Investor Relations

Press Release

Korn Ferry International Announces Third Quarter Fiscal 2018 Results of Operations

March 6, 2018

LOS ANGELES, March 6, 2018 /PRNewswire/ --

Highlights

  • Korn Ferry reports record fee revenue of $447.6 million in Q3 FY'18 driven by organic growth in all three lines of business as compared to Q3 FY'17:

 

 

Futurestep

 

29.4%

 
 

Executive Search

 

18.1%

 
 

Hay Group

 

12.7%

 

 

  • Operating income was $48.6 million in Q3 FY'18 with an operating margin of 10.9%. Adjusted EBITDA was $70.3 million with Adjusted EBITDA margin of 15.7%.
  • Q3 FY'18 diluted earnings per share was $0.48 compared to diluted earnings per share of $0.42 in Q3 FY'17. Adjusted diluted earnings per share was $0.70 in Q3 FY'18, compared to adjusted diluted earnings per share in Q3 FY'17 of $0.53.
  • The Company continued to return capital to stockholders during the quarter, paying $5.7 million in dividends and repurchasing $3.3 million worth of its outstanding shares.
  • The Company declared a quarterly dividend of $0.10 per share on March 5, 2018 payable on April 13, 2018 to stockholders of record on March 26, 2018.

Korn/Ferry International (NYSE: KFY), a global organizational consulting firm, today announced fee revenue of $447.6 million for its third quarter of fiscal 2018.  In addition, third quarter diluted earnings per share was $0.48 and adjusted diluted earnings per share was $0.70.  Adjusted diluted earnings per share for the third quarter excluded $12.7 million, or $0.22 per share, comprised of the impact of the United States Tax Cut and Jobs Act ("Tax Act") and integration/acquisition costs net of related taxes.

"I am pleased to report 17% year over year growth for our recently completed third quarter, with fee revenue of $448 million and solid profitability, including diluted earnings per share and adjusted diluted earnings per share of $0.48 and $0.70 and adjusted EBITDA of approximately $70 million," said Gary D. Burnison, CEO of Korn Ferry. "Today Korn Ferry is truly a global organizational consulting firm. We help companies design their organization – the structure, the roles and responsibilities, as well as how they compensate, develop and motivate their people. As importantly, we help organizations select and hire the talent they need to execute their strategy. I'm pleased with the trajectory of our firm and our continued momentum as we enable people and organizations to exceed their potential."

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

 

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

Fee revenue

$       447.6

 

$     381.9

 

$ 1,291.9

 

$ 1,159.5

 

Total revenue

$       460.8

 

$     394.2

 

$ 1,331.2

 

$ 1,202.1

 

Operating income

$         48.6

 

$       30.5

 

$    140.6

 

$      81.6

 

Operating margin

10.9%

 

8.0%

 

10.9%

 

7.0%

 

Net income attributable to Korn Ferry

$         27.2

 

$       23.9

 

$      92.6

 

$      57.3

 

Basic earnings per share

$         0.49

 

$       0.42

 

$      1.65

 

$      1.01

 

Diluted earnings per share

$         0.48

 

$       0.42

 

$      1.63

 

$      1.00

 
                 

EBITDA Results (b):

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

EBITDA

$         68.6

 

$       46.6

 

$    192.5

 

$    124.4

 

EBITDA margin

15.3%

 

12.2%

 

14.9%

 

10.7%

 
                 

Adjusted Results (c):

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

Adjusted fee revenue

$       447.6

 

$     381.9

 

$ 1,291.9

 

$ 1,163.0

 

Adjusted EBITDA (b)

$         70.3

 

$       55.3

 

$    199.3

 

$    174.9

 

Adjusted EBITDA margin (b)

15.7%

 

14.5%

 

15.4%

 

15.0%

 

Adjusted net income attributable to Korn Ferry

$         39.9

 

$       30.1

 

$    108.9

 

$      93.7

 

Adjusted basic earnings per share

$         0.71

 

$       0.53

 

$      1.94

 

$      1.65

 

Adjusted diluted earnings per share

$         0.70

 

$       0.53

 

$      1.92

 

$      1.63

 
             

(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 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):

 

   

Third Quarter

   

Year to Date

 

FY'18

 

FY'17

 

FY'18

 

FY'17

Income tax impact due to the enactment of the Tax Act

$

11.3

 

$

 

$

11.3

 

$

Integration/acquisition costs

$

1.7

 

$

4.8

 

$

6.7

 

$

18.7

Restructuring charges, net

$

 

$

3.8

 

$

0.1

 

$

28.3

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 Q3 FY'18 of $447.6 million, an increase of $65.7 million or 17.2% (an increase of $49.9 million or 13.1% on a constant currency basis) compared to Q3 FY'17.  The organic growth was driven by all three lines of business:

Futurestep

 

29.4%

 

Executive Search

 

18.1%

 

Hay Group

 

12.7%

 

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 growing 59.3% and 27.1%, respectively, as compared to Q3 FY'17 and diluted earnings per share and Adjusted diluted earnings per share growing 14.3% and 32.1%, respectively, as compared to Q3 FY'17.

Results by Segment

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

 

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

Fee revenue

$       180.4

 

$   152.8

 

$      518.4

 

$    455.4

 

Total revenue

$       185.5

 

$   157.1

 

$      531.9

 

$    469.2

 

Operating income

$         34.3

 

$     29.3

 

$      102.4

 

$      93.7

 

Operating margin

19.0%

 

19.2%

 

19.7%

 

20.6%

 

Ending number of consultants

536

 

507

 

536

 

507

 

Average number of consultants

537

 

504

 

527

 

498

 

Engagements billed

3,671

 

3,328

 

7,709

 

7,113

 

New engagements (b)

1,564

 

1,453

 

4,735

 

4,424

 
                 

EBITDA Results (c):

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

EBITDA

$         37.2

 

$      31.4

 

$      110.0

 

$      99.2

 

EBITDA margin

20.6%

 

20.5%

 

21.2%

 

21.8%

 
                 

Adjusted Results (d):

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

Adjusted EBITDA (c)

$         37.2

 

$      32.6

 

$      110.3

 

$    103.2

 

Adjusted EBITDA margin (c)

20.6%

 

21.3%

 

21.3%

 

22.7%

 
             

(a) 

Numbers may not total due to rounding.

(b) 

Represents new engagements opened in the respective period.

(c) 

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

(d)

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

 

 

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

Restructuring charges, net

$                  —

 

$               1.2

 

$             0.3

 

$               4.0

 

Fee revenue was $180.4 million in Q3 FY'18, an increase of $27.6 million or 18.1% (an increase of $22.0 million or 14.4% on a constant currency basis) compared to Q3 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 $34.3 million in Q3 FY'18 compared to $29.3 million in Q3 FY'17.  Operating margin was 19.0% in Q3 FY'18 compared to 19.2% in the year-ago quarter.  The increase in operating income was due to higher fee revenue, offset by an increase in compensation and benefits expense driven by 6.4% increase in headcount and performance related bonus expense.

Adjusted EBITDA was $37.2 million in Q3 FY'18 with an Adjusted EBITDA margin of 20.6% compared to $32.6 million and 21.3%, respectively, in the year-ago quarter.  

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

 

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

Fee revenue

$      198.1

 

$    175.7

 

$     577.5

 

$   539.1

 

Total revenue

$      202.0

 

$    179.0

 

$     589.1

 

$   552.8

 

Operating income

$        27.1

 

$      16.0

 

$       72.5

 

$     31.2

 

Operating margin

13.7%

 

9.1%

 

12.6%

 

5.8%

 

Ending number of consultants (b)

590

 

559

 

590

 

559

 

Staff utilization (c)

64%

 

62%

 

65%

 

66%

 
                 

EBITDA Results (d):

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

EBITDA

$        35.3

 

$     24.2

 

$       97.1

 

$      55.6

 

EBITDA margin

17.8%

 

13.8%

 

16.8%

 

10.3%

 
                 

Adjusted Results (e):

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

Adjusted fee revenue

$      198.1

 

$    175.7

 

$     577.5

 

$    542.6

 

Adjusted EBITDA (d)

$        36.9

 

$      30.1

 

$     103.3

 

$      95.2

 

Adjusted EBITDA margin (d)

18.6%

 

17.1%

 

17.9%

 

17.5%

 
             

(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):

 

 

 

Third Quarter

 

 

Year to Date

 

FY'18

 

FY'17

 

FY'18

 

FY'17

Integration/acquisition costs

$

1.6

 

$

3.4

 

$

6.5

 

$

12.0

Restructuring (recoveries) charges, net

$

 

$

2.5

 

$

(0.2)

 

$

24.0

Deferred revenue adjustment related to the Legacy Hay acquisition

$

 

$

 

$

 

$

3.5

Fee revenue was $198.1 million in Q3 FY'18 compared to $175.7 million in Q3 FY'17, an increase of $22.4 million or 12.7% (an increase of $14.6 million or 8.3% on a constant currency basis) compared to Q3 FY'17.  The higher fee revenue was primarily driven by a $15.6 million increase in consulting services with the remaining increase of $6.8 million was generated by the products business.

Operating income was $27.1 million in Q3 FY'18 with an operating margin of 13.7% in the current quarter compared to $16.0 million and 9.1%, 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 driven by an increase in average consultant headcount in Q3 FY'18 compared to Q3 FY'17 and an increase in performance related bonus expense.

Adjusted EBITDA was $36.9 million in Q3 FY'18 with an Adjusted EBITDA margin of 18.6% compared to $30.1 million and 17.1%, respectively, in the year-ago quarter.  

Selected Futurestep Data
(dollars in millions) (a)

 

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

Fee revenue

$       69.1

 

$       53.4

 

$     196.0

 

$    165.0

 

Total revenue

$       73.3

 

$       58.1

 

$     210.2

 

$    180.0

 

Operating income

$       10.1

 

$         6.5

 

$       27.7

 

$      21.8

 

Operating margin

14.6%

 

12.3%

 

14.1%

 

13.2%

 

Engagements billed (b)

1,284

 

1,096

 

2,677

 

2,206

 

New engagements (c)

730

 

539

 

2,173

 

1,617

 
                 

EBITDA Results (d):

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

EBITDA

$       10.8

 

$         7.3

 

$       30.0

 

$      23.9

 

EBITDA margin

15.6%

 

13.7%

 

15.3%

 

14.5%

 
                 

EBITDA Results (e):

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

Adjusted EBITDA (d)

$       10.8

 

$         7.4

 

$       30.0

 

$      24.0

 

Adjusted EBITDA margin (d)

15.6%

 

13.9%

 

15.3%

 

14.6%

 
             

(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):

 

 

Third Quarter

 

Year to Date

 
 

FY'18

 

FY'17

 

FY'18

 

FY'17

 

Restructuring charges, net

$                  —

 

$               0.1

 

$                 —

 

$               0.1

 

Fee revenue was $69.1 million in Q3 FY'18, an increase of $15.7 million or 29.4% (a $13.3 million or 24.9% 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 $9.9 million and $6.0 million, respectively, in Q3 FY'18 compared to Q3 FY'17.

Operating income was $10.1 million in Q3 FY'18, an increase of $3.6 million compared to Q3 FY'17 operating income of $6.5 million.  Operating margin was 14.6% in the current quarter compared to 12.3% 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 driven by a 31.5% increase in headcount associated with increased recruitment process outsourcing engagements and higher performance related bonus expense.

Adjusted EBITDA was $10.8 million during Q3 FY'18, an increase of $3.4 million compared to Q3 FY'17.  Adjusted EBITDA margin was 15.6% in Q3 FY'18 compared to 13.9% in the year-ago quarter.

Outlook

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

  • Q4 FY'18 fee revenue is expected to be in the range of $448 million and $462 million; and
  • Q4 FY'18 diluted earnings per share is likely to range between $0.66 to $0.70.

On a consolidated adjusted basis:

  • Q4 FY'18 adjusted diluted earnings per share is expected to be in the range from $0.69 to $0.73.

 

 

Q4 FY'18

Earnings Per Share
Outlook
(1)

 
 

Low

 

High

 

Consolidated diluted earnings per share

$                            0.66

 

$                         0.70

 

   Retention bonuses

0.04

 

0.04

 

   Tax rate impact

(0.01)

 

(0.01)

 

Consolidated adjusted diluted earnings per share

$                            0.69

 

$                         0.73

 
             

(1)

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

Earnings Conference Call Webcast

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

About Korn Ferry

Korn Ferry is a global organizational consulting firm. We help companies design their organization – the structure, the roles and responsibilities, as well as how they compensate, develop and motivate their people. As importantly, we help organizations select and hire the talent they need to execute their strategy. Our approximately 7,000 colleagues serve clients in more than 50 countries. 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, maintain relationships with customers and suppliers and retain key employees, maintaining our brand name and professional reputation, potential legal liability and regulatory developments, the portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, changes to data security, data privacy and data protection laws, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, the utilization and billing rates of our consultants, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, tax accounting effects of the Tax Act, impairment of goodwill and other intangible assets, deferred tax assets that we may not be able to use, seasonality, risks related to the integration of recently acquired businesses 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 the tax impact associated with the Tax Act, 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 the tax impact associated with the Tax Act, 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 after acquisition 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) the tax impact associated with the Tax Act, 2) costs we incurred to acquire and integrate the Legacy Hay acquisition, 3) charges we incurred to restructure the combined company due to the acquisition of Legacy Hay, 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) 

 (unaudited) 

                 
   

 Three Months Ended 

 

 Nine Months Ended 

   

 January 31 

 

 January 31 

   

2018

 

2017

 

2018

 

2017

   

 (unaudited) 

 Fee revenue 

 

$ 447,581

 

$ 381,918

 

$ 1,291,853

 

$ 1,159,456

 Reimbursed out-of-pocket engagement expenses 

 

13,189

 

12,277

 

39,302

 

42,626

           Total revenue 

 

460,770

 

394,195

 

1,331,155

 

1,202,082

                 

 Compensation and benefits 

 

310,751

 

262,438

 

885,748

 

796,014

 General and administrative expenses 

 

58,516

 

56,818

 

175,380

 

166,294

 Reimbursed expenses 

 

13,189

 

12,277

 

39,302

 

42,626

 Cost of services 

 

17,467

 

16,545

 

53,163

 

52,251

 Depreciation and amortization 

 

12,225

 

11,774

 

36,881

 

34,970

 Restructuring charges, net 

 

-

 

3,801

 

78

 

28,321

           Total operating expenses 

 

412,148

 

363,653

 

1,190,552

 

1,120,476

                 

 Operating income 

 

48,622

 

30,542

 

140,603

 

81,606

 Other income, net 

 

7,689

 

4,200

 

14,847

 

7,580

 Interest expense, net 

 

(2,665)

 

(2,402)

 

(7,904)

 

(8,199)

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

 

53,646

 

32,340

 

147,546

 

80,987

 Equity in earnings of unconsolidated subsidiaries 

 

97

 

113

 

187

 

221

 Income tax provision 

 

26,316

 

8,075

 

54,145

 

21,706

 Net income 

 

27,427

 

24,378

 

93,588

 

59,502

           Net income attributable to noncontrolling interest 

 

(180)

 

(481)

 

(969)

 

(2,245)

 Net income attributable to Korn/Ferry International 

 

$   27,247

 

$   23,897

 

$      92,619

 

$      57,257

                 

 Earnings per common share attributable to Korn/Ferry International: 

               

      Basic 

 

$       0.49

 

$       0.42

 

$           1.65

 

$           1.01

      Diluted 

 

$       0.48

 

$       0.42

 

$           1.63

 

$           1.00

                 

 Weighted-average common shares outstanding: 

               

      Basic 

 

55,252

 

56,173

 

55,479

 

56,325

      Diluted 

 

55,997

 

56,702

 

56,236

 

56,917

                 

 Cash dividends declared per share: 

 

$       0.10

 

$       0.10

 

$           0.30

 

$           0.30

 

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

 (unaudited) 

                                 
         
   

Three Months Ended January 31,

 

Nine Months Ended January 31,

   

2018

     

2017

 

% Change

 

2018

     

2017

 

% Change

                                 

Fee Revenue:

                             

Executive search:

                             
 

North America

$ 102,716

     

$   84,827

 

21.1%

 

$    296,093

     

$    259,361

 

14.2%

 

EMEA 

46,782

     

39,147

 

19.5%

 

128,249

     

109,296

 

17.3%

 

Asia Pacific

24,493

     

21,012

 

16.6%

 

71,983

     

60,108

 

19.8%

 

Latin America

6,425

     

7,835

 

(18.0%)

 

22,048

     

26,645

 

(17.3%)

Total executive search

180,416

     

152,821

 

18.1%

 

518,373

     

455,410

 

13.8%

Hay Group

198,056

     

175,662

 

12.7%

 

577,462

     

539,086

 

7.1%

Futurestep

69,109

     

53,435

 

29.3%

 

196,018

     

164,960

 

18.8%

 

Total fee revenue

447,581

     

381,918

 

17.2%

 

1,291,853

     

1,159,456

 

11.4%

 Reimbursed out-of-pocket engagement expenses 

13,189

     

12,277

 

7.4%

 

39,302

     

42,626

 

(7.8%)

 

Total revenue

$ 460,770

     

$ 394,195

 

16.9%

 

$ 1,331,155

     

$ 1,202,082

 

10.7%

                                 

Operating Income (Loss):

   

Margin

     

Margin

     

Margin

     

Margin

Executive search:

                             
 

North America

$   21,313

 

20.7%

 

$   17,718

 

20.9%

 

$      66,253

 

22.4%

 

$      60,458

 

23.3%

 

EMEA

7,329

 

15.7%

 

8,175

 

20.9%

 

20,349

 

15.9%

 

21,049

 

19.3%

 

Asia Pacific

5,289

 

21.6%

 

2,086

 

9.9%

 

12,811

 

17.8%

 

6,216

 

10.3%

 

Latin America

408

 

6.4%

 

1,352

 

17.3%

 

2,961

 

13.4%

 

5,966

 

22.4%

Total executive search

34,339

 

19.0%

 

29,331

 

19.2%

 

102,374

 

19.7%

 

93,689

 

20.6%

Hay Group

27,079

 

13.7%

 

15,988

 

9.1%

 

72,532

 

12.6%

 

31,188

 

5.8%

Futurestep

10,056

 

14.6%

 

6,549

 

12.3%

 

27,702

 

14.1%

 

21,849

 

13.2%

Corporate

(22,852)

     

(21,326)

     

(62,005)

     

(65,120)

   
 

 Total operating income

$   48,622

 

10.9%

 

$   30,542

 

8.0%

 

$    140,603

 

10.9%

 

$      81,606

 

7.0%

 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (in thousands, except per share amounts) 

         
         
   

January 31

 

April 30,

   

2018

 

2017

ASSETS

 

 (unaudited) 

   

Cash and cash equivalents

 

$    389,990

 

$    410,882

Marketable securities

 

14,807

 

4,363

Receivables due from clients, net of allowance for doubtful accounts of $17,990 and $15,455 at January 31, 2018 and April 30, 2017, respectively

 

397,845

 

345,314

Income taxes and other receivables

 

25,985

 

31,573

Prepaid expenses and other assets

 

63,409

 

51,542

Total current assets

 

892,036

 

843,674

         

Marketable securities, non-current

 

124,196

 

115,574

Property and equipment, net

 

116,767

 

109,567

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

 

118,248

 

113,067

Deferred income taxes

 

23,222

 

20,175

Goodwill

 

586,561

 

576,865

Intangible assets, net

 

206,733

 

217,319

Investments and other assets

 

98,769

 

66,657

Total assets

 

$ 2,166,532

 

$ 2,062,898

         

LIABILITIES AND STOCKHOLDERS' EQUITY

       

Accounts payable

 

$      28,359

 

$      37,481

Income taxes payable

 

17,128

 

4,526

Compensation and benefits payable

 

234,411

 

248,354

Term loan

 

23,192

 

19,754

Other accrued liabilities

 

163,784

 

148,464

Total current liabilities

 

466,874

 

458,579

         

Deferred compensation and other retirement plans

 

233,595

 

219,905

Term loan, non-current

 

217,969

 

236,222

Deferred tax liabilities

 

7,619

 

7,014

Other liabilities

 

59,581

 

54,130

Total liabilities

 

985,638

 

975,850

         

Stockholders' equity

       

Common stock: $0.01 par value, 150,000 shares authorized, 71,606 and 70,811 shares issued and 56,518 and 56,938 shares outstanding at January 31, 2018 and April 30, 2017, respectively

 

679,277

 

692,527

Retained earnings

 

537,353

 

461,976

Accumulated other comprehensive loss, net

 

(38,671)

 

(71,064)

Total Korn/Ferry International stockholders' equity

 

1,177,959

 

1,083,439

Noncontrolling interest

 

2,935

 

3,609

Total stockholders' equity

 

1,180,894

 

1,087,048

Total liabilities and stockholders' equity

 

$ 2,166,532

 

$ 2,062,898

 

KORN FERRY AND SUBSIDIARIES

 RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES 

 (in thousands, except per share amounts) 

 
                 
   

 Three Months Ended 

 

 Nine Months Ended 

   

 January 31 

 

 January 31 

   

2018

 

2017

 

2018

 

2017

   

 (unaudited) 

 Fee revenue 

 

$  447,581

 

$  381,918

 

$  1,291,853

 

$  1,159,456

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

-

 

-

 

3,535

           Adjusted fee revenue 

 

$  447,581

 

$  381,918

 

$  1,291,853

 

$  1,162,991

                 

 Operating income 

 

$    48,622

 

$    30,542

 

$      140,603

 

$        81,606

 Depreciation and amortization 

 

12,225

 

11,774

 

36,881

 

34,970

 Other income, net 

 

7,689

 

4,200

 

14,847

 

7,580

 Equity in earnings of unconsolidated subsidiaries, net 

 

97

 

113

 

187

 

221

           EBITDA 

 

68,633

 

46,629

 

192,518

 

124,377

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

-

 

-

 

3,535

 Restructuring charges, net (2) 

 

-

 

3,801

 

78

 

28,321

 Integration/acquisition costs (3) 

 

1,673

 

4,830

 

6,654

 

18,677

           Adjusted EBITDA 

 

$    70,306

 

$    55,260

 

$      199,250

 

$      174,910

                 

 Operating margin 

 

10.9%

 

8.0%

 

10.9%

 

7.0%

 Depreciation and amortization 

 

2.7%

 

3.1%

 

2.9%

 

3.0%

 Other income, net 

 

1.7%

 

1.1%

 

1.1%

 

0.7%

 Equity in earnings of unconsolidated subsidiaries, net 

 

-

 

-

 

-

 

-

            EBITDA margin 

 

15.3%

 

12.2%

 

14.9%

 

10.7%

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

-

 

-

 

0.3%

 Restructuring charges, net (2) 

 

-

 

1.0%

 

-

 

2.4%

 Integration/acquisition costs (3) 

 

0.4%

 

1.3%

 

0.5%

 

1.6%

           Adjusted EBITDA margin 

 

15.7%

 

14.5%

 

15.4%

 

15.0%

                 

 Net income attributable to Korn/Ferry International 

 

$    27,247

 

$    23,897

 

$        92,619

 

$        57,257

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

-

 

-

 

3,535

 Restructuring charges, net (2) 

 

-

 

3,801

 

78

 

28,321

 Integration/acquisition costs (3) 

 

1,673

 

4,830

 

6,654

 

18,677

 Write-off of debt issuance costs (4) 

 

-

 

-

 

-

 

954

 Tax effect on the above items (5) 

 

(368)

 

(2,440)

 

(1,773)

 

(15,074)

 Tax effect of Tax Act (6) 

 

11,345

 

-

 

11,345

 

-

           Adjusted net income attributable to Korn/Ferry International 

 

$    39,897

 

$    30,088

 

$      108,923

 

$        93,670

                 

 Basic earnings per common share 

 

$        0.49

 

$        0.42

 

$            1.65

 

$            1.01

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

-

 

-

 

0.06

 Restructuring charges, net (2) 

 

-

 

0.07

 

-

 

0.50

 Integration/acquisition costs (3) 

 

0.03

 

0.08

 

0.12

 

0.33

 Write-off of debt issuance costs (4) 

 

-

 

-

 

-

 

0.02

 Tax effect on the above items (5) 

 

(0.01)

 

(0.04)

 

(0.03)

 

(0.27)

 Tax effect of Tax Act (6) 

 

0.20

 

-

 

0.20

 

-

           Adjusted basic earnings per share 

 

$        0.71

 

$        0.53

 

$            1.94

 

$            1.65

                 

 Diluted earnings per common share 

 

$        0.48

 

$        0.42

 

$            1.63

 

$            1.00

 Deferred revenue adjustment due to acquisition (1) 

 

-

 

-

 

-

 

0.06

 Restructuring charges, net (2) 

 

-

 

0.07

 

-

 

0.49

 Integration/acquisition costs (3) 

 

0.03

 

0.08

 

0.12

 

0.33

 Write-off of debt issuance costs (4) 

 

-

 

-

 

-

 

0.02

 Tax effect on the above items (5) 

 

(0.01)

 

(0.04)

 

(0.03)

 

(0.27)

 Tax effect of Tax Act (6) 

 

0.20

 

-

 

0.20

 

-

           Adjusted diluted earnings per share 

 

$        0.70

 

$        0.53

 

$            1.92

 

$            1.63

                 

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 nine months ended January 31, 2017. Management no longer has 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 charges, net, integration/acquisition costs and write-off of debt issuance cost. 

(6)

The tax impact due to the Tax Act. 

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

     
   

 Three Months Ended January 31, 2018 

   

 Executive Search 

               
   

 North
America 

 

 EMEA 

 

 Asia Pacific 

 

 Latin
America 

 

 Subtotal 

 

 Hay Group 

 

 Futurestep 

 

 Corporate 

 

 Consolidated 

                                     

 Fee revenue 

 

$            102,716

 

$ 46,782

 

$       24,493

 

$               6,425

 

$ 180,416

 

$   198,056

 

$         69,109

 

$                  -

 

$           447,581

 Total revenue 

 

$            106,332

 

$ 47,763

 

$       24,942

 

$               6,456

 

$ 185,493

 

$   201,961

 

$         73,316

 

$                  -

 

$           460,770

                                     

 Net income attributable to Korn/Ferry

        International 

                               

$             27,247

 Net income attributable to noncontrolling
       interest 

                                 

180

 Other income, net 

                                 

(7,689)

 Interest expense, net 

                                 

2,665

 Equity in earnings of unconsolidated
        subsidiaries, net 

                                 

(97)

 Income tax provision 

                                 

26,316

 Operating income (loss) 

 

$              21,313

 

$   7,329

 

$          5,289

 

$                  408

 

$   34,339

 

$     27,079

 

$         10,056

 

$     (22,852)

 

48,622

 Depreciation and amortization 

 

990

 

458

 

361

 

113

 

1,922

 

7,882

 

733

 

1,688

 

12,225

 Other income, net 

 

585

 

37

 

185

 

40

 

847

 

370

 

2

 

6,470

 

7,689

 Equity in earnings of unconsolidated
        subsidiaries, net 

 

97

 

-

 

-

 

-

 

97

 

-

 

-

 

-

 

97

 EBITDA 

 

22,985

 

7,824

 

5,835

 

561

 

37,205

 

35,331

 

10,791

 

(14,694)

 

68,633

 EBITDA margin 

 

22.4%

 

16.7%

 

23.8%

 

8.7%

 

20.6%

 

17.8%

 

15.6%

     

15.3%

                                     

 Integration/acquisition costs 

 

-

 

-

 

-

 

-

 

-

 

1,593

 

-

 

80

 

1,673

 Adjusted EBITDA 

 

$              22,985

 

$   7,824

 

$          5,835

 

$                  561

 

$   37,205

 

$     36,924

 

$         10,791

 

$     (14,614)

 

$             70,306

 Adjusted EBITDA margin 

 

22.4%

 

16.7%

 

23.8%

 

8.7%

 

20.6%

 

18.6%

 

15.6%

     

15.7%

                                     
                                     
   

 Three Months Ended January 31, 2017 

   

 Executive Search 

               
   

 North
America 

 

 EMEA 

 

 Asia Pacific 

 

 Latin
America 

 

 Subtotal 

 

 Hay Group 

 

 Futurestep 

 

 Corporate 

 

 Consolidated 

                                     

 Fee revenue 

 

$              84,827

 

$ 39,147

 

$       21,012

 

$               7,835

 

$ 152,821

 

$   175,662

 

$         53,435

 

$                  -

 

$           381,918

 Total revenue   

 

$              87,975

 

$ 39,965

 

$       21,336

 

$               7,856

 

$ 157,132

 

$   178,962

 

$         58,101

 

$                  -

 

$           394,195

                                     

 Net income attributable to Korn/Ferry
       International 

                                 

$             23,897

 Net income attributable to noncontrolling
       interest 

                                 

481

 Other income, net 

                                 

(4,200)

 Interest expense, net 

                                 

2,402

 Equity in earnings of unconsolidated
        subsidiaries, net 

                                 

(113)

 Income tax provision 

                                 

8,075

 Operating income (loss) 

 

$              17,718

 

$   8,175

 

$          2,086

 

$               1,352

 

$   29,331

 

$     15,988

 

$           6,549

 

$     (21,326)

 

30,542

 Depreciation and amortization 

 

996

 

226

 

268

 

(21)

 

1,469

 

8,061

 

789

 

1,455

 

11,774

 Other income (loss), net 

 

316

 

19

 

60

 

61

 

456

 

122

 

(2)

 

3,624

 

4,200

 Equity in earnings of unconsolidated
        subsidiaries, net 

 

113

 

-

 

-

 

-

 

113

 

-

 

-

 

-

 

113

 EBITDA 

 

19,143

 

8,420

 

2,414

 

1,392

 

31,369

 

24,171

 

7,336

 

(16,247)

 

46,629

 EBITDA margin 

 

22.6%

 

21.5%

 

11.5%

 

17.8%

 

20.5%

 

13.8%

 

13.7%

     

12.2%

                                     

 Restructuring charges, net 

 

-

 

-

 

893

 

309

 

1,202

 

2,519

 

80

 

-

 

3,801

 Integration/acquisition costs 

 

-

 

-

 

-

 

-

 

-

 

3,364

 

-

 

1,466

 

4,830

 Adjusted EBITDA 

 

$              19,143

 

$   8,420

 

$          3,307

 

$               1,701

 

$   32,571

 

$     30,054

 

$           7,416

 

$     (14,781)

 

$             55,260

 Adjusted EBITDA margin 

 

22.6%

 

21.5%

 

15.7%

 

21.7%

 

21.3%

 

17.1%

 

13.9%

     

14.5%

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

                                     
   

 Nine Months Ended January 31, 2018 

   

 Executive Search 

               
   

 North
America 

 

 EMEA 

 

 Asia Pacific 

 

 Latin
America 

 

 Subtotal 

 

 Hay Group 

 

 Futurestep 

 

 Corporate 

 

 Consolidated 

                                     

 Fee revenue 

 

$            296,093

 

$ 128,249

 

$       71,983

 

$                22,048

 

$ 518,373

 

$   577,462

 

$       196,018

 

$                  -

 

$        1,291,853

 Total revenue   

 

$            305,866

 

$ 130,894

 

$       73,009

 

$                22,114

 

$ 531,883

 

$   589,093

 

$       210,179

 

$                  -

 

$        1,331,155

                                     

 Net income attributable to Korn/Ferry
       International 

                               

$             92,619

 Net income attributable to noncontrolling
       interest 

                                 

969

 Other income, net 

                                 

(14,847)

 Interest expense, net 

                                 

7,904

 Equity in earnings of unconsolidated
        subsidiaries, net 

                                 

(187)

 Income tax provision 

                                 

54,145

 Operating income (loss) 

 

$              66,253

 

$   20,349

 

$       12,811

 

$                  2,961

 

$ 102,374

 

$     72,532

 

$         27,702

 

$     (62,005)

 

140,603

 Depreciation and amortization 

 

2,923

 

1,345

 

1,052

 

331

 

5,651

 

24,110

 

2,313

 

4,807

 

36,881

 Other income, net 

 

1,157

 

136

 

384

 

99

 

1,776

 

459

 

10

 

12,602

 

14,847

 Equity in earnings of unconsolidated
        subsidiaries, net 

 

187

 

-

 

-

 

-

 

187

 

-

 

-

 

-

 

187

 EBITDA 

 

70,520

 

21,830

 

14,247

 

3,391

 

109,988

 

97,101

 

30,025

 

(44,596)

 

192,518

 EBITDA margin 

 

23.8%

 

17.0%

 

19.8%

 

15.4%

 

21.2%

 

16.8%

 

15.3%

     

14.9%

                                     

 Restructuring charges (recoveries), net 

 

-

 

-

 

313

 

-

 

313

 

(241)

 

6

 

-

 

78

 Integration/acquisition costs 

 

-

 

-

 

-

 

-

 

-

 

6,455

 

-

 

199

 

6,654

 Adjusted EBITDA 

 

$              70,520

 

$   21,830

 

$       14,560

 

$                  3,391

 

$ 110,301

 

$   103,315

 

$         30,031

 

$     (44,397)

 

$           199,250

 Adjusted EBITDA margin 

 

23.8%

 

17.0%

 

20.2%

 

15.4%

 

21.3%

 

17.9%

 

15.3%

     

15.4%

                                     
                                     
   

 Nine Months Ended January 31, 2017 

   

 Executive Search 

               
   

 North
America 

 

 EMEA  

 

 Asia Pacific 

 

 Latin
America 

 

 Subtotal 

 

 Hay Group 

 

 Futurestep 

 

 Corporate 

 

 Consolidated 

                 

 Fee revenue 

 

$            259,361

 

$ 109,296

 

$       60,108

 

$                26,645

 

$ 455,410

 

$   539,086

 

$       164,960

 

$                  -

 

$        1,159,456

 Deferred revenue adjustment
        due to acquisition 

 

-

 

-

 

-

 

-

 

-

 

3,535

 

-

 

-

 

3,535

 Adjusted fee revenue   

 

$            259,361

 

$ 109,296

 

$       60,108

 

$                26,645

 

$ 455,410

 

$   542,621

 

$       164,960

 

$                  -

 

$        1,162,991

 Total revenue   

 

$            269,302

 

$ 111,721

 

$       61,445

 

$                26,766

 

$ 469,234

 

$   552,822

 

$       180,026

 

$                  -

 

$        1,202,082

                                     

 Net income attributable to Korn/Ferry
       International 

                                 

$             57,257

 Net income attributable to noncontrolling
       interest 

                                 

2,245

 Other income, net 

                                 

(7,580)

 Interest expense, net 

                                 

8,199

 Equity in earnings of unconsolidated
        subsidiaries, net 

                                 

(221)

 Income tax provision 

                                 

21,706

 Operating income (loss) 

 

$              60,458

 

$   21,049

 

$          6,216

 

$                  5,966