0.86

 Separation costs (4) 

 

0.01

 

-

 

0.01

 

0.01

 Write-off of debt issuance costs (5) 

 

-

 

-

 

0.02

 

-

 Venezuelan foreign currency loss (6) 

 

-

 

0.24

 

-

 

0.26

 Tax effect on the above items (7) 

 

(0.03)

 

(0.10)

 

(0.31)

 

(0.45)

           Adjusted diluted earnings per share 

 

$       0.62

 

$       0.58

 

$           2.24

 

$           2.08

                 

Explanation of Non-GAAP Adjustments 

(1)

Increase in fee revenue relating to the deferred revenue recorded on the opening balance sheet of Hay Group, required by fair value accounting. The adjustment is included in the Hay Group segment.  On a GAAP basis, Hay Group fee revenue was $185.1 million and  $724.2 million during the three months and the year ended April 31, 2017 and $187.7 million and $471.1 million during the three months and year ended April 31, 2016, respectively.  On an adjusted basis, Hay Group fee revenue was $185.1 million and $727.7 million during  the three months and the year ended April 30, 2017 and $192.8 million and $482.1 million during the three months and year ended April  31, 2016, respectively. 

(2)

Restructuring plan implemented in order to rationalize our cost structure by eliminating redundant positions and consolidating office space due to the acquisition of Legacy Hay on December 1, 2015.  

(3)

Costs associated with completing the acquisition of Legacy Hay, such as legal and professional fees, and the on-going integration expenses to combine the companies. 

(4)

Certain senior management separation charges. 

(5)

Write-off of debt issuance costs as a result of replacing our prior Credit Agreement with a new senior secured Credit Agreement. 

(6)

Foreign currency loss associated with the devaluation of the Venezuelan currency. 

(7)

Tax effect on deferred revenue adjustment associated with the acquisition of Legacy Hay, restructuring charges, net, integration/acquisition costs, separation costs, write-off of debt issuance costs and foreign currency loss associated with the devaluation of the Venezuelan currency. 

 

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (LOSS) (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

     
   

 Three Months Ended April 30, 2017 

   

 Executive Search 

               
   

 North
America 

 

 EMEA 

 

 Asia Pacific 

 

 Latin
America 

 

 Subtotal 

 

 Hay Group 

 

 Futurestep 

 

 Corporate 

 

 Consolidated 

                                     

 Fee revenue 

 

$             97,264

 

$ 37,210

 

$       20,061

 

$               7,731

 

$ 162,266

 

$   185,100

 

$        58,699

 

$                 -

 

$           406,065

 Total revenue 

 

$           100,501

 

$ 38,392

 

$       20,299

 

$               7,767

 

$ 166,959

 

$   188,711

 

$        63,917

 

$                 -

 

$           419,587

                                     

 Net income attributable to Korn/Ferry International 

                                 

$             26,924

 Net income attributable to noncontrolling interest 

                                 

812

 Other income, net 

                                 

(4,240)

 Interest expense, net 

                                 

2,052

 Equity in earnings of unconsolidated subsidiaries, net 

                                 

(112)

 Income tax provision 

                                 

7,398

 Operating income (loss) 

 

$             21,092

 

$   6,805

 

$         2,364

 

$                  302

 

$   30,563

 

$     16,114

 

$           8,137

 

$     (21,980)

 

32,834

 Depreciation and amortization 

 

996

 

364

 

303

 

216

 

1,879

 

8,160

 

737

 

1,514

 

12,290

 Other income (loss), net 

 

332

 

22

 

129

 

526

 

1,009

 

(5)

 

(87)

 

3,323

 

4,240

 Equity in earnings of unconsolidated subsidiaries, net 

 

112

 

-

 

-

 

-

 

112

 

-

 

-

 

-

 

112

 EBITDA 

 

22,532

 

7,191

 

2,796

 

1,044

 

33,563

 

24,269

 

8,787

 

(17,143)

 

49,476

 EBITDA margin 

 

23.2%

 

19.3%

 

13.9%

 

13.5%

 

20.7%

 

13.1%

 

15.0%

     

12.2%

                                     

 Restructuring charges, net 

 

13

 

501

 

(20)

 

104

 

598

 

5,656

 

21

 

4

 

6,279

 Integration/acquisition costs 

 

-

 

-

 

-

 

-

 

-

 

2,447

 

-

 

1,255

 

3,702

 Separation costs 

 

-

 

-

 

-

 

-

 

-

 

609

 

-

 

-

 

609

 Adjusted EBITDA 

 

$             22,545

 

$   7,692

 

$         2,776

 

$               1,148

 

$   34,161

 

$     32,981

 

$           8,808

 

$     (15,884)

 

$             60,066

 Adjusted EBITDA margin 

 

23.2%

 

20.7%

 

13.8%

 

14.8%

 

21.1%

 

17.8%

 

15.0%

     

14.8%

                                     
                                     
   

 Three Months Ended April 30, 2016 

   

 Executive Search 

               
   

 North
America 

 

 EMEA 

 

 Asia Pacific 

 

 Latin
America 

 

 Subtotal 

 

 Hay Group 

 

 Futurestep 

 

 Corporate 

 

 Consolidated 

                                     

 Fee revenue 

 

$             94,678

 

$ 36,161

 

$       21,199

 

$               7,661

 

$ 159,699

 

$   187,795

 

$        52,466

 

$                 -

 

$           399,960

 Deferred revenue adjustment due to acquisition   

 

-

 

-

 

-

 

-

 

-

 

5,096

 

-

 

-

 

5,096

 Adjusted fee revenue   

 

$             94,678

 

$ 36,161

 

$       21,199

 

$               7,661

 

$ 159,699

 

$   192,891

 

$        52,466

 

$                 -

 

$           405,056

 Total revenue   

 

$             98,562

 

$ 37,188

 

$       21,996

 

$               7,686

 

$ 165,432

 

$   194,706

 

$        57,023

 

$                 -

 

$           417,161

                                     

 Net loss attributable to Korn/Ferry International 

                                 

$                5,855

 Net income attributable to noncontrolling interest 

                                 

520

 Other income, net 

                                 

(5,645)

 Interest income, net 

                                 

(1,452)

 Equity in earnings of unconsolidated subsidiaries, net 

                                 

(185)

 Income tax provision 

                                 

5,749

 Operating income (loss) 

 

$             19,857

 

$   5,695

 

$         2,904

 

$             (5,498)

 

$   22,958

 

$        2,871

 

$           6,987

 

$     (27,974)

 

4,842

 Depreciation and amortization 

 

796

 

219

 

237

 

88

 

1,340

 

7,796

 

614

 

1,537

 

11,287

 Other income (loss), net 

 

278

 

206

 

123

 

31

 

638

 

(131)

 

277

 

4,861

 

5,645

 Equity in earnings of unconsolidated subsidiaries, net 

 

185

 

-

 

-

 

-

 

185

 

-

 

-

 

-

 

185

 EBITDA 

 

21,116

 

6,120

 

3,264

 

(5,379)

 

25,121

 

10,536

 

7,878

 

(21,576)

 

21,959

 EBITDA margin 

 

22.3%

 

16.9%

 

15.4%

 

(70.2%)

 

15.7%

 

5.6%

 

15.0%

     

5.5%

                                     

 Restructuring charges, net 

 

15

 

(59)

 

-

 

(6)

 

(50)

 

2,441

 

49

 

(4)

 

2,436

 Integration/acquisition costs 

 

-

 

-

 

-

 

-

 

-

 

5,555

 

-

 

6,039

 

11,594

 Deferred revenue adjustment due to acquisition 

 

-

 

-

 

-

 

-

 

-

 

5,096

 

-

 

-

 

5,096

 Venezuelan foreign currency loss 

 

-

 

-

 

-

 

6,635

 

6,635

 

7,085

 

-

 

-

 

13,720

 Adjusted EBITDA 

 

$             21,131

 

$   6,061

 

$         3,264

 

$               1,250

 

$   31,706

 

$     30,713

 

$           7,927

 

$     (15,541)

 

$             54,805

 Adjusted EBITDA margin 

 

22.3%

 

16.8%

 

15.4%

 

16.3%

 

19.9%

 

15.9%

 

15.0%

     

13.5%

                                     

 

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

     
   

 Year Ended April 30, 2017 

   

 Executive Search 

               
   

 North
America 

 

 EMEA 

 

 Asia Pacific 

 

 Latin
America 

 

 Subtotal 

 

 Hay Group 

 

 Futurestep 

 

 Corporate 

 

 Consolidated 

                                     

 Fee revenue 

 

$    356,625

 

$    146,506

 

$      80,169

 

$      34,376

 

$    617,676

 

$    724,186

 

$    223,659

 

$                 -

 

$ 1,565,521

 Deferred revenue adjustment due to acquisition   

 

-

 

-

 

-

 

-

 

-

 

3,535

 

-

 

-

 

3,535

 Adjusted fee revenue   

 

$    356,625

 

$    146,506

 

$      80,169

 

$      34,376

 

$    617,676

 

$    727,721

 

$    223,659

 

$                 -

 

$ 1,569,056

 Total revenue   

 

$    369,803

 

$    150,113

 

$      81,744

 

$      34,533

 

$    636,193

 

$    741,533

 

$    243,943

 

$                 -

 

$ 1,621,669

                                     

 Net income attributable to Korn/Ferry International 

                                 

$      84,181

 Net income attributable to noncontrolling interest 

                                 

3,057

 Other income, net 

                                 

(11,820)

 Interest expense, net 

                                 

10,251

 Equity in earnings of unconsolidated subsidiaries, net 

                                 

(333)

 Income tax provision 

                                 

29,104

 Operating income (loss) 

 

$      81,550

 

$      27,854

 

$        8,580

 

$        6,268

 

$    124,252

 

$      47,302

 

$      29,986

 

$     (87,100)

 

114,440

 Depreciation and amortization 

 

3,812

 

1,030

 

1,060

 

483

 

6,385

 

32,262

 

2,818

 

5,795

 

47,260

 Other income (loss), net 

 

844

 

(15)

 

300

 

684

 

1,813

 

341

 

(91)

 

9,757

 

11,820

 Equity in earnings of unconsolidated subsidiaries, net 

 

333

 

-

 

-

 

-

 

333

 

-

 

-

 

-

 

333

 EBITDA 

 

86,539

 

28,869

 

9,940

 

7,435

 

132,783

 

79,905

 

32,713

 

(71,548)

 

173,853

 EBITDA margin 

 

24.3%

 

19.7%

 

12.4%

 

21.6%

 

21.5%

 

11.0%

 

14.6%

     

11.1%

                                     

 Restructuring charges, net 

 

1,719

 

629

 

1,495

 

773

 

4,616

 

29,663