Investor Relations

Press Release

Korn Ferry International Announces Second Quarter Fiscal 2018 Results of Operations

December 6, 2017

LOS ANGELES, Dec. 6, 2017 /PRNewswire/ --

Highlights

  • Korn Ferry reports record fee revenue of $443.0 million in Q2 FY'18 driven by organic growth in all three lines of business as compared to Q2 FY'17:

 

 

Futurestep

 

16.7%

 
 

Executive Search

 

13.2%

 
 

Hay Group

 

5.9%

 

 

  • Operating income was $51.2 million in Q2 FY'18 with an operating margin of 11.6%. Adjusted EBITDA was $69.6 million with Adjusted EBITDA margin of 15.7%.
  • Q2 FY'18 diluted earnings per share was $0.64 compared to diluted earnings per share of $0.52 in Q2 FY'17. Adjusted diluted earnings per share was $0.67 in Q2 FY'18, compared to adjusted diluted earnings per share in Q2 FY'17 of $0.59.
  • The Company continued to return capital to stockholders during the quarter, paying $5.7 million in dividends and repurchasing $25.2 million worth of its outstanding shares.
  • The Company declared a quarterly dividend of $0.10 per share on December 6, 2017 payable on January 12, 2018 to stockholders of record on December 20, 2017.

Korn/Ferry International (NYSE: KFY), the preeminent global people and organizational advisory firm, today announced record fee revenue of $443.0 million for its second quarter of fiscal 2018.  In addition, second quarter diluted earnings per share was $0.64 and adjusted earnings per share was $0.67.  Adjusted diluted earnings per share for the second quarter excluded $1.5 million, or $0.03 per share, mainly driven by integration/acquisition costs net of related taxes.

"I am pleased to report fee revenue of $443 million, an all-time high, up 10% year over year for our recently completed second quarter.  Profits were solid, with diluted earnings per share and adjusted diluted earnings per share of $0.64 and $0.67 and Adjusted EBITDA of approximately $70 million," said Gary D. Burnison, CEO of Korn Ferry.  "Korn Ferry has evolved into a full-fledged consulting firm, with offerings that span search, organizational advisory services, strategy execution, leadership development, compensation and rewards and more.  The acquisitions we have made over the years, the talent we have brought on board and our relentless focus on solutions aligned toward our clients' business outcomes are making a notable impact.  I look forward to what the future holds as we enter calendar year 2018."     

Selected Financial Results

(dollars in millions, except per share amounts) (a)

 
   
 

Second Quarter

 

Year to Date

   
 

FY'18

 

FY'17

 

FY'18

 

FY'17

   

Fee revenue

$       443.0

 

$      401.9

 

$   844.3

 

$     777.5

   

Total revenue

$       455.5

 

$      415.0

 

$   870.4

 

$     807.9

   

Operating income

$         51.2

 

$        46.5

 

$     92.0

 

$       51.1

   

Operating margin

11.6%

 

11.6%

 

10.9%

 

6.6%

   

Net income attributable to Korn Ferry

$         36.3

 

$        30.2

 

$     65.4

 

$       33.4

   

Basic earnings per share

$         0.65

 

$        0.53

 

$     1.16

 

$       0.59

   

Diluted earnings per share

$         0.64

 

$        0.52

 

$     1.15

 

$       0.58

   
                   

EBITDA Results (b):

Second Quarter

 

Year to Date

   
 

FY'18

 

FY'17

 

FY'18

 

FY'17

   

EBITDA

$        67.4

 

$       57.5

 

$    123.9

 

$     77.7

   

EBITDA margin

15.2%

 

14.3%

 

14.7%

 

10.0%

   
                   

Adjusted Results (c):

Second Quarter

 

Year to Date

   
 

FY'18

 

FY'17

 

FY'18

 

FY'17

   

Adjusted fee revenue

$      443.0

 

$     401.9

 

$    844.3

 

$    781.1

   

Adjusted EBITDA (b)

$        69.6

 

$       63.3

 

$    128.9

 

$    119.7

   

Adjusted EBITDA margin (b)

15.7%

 

15.7%

 

15.3%

 

15.3%

   

Adjusted net income attributable to Korn Ferry

$        37.8

 

$       34.1

 

$      69.0

 

$      63.6

   

Adjusted basic earnings per share

$        0.68

 

$       0.60

 

$      1.23

 

$      1.12

   

Adjusted diluted earnings per share

$        0.67

 

$       0.59

 

$      1.21

 

$      1.11

   

___________

(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 (recoveries) charges, net and integration/acquisition costs and includes the FY'17 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):

 

 

Second Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

Integration/acquisition costs

$                2.4

 

$              5.8

 

$           5.0

 

$           13.8

 

Restructuring (recoveries) charges, net

$              (0.2)

 

$               —

 

$           0.1

 

$           24.5

 

Deferred revenue adjustment related to the Legacy Hay acquisition

$                 —

 

$               —

 

$            —

 

$             3.5

 

Write-off of debt issuance costs

$                 —

 

$               —

 

$            —

 

$             1.0

 

The Company reported record fee revenue in Q2 FY'18 of $443.0 million, an increase of $41.1 million or 10.2% (an increase of $35.9 million or 8.9% on a constant currency basis) compared to Q2 FY'17.  The organic growth was driven by all three lines of business:

Futurestep

 

16.7%

 

Executive Search

 

13.2%

 

Hay Group

 

5.9%

 

Fee revenue growth in the quarter was partially offset by increased compensation and benefits as well as general and administrative expenses resulting in operating income and Adjusted EBITDA each growing 10% as compared to Q2 FY'17 and diluted earnings per share and Adjusted diluted earnings per share growing 23.1% and almost 13.6%, respectively, as compared to Q2 FY'17.

Results by Segment

 
   

Selected Executive Search Data

 

(dollars in millions) (a)

 
   
 

Second Quarter

 

Year to Date

   
 

FY'18

 

FY'17

 

FY'18

 

FY'17

   

Fee revenue

$       176.8

 

$   156.2

 

$       338.0

 

$    302.6

   

Total revenue

$       180.6

 

$   160.6

 

$       346.4

 

$    312.1

   

Operating income

$         35.2

 

$     37.4

 

$         68.0

 

$      64.4

   

Operating margin

19.9%

 

24.0%

 

20.1%

 

21.3%

   
                   

Ending number of consultants

538

 

501

 

538

 

501

   

Average number of consultants

535

 

495

 

528

 

495

   

Engagements billed

3,723

 

3,486

 

5,752

 

5,312

   

New engagements (b)

1,578

 

1,509

 

3,171

 

2,955

   
                   

EBITDA Results (c):

Second Quarter

 

Year to Date

   
 

FY'18

 

FY'17

 

FY'18

 

FY'17

   

EBITDA

$         37.6

 

$       39.0

 

$      72.8

 

$      67.9

   

EBITDA margin

21.3%

 

25.0%

 

21.5%

%

22.4%

   
                   

Adjusted Results (d):

Second Quarter

 

Year to Date

   
 

FY'18

 

FY'17

 

FY'18

 

FY'17

   

Adjusted EBITDA (c)

$        37.9

 

$       39.0

 

$      73.1

 

$      70.7

   

Adjusted EBITDA margin (c)

21.5%

 

25.0%

 

21.6%

%

23.4%

   

___________

(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):

 

 

Second Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

Restructuring charges, net

$                 0.3

 

$                —

 

$             0.3

 

$               2.8

 

Fee revenue was $176.8 million in Q2 FY'18, an increase of $20.6 million or 13.2% (an increase of $18.6 million or 11.9% on a constant currency basis) compared to Q2 FY'17.  The overall increase in fee revenue was attributable to higher fee revenue in the North American, EMEA and APAC regions.

Operating income was $35.2 million in Q2 FY'18 compared to $37.4 million in Q2 FY'17.  Operating margin was 19.9% in Q2 FY'18 compared to 24.0% in the year-ago quarter.  The decrease in operating income was due to increases in compensation expenses driven by an 8.4% increase in headcount and an increase in the amounts owed under certain deferred compensation plans.  In addition, there were increases in general and administrative expenses due to unfavorable impact of foreign exchange rates and slightly higher bad debt expense.

Adjusted EBITDA was $37.9 million in Q2 FY'18 with an adjusted EBITDA margin of 21.5% compared to $39.0 million and 25.0%, respectively, in the year-ago quarter.  

Selected Hay Group Data

 

(dollars in millions) (a)

 
   
 

Second Quarter

 

Year to Date

   
 

FY'18

 

FY'17

 

FY'18

 

FY'17

   

Fee revenue

$      200.0

 

$    188.8

 

$     379.4

 

$   363.4

   

Total revenue

$      203.8

 

$    192.4

 

$     387.1

 

$   373.9

   

Operating income

$        26.4

 

$      22.9

 

$       45.5

 

$     15.2

   

Operating margin

13.2%

 

12.1%

 

12.0%

 

4.2%

   
                   

Ending number of consultants (b)

594

 

563

 

594

 

563

   

Staff utilization (c)

67%

 

69%

 

65%

 

68%

   
                   

EBITDA Results (d):

Second Quarter

 

Year to Date

   
 

FY'18

 

FY'17

 

FY'18

 

FY'17

   

EBITDA

$        34.6

 

$     31.0

 

$       61.8

 

$      31.5

   

EBITDA margin

17.3%

 

16.4%

 

16.3%

 

8.7%

   
                   

Adjusted Results (e):

Second Quarter

 

Year to Date

   
 

FY'18

 

FY'17

 

FY'18

 

FY'17

   

Adjusted fee revenue

$      200.0

 

$    188.8

 

$     379.4

 

$    367.0

   

Adjusted EBITDA (d)

$        36.4

 

$      35.3

 

$       66.4

 

$      65.1

   

Adjusted EBITDA margin (d)

18.2%

 

18.7%

 

17.5%

 

17.7%

   

___________

(a)

Numbers may not total due to rounding.

(b)

Represents number of employees originating consulting services. 

(c)

Calculated by dividing the number of hours our full-time 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, as applicable (see attached reconciliations):

 

 

Second Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

Integration/acquisition costs

$                 2.3

 

$                4.4

 

$                4.9

 

$               8.6

 

Restructuring (recoveries) charges, net

$                (0.5)

 

$                  —

 

$              (0.2)

 

$             21.5

 

Deferred revenue adjustment related to the Legacy Hay acquisition

$                   —

 

$                  —

 

$                 —

 

$               3.5

 

Fee revenue was $200.0 million in Q2 FY'18 compared to $188.8 million in Q2 FY'17, an increase of $11.2 million or 5.9% (an increase of $8.9 million or 4.7% on a constant currency basis) compared to Q2 FY'17.  The increase in fee revenue was primarily driven by increases in consulting services.

Operating income was $26.4 million in Q2 FY'18 with an operating margin of 13.2% in the current quarter compared to $22.9 million and 12.1%, respectively, in the year-ago quarter.  The change in operating income was primarily due to higher fee revenue compared to the year-ago quarter, offset by increases in compensation and benefits expense and general and administrative expenses driven by a 2.5% increase in headcount and the unfavorable impact of foreign exchange rates.

Adjusted EBITDA was $36.4 million in Q2 FY'18 with an Adjusted EBITDA margin of 18.2% compared to $35.3 million and 18.7%, respectively, in the year-ago quarter.  

Selected Futurestep Data

 

(dollars in millions) (a)

 
   
 

Second Quarter

 

Year to Date

   
 

FY'18

 

FY'17

 

FY'18

 

FY'17

   

Fee revenue

$       66.3

 

$       56.8

 

$     126.9

 

$    111.5

   

Total revenue

$       71.0

 

$       62.0

 

$     136.9

 

$    121.9

   

Operating income

$         9.4

 

$         7.8

 

$       17.6

 

$      15.3

   

Operating margin

14.2%

 

13.7%

 

13.9%

 

13.7%

   
                   

Engagements billed (b)

1,228

 

1,025

 

1,907

 

1,595

   

New engagements (c)

711

 

559

 

1,443

 

1,078

   
                   

EBITDA Results (d):

Second Quarter

 

Year to Date

   
 

FY'18

 

FY'17

 

FY'18

 

FY'17

   

EBITDA

$       10.2

 

$         8.5

 

$       19.2

 

$      16.6

   

EBITDA margin

15.4%

 

14.9%

 

15.2%

 

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).

Fee revenue was $66.3 million in Q2 FY'18, an increase of $9.5 million or 16.7% (a $8.6 million or 15.1% increase on a constant currency basis), compared to the year-ago quarter.  The higher fee revenue was primarily driven by an increase in recruitment process outsourcing and professional search of $7.3 million and $2.8 million, respectively, in Q2 FY'18 compared to Q2 FY'17.

Operating income was $9.4 million in Q2 FY'18, an increase of $1.6 million compared to Q2 FY'17 operating income of $7.8 million.  Operating margin was 14.2% in the current quarter compared to 13.7% in the year-ago quarter.  The change in operating income was primarily due to higher fee revenue compared to the year-ago quarter, offset by increases in compensation and benefits expense and general and administrative expenses driven by a 16.1% increase in headcount associated with increased recruitment process outsourcing engagements and higher premise costs and bad debt expense.

EBITDA was $10.2 million during Q2 FY'18, an increase of $1.7 million compared to Q2 FY'17. EBITDA margin was 15.4% in Q2 FY'18 compared to 14.9% in the year-ago quarter.

Outlook

Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady and no changes in U.S. tax laws, on a consolidated basis:

  • Q3 FY'18 fee revenue is expected to be in the range of $406 million and $426 million; and
  • Q3 FY'18 diluted earnings per share is likely to range between $0.51 to $0.59.

On a consolidated adjusted basis:

  • Q3 FY'18 adjusted diluted earnings per share is expected to be in the range from $0.54 to $0.62.
 

Q3 FY'18

Earnings Per Share
Outlook
(1)

 
 

Low

 

High

 

Consolidated diluted earnings per share

$                            0.51

 

$                         0.59

 

  Retention bonuses

0.04

 

0.04

 

  Tax rate impact

(0.01)

 

(0.01)

 

Consolidated adjusted diluted earnings per share

$                            0.54

 

$                         0.62

 

___________

(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 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 more than 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, changes in demand for our services as a result of automation, 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, 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, consolidation of industries we serve, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, changes in U.S. tax laws, 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 (recoveries) charges, net, integration/acquisition costs and write-off of debt issuance costs 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 (recoveries) charges, net, integration/acquisition costs and write-off of debt issuance costs 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 (calculated using a quarterly average) amounts that represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period;
  • EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin;
  • Adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring (recoveries) charges, net and integration/acquisition costs 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) debt issuance costs written-off upon replacement of our credit facility and 4) 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 

 

 Six Months Ended 

   

 October 31 

 

 October 31 

   

2017

 

2016

 

2017

 

2016

   

 (unaudited) 

 Fee revenue 

 

$ 443,018

 

$ 401,917

 

$ 844,272

 

$ 777,538

 Reimbursed out-of-pocket engagement expenses 

 

12,450

 

13,037

 

26,113

 

30,349

           Total revenue 

 

455,468

 

414,954

 

870,385

 

807,887

                 

 Compensation and benefits 

 

301,043

 

270,609

 

574,997

 

533,576

 General and administrative expenses 

 

58,603

 

54,134

 

116,864

 

109,476

 Reimbursed expenses 

 

12,450

 

13,037

 

26,113

 

30,349

 Cost of services 

 

19,883

 

18,874

 

35,696

 

35,706

 Depreciation and amortization 

 

12,447

 

11,752

 

24,656

 

23,196

 Restructuring (recoveries) charges, net 

 

(202)

 

-

 

78

 

24,520

           Total operating expenses 

 

404,224

 

368,406

 

778,404

 

756,823

                 

 Operating income 

 

51,244

 

46,548

 

91,981

 

51,064

 Other income (loss), net 

 

3,626

 

(879)

 

7,158

 

3,380

 Interest expense, net 

 

(2,579)

 

(2,736)

 

(5,239)

 

(5,797)

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

 

 

52,291

 

 

42,933

 

 

93,900

 

 

48,647

 Equity in earnings of unconsolidated subsidiaries 

 

60

 

29

 

90

 

108

 Income tax provision 

 

15,619

 

11,906

 

27,829

 

13,631

 Net income 

 

36,732

 

31,056

 

66,161

 

35,124

           Net income attributable to noncontrolling interest 

 

(401)

 

(904)

 

(789)

 

(1,764)

 Net income attributable to Korn/Ferry International 

 

$   36,331

 

$   30,152

 

$   65,372

 

$   33,360

                 

 Earnings per common share attributable to Korn/Ferry International: 

               

      Basic 

 

$       0.65

 

$       0.53

 

$       1.16

 

$       0.59

      Diluted 

 

$       0.64

 

$       0.52

 

$       1.15

 

$       0.58

                 

 Weighted-average common shares outstanding: 

               

      Basic 

 

55,390

 

56,614

 

55,592

 

56,401

      Diluted 

 

55,978

 

56,983

 

56,252

 

56,863

                 

 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,

   

2017

     

2016

 

% Change

 

2017

     

2016

 

% Change

                                 

Fee Revenue:

                             

Executive search:

                             
 

North America

$ 101,544

     

$   92,732

 

9.5%

 

$ 193,377

     

$ 174,534

 

10.8%

 

EMEA 

41,346

     

34,779

 

18.9%

 

81,467

     

70,149

 

16.1%

 

Asia Pacific

25,912

     

19,470

 

33.1%

 

47,490

     

39,096

 

21.5%

 

Latin America

7,964

     

9,247

 

(13.9%)

 

15,623

     

18,810

 

(16.9%)

Total executive search

176,766

     

156,228

 

13.1%

 

337,957

     

302,589

 

11.7%

Hay Group

199,953

     

188,842

 

5.9%

 

379,406

     

363,424

 

4.4%

Futurestep

66,299

     

56,847

 

16.6%

 

126,909

     

111,525

 

13.8%

 

Total fee revenue

443,018

     

401,917

 

10.2%

 

844,272

     

777,538

 

8.6%

 Reimbursed out-of-pocket engagement expenses 

12,450

     

13,037

 

(4.5%)

 

26,113

     

30,349

 

(14.0%)

 

Total revenue

$ 455,468

     

$ 414,954

 

9.8%

 

$ 870,385

     

$ 807,887

 

7.7%

                                 

Operating Income (Loss):

   

Margin

     

Margin

     

Margin

     

Margin

Executive search:

                             
 

North America

$   22,945

 

22.6%

 

$   26,272

 

28.3%

 

$   44,940

 

23.2%

 

$   42,740

 

24.5%

 

EMEA

6,345

 

15.3%

 

6,847

 

19.7%

 

13,020

 

16.0%

 

12,874

 

18.4%

 

Asia Pacific

4,381

 

16.9%

 

2,028

 

10.4%

 

7,522

 

15.8%

 

4,130

 

10.6%

 

Latin America

1,527

 

19.2%

 

2,284

 

24.7%

 

2,553

 

16.3%

 

4,614

 

24.5%

Total executive search

35,198

 

19.9%

 

37,431

 

24.0%

 

68,035

 

20.1%

 

64,358

 

21.3%

Hay Group

26,370

 

13.2%

 

22,943

 

12.1%

 

45,453

 

12.0%

 

15,200

 

4.2%

Futurestep

9,409

 

14.2%

 

7,787

 

13.7%

 

17,646

 

13.9%

 

15,300

 

13.7%

Corporate

(19,733)

     

(21,613)

     

(39,153)

     

(43,794)

   
 

 Total operating income

$   51,244

 

11.6%

 

$   46,548

 

11.6%

 

$   91,981

 

10.9%

 

$   51,064

 

6.6%

 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (in thousands, except per share amounts) 

         
         
   

October 31,

 

April 30,

   

2017

 

2017

ASSETS

 

 (unaudited) 

   

Cash and cash equivalents

 

$    282,625

 

$    410,882

Marketable securities

 

13,671

 

4,363

Receivables due from clients, net of allowance for doubtful accounts of $15,930 and $15,455 at October 31, 2017 and April 30, 2017, respectively

 

 

397,374

 

 

345,314

Income taxes and other receivables

 

40,312

 

31,573

Prepaid expenses and other assets

 

66,809

 

51,542

Total current assets

 

800,791

 

843,674

         

Marketable securities, non-current

 

117,566

 

115,574

Property and equipment, net

 

115,090

 

109,567

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

 

115,627

 

113,067

Deferred income taxes

 

22,167

 

20,175

Goodwill

 

581,780

 

576,865

Intangible assets, net

 

210,016

 

217,319

Investments and other assets

 

99,064

 

66,657

Total assets

 

$ 2,062,101

 

$ 2,062,898

         

LIABILITIES AND STOCKHOLDERS' EQUITY

       

Accounts payable

 

$      34,645

 

$      37,481

Income taxes payable

 

14,687

 

4,526

Compensation and benefits payable

 

191,512

 

248,354

Term loan

 

21,473

 

19,754

Other accrued liabilities

 

150,855

 

148,464

Total current liabilities

 

413,172

 

458,579

         

Deferred compensation and other retirement plans

 

222,755

 

219,905

Term loan, non-current

 

224,626

 

236,222

Deferred tax liabilities

 

16,807

 

7,014

Other liabilities

 

50,018

 

54,130

Total liabilities

 

927,378

 

975,850

         

Stockholders' equity

       

Common stock: $0.01 par value, 150,000 shares authorized, 71,529 and 70,811 shares

issued and 56,511 and 56,938 shares outstanding at October 31, 2017 and April 30, 

2017, respectively

 

 

674,105

 

 

692,527

Retained earnings

 

515,811

 

461,976

Accumulated other comprehensive loss, net

 

(57,902)

 

(71,064)

Total Korn/Ferry International stockholders' equity

 

1,132,014

 

1,083,439

Noncontrolling interest

 

2,709

 

3,609

Total stockholders' equity

 

1,134,723

 

1,087,048

Total liabilities and stockholders' equity

 

$ 2,062,101

 

$ 2,062,898

 

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, 

   

2017

 

2016

 

2017

 

2016

   

 (unaudited) 

 Fee revenue 

 

$ 443,018

 

$ 401,917

 

$ 844,272

 

$ 777,538

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

-

 

-

 

3,535

           Adjusted fee revenue 

 

$ 443,018

 

$ 401,917

 

$ 844,272

 

$ 781,073

                 

 Operating income 

 

$   51,244

 

$   46,548

 

$   91,981

 

$   51,064

 Depreciation and amortization 

 

12,447

 

11,752

 

24,656

 

23,196

 Other income (loss), net 

 

3,626

 

(879)

 

7,158

 

3,380

 Equity in earnings of unconsolidated subsidiaries, net 

 

60

 

29

 

90

 

108

           EBITDA 

 

67,377

 

57,450

 

123,885

 

77,748

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

-

 

-

 

3,535

 Restructuring (recoveries) charges, net (2) 

 

(202)

 

-

 

78

 

24,520

 Integration/acquisition costs (3) 

 

2,393

 

5,820

 

4,981

 

13,847

           Adjusted EBITDA 

 

$   69,568

 

$   63,270

 

$ 128,944

 

$ 119,650

                 

 Operating margin 

 

11.6%

 

11.6%

 

10.9%

 

6.6%

 Depreciation and amortization 

 

2.8%

 

2.9%

 

2.9%

 

3.0%

 Other income (loss), net 

 

0.8%

 

(0.2%)

 

0.9%

 

0.4%

 Equity in earnings of unconsolidated subsidiaries, net 

 

-

 

-

 

-

 

-

            EBITDA margin 

 

15.2%

 

14.3%

 

14.7%

 

10.0%

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

-

 

-

 

0.4%

 Restructuring (recoveries) charges, net (2) 

 

-

 

-

 

-

 

3.1%

 Integration/acquisition costs (3) 

 

0.5%

 

1.4%

 

0.6%

 

1.8%

           Adjusted EBITDA margin 

 

15.7%

 

15.7%

 

15.3%

 

15.3%

                 

 Net income attributable to Korn/Ferry International 

 

$   36,331

 

$   30,152

 

$   65,372

 

$   33,360

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

-

 

-

 

3,535

 Restructuring (recoveries) charges, net (2) 

 

(202)

 

-

 

78

 

24,520

 Integration/acquisition costs (3) 

 

2,393

 

5,820

 

4,981

 

13,847

 Write-off of debt issuance costs (4) 

 

-

 

-

 

-

 

954

 Tax effect on the above items (5) 

 

(681)

 

(1,916)

 

(1,405)

 

(12,634)

           Adjusted net income attributable to Korn/Ferry International 

 

$   37,841

 

$   34,056

 

$   69,026

 

$   63,582

                 

 Basic earnings per common share 

 

$       0.65

 

$       0.53

 

$       1.16

 

$       0.59

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

-

 

-

 

0.06

 Restructuring (recoveries) charges, net (2) 

 

-

 

-

 

-

 

0.43

 Integration/acquisition costs (3) 

 

0.04

 

0.10

 

0.10

 

0.25

 Write-off of debt issuance costs (4) 

 

-

 

-

 

-

 

0.02

 Tax effect on the above items (5) 

 

(0.01)

 

(0.03)

 

(0.03)

 

(0.23)

           Adjusted basic earnings per share 

 

$       0.68

 

$       0.60

 

$       1.23

 

$       1.12

                 

 Diluted earnings per common share 

 

$       0.64

 

$       0.52

 

$       1.15

 

$       0.58

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

-

 

-

 

0.06

 Restructuring (recoveries) charges, net (2) 

 

-

 

-

 

-

 

0.43

 Integration/acquisition costs (3) 

 

0.04

 

0.10

 

0.09

 

0.24

 Write-off of debt issuance costs (4) 

 

-

 

-

 

-

 

0.02

 Tax effect on the above items (5) 

 

(0.01)

 

(0.03)

 

(0.03)

 

(0.22)

           Adjusted diluted earnings per share 

 

$       0.67

 

$       0.59

 

$       1.21

 

$       1.11

   

 Explanation of Non-GAAP Adjustments 

(1)

This represents 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 for the six months ended October 31, 2016. Management has no longer adjusted fee revenue after Q1 FY'17. 

(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)

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

(5)

Tax effect on deferred revenue adjustment associated with the acquisition of Legacy Hay, restructuring (recoveries) charges, net, integration/acquisition costs 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 October 31, 2017 

 
   

 Executive Search 

                 
   

 North
America 

 

 EMEA 

 

 Asia Pacific 

 

Latin
America 

 

 Subtotal 

 

 Hay Group 

 

 Futurestep 

 

 Corporate 

 

 Consolidated 

 
                                       

 Fee revenue 

 

$            101,544

 

$ 41,346

 

$       25,912

 

$               7,964

 

$    176,766

 

$   199,953

 

$         66,299

 

$                  -

 

$           443,018

 

 Total revenue 

 

$            104,329

 

$ 42,073

 

$       26,187

 

$               7,994

 

$    180,583

 

$   203,836

 

$         71,049

 

$                  -

 

$           455,468

 
                                       

 Net income attributable to Korn/Ferry International 

                             

$             36,331

 

 Net income attributable to noncontrolling interest 

                             

401

 

 Other income, net 

                                 

(3,626)

 

 Interest expense, net 

                                 

2,579

 

 Equity in earnings of unconsolidated subsidiaries, net 

                                 

(60)

 

 Income tax provision 

                                 

15,619

 

 Operating income (loss) 

 

$              22,945

 

$   6,345

 

$          4,381

 

$               1,527

 

$      35,198

 

$     26,370

 

$           9,409

 

$     (19,733)

 

51,244

 

 Depreciation and amortization 

 

984

 

459

 

371

 

111

 

1,925

 

8,143

 

784

 

1,595

 

12,447

 

 Other income, net 

 

290

 

43

 

94

 

39

 

466

 

57

 

-

 

3,103

 

3,626

 

 Equity in earnings of unconsolidated subsidiaries, net 

 

60

 

-

 

-

 

-

 

60

 

-

 

-

 

-

 

60

 

 EBITDA 

 

24,279

 

6,847

 

4,846

 

1,677

 

37,649

 

34,570

 

10,193

 

(15,035)

 

67,377

 

 EBITDA margin 

 

23.9%

 

16.6%

 

18.7%

 

21.1%

 

21.3%

 

17.3%

 

15.4%

     

15.2%

 
                                       

 Restructuring (recoveries) charges, net 

 

-

 

-

 

273

 

-

 

273

 

(481)

 

6

 

-

 

(202)

 

 Integration/acquisition costs 

 

-

 

-

 

-

 

-

 

-

 

2,313

 

-

 

80

 

2,393

 

 Adjusted EBITDA 

 

$              24,279

 

$   6,847

 

$          5,119

 

$               1,677

 

$      37,922

 

$     36,402

 

$         10,199

 

$     (14,955)

 

$             69,568

 

 Adjusted EBITDA margin 

 

23.9%

 

16.6%

 

19.8%

 

21.1%

 

21.5%

 

18.2%

 

15.4%

     

15.7%

 
                                       
                                       
   

 Three Months Ended October 31, 2016 

 
   

 Executive Search 

                 
   

 North
America 

 

 EMEA 

 

 Asia Pacific 

 

Latin
America 

 

 Subtotal 

 

 Hay Group 

 

 Futurestep 

 

 Corporate 

 

 Consolidated 

 
                                       

 Fee revenue 

 

$              92,732

 

$ 34,779

 

$       19,470

 

$               9,247

 

$    156,228

 

$   188,842

 

$         56,847

 

$                  -

 

$           401,917

 

 Total revenue   

 

$              95,902

 

$ 35,507

 

$       19,929

 

$               9,296

 

$    160,634

 

$   192,352

 

$         61,968

 

$                  -

 

$           414,954

 
                                       

 Net income attributable to Korn/Ferry International 

                             

$             30,152

 

 Net income attributable to noncontrolling interest 

                             

904

 

 Other loss, net 

                                 

879

 

 Interest expense, net 

                                 

2,736

 

 Equity in earnings of unconsolidated subsidiaries, net 

                                 

(29)

 

 Income tax provision 

                                 

11,906

 

 Operating income (loss) 

 

$              26,272

 

$   6,847

 

$          2,028

 

$               2,284

 

$      37,431

 

$     22,943

 

$           7,787

 

$     (21,613)

 

46,548

 

 Depreciation and amortization 

 

990

 

229

 

264

 

174

 

1,657

 

8,025

 

669

 

1,401

 

11,752

 

 Other (loss) income, net 

 

(92)

 

(80)

 

24

 

24

 

(124)

 

(11)

 

-

 

(744)

 

(879)

 

 Equity in earnings of unconsolidated subsidiaries, net 

 

29

 

-

 

-

 

-

 

29

 

-

 

-

 

-

 

29

 

 EBITDA 

 

27,199

 

6,996

 

2,316

 

2,482

 

38,993

 

30,957

 

8,456

 

(20,956)

 

57,450

 

 EBITDA margin 

 

29.3%

 

20.1%

 

11.9%

 

26.8%

 

25.0%

 

16.4%

 

14.9%

     

14.3%

 
                                       

 Integration/acquisition costs 

 

-

 

-

 

-

 

-

 

-

 

4,365

 

-

 

1,455

 

5,820

 

 Adjusted EBITDA 

 

$              27,199

 

$   6,996

 

$          2,316

 

$               2,482

 

$      38,993

 

$     35,322

 

$           8,456

 

$     (19,501)

 

$             63,270

 

 Adjusted EBITDA margin 

 

29.3%

 

20.1%

 

11.9%

 

26.8%

 

25.0%

 

18.7%

 

14.9%

     

15.7%

 

 

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, 2017 

 
   

 Executive Search 

                 
   

 North
America 

 

 EMEA 

 

 Asia Pacific 

 

Latin
America 

 

 Subtotal 

 

 Hay Group 

 

 Futurestep 

 

 Corporate 

 

 Consolidated 

 
                                       

 Fee revenue 

 

$            193,377

 

$ 81,467

 

$       47,490

 

$          15,623

 

$ 337,957

 

$   379,406

 

$       126,909

 

$                  -

 

$           844,272

 

 Total revenue   

 

$            199,534

 

$ 83,131

 

$       48,067

 

$          15,658

 

$ 346,390

 

$   387,132

 

$       136,863

 

$                  -

 

$           870,385

 
                                       

 Net income attributable to Korn/Ferry  International 

                             

$             65,372

 

 Net income attributable to noncontrolling interest 

                             

789

 

 Other income, net 

                                 

(7,158)

 

 Interest expense, net 

                                 

5,239

 

 Equity in earnings of unconsolidated subsidiaries, net 

                                 

(90)

 

 Income tax provision 

                                 

27,829

 

 Operating income (loss) 

 

$              44,940

 

$ 13,020

 

$          7,522

 

$            2,553

 

$   68,035

 

$     45,453

 

$         17,646

 

$     (39,153)

 

91,981

 

 Depreciation and amortization 

 

1,933

 

887

 

691

 

218

 

3,729

 

16,228

 

1,580

 

3,119

 

24,656

 

 Other income, net 

 

572

 

99

 

199

 

59

 

929

 

89

 

8

 

6,132

 

7,158

 

 Equity in earnings of unconsolidated  subsidiaries, net 

 

90

 

-

 

-

 

-

 

90

 

-

 

-

 

-

 

90

 

 EBITDA 

 

47,535

 

14,006

 

8,412

 

2,830

 

72,783

 

61,770

 

19,234

 

(29,902)

 

123,885

 

 EBITDA margin 

 

24.6%

 

17.2%

 

17.7%

 

18.1%

 

21.5%

 

16.3%

 

15.2%

     

14.7%

 
                                       

 Restructuring (recoveries) charges, net 

 

-

 

-

 

313

 

-

 

313

 

(241)

 

6

 

-

 

78

 

 Integration/acquisition costs 

 

-

 

-

 

-

 

-

 

-

 

4,862

 

-

 

119

 

4,981

 

 Adjusted EBITDA 

 

$              47,535

 

$ 14,006

 

$          8,725

 

$            2,830

 

$   73,096

 

$     66,391

 

$         19,240

 

$     (29,783)

 

$           128,944

 

 Adjusted EBITDA margin 

 

24.6%

 

17.2%

 

18.4%

 

18.1%

 

21.6%

 

17.5%

 

15.2%

     

15.3%

 
                                       
                                       
   

 Six Months Ended October 31, 2016 

 
   

 Executive Search 

                 
   

 North
America 

 

 EMEA  

 

 Asia Pacific 

 

Latin
America 

 

 Subtotal 

 

 Hay Group 

 

 Futurestep 

 

 Corporate 

 

 Consolidated 

 
                   

 Fee revenue 

 

$            174,534

 

$ 70,149

 

$       39,096

 

$          18,810

 

$ 302,589

 

$   363,424

 

$       111,525

 

$                  -

 

$           777,538

 

 Deferred revenue adjustment due to acquisition 

 

-

 

-

 

-

 

-

 

-

 

3,535

 

-

 

-

 

3,535

 

 Adjusted fee revenue   

 

$            174,534

 

$ 70,149

 

$       39,096

 

$          18,810

 

$ 302,589

 

$   366,959

 

$       111,525

 

$                  -

 

$           781,073

 

 Total revenue   

 

$            181,327

 

$ 71,756

 

$       40,109

 

$          18,910

 

$ 312,102

 

$   373,860

 

$       121,925

 

$                  -

 

$           807,887

 
                                       

 Net income attributable to Korn/Ferry  International 

                             

$             33,360

 

 Net income attributable to noncontrolling interest