kfy-8k_20200310.htm
false 0000056679 0000056679 2020-03-10 2020-03-10

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  March 10, 2020

 

 

KORN FERRY

(Exact name of registrant as specified in its charter)

 

 

Delaware

001-14505

95-2623879

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

 

1900 Avenue of the Stars, Suite 2600

Los Angeles, California 90067

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code: (310) 552-1834

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

KFY

New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933

(§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for

complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 


 

Item 2.02 Results of Operations and Financial Condition.

On March 10, 2020, Korn Ferry (the “Company”) issued a press release announcing its third quarter fiscal year 2020 results.  A copy of the press release is attached hereto as Exhibit 99.1.  The information in this Item 2.02 and the exhibit hereto are furnished to, but not filed with, the Securities and Exchange Commission.

Item 8.01 Other Events.

On March 10, 2020, the Board of Directors of the Company (the “Board”) declared a cash dividend of $0.10 per share that will be paid on April 15, 2020 to holders of the Company’s common stock of record at the close of business on March 26, 2020.  The declaration and payment of future dividends under the quarterly dividend policy will be at the discretion of the Board and will depend upon many factors, including the Company’s earnings, capital requirements, financial conditions, the terms of the Company’s indebtedness and other factors that the Board may deem to be relevant.  The Company may amend, revoke or suspend the dividend policy at any time and for any reason at its discretion.

Item 9.01 Financial Statements and Exhibits.

 

(d)

Exhibits

 

Exhibit 99.1

 

Press Release, dated March 10, 2020

Exhibit 104

 

The cover page from this Current Report on Form 8-K, formatted in Inline XBRL (included as Exhibit 101).

 

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

KORN FERRY

 

(Registrant)

 

 

Date: March 10, 2020

/s/ Robert P. Rozek

 

(Signature)

 

Name:

Robert P. Rozek

 

Title:

Executive Vice President, Chief Financial Officer and

Chief Corporate Officer

 

 

kfy-ex991_6.htm

Exhibit 99.1

 

 

 

 

 

 

 

FOR IMMEDIATE RELEASE

  

Contacts:

 

  

Investor Relations: Gregg Kvochak, (310) 556-8550

 

  

Media: Dan Gugler, (310) 226-2645

 

Korn Ferry Announces Third Quarter Fiscal 2020

Results of Operations

 

Highlights

 

Korn Ferry reports fee revenue of $515.3 million in Q3 FY’20.

 

Net income attributable to Korn Ferry was $20.0 million in Q3 FY’20.

 

Operating income was $31.6 million in Q3 FY’20 with an operating margin of 6.1%.  Adjusted EBITDA was $78.1 million with an Adjusted EBITDA margin of 15.2%.

 

Q3 FY’20 diluted earnings per share and adjusted diluted earnings per share was $0.36 and $0.75, respectively.

 

During the third quarter, the Company completed the acquisition of Miller Heiman Group, AchieveForum and Strategy Execution (“acquired companies”) that are part of a newly branded reporting segment— Korn Ferry Digital (formerly the Products Group).

 

During the third quarter, the Company renegotiated its existing revolving line of credit on more favorable terms and conditions and repaid the outstanding balance using proceeds from the issuance of $400 million, 4.625% Senior Notes.

 

The Company continued with its balanced approach to capital allocation, buying back 0.2 million shares or $6.1 million of stock during the quarter and declaring a quarterly dividend of $0.10 per share on March 10, 2020 payable on April 15, 2020 to stockholders of record on March 26, 2020.

 

Los Angeles, CA, March 10, 2020 Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced third quarter fee revenue of $515.3 million.  Third quarter diluted earnings per share was $0.36 and adjusted diluted earnings per share was $0.75.  Adjusted diluted earnings per share for the third quarter excludes an aggregate of $27.4 million, or $0.39 per share, of restructuring charges, net, and integration/acquisition costs, both associated with the recently completed acquisition of the acquired companies, separation costs and debt refinancing costs.

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

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

 

 

1


 

 

Selected Financial Results

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

 

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

Fee revenue

 

$

515.3

 

 

$

474.5

 

 

$

1,492.3

 

 

$

1,435.3

 

Total revenue

 

$

528.0

 

 

$

486.2

 

 

$

1,528.4

 

 

$

1,471.3

 

Operating income

 

$

31.6

 

 

$

62.7

 

 

$

153.8

 

 

$

78.6

 

Operating margin

 

 

6.1

%

 

 

13.2

%

 

 

10.3

%

 

 

5.5

%

Net income attributable to Korn Ferry

 

$

20.0

 

 

$

45.0

 

 

$

105.7

 

 

$

52.4

 

Basic earnings per share

 

$

0.37

 

 

$

0.81

 

 

$

1.92

 

 

$

0.94

 

Diluted earnings per share

 

$

0.36

 

 

$

0.80

 

 

$

1.90

 

 

$

0.92

 

 

EBITDA Results (b):

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

EBITDA

 

$

51.5

 

 

$

76.9

 

 

$

202.2

 

 

$

115.5

 

EBITDA margin

 

 

10.0

%

 

 

16.2

%

 

 

13.5

%

 

 

8.0

%

 

Adjusted Results (c):

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

Adjusted EBITDA (b)

 

$

78.1

 

 

$

77.7

 

 

$

231.4

 

 

$

228.8

 

Adjusted EBITDA margin (b)

 

 

15.2

%

 

 

16.4

%

 

 

15.5

%

 

 

15.9

%

Adjusted net income attributable to Korn Ferry

 

$

41.0

 

 

$

45.8

 

 

$

128.7

 

 

$

138.2

 

Adjusted basic earnings per share

 

$

0.75

 

 

$

0.82

 

 

$

2.33

 

 

$

2.47

 

Adjusted diluted earnings per share

 

$

0.75

 

 

$

0.81

 

 

$

2.31

 

 

$

2.43

 

___________

(a)

Numbers may not total due to rounding.

(b)

EBITDA refers to earnings before interest, taxes, depreciation and amortization.  Adjusted EBITDA further adjusts EBITDA to exclude integration/acquisition costs, restructuring charges, net, separation costs and tradename write-offs. EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).

(c)

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

 

 

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

Integration/acquisition costs

 

$

6.7

 

 

$

0.8

 

 

$

9.3

 

 

$

6.7

 

Restructuring charges, net

 

$

18.1

 

 

$

 

 

$

18.1

 

 

$

 

Separation costs

 

$

1.8

 

 

$

 

 

$

1.8

 

 

$

 

Tradename write-offs

 

$

 

 

$

 

 

$

 

 

$

106.6

 

Debt refinancing costs

 

$

0.8

 

 

$

 

 

$

0.8

 

 

$

 

 

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

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

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

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

2


 

Results by Segment

Selected Consulting Data(a)

(dollars in millions) (b)

 

 

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

Fee revenue

 

$

140.5

 

 

$

139.0

 

 

$

422.1

 

 

$

424.0

 

Total revenue

 

$

144.3

 

 

$

143.2

 

 

$

433.8

 

 

$

437.2

 

Operating income (loss)

 

$

2.7

 

 

$

11.8

 

 

$

24.3

 

 

$

(47.4

)

Operating margin

 

 

1.9

%

 

 

8.5

%

 

 

5.8

%

 

 

(11.2

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending number of consultants and execution staff (c)

 

 

1,792

 

 

 

1,832

 

 

 

1,792

 

 

 

1,832

 

Hours worked in thousands (d)

 

428

 

 

406

 

 

 

1,344

 

 

 

1,263

 

Average billed rate (e)

 

$

328

 

 

$

342

 

 

$

314

 

 

$

336

 

 

EBITDA Results (f):

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

EBITDA

 

$

7.6

 

 

$

16.4

 

 

$

38.9

 

 

$

(34.1

)

EBITDA margin

 

 

5.4

%

 

 

11.8

%

 

 

9.2

%

 

 

(8.0

%)

 

Adjusted Results (g):

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

Adjusted EBITDA (f)

 

$

18.7

 

 

$

17.0

 

 

$

50.0

 

 

$

48.2

 

Adjusted EBITDA margin (f)

 

 

13.3

%

 

 

12.2

%

 

 

11.8

%

 

 

11.4

%

 ___________

(a)

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

(b)

Numbers may not total due to rounding.

(c)

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

(d)

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

(e)

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

(f)

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

(g)

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

 

 

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

Integration/acquisition costs

 

$

 

 

$

0.7

 

 

$

 

 

$

5.3

 

Restructuring charges, net

 

$

11.1

 

 

$

 

 

$

11.1

 

 

$

 

Tradename write-offs

 

$

 

 

$

 

 

$

 

 

$

77.0

 

 

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

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

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


3


Selected Digital Data(a)

(dollars in millions) (b)

 

 

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

Fee revenue

 

$

99.4

 

 

$

62.5

 

 

$

223.1

 

 

$

190.0

 

Total revenue

 

$

100.7

 

 

$

62.5

 

 

$

224.4

 

 

$

190.0

 

Operating income

 

$

8.5

 

 

$

17.5

 

 

$

41.0

 

 

$

23.1

 

Operating margin

 

 

8.5

%

 

 

28.0

%

 

 

18.4

%

 

 

12.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending number of consultants

 

 

464

 

 

 

370

 

 

 

464

 

 

 

370

 

Subscription & License fee revenue

 

$

21.3

 

 

$

14.2

 

 

$

52.7

 

 

$

42.6

 

 

EBITDA Results (c):

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

EBITDA

 

$

14.5

 

 

$

21.0

 

 

$

54.7

 

 

$

33.1

 

EBITDA margin

 

 

14.6

%

 

 

33.6

%

 

 

24.5

%

 

 

17.4

%

 

Adjusted Results (d):

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

Adjusted EBITDA (c)

 

$

25.9

 

 

$

21.1

 

 

$

66.1

 

 

$

63.9

 

Adjusted EBITDA margin (c)

 

 

26.0

%

 

 

33.8

%

 

 

29.6

%

 

 

33.6

%

___________

 

(a)

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

(b)

Numbers may not total due to rounding.  

(c)

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

(d)

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

 

 

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

Integration/acquisition costs

 

$

4.3

 

 

$

0.1

 

 

$

4.3

 

 

$

1.3

 

Restructuring charges, net

 

$

7.0

 

 

$

 

 

$

7.0

 

 

$

 

Tradename write-offs

 

$

 

 

$

 

 

$

 

 

$

29.6

 

 

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

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

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

 

4


 

Selected Executive Search Data

(dollars in millions) (a)

 

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

Fee revenue

 

$

183.6

 

 

$

193.4

 

 

$

564.6

 

 

$

584.0

 

Total revenue

 

$

188.0

 

 

$

198.0

 

 

$

578.0

 

 

$

598.0

 

Operating income

 

$

32.7

 

 

$

44.7

 

 

$

119.6

 

 

$

137.0

 

Operating margin

 

 

17.8

%

 

 

23.1

%

 

 

21.2

%

 

 

23.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending number of consultants

 

 

582

 

 

 

552

 

 

 

582

 

 

 

552

 

Average number of consultants

 

 

583

 

 

 

554

 

 

 

573

 

 

 

546

 

Engagements billed

 

 

3,767

 

 

 

3,849

 

 

 

8,077

 

 

 

8,201

 

New engagements (b)

 

 

1,565

 

 

 

1,608

 

 

 

4,835

 

 

 

5,073

 

 

EBITDA Results (c):

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

EBITDA

 

$

38.9

 

 

$

48.2

 

 

$

131.8

 

 

$

144.1

 

EBITDA margin

 

 

21.2

%

 

 

24.9

%

 

 

23.3

%

 

 

24.7

%

 

Adjusted Results (d):

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

Adjusted EBITDA (c)

 

$

40.7

 

 

$

48.2

 

 

$

133.6

 

 

$

144.1

 

Adjusted EBITDA margin (c)

 

 

22.1

%

 

 

24.9

%

 

 

23.7

%

 

 

24.7

%

________

(a)

Numbers may not total due to rounding.

(b)

Represents new engagements opened in the respective period.

(c)

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

(d)

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

 

 

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

Separation costs

 

$

1.8

 

 

$

 

 

$

1.8

 

 

$

 

 

Fee revenue was $183.6 million and $193.4 million in Q3 FY’20 and Q3 FY’19, respectively, a decrease of $9.8 million or 5% (5% decrease on a constant currency basis).  The decrease in fee revenue was attributable to a decline in fee revenue in all regions.

Operating income was $32.7 million in Q3 FY’20 compared to $44.7 million in Q3 FY’19.  Operating margin was 17.8% in Q3 FY’20 compared to 23.1% in the year-ago quarter.  The decrease in operating income was mainly due to a decrease in fee revenue and an increase in compensation and benefits expense due to management separation costs incurred in Q3 FY’20.

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

 

5


 

Selected RPO and Professional Search Data

(dollars in millions) (a)

 

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

Fee revenue

 

$

91.9

 

 

$

79.6

 

 

$

282.4

 

 

$

237.4

 

Total revenue

 

$

95.0

 

 

$

82.5

 

 

$

292.2

 

 

$

246.1

 

Operating income

 

$

14.1

 

 

$

12.2

 

 

$

44.3

 

 

$

36.3

 

Operating margin

 

 

15.4

%

 

 

15.3

%

 

 

15.7

%

 

 

15.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Engagements billed (b)

 

 

1,375

 

 

 

1,296

 

 

 

3,030

 

 

 

2,809

 

New engagements (c)

 

 

711

 

 

 

652

 

 

 

2,171

 

 

 

2,154

 

 

EBITDA and Adjusted Results (d):

 

Third Quarter

 

 

Year to Date

 

 

 

FY’20

 

 

FY’19

 

 

FY’20

 

 

FY’19

 

EBITDA and Adjusted EBITDA

 

$

15.2

 

 

$

13.1

 

 

$

47.5

 

 

$

38.8

 

EBITDA and Adjusted EBITDA margin

 

 

16.6

%

 

 

16.4

%

 

 

16.8

%

 

 

16.3

%

___________

(a)

Numbers may not total due to rounding.

(b)

Represents professional search engagements billed.

(c)

Represents new professional search engagements opened in the respective period.

(d)

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

 

Fee revenue was $91.9 million in Q3 FY’20, an increase of $12.3 million or 15% (16% increase on a constant currency basis), compared to the year-ago quarter.  The higher fee revenue was driven by an increase in fee revenue in recruitment process outsourcing and professional search of $9.1 million and $3.2 million, respectively, in Q3 FY’20 compared to Q3 FY’19.

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

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

6


 

Outlook

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

Earnings Conference Call Webcast

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

7


 

About Korn Ferry

Korn Ferry is a global organizational consulting firm.  We help clients synchronize strategy and talent to drive superior performance.  We work with organizations to design their structures, roles, and responsibilities.  We help them hire the right people to bring their strategy to life.  And we advise them on how to reward, develop, and motivate their people.  Visit kornferry.com for more information.

Forward-Looking Statements

Statements in this press release and our conference call that relate to future results and events (“forward-looking statements”) are based on Korn Ferry’s current expectations.  These statements, which include words such as “believes”, “expects” or “likely”, include references to our outlook as well as the expected benefits of the acquisition of the acquired companies (as defined below, the timing and expected benefits of our recently adopted restructuring plan and the potential negative impact of the coronavirus (COVID-19) outbreak on our business, employees, customers and our ability to provide services in affected regions.  Readers are cautioned not to place undue reliance on such statements.  Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties that are beyond the control of Korn Ferry.  The potential risks and uncertainties include those relating to competition, changes in demand for our services as a result of automation, the dependence on and costs of attracting and retaining qualified and experienced consultants, our ability to maintain relationships with customers and suppliers and retain key employees, maintaining our brand name and professional reputation, potential legal liability and regulatory developments, the portability of client relationships, consolidation of the industries we serve, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, changes to data security, data privacy and data protection laws, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, the utilization and billing rates of our consultants, dependence on third parties for the execution of critical functions, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, technical guidance relating to the Tax Act, impairment of goodwill and other intangible assets, deferred tax assets that we may not be able to use, our indebtedness, the phase-out of the London Interbank Offered Rate, the potential negative impact of the coronavirus (COVID-19) outbreak on our business, employees, customers and our ability to provide services in affected regions, expansion of social media platforms, seasonality, ability to effect acquisition and integrate recently acquired companies, including those of Miller Heiman Group, AchieveForum, and Strategy Execution (collectively, the “acquired companies”); the ability to recognize the anticipated benefits of the acquisition of the acquired companies; the costs related to the acquisition of the acquired companies; employment liability risk, the impact of rebranding on the Company’s products and services; the expected timing of the Company’s rebranding and entity rationalization plan, and the costs of the Company’s rebranding and entity rationalization plan.  For a detailed description of risks and uncertainties that could cause differences, please refer to Korn Ferry’s periodic filings with the Securities and Exchange Commission.  Korn Ferry disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures

This press release contains financial information calculated other than in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).  In particular, it includes:

 

Adjusted net income attributable to Korn Ferry, adjusted to exclude integration/acquisition costs, restructuring charges, separation costs, tradename write-offs, and debt refinancing costs, net of income tax effect;

 

Adjusted basic and diluted earnings per share, adjusted to exclude integration/acquisition costs, restructuring charges, separation costs, tradename write-offs, and debt refinancing costs, net of income tax effect;

 

Constant currency (calculated using a quarterly average) percentages that represent the percentage change that would have resulted had exchange rates in the prior period been the same as those in effect in the current period;

 

EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin; and

 

Adjusted EBITDA, which is EBITDA further adjusted to exclude integration/acquisition costs, restructuring charges, separation costs and tradename write-offs and Adjusted EBITDA margin.

This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial information determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

8


 

 

Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn Ferry’s performance by excluding certain charges that may not be indicative of Korn Ferry’s ongoing operating results.  These non-GAAP financial measures are performance measures and are not indicative of the liquidity of Korn Ferry.  These charges, which are described in the footnotes in the attached reconciliations, represent 1) costs we incurred to acquire and integrate a portion of our Digital business, 2) charges we incurred to restructure the Company due to acquisition of the acquired companies, 3) separation costs, 4) tradename write-offs associated with the rebranding plan initiated by Korn Ferry and 5) debt refinancing costs.  The use of non-GAAP financial measures facilitates comparisons to Korn Ferry’s historical performance.  Korn Ferry includes non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making.  Adjusted net income attributable to Korn Ferry, adjusted basic and diluted earnings per share and Adjusted EBITDA, exclude certain charges that management does not consider on-going in nature and allows management and investors to make more meaningful period-to-period comparisons of the Company’s operating results.  Management further believes that EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company.  In the case of constant currency percentages, management believes the presentation of such information provides useful supplemental information regarding Korn Ferry's performance as excluding the impact of exchange rate changes on Korn Ferry's financial performance allows investors to make more meaningful period-to-period comparisons of the Company’s operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.  

[Tables attached]

 

 

9


KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

January 31,

 

 

January 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

Fee revenue

 

$

515,325

 

 

$

474,504

 

 

$

1,492,263

 

 

$

1,435,277

 

Reimbursed out-of-pocket engagement expenses

 

 

12,654

 

 

 

11,668

 

 

 

36,091

 

 

 

36,050

 

           Total revenue

 

 

527,979

 

 

 

486,172

 

 

 

1,528,354

 

 

 

1,471,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

348,597

 

 

 

321,835

 

 

 

1,014,475

 

 

 

979,575

 

General and administrative expenses

 

 

71,355

 

 

 

61,179

 

 

 

199,171

 

 

 

287,641

 

Reimbursed expenses

 

 

12,654

 

 

 

11,668

 

 

 

36,091

 

 

 

36,050

 

Cost of services

 

 

30,822

 

 

 

17,066

 

 

 

66,371

 

 

 

55,020

 

Depreciation and amortization

 

 

14,863

 

 

 

11,741

 

 

 

40,355

 

 

 

34,490

 

Restructuring charges, net

 

 

18,093

 

 

 

-

 

 

 

18,093

 

 

 

-

 

           Total operating expenses

 

 

496,384

 

 

 

423,489

 

 

 

1,374,556

 

 

 

1,392,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

31,595

 

 

 

62,683

 

 

 

153,798

 

 

 

78,551

 

Other income, net

 

 

5,055

 

 

 

2,463

 

 

 

8,014

 

 

 

2,483

 

Interest expense, net

 

 

(6,919

)

 

 

(4,282

)

 

 

(15,186

)

 

 

(12,722

)

         Income before provision for income taxes

 

 

29,731

 

 

 

60,864

 

 

 

146,626

 

 

 

68,312

 

Income tax provision

 

 

8,775

 

 

 

15,420

 

 

 

38,988

 

 

 

14,143

 

Net income

 

 

20,956

 

 

 

45,444

 

 

 

107,638

 

 

 

54,169

 

           Net income attributable to noncontrolling interest

 

 

(963

)

 

 

(480

)

 

 

(1,890

)

 

 

(1,782

)

Net income attributable to Korn Ferry

 

$

19,993

 

 

$

44,964

 

 

$

105,748

 

 

$

52,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share attributable to Korn Ferry:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Basic

 

$

0.37

 

 

$

0.81

 

 

$

1.92

 

 

$

0.94

 

      Diluted

 

$

0.36

 

 

$

0.80

 

 

$

1.90

 

 

$

0.92

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Basic

 

 

53,999

 

 

 

55,233

 

 

 

54,611

 

 

 

55,358

 

      Diluted

 

 

54,264

 

 

 

55,753

 

 

 

55,006

 

 

 

56,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share:

 

$

0.10

 

 

$

0.10

 

 

$

0.30

 

 

$

0.30

 

 

 


KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

 

 

 

 

 

Three Months Ended January 31,

 

 

Nine Months Ended January 31,

 

 

 

 

2020

 

 

 

 

 

 

2019

 

 

% Change

 

 

2020

 

 

 

 

 

 

2019

 

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting

 

$

140,525

 

 

 

 

 

 

$

139,029

 

 

 

1.1

%

 

$

422,103

 

 

 

 

 

 

$

423,958

 

 

 

(0.4

%)

Digital

 

 

99,389

 

 

 

 

 

 

 

62,473

 

 

 

59.1

%

 

 

223,097

 

 

 

 

 

 

 

190,008

 

 

 

17.4

%

Executive Search:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

106,888

 

 

 

 

 

 

 

114,215

 

 

 

(6.4

%)

 

 

332,428

 

 

 

 

 

 

 

342,175

 

 

 

(2.8

%)

 

EMEA

 

 

44,301

 

 

 

 

 

 

 

45,940

 

 

 

(3.6

%)

 

 

130,652

 

 

 

 

 

 

 

137,522

 

 

 

(5.0

%)

 

Asia Pacific

 

 

25,089

 

 

 

 

 

 

 

25,687

 

 

 

(2.3

%)

 

 

78,395

 

 

 

 

 

 

 

79,918

 

 

 

(1.9

%)

 

Latin America