kfy-8k_20200902.htm
false 0000056679 0000056679 2020-09-02 2020-09-02

 

 

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):  September 2, 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 September 3, 2020, Korn Ferry (the “Company”) issued a press release announcing its first quarter fiscal year 2021 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 September 2, 2020, the Board of Directors of the Company (the “Board”) declared a cash dividend of $0.10 per share that will be paid on October 15, 2020 to holders of the Company’s common stock of record at the close of business on September 25, 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 September 3, 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: September 3, 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 First Quarter Fiscal 2021

Results of Operations

 

FY’ 21 First Quarter Performance

 

Korn Ferry reports fee revenue of $344.1 million in Q1 FY’21, a decrease of 29% (decrease of 27.8% on a constant currency basis) from Q1 FY’20.

 

Net loss attributable to Korn Ferry was $30.8 million in Q1 FY’21.

 

Operating loss was $43.8 million in Q1 FY’21 with an operating margin of (12.7%).  Adjusted EBITDA was $10.6 million with an Adjusted EBITDA margin of 3.1%.

 

Q1 FY’21 diluted loss per share and adjusted diluted loss per share was $0.58 and $0.19, respectively.

 

Los Angeles, CA, September 3, 2020 Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced first quarter fee revenue of $344.1 million.  First quarter diluted loss per share was $0.58 and adjusted diluted loss per share was $0.19.  Adjusted diluted loss per share for the first quarter excludes an aggregate of $20.6 million, net of tax or $0.39 per share, of restructuring charges, net, due to the coronavirus pandemic (“COVID-19”), and integration/acquisition costs, relating to the acquisition of Miller Heiman Group, AchieveForum and Strategy Execution (“acquired companies”).

“It’s been nearly six months since the pandemic was declared, and the world temporarily paused. Certainly, that pause impacted our business – during the fiscal first quarter we generated $344 million in fee revenue, down 29% year-over-year (28% at constant currency),” said Gary D. Burnison, CEO, Korn Ferry. “But the key word is temporarily – our firm is continuing to see some more green shoots, with July new business better than June, June better than May and May better than April.

“I am incredibly proud and motivated by how we’ve positioned ourselves and the opportunity ahead. From the beginning our firm has faced this crisis from a position of strength when you consider our balance sheet, the depth and breadth of our solutions and the actions we’ve taken to protect the company and preserve its muscle. Almost every company on the planet is and will have to reimagine their business — their structure, roles, responsibilities and how they compensate, engage, and develop their workforce. They will need to hire learning-agile, diverse talent and do so in a more inclusive ethos and in an increasingly digital world. This is in essence Korn Ferry’s businesses – to enable people and organizations to exceed their potential.”

 

 

 

 


1


Selected Financial Results

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

 

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Fee revenue

 

$

344.1

 

 

$

484.5

 

Total revenue

 

$

346.9

 

 

$

496.2

 

Operating (loss) income

 

$

(43.8

)

 

$

60.3

 

Operating margin

 

 

(12.7

%)

 

 

12.5

%

Net (loss) income attributable to Korn Ferry

 

$

(30.8

)

 

$

43.0

 

Basic (loss) earnings per share

 

$

(0.58

)

 

$

0.77

 

Diluted (loss) earnings per share

 

$

(0.58

)

 

$

0.76

 

 

EBITDA Results (b):

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

EBITDA

 

$

(17.6

)

 

$

74.9

 

EBITDA margin

 

 

(5.1

%)

 

 

15.5

%

 

Adjusted Results (c):

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Adjusted EBITDA (b)

 

$

10.6

 

 

$

74.9

 

Adjusted EBITDA margin (b)

 

 

3.1

%

 

 

15.5

%

Adjusted net (loss) income attributable to Korn Ferry

 

$

(10.2

)

 

$

43.0

 

Adjusted basic (loss) earnings per share

 

$

(0.19

)

 

$

0.77

 

Adjusted diluted (loss) earnings per share

 

$

(0.19

)

 

$

0.76

 

___________

(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 and restructuring charges, net.  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):

 

 

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Integration/acquisition costs

 

$

0.7

 

 

$

 

Restructuring charges, net

 

$

27.5

 

 

$

 

 

Fee revenue was $344.1 million in Q1 FY’21, a decrease of 29% (27.8% on a constant currency basis) compared to Q1 FY’20.  The decrease in fee revenue across all our segments when compared to Q1 FY’20 was primarily due to the impact of COVID-19 on economies around the world.

Actions taken by various government and other authoritative bodies in response to the COVID-19 pandemic caused a severe contraction in economic activity during the quarter which translated into the decrease in fee revenue. This decline in fee revenue was partially offset by savings associated with actions taken to align our cost structure with the lower level of business demand, and resulted in a net loss attributable to Korn Ferry of $30.8 million in Q1 FY’21 as compared to net income attributable to Korn Ferry of $43.0 million in Q1 FY’20.

Operating margin was (12.7%) in Q1 FY’21 compared to 12.5% in the year-ago quarter.  The decrease in operating margin was primarily due to the decline in fee revenue in Q1 FY’21 and an increase in restructuring charges, net associated with the impact of COVID-19.

Adjusted EBITDA margin was 3.1%, compared to 15.5% in the year-ago quarter.


2


 

 

Results by Segment

Selected Consulting Data(a)

(dollars in millions) (b)

 

 

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Fee revenue

 

$

99.3

 

 

$

137.5

 

Total revenue

 

$

99.6

 

 

$

141.3

 

Operating (loss) income

 

$

(10.9

)

 

$

11.8

 

Operating margin

 

 

(11.0

%)

 

 

8.6

%

 

 

 

 

 

 

 

 

 

Ending number of consultants and execution staff (c)

 

 

1,511

 

 

 

1,928

 

Hours worked in thousands (d)

 

 

367

 

 

452

 

Average billed rate (e)

 

$

271

 

 

$

304

 

 

EBITDA Results (f):

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

EBITDA

 

$

(6.1

)

 

$

16.7

 

EBITDA margin

 

 

(6.2

%)

 

 

12.2

%

 

Adjusted Results (g):

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Adjusted EBITDA (f)

 

$

6.6

 

 

$

16.7

 

Adjusted EBITDA margin (f)

 

 

6.6

%

 

 

12.2

%

 ___________

(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 Q1 FY’20 has 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):

 

 

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Restructuring charges, net

 

$

12.7

 

 

$

 

 

Fee revenue was $99.3 million in Q1 FY’21 compared to $137.5 million in Q1 FY’20, a decrease of $38.2 million or 28% (down 26% on a constant currency basis). This change was due to the contraction in economic activity due to the COVID-19 pandemic.

Operating loss was $10.9 million in Q1 FY’21 with an operating margin of (11.0%) compared to operating income of $11.8 million and an operating margin of 8.6%, respectively, in the year-ago quarter.  This change resulted from the decline in fee revenue outlined above and an increase in restructuring charges, net incurred in Q1 FY’21, partially offset by decreases in compensation and benefits expense, general and administrative expenses and cost of services expense, all of which resulted from the cost saving initiatives that were put in place.

Adjusted EBITDA was $6.6 million in Q1 FY’21 with an Adjusted EBITDA margin of 6.6% compared to $16.7 million and 12.2%, respectively, in the year-ago quarter. The decrease in Adjusted EBITDA was due to the same factors outlined above with the exception of restructuring charges.

3


Selected Digital Data(a)

(dollars in millions) (b)

 

Digital is an integrated platform that gives clients direct access to people and organizational data, insights, analytics, and digital assets that when used together, give clients a common language for all talent matters.

 

 

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Fee revenue

 

$

56.0

 

 

$

58.0

 

Total revenue

 

$

56.0

 

 

$

58.0

 

Operating (loss) income

 

$

(2.6

)

 

$

14.0

 

Operating margin

 

 

(4.7

%)

 

 

24.2

%

 

 

 

 

 

 

 

 

 

Ending number of consultants

 

 

352

 

 

 

348

 

Subscription & License fee revenue

 

$

21.1

 

 

$

15.4

 

 

EBITDA Results (c):

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

EBITDA

 

$

4.5

 

 

$

17.8

 

EBITDA margin

 

 

8.1

%

 

 

30.8

%

 

Adjusted Results (d):

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Adjusted EBITDA (c)

 

$

7.9

 

 

$

17.8

 

Adjusted EBITDA margin (c)

 

 

14.2

%

 

 

30.8

%

___________

 

(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 Q1 FY’20 has 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):

 

 

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Integration/acquisition costs

 

$

0.6

 

 

$

 

Restructuring charges, net

 

$

2.9

 

 

$

 

 

Fee revenue was $56.0 million in Q1 FY’21 compared to $58.0 million in Q1 FY’20, a decrease of $2.0 million or 3% (2% on a constant currency basis).  This change was due to the contraction in economic activity due to the COVID-19 pandemic, partially offset by the fee revenues attributable to the acquired companies.

Operating loss was $2.6 million in Q1 FY’21 with an operating margin of (4.7%) compared to operating income of $14.0 million and an operating margin of 24.2% in the year-ago quarter.  Contributing to the change in operating income was the decline in fee revenue discussed above and an increase in restructuring charges, net incurred in Q1 FY’21.  Also, contributing to the decline in operating income was an increase in compensation and benefits expense and cost of services expense, relating to the acquired companies and which was partially offset by the cost saving initiatives that were put in place.

Adjusted EBITDA was $7.9 million in Q1 FY’21 with an Adjusted EBITDA margin of 14.2% compared to $17.8 million and 30.8%, respectively, in the year-ago quarter.  The decrease in Adjusted EBITDA was due to the same factors impacting operating income with the exception of restructuring charges.

 

4


Selected Executive Search Data

(dollars in millions) (a)

 

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Fee revenue

 

$

120.1

 

 

$

193.2

 

Total revenue

 

$

120.9

 

 

$

198.0

 

Operating (loss) income

 

$

(12.3

)

 

$

45.6

 

Operating margin

 

 

(10.2

%)

 

 

23.6

%

 

 

 

 

 

 

 

 

 

Ending number of consultants

 

 

510

 

 

 

569

 

Average number of consultants

 

 

533

 

 

 

567

 

Engagements billed

 

 

2,671

 

 

 

3,855

 

New engagements (b)

 

 

1,115

 

 

 

1,695

 

 

EBITDA Results (c):

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

EBITDA

 

$

(1.1

)

 

$

48.9

 

EBITDA margin

 

 

(0.9

%)

 

 

25.3

%

 

Adjusted Results (d):

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Adjusted EBITDA (c)

 

$

8.1

 

 

$

48.9

 

Adjusted EBITDA margin (c)

 

 

6.7

%

 

 

25.3

%

________

(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):

 

 

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Restructuring charges, net

 

$

9.2

 

 

$

 

 

Fee revenue was $120.1 million and $193.2 million in Q1 FY’21 and Q1 FY’20, respectively, a decrease of $73.1 million or 38% (37% on a constant currency basis).  The decrease in fee revenue was attributable to a decline in fee revenue in all regions due to the decrease in demand for our products and services as a result of the worldwide economic downturn associated with COVID-19.

Operating loss was $12.3 million in Q1 FY’21 compared to operating income of $45.6 million in Q1 FY’20.  Operating margin was (10.2%) in Q1 FY’21 compared to 23.6% in the year-ago quarter.  The change from operating income in Q1 FY’20 to operating loss in Q1 FY’21 was mainly due to a decrease in fee revenue and an increase in restructuring charges, net incurred in Q1 FY’21, partially offset by decreases in compensation and benefits expense and general and administrative expenses, all of which resulted from the cost saving initiatives that were put in place.

Adjusted EBITDA was $8.1 million in Q1 FY’21 with an Adjusted EBITDA margin of 6.7% compared to $48.9 million and 25.3%, respectively, in the year-ago quarter.  The decrease in Adjusted EBITDA was due to the same factors impacting operating income with the exception of restructuring charges.

5


 

Selected RPO and Professional Search Data

(dollars in millions) (a)

 

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Fee revenue

 

$

68.7

 

 

$

95.8

 

Total revenue

 

$

70.4

 

 

$

98.9

 

Operating income

 

$

2.2

 

 

$

15.0

 

Operating margin

 

 

3.2

%

 

 

15.7

%

 

 

 

 

 

 

 

 

 

Engagements billed (b)

 

 

1,027

 

 

 

1,436

 

New engagements (c)

 

 

564

 

 

 

767

 

 

EBITDA Results (d):

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

EBITDA

 

$

3.3

 

 

$

16.1

 

EBITDA margin

 

 

4.8

%

 

 

16.8

%

 

Adjusted Results (e):

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Adjusted EBITDA (d)

 

$

6.0

 

 

$

16.1

 

Adjusted EBITDA margin (d)

 

 

8.8

%

 

 

16.8

%

___________

(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).

(e)

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

 

 

 

First Quarter

 

 

 

FY’21

 

 

FY’20

 

Restructuring charges, net

 

$

2.7

 

 

$

 

 

Fee revenue was $68.7 million in Q1 FY’21, a decrease of $27.1 million or 28% (decrease of 27% on a constant currency basis), compared to the year-ago quarter.  The lower fee revenue was driven by a decrease in professional search and recruitment process outsourcing of $13.6 million and $13.5 million, respectively, as a result of the worldwide economic downturn associated with COVID-19.  For the quarter, professional search was down 36% (35% at constant currency) and RPO was down 23% (22% at constant currency), both compared to the year-ago quarter.

Operating income was $2.2 million in Q1 FY’21, a decrease of $12.8 million compared to $15.0 million in Q1 FY’20 operating income.  Operating margin was 3.2% in the current quarter compared to 15.7% in the year-ago quarter.  Adjusted EBITDA was $6.0 million in Q1 FY’21 with an Adjusted EBITDA margin of 8.8% in Q1 FY’21 compared to $16.1 million and 16.8%, respectively, in the year-ago quarter. The decrease in operating income was due to the lower fee revenue discussed above, partially offset by decreases in compensation and benefits expense and general and administrative expenses, all of which resulted from the cost saving initiatives that were put in place.

 

6


 

Outlook

Approximately two months have passed since our last earnings call, yet there remains significant uncertainty about the ultimate impact of COVID-19 on society and global economies. The pandemic, which spread across the globe during the past five to six months, continues to infect different parts of the world at varying points in time and with varying levels of intensity, including significant recurrences in a number of locations.  The response also continues to be conducted at varying levels, including very local levels in many instances, with societies and economies closing and reopening at different points in time and in different ways. The mandates that governments and companies have put in place largely remain in effect including rules regarding working from home, social distancing, and severely restricted travel and in-person interaction.  

 

Right now, governments are struggling to balance reopening and re-engaging in an effective way against the maintenance of an environment that fosters the health and safety of everyone. As there is no “playbook”, this effort takes on many forms, with no clear path to success.  Further, certain governments have put in place aide programs that provide financial assistance to businesses and individuals who have been dislocated by this pandemic. Whether or not these programs will remain in place or for how long remains a significant open question.  The unprecedented nature of what we are currently experiencing, combined with all of the unanswered questions and ever-changing datapoints, continues to cloud the near-term predictability of our business.  Consequently, and consistent with our approach to the fourth quarter of FY’20 and first quarter of FY’21, we will not issue any specific revenue or earnings guidance for the second quarter of FY’21. We plan to reassess the suspension of our guidance once we are comfortable that the coronavirus uncertainties have largely passed.

Earnings Conference Call Webcast

The earnings conference call will be held today at 12:00 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 magnitude and duration of the impact of the 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 the magnitude and duration of the negative impact of the COVID-19 outbreak on our business, employees, customers and our ability to provide services in affected regions, global and local political or economic developments in or affecting countries where we have operations, 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, 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, treaties, or regulations on our business and our company, 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, 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 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 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 (loss) income attributable to Korn Ferry, adjusted to exclude integration/acquisition costs and restructuring charges, net of income tax effect;

 

Adjusted basic and diluted (loss) earnings per share, adjusted to exclude integration/acquisition costs and restructuring charges, 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 and restructuring charges, 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 and 2) charges we incurred to restructure the Company as a result of COVID-19. 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 (loss) income attributable to Korn Ferry, adjusted basic and diluted (loss) 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 OPERATIONS

(in thousands, except per share amounts)

 

 

 

 

Three Months Ended

 

 

 

July 31,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

Fee revenue

 

$

344,097

 

 

$

484,549

 

Reimbursed out-of-pocket engagement expenses

 

 

2,786

 

 

 

11,649

 

           Total revenue

 

 

346,883

 

 

 

496,198

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

284,012

 

 

 

328,496

 

General and administrative expenses

 

 

47,089

 

 

 

65,807

 

Reimbursed expenses

 

 

2,786

 

 

 

11,649

 

Cost of services

 

 

14,269

 

 

 

17,135

 

Depreciation and amortization

 

 

15,035

 

 

 

12,777

 

Restructuring charges, net

 

 

27,487

 

 

 

-

 

           Total operating expenses

 

 

390,678

 

 

 

435,864

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

(43,795

)

 

 

60,334

 

Other income, net

 

 

11,162

 

 

 

1,826

 

Interest expense, net

 

 

(6,894

)

 

 

(4,057

)

        (Loss) income before (benefit) provision for income taxes

 

 

(39,527

)

 

 

58,103

 

Income tax (benefit) provision

 

 

(8,672

)

 

 

14,453

 

Net (loss) income

 

 

(30,855

)

 

 

43,650

 

           Net loss (income) attributable to noncontrolling interest

 

 

22

 

 

 

(699

)

Net (loss) income attributable to Korn Ferry

 

$

(30,833

)

 

$

42,951

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per common share attributable to Korn Ferry:

 

 

 

 

 

 

 

 

      Basic

 

$

(0.58

)

 

$

0.77

 

      Diluted

 

$

(0.58

)

 

$

0.76

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

      Basic

 

 

53,264

 

 

 

55,266

 

      Diluted

 

 

53,264

 

 

 

55,635

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share:

 

$

0.10

 

 

$

0.10

 

 

 


KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

 

 

 

 

 

Three Months Ended July 31,

 

 

 

 

2020

 

 

 

 

 

 

2019

 

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting

 

$

99,318

 

 

 

 

 

 

$

137,542

 

 

 

(27.8

%)

Digital

 

 

55,973

 

 

 

 

 

 

 

57,984

 

 

 

(3.5

%)

Executive Search:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

69,315

 

 

 

 

 

 

 

111,722

 

 

 

(38.0

%)

 

EMEA

 

 

30,081

 

 

 

 

 

 

 

46,530

 

 

 

(35.4

%)

 

Asia Pacific

 

 

17,252

 

 

 

 

 

 

 

27,362

 

 

 

(36.9

%)

 

Latin America

 

 

3,495

 

 

 

 

 

 

 

7,585

 

 

 

(53.9

%)

Total Executive Search

 

 

120,143

 

 

 

 

 

 

 

193,199

 

 

 

(37.8

%)

RPO and Professional Search

 

 

68,663

 

 

 

 

 

 

 

95,824

 

 

 

(28.3

%)

 

Total fee revenue

 

 

344,097

 

 

 

 

 

 

 

484,549

 

 

 

(29.0

%)

Reimbursed out-of-pocket engagement expenses

 

 

2,786

 

 

 

 

 

 

 

11,649

 

 

 

(76.1

%)

 

Total revenue

 

$

346,883

 

 

 

 

 

 

$

496,198

 

 

 

(30.1

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income:

 

 

 

 

 

Margin

 

 

 

 

 

 

Margin

 

Consulting

 

$

(10,927

)

 

 

(11.0

%)

 

$

11,783

 

 

 

8.6

%

Digital

 

 

(2,627

)

 

 

(4.7

%)

 

 

14,008

 

 

 

24.2

%

Executive Search:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

(5,735

)

 

 

(8.3

%)

 

 

30,322

 

 

 

27.1

%

 

EMEA

 

 

(6,219

)

 

 

(20.7

%)

 

 

7,311

 

 

 

15.7

%

 

Asia Pacific

 

 

861

 

 

 

5.0

%

 

 

6,993

 

 

 

25.6

%

 

Latin America

 

 

(1,217

)

 

 

(34.8

%)

 

 

1,010

 

 

 

13.3

%

Total Executive Search

 

 

(12,310

)

 

 

(10.2

%)

 

 

45,636

 

 

 

23.6

%

RPO and Professional Search

 

 

2,165

 

 

 

3.2

%

 

 

15,041

 

 

 

15.7

%

Corporate

 

 

(20,096

)

 

 

 

 

 

 

(26,134

)

 

 

 

 

 

Total operating (loss) income

 

$

(43,795

)

 

 

(12.7

%)

 

$

60,334

 

 

 

12.5

%

 

 

 

 


KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

 

 

July 31,

 

 

April 30,

 

 

 

 

2020

 

 

 

2020

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

542,786

 

 

$

689,244

 

Marketable securities

 

 

49,870

 

 

 

41,951

 

Receivables due from clients, net of allowance for doubtful accounts of $26,569 and $23,795 at July 31, 2020 and April 30, 2020, respectively

 

 

375,157

 

 

 

397,165

 

Income taxes and other receivables

 

 

42,243

 

 

 

38,755

 

Unearned compensation

 

 

48,243

 

 

 

43,117

 

Prepaid expenses and other assets

 

 

34,983

 

 

 

26,851

 

Total current assets

 

 

1,093,282

 

 

 

1,237,083

 

 

 

 

 

 

 

 

 

 

Marketable securities, non-current

 

 

140,330

 

 

 

132,134

 

Property and equipment, net

 

 

139,930

 

 

 

142,728

 

Operating lease right-of-use assets, net

 

 

191,608

 

 

 

195,077

 

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

 

 

148,382

 

 

 

146,408

 

Deferred income taxes

 

 

51,686

 

 

 

55,479

 

Goodwill

 

 

619,239

 

 

 

613,943

 

Intangible assets, net

 

 

107,202

 

 

 

111,926

 

Unearned compensation, non-current

 

 

98,701

 

 

 

79,510

 

Investments and other assets

 

 

27,743

 

 

 

29,540

 

Total assets

 

$

2,618,103

 

 

$

2,743,828

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

36,975

 

 

$

45,684

 

Income taxes payable

 

 

10,312

 

 

 

21,158

 

Compensation and benefits payable

 

 

184,087

 

 

 

280,911

 

Operating lease liability, current

 

 

55,119

 

 

 

54,851

 

Other accrued liabilities

 

 

204,838

 

 

 

221,603

 

Total current liabilities

 

 

491,331

 

 

 

624,207

 

 

 

 

 

 

 

 

 

 

Deferred compensation and other retirement plans

 

 

304,593

 

 

 

289,136

 

Operating lease liability, non-current

 

 

175,685

 

 

 

180,766

 

Long-term debt

 

 

394,303

 

 

 

394,144

 

Deferred tax liabilities

 

 

637

 

 

 

1,056

 

Other liabilities

 

 

33,533

 

 

 

30,828

 

Total liabilities

 

 

1,400,082

 

 

 

1,520,137

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock: $0.01 par value, 150,000 shares authorized, 74,783 and 73,205 shares issued and 54,869 and 54,450 shares outstanding at July 31, 2020 and April 30, 2020, respectively

 

 

590,897

 

 

 

585,560

 

Retained earnings

 

 

706,353

 

 

 

742,993

 

Accumulated other comprehensive loss, net

 

 

(81,592

)

 

 

(107,172

)

Total Korn Ferry stockholders' equity

 

 

1,215,658

 

 

 

1,221,381

 

Noncontrolling interest

 

 

2,363

 

 

 

2,310

 

Total stockholders' equity

 

 

1,218,021

 

 

 

1,223,691

 

Total liabilities and stockholders' equity

 

$

2,618,103

 

 

$

2,743,828

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

 

 

 

 

Three Months Ended

 

 

 

July 31,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

Net (loss) income attributable to Korn Ferry

$

(30,833

)

 

$

42,951

 

 

Net (loss) income attributable to non-controlling interest

 

(22

)

 

 

699

 

 

      Net (loss) income

 

(30,855

)

 

 

43,650

 

 

Income tax (benefit) provision

 

(8,672

)

 

 

14,453

 

 

     (Loss) income before provision for income taxes

 

(39,527

)

 

 

58,103

 

 

Other (income), net

 

(11,162

)

 

 

(1,826

)

 

Interest expense, net

 

6,894

 

 

 

4,057

 

 

      Operating (loss) income

 

(43,795

)

 

 

60,334

 

 

Depreciation and amortization

 

15,035

 

 

 

12,777

 

 

Other income, net

 

11,162

 

 

 

1,826

 

 

         EBITDA

 

(17,598

)

 

 

74,937

 

 

Integration/acquisition costs (1)

 

737

 

 

 

-

 

 

Restructuring charges, net (2)

 

27,487

 

 

 

-

 

 

         Adjusted EBITDA

$

10,626

 

 

$

74,937

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

(12.7

%)

 

 

12.5

%

 

Depreciation and amortization

 

4.4

%

 

 

2.6

%

 

Other income, net

 

3.2

%

 

 

0.4

%

 

         EBITDA margin

 

(5.1

%)

 

 

15.5

%

 

Integration/acquisition costs (1)

 

0.2

%

 

 

-

 

 

Restructuring charges, net (2)

 

8.0

%

 

 

-

 

 

         Adjusted EBITDA margin

 

3.1

%

 

 

15.5

%

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to Korn Ferry

$

(30,833

)

 

$

42,951

 

 

Integration/acquisition costs (1)

 

737

 

 

 

-

 

 

Restructuring charges, net (2)

 

27,487

 

 

 

-

 

 

Tax effect on the adjusted items (3)

 

(7,604

)

 

 

-

 

 

         Adjusted net (loss) income attributable to Korn Ferry

$

(10,213

)

 

$

42,951

 

 

 

 

 

 

 

 

 

 

 

Basic (loss) earnings per common share

$

(0.58

)

 

$

0.77

 

 

Integration/acquisition costs (1)

 

0.01

 

 

 

-

 

 

Restructuring charges, net (2)

 

0.52

 

 

 

-

 

 

Tax effect on the adjusted items (3)

 

(0.14

)

 

 

-

 

 

         Adjusted basic (loss) earnings per share

$

(0.19

)

 

$

0.77

 

 

 

 

 

 </