Form: 8-K

Current report filing

December 4, 2013

Documents

Exhibit 99.1

For Immediate Release

Contacts:

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

For Media: Mike Distefano, (310) 843-4199

Korn Ferry Announces Second Quarter Fiscal 2014

Results of Operations

Key highlights for the second quarter of fiscal 2014 are as follows:

 

  •   Korn Ferry reports record quarterly fee revenue of $238.0 million in Q2 FY’14, an increase of 23% on a constant currency basis compared to Q2 FY’13 (21% at actual exchange rates). Excluding the prior year acquisitions, quarterly fee revenue increased 8% on a constant currency basis from Q2 FY’13.

 

  •   Fee revenue in Executive Recruitment was $140.1 million in Q2 FY’14, which grew 11%, on a constant currency basis, from Q2 FY’13.

 

  •   Fee revenue in Leadership & Talent Consulting was $66.0 million in Q2 FY’14, up 73%, on a constant currency basis, from Q2 FY’13 and up 9% sequentially.

 

  •   Fee revenue in Futurestep was $31.9 million in Q2 FY’14, up 8%, on a constant currency basis, from Q2 FY’13.

 

  •   Q2 FY’14 adjusted EBITDA margin was 15.4% compared to adjusted EBITDA margin of 12.5% in Q2 FY’13.

 

  •   Q2 FY’14 adjusted diluted earnings per share, excluding separation charges of $2.0 million, was a record $0.41 compared to adjusted diluted earnings per share, excluding net restructuring charges of $15.5 million, of $0.25 in Q2 FY’13. Including such costs, Q2 FY’14 and Q2 FY’13 diluted earnings per share was $0.38 and $0.03, respectively.

Los Angeles, CA, December 4, 2013 - Korn Ferry (NYSE: KFY), a single source of leadership and talent consulting services, today announced record second quarter results with fee revenue of $238.0 million and adjusted diluted earnings per share of $0.41, excluding separation charges of $2.0 million. Including such charges, diluted earnings per share was $0.38 in the three months ended October 31, 2013.

“I am extremely proud of what Korn Ferry has accomplished. The second quarter represented the strongest top line results in the company’s history and represents a 23% year over year increase in fee revenue, or 8% excluding the prior year acquisitions, on a constant currency basis. Once again, we delivered strong margin expansion and earnings per share growth in the quarter. Our firm’s alignment to broad talent management offerings is taking hold, as evidenced by our non-Search businesses generating 41% of the revenue mix aided by the performance of the prior year acquisitions – an all-time high,” said Gary D. Burnison, CEO of Korn Ferry. “In the current economy, the winning companies will be those that can find and develop outperforming leaders in an underperforming economy. This environment is creating an opportunity for Korn Ferry – as we help clients drive growth by more effectively linking their business and talent strategies.”

Financial Results

(dollars in millions, except per share amounts)

 

                                                   
     Second Quarter     Year to Date  
     FY’14     FY’13     FY’14     FY’13  

Fee revenue

    $ 238.0      $ 196.2      $ 466.4      $ 382.9   

Total revenue

    $ 246.2      $ 204.8      $ 483.8      $ 400.8   

Operating income

    $ 23.2      $ 2.8      $ 39.8      $ 19.8   

Operating margin

      9.7 %      1.4 %      8.5 %      5.2 % 

Net income

    $ 18.8      $ 1.2      $ 30.2      $ 11.6   

Basic earnings per share

    $ 0.39      $ 0.03      $ 0.63      $ 0.25   

Diluted earnings per share

    $ 0.38      $ 0.03      $ 0.62      $ 0.24   
EBITDA Results (a):    Second Quarter     Year to Date  
     FY’14     FY’13     FY’14     FY’13  

EBITDA

    $ 34.7      $ 8.9      $ 60.0      $ 29.3   

EBITDA margin

      14.6 %      4.6 %      12.9 %      7.7 % 
Adjusted Results (b):    Second Quarter     Year to Date  
     FY’14     FY’13     FY’14     FY’13  

Operating income

    $ 25.2      $ 18.3      $ 48.4      $ 35.3   

Operating margin

      10.6 %      9.3 %      10.4 %      9.2 % 

EBITDA (a)

    $ 36.7      $ 24.4      $ 68.6      $ 44.8   

EBITDA margin (a)

      15.4 %      12.5 %      14.7 %      11.7 % 

Net income

    $ 20.0      $ 11.8      $ 36.0      $ 22.2   

Basic earnings per share

    $ 0.41      $ 0.25      $ 0.75      $ 0.47   

Diluted earnings per share

    $ 0.41      $ 0.25      $ 0.74      $ 0.47   

 

(a) EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude restructuring charges (net of recoveries) and/or transaction, integration/acquisition and separation costs. EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliation).
(b) Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):

 

                                                   
     Second Quarter     Year to Date  
     FY’14     FY’13     FY’14     FY’13  

Separation costs

    $ 2.0        $ —        $ 4.5      $ —     

Restructuring charges, net of recoveries

    $ —        $ 15.5        $ 3.7        $ 15.5     

Integration/acquisition costs

    $ —        $ —        $ 0.4      $ —     

Fee revenue was $238.0 million in Q2 FY’14, an increase of $41.8 million, or 23% on a constant currency basis (21% at actual exchange rates), compared to Q2 FY’13, primarily due to an increase of $27.6 million and $12.3 million in fee revenue in Leadership & Talent Consulting and Executive Recruitment, respectively. The overall fee revenue increase was driven by fee revenue growth in the life science/healthcare, industrial, technology and financial services sectors. Excluding the PDI Ninth House and Global Novations acquisitions (the “prior year acquisitions”), fee revenue increased 7% in Q2 FY’14 compared to the year-ago quarter (8% on a constant currency basis) to $204.7 million in Q2 FY’14 from $191.0 million in Q2 FY’13.

Compensation and benefit expenses were $161.3 million in Q2 FY’14, an increase of $28.2 million, or 21%, compared to Q2 FY’13. The prior year acquisitions contributed $14.5 million to the increase in compensation and benefit expenses. The remainder of the increase was due to an increase in performance related bonus expense, salaries and related payroll taxes and an increase in expense associated with company contributions to deferred compensation plans. The increase in the performance related bonus expense resulted from an increase in fee revenue and profitability. The increase in salaries and related payroll taxes was due to an increase in the headcount in both Futurestep and Leadership & Talent Consulting.

General and administrative expenses were $35.8 million in Q2 FY’14, an increase of $2.4 million, or 7%, compared to Q2 FY’13. The prior year acquisitions contributed $3.6 million to the increase in general and administrative expenses in Q2 FY’14 compared to Q2 FY’13. Excluding the costs from the prior year acquisitions, there was a decline in general and administrative expenses of $1.2 million during the same period. The decline was due to a gain as a result of favorable exchange rates in Q2 FY’14 compared to Q2 FY’13 and a decrease in business development expenses.

Adjusted EBITDA was $36.7 million in Q2 FY’14, an increase of $12.3 million, or 50%, compared to Q2 FY’13. Adjusted EBITDA margin was 15.4% and 12.5% in Q2 FY’14 and Q2 FY’13, respectively.

On a GAAP basis, operating income was $23.2 million in Q2 FY’14, an increase of $20.4 million, or 729%, compared to Q2 FY’13 resulting in a margin of 9.7% in the current quarter compared to 1.4% in the year-ago quarter.

Balance Sheet and Liquidity

Cash and marketable securities were $314.9 million at October 31, 2013, compared to $366.0 million at April 30, 2013. Cash and marketable securities include $118.0 million held in trust for deferred compensation plans at October 31, 2013, compared to $98.0 million at April 30, 2013. Cash and marketable securities decreased by $51.1 million from April 30, 2013, mainly due to Q1 FY’14 payments of FY’13 annual bonuses and contingent consideration paid to selling shareholders of PDI Ninth House partially offset by cash provided by operating activities.

Results by Segment

Selected Executive Recruitment Data

(dollars in millions)

 

                                                   
     Second Quarter     Year to Date  
     FY’14     FY’13     FY’14     FY’13  

Fee revenue

    $ 140.1      $ 127.8      $ 276.7      $ 255.2   

Total revenue

    $ 145.3      $ 133.1      $ 287.8      $ 266.3   

Operating income

    $ 28.1      $ 10.5      $ 56.4      $ 32.9   

Operating margin

      20.1 %      8.1 %      20.4 %      12.9 % 
        

Ending number of consultants

      412        402        412        402   

Average number of consultants

      414        409        406        401   

Engagements billed

      2,965        2,656        4,690        4,377   

New engagements (a)

      1,300        1,172        2,516        2,381   
EBITDA Results (b):    Second Quarter     Year to Date  
     FY’14     FY’13     FY’14     FY’13  

EBITDA

    $ 30.7      $ 12.5      $ 61.2      $ 37.4   

EBITDA margin

      21.9 %      9.8 %      22.1 %      14.7 % 
Adjusted Results (c):    Second Quarter     Year to Date  
     FY’14     FY’13     FY’14     FY’13  

Operating income

    $ 28.1      $ 21.2      $ 57.7      $ 43.6   

Operating margin

      20.1 %      16.6 %      20.9 %      17.1 % 

EBITDA (b)

    $ 30.7      $ 23.2      $ 62.5      $ 48.1   

EBITDA margin (b)

      21.9 %      18.2 %      22.6 %      18.9 % 

 

(a) Represents new engagements opened in the respective period.
(b) 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 exclude the following (see attached reconciliations):

 

                                                                   
     Second Quarter      Year to Date  
     FY’14      FY’13      FY’14      FY’13  

Restructuring charges, net of recoveries

    $ —         $ 10.7       $ 1.3       $ 10.7   

Executive Recruitment

Fee revenue was $140.1 million in Q2 FY’14, an increase of $12.3 million, or 11% on a constant currency basis (10% at actual exchange rates), compared to Q2 FY’13. The increase in fee revenue was driven by fee revenue increases in all regions with the largest increases in North America and Asia. This increase is primarily attributed to a 12% increase in the number of executive recruitment engagements billed, partially offset by a 2% decrease in the weighted-average fee billed per engagement compared to the year-ago quarter.

Adjusted EBITDA was $30.7 million during Q2 FY’14, an increase of $7.5 million, or 32%, compared to Q2 FY’13. Adjusted EBITDA margin was 21.9%, in Q2 FY’14 compared to 18.2% in Q2 FY’13. This increase is primarily attributed to the $12.3 million increase in fee revenue in Q2 FY’14 as compared to Q2 FY’13, combined with a decrease of $1.1 million in general and administrative expenses, partially offset by an increase of $6.8 million in compensation and benefit expenses driven primarily by an increase in performance related bonus expense.

On a GAAP basis, operating income was $28.1 million in Q2 FY’14, an increase of $17.6 million, or 168% ($6.9 million, or 33% on an adjusted basis), compared to Q2 FY’13, resulting in an operating margin of 20.1% in the current quarter compared to 8.1% in the year-ago quarter.

Selected Leadership & Talent Consulting Data

(dollars in millions)

 

     Second Quarter     Year to Date  
     FY’14     FY’13     FY’14     FY’13  

Fee revenue

    $ 66.0      $ 38.4      $ 126.1      $ 66.8   

Total revenue

    $ 68.2      $ 40.6      $ 130.3      $ 70.4   

Operating income

    $ 7.0      $ 6.2      $ 11.3      $ 10.5   

Operating margin

      10.6 %      16.3 %      9.0 %      15.7 % 
        

Ending number of consultants (a)

      129        72        129        72   

Staff utilization (b)

      70 %      67 %      68 %      66 % 
EBITDA Results (c):    Second Quarter     Year to Date  
     FY’14     FY’13     FY’14     FY’13  

EBITDA

    $ 10.3      $ 7.3      $ 17.5      $ 12.2   

EBITDA margin

      15.5 %      18.9 %      13.8 %      18.2 % 
Adjusted Results (d):    Second Quarter     Year to Date  
     FY’14     FY’13     FY’14     FY’13  

Operating income

    $ 7.0      $ 6.9      $ 12.5      $ 11.2   

Operating margin

      10.6 %      18.0 %      9.9 %      16.7 % 

EBITDA (c)

    $ 10.3      $ 8.0      $ 18.7      $ 12.9   

EBITDA margin (c)

      15.5 %      20.7 %      14.7 %      19.2 % 

 

(a) Represents number of employees originating consulting services. FY’14 and FY’13 include approximately 70 consultants and 22 consultants, respectively, from the prior year acquisitions.
(b) Calculated by dividing the number of hours of our full-time LTC professional staff, who recorded time to an engagement during the period, by the total available working hours during the same period.

(c) EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(d) Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):

 

                                                           
     Second Quarter      Year to Date  
     FY’14      FY’13      FY’14      FY’13  

Restructuring charges, net of recoveries

    $ —         $ 0.7       $ 1.2       $ 0.7   

Leadership & Talent Consulting

Fee revenue was $66.0 million in Q2 FY’14, an increase of $27.6 million, or 73% on a constant currency basis (72% at actual exchange rates), from the year-ago quarter. Excluding the prior year acquisitions, fee revenue was essentially flat on a constant currency basis, in Q2 FY’14 compared to Q2 FY’13, but up 3% sequentially.

Adjusted EBITDA was $10.3 million during Q2 FY’14, an increase of $2.3 million, or 29%, compared to Q2 FY’13. Adjusted EBITDA margin was 15.5% compared to 20.7% in Q2 FY’13. The increase in adjusted EBITDA is due to an increase in fee revenue, partially offset by an increase in compensation and benefit expenses, both primarily related to the prior year acquisitions.

On a GAAP basis, operating income was $7.0 million in Q2 FY’14, an increase of $0.8 million, or 13%, compared to Q2 FY’13 driven by an increase in productivity as measured by staff utilization. Operating margin was 10.6% in the current quarter compared to 16.3% in the year-ago quarter.

Selected Futurestep Data

(dollars in millions)

 

                                                   
     Second Quarter     Year to Date  
     FY’14     FY’13     FY’14     FY’13  

Fee revenue

    $ 31.9      $ 30.0      $ 63.6      $ 60.9   

Total revenue

    $ 32.7      $ 31.1      $ 65.7      $ 64.1   

Operating income

    $ 2.6      $ 0.2      $ 5.1      $ 3.4   

Operating margin

      8.0 %      0.8 %      8.0 %      5.6 % 
        

Engagements billed

      1,195        1,152        1,952        2,005   

New engagements (a)

      620        626        1,245        1,271   
EBITDA Results (b):    Second Quarter     Year to Date  
     FY’14     FY’13     FY’14     FY’13  

EBITDA

    $ 3.0      $ 0.5      $ 6.5      $ 4.0   

EBITDA margin

      9.3 %      1.9 %      10.2 %      6.6 % 
Adjusted Results (c):    Second Quarter     Year to Date  
     FY’14     FY’13     FY’14     FY’13  

Operating income

    $ 2.6      $ 3.3      $ 6.3      $ 6.5   

Operating margin

      8.0 %      11.1 %      9.8 %      10.7 % 

EBITDA (b)

    $ 3.0      $ 3.6      $ 7.7      $ 7.1   

EBITDA margin (b)

      9.3 %      12.1 %      12.0 %      11.7 % 

 

(a) Represents new engagements opened in the respective period.
(b) 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 exclude the following (see attached reconciliations):

 

                                                           
     Second Quarter      Year to Date  
     FY’14      FY’13      FY’14      FY’13  

Restructuring charges, net of recoveries

    $ —         $ 3.1       $ 1.2       $ 3.1   

Futurestep

Fee revenue was $31.9 million in Q2 FY’14, an increase of $1.9 million, or 8% on a constant currency basis (6% at actual exchange rates), compared to the year-ago quarter. The increase in fee revenue was driven by a 4% increase in the number of engagements billed and a 2% increase in weighted-average fee billed per engagement in Q2 FY’14 compared to Q2 FY’13 driven by increases in recruitment process outsourcing and non-executive and other professional recruitment.

Adjusted EBITDA was $3.0 million during Q2 FY’14, a decrease of $0.6 million, or 17%, compared to Q2 FY’13. Adjusted EBITDA margin decreased to 9.3% in Q2 FY’14 compared to 12.1% in Q2 FY’13. The decrease in Adjusted EBITDA and Adjusted EBITDA margin was primarily due to an increase of $1.9 million in compensation and benefit expenses, an increase in cost of services expense of $0.4 million, and an increase in general and administrative of $0.2 million, partially offset by an increase in fee revenue of $1.9 million. The increase in compensation and benefit expenses was driven by an increase in salaries and related payroll taxes due to a 13% increase in the average headcount primarily associated with an increase in staffing to accommodate a number of larger recruitment process outsourcing contracts won by the Company in the quarter and for which delivery will occur in subsequent periods.

On a GAAP basis, operating income was $2.6 million in Q2 FY’14, an increase of $2.4 million, compared to Q2 FY’13 resulting in an operating margin of 8.0% in the current quarter compared to 0.8% in the year-ago quarter.

Outlook

The third quarter is our seasonal low quarter due to the heavy concentration of holidays which results in lower productivity. Given this and assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, fee revenue is expected to be in the range of $221 million to $237 million in Q3 FY’14 and diluted earnings per share are likely to be in the range of $0.30 to $0.38.

Earnings Conference Call Webcast

The earnings conference call will be held today at 5:00 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 www.kornferry.com, accessible through the Investor Relations section.

 

 

About Korn Ferry

At Korn Ferry, we design, build, attract and ignite talent. Since our inception, clients have trusted us to help recruit world-class leadership. Today, we are a single source for leadership and talent consulting services to empower businesses and leaders to reach their goals. Our solutions range from executive recruitment and leadership development programs, to enterprise learning, succession planning and recruitment process outsourcing (RPO). Visit www.kornferry.com for more information on Korn Ferry, and www.kornferryinstitute.com for thought leadership, intellectual property and research.

Forward-Looking Statements

Statements in this press release and our conference call that relate to future results and events (“forward-looking statements”) are based on Korn Ferry’s current expectations. These statements, which include words such as “believes”, “expects” or “likely” include references to our outlook. Readers are cautioned not to place undue reliance on such statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties that are beyond the control of Korn Ferry. The potential risks and uncertainties include those relating to competition, the dependence on attracting and retaining qualified and experienced consultants, our ability to successfully integrate acquired businesses, maintaining our brand name and professional reputation, potential legal liability, the portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to the growth, alignment of our cost structure with our growth, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, consolidation of industries we serve, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, impairment of goodwill and other intangible assets, deferred tax assets, seasonality 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 operating income and operating margin, adjusted to exclude restructuring (net of recoveries) and/or transaction, integration/acquisition and separation costs;

 

  •   adjusted net income, adjusted to exclude restructuring (net of recoveries) and/or transaction, integration/acquisition and separation costs, net of income tax effect;

 

  •   adjusted basic and diluted earnings per share, adjusted to exclude restructuring (net of recoveries) and/or transaction, integration/acquisition and separation costs, net of income tax effect;

 

  •   constant currency amounts that represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period;

 

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

 

  •   adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring (net of recoveries) and/or transaction, integration/acquisition and separation costs, 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.

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. The use of these non-GAAP financial measures facilitate comparisons to Korn Ferry’s historical performance. Korn Ferry includes these 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. In the case of constant currency amounts, management believes the presentation of such information provides meaningful supplemental information regarding Korn Ferry’s performance as excluding the impact of exchange rate changes on Korn Ferry’s financial performance allows investors to make more meaningful period-to-period comparisons of the Company’s operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making.

[Tables attached]

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

     Three Months Ended     Six Months Ended  
     October 31,     October 31,  
     2013     2012     2013     2012  
     (unaudited)  

Fee revenue

    $ 237,968      $ 196,231      $ 466,405      $ 382,925   

Reimbursed out-of-pocket engagement expenses

      8,269        8,568        17,419        17,897   
  

 

 

    

 

 

    

 

 

    

 

 

  

Total revenue

      246,237        204,799        483,824        400,822   
  

 

 

    

 

 

    

 

 

    

 

 

  

Compensation and benefits

      161,296        133,035        314,066        261,071   

General and administrative expenses

      35,795        33,317        75,666        66,760   

Reimbursed expenses

      8,269        8,568        17,419        17,897   

Cost of services

      11,132        7,318        20,641        11,782   

Depreciation and amortization

      6,580        4,297        12,524        8,039   

Restructuring charges, net

      —          15,495        3,682        15,495   
  

 

 

    

 

 

    

 

 

    

 

 

  

Total operating expenses

      223,072        202,030        443,998        381,044   
  

 

 

    

 

 

    

 

 

    

 

 

  

Operating income

      23,165        2,769        39,826        19,778   

Other income, net

      4,352        1,529        6,619        512   

Interest expense, net

      (638 )      (762 )      (1,229 )      (1,361 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

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

      26,879        3,536        45,216        18,929   

Equity in earnings of unconsolidated subsidiaries

      557        344        1,022        974   

Income tax provision

      8,677        2,684        16,062        8,289   
  

 

 

    

 

 

    

 

 

    

 

 

  

Net income

    $ 18,759      $ 1,196      $ 30,176      $ 11,614   
  

 

 

    

 

 

    

 

 

    

 

 

  

Earnings per common share:

         

Basic

    $ 0.39      $ 0.03      $ 0.63      $ 0.25   
  

 

 

    

 

 

    

 

 

    

 

 

  

Diluted

    $ 0.38      $ 0.03      $ 0.62      $ 0.24   
  

 

 

    

 

 

    

 

 

    

 

 

  

Weighted-average common shares outstanding:

         

Basic

      48,118        47,269        47,892        47,040   
  

 

 

    

 

 

    

 

 

    

 

 

  

Diluted

      48,816        47,834        48,748        47,658   
  

 

 

    

 

 

    

 

 

    

 

 

  

 

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

 

     Three Months Ended October 31,     Six Months Ended October 31,  
     2013           2012     % Change     2013           2012     % Change  

Fee Revenue:

                 

Executive recruitment:

                 

North America

    $ 75,183        $ 69,441        8 %    $ 149,330        $ 141,547        5 % 

EMEA

      34,221          33,142        3 %      68,598          62,965        9 % 

Asia Pacific

      21,722          18,338        18 %      42,850          35,721        20 % 

South America

      8,866          6,827        30 %      15,869          14,961        6 % 
  

 

 

      

 

 

      

 

 

      

 

 

    

Total executive recruitment

      139,992          127,748        10 %      276,647          255,194        8 % 

Leadership & Talent Consulting

      66,078          38,452        72 %      126,140          66,844        89 % 

Futurestep

      31,898          30,031        6 %      63,618          60,887        4 % 
  

 

 

      

 

 

      

 

 

      

 

 

    

Total fee revenue

      237,968          196,231        21 %      466,405          382,925        22 % 

Reimbursed out-of-pocket engagement expenses

      8,269          8,568        (3 %)      17,419          17,897        (3 %) 
  

 

 

      

 

 

      

 

 

      

 

 

    

Total revenue

    $ 246,237        $ 204,799        20 %    $ 483,824        $ 400,822        21 % 
  

 

 

      

 

 

      

 

 

      

 

 

    

Reconciliation of Operating Income (GAAP) to Adjusted Operating Income

  

        
           Margin           Margin           Margin           Margin  

Operating Income:

                 

Executive recruitment:

                 

North America

    $ 15,530        20.7 %    $ 9,017        13.0 %    $ 31,854        21.3 %    $ 27,091        19.1 % 

EMEA

      5,860        17.1 %      (929 )      (2.8 %)      11,820        17.2 %      859        1.4 % 

Asia Pacific

      4,472        20.6 %      1,080        5.9 %      8,972        20.9 %      1,578        4.4 % 

South America

      2,265        25.5 %      1,217        17.8 %      3,761        23.7 %      3,306        22.1 % 
  

 

 

      

 

 

      

 

 

      

 

 

    

Total executive recruitment

      28,127        20.1 %      10,385        8.1 %      56,407        20.4 %      32,834        12.9 % 

Leadership & Talent Consulting

      7,006        10.6 %      6,252        16.3 %      11,341        9.0 %      10,514        15.7 % 

Futurestep

      2,539        8.0 %      237        0.8 %      5,084        8.0 %      3,419        5.6 % 

Corporate

      (14,507 )        (14,105 )        (33,006 )        (26,989 )   
  

 

 

      

 

 

      

 

 

      

 

 

    

Total operating income

    $ 23,165        9.7 %    $ 2,769        1.4 %    $ 39,826        8.5 %    $ 19,778        5.2 % 
  

 

 

      

 

 

      

 

 

      

 

 

    

Restructuring, Separation, and Integration/Acquisition Costs, net:

  

        

Executive recruitment:

                 

North America

    $ —          —        $ 5,436        7.8 %    $ 816        0.6 %    $ 5,436        3.9 % 

EMEA

      —          —          4,752        14.3 %      460        0.7 %      4,752        7.5 % 

Asia Pacific

      —          —          613        3.3 %      60        0.2 %      613        1.7 % 

South America

      —          —          —          —          —          —          —          —     
  

 

 

      

 

 

      

 

 

      

 

 

    

Total executive recruitment

      —          —          10,801        8.5 %      1,336        0.5 %      10,801        4.2 % 

Leadership & Talent Consulting

      —          —          677        1.7 %      1,149        0.9 %      677        1.0 % 

Futurestep

      —          —          3,086        10.3 %      1,134        1.8 %      3,086        5.1 % 

Corporate

      2,000          931          4,957          931     
  

 

 

      

 

 

      

 

 

      

 

 

    

Total restructuring, separation, and integration/acquisition costs, net

    $ 2,000        0.9 %    $ 15,495        7.9 %    $ 8,576        1.9 %    $ 15,495        4.0 % 
  

 

 

      

 

 

      

 

 

      

 

 

    
           Margin           Margin           Margin           Margin  

Adjusted Operating Income:
(Excluding Restructuring, Separation, and Integration/Acquisition Costs, net)

                 

Executive recruitment:

                 

North America

    $ 15,530        20.7 %    $ 14,453        20.8 %    $ 32,670        21.9 %    $ 32,527        23.0 % 

EMEA

      5,860        17.1 %      3,823        11.5 %      12,280        17.9 %      5,611        8.9 % 

Asia Pacific

      4,472        20.6 %      1,693        9.2 %      9,032        21.1 %      2,191        6.1 % 

South America

      2,265        25.5 %      1,217        17.8 %      3,761        23.7 %      3,306        22.1 % 
  

 

 

      

 

 

      

 

 

      

 

 

    

Total executive recruitment

      28,127        20.1 %      21,186        16.6 %      57,743        20.9 %      43,635        17.1 % 

Leadership & Talent Consulting

      7,006        10.6 %      6,929        18.0 %      12,490        9.9 %      11,191        16.7 % 

Futurestep

      2,539        8.0 %      3,323        11.1 %      6,218        9.8 %      6,505        10.7 % 

Corporate

      (12,507 )        (13,174 )        (28,049 )        (26,058 )   
  

 

 

      

 

 

      

 

 

      

 

 

    

Total adjusted operating income

    $ 25,165        10.6 %    $ 18,264        9.3 %    $ 48,402        10.4 %    $ 35,273        9.2 % 
  

 

 

      

 

 

      

 

 

      

 

 

    

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

     October 31,     April 30,  
     2013     2013  
     (unaudited)        

ASSETS

     

Cash and cash equivalents

    $ 182,628      $ 224,066   

Marketable securities

      6,531        20,347   

Receivables due from clients, net of allowance for doubtful accounts of $9,775 and $9,097 respectively

      199,247        161,508   

Income taxes and other receivables

      6,675        8,944   

Deferred income taxes

      2,622        3,511   

Prepaid expenses and other assets

      31,097        28,724   
  

 

 

    

 

 

  

Total current assets

      428,800        447,100   
  

 

 

    

 

 

  

Marketable securities, non-current

      125,754        121,569   

Property and equipment, net

      52,651        53,628   

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

      90,898        85,873   

Deferred income taxes

      60,552        63,203   

Goodwill

      259,071        257,293   

Intangible assets, net

      53,879        58,187   

Investments and other assets

      28,841        28,376   
  

 

 

    

 

 

  

Total assets

    $ 1,100,446      $ 1,115,229   
  

 

 

    

 

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Accounts payable

    $ 18,281      $ 19,460   

Income taxes payable

      9,251        5,502   

Compensation and benefits payable

      119,163        160,298   

Other accrued liabilities

      61,332        83,291   
  

 

 

    

 

 

  

Total current liabilities

      208,027        268,551   
  

 

 

    

 

 

  

Deferred compensation and other retirement plans

      167,792        159,706   

Other liabilities

      20,800        22,504   
  

 

 

    

 

 

  

Total liabilities

      396,619        450,761   
  

 

 

    

 

 

  

Stockholders’ equity

     

Common stock: $0.01 par value, 150,000 shares authorized, 61,729 and 61,022 shares issued and 49,441 and 48,734 shares outstanding, respectively

      439,377        431,508   

Retained earnings

      266,266        236,090   

Accumulated other comprehensive loss, net

      (1,322 )      (2,631 ) 
  

 

 

    

 

 

  

Stockholders’ equity

      704,321        664,967   

Less: notes receivable from stockholders

      (494 )      (499 ) 
  

 

 

    

 

 

  

Total stockholders’ equity

      703,827        664,468   
  

 

 

    

 

 

  

Total liabilities and stockholders’ equity

    $ 1,100,446      $ 1,115,229   
  

 

 

    

 

 

  

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP)

(in thousands, except per share amounts)

(unaudited)

 

     Three Months Ended     Three Months Ended  
     October 31, 2013     October 31, 2012  
     As Reported     Adjustments     As Adjusted     As Reported     Adjustments     As Adjusted  

Fee revenue

    $ 237,968        $ 237,968      $ 196,231        $ 196,231   

Reimbursed out-of-pocket engagement expenses

      8,269          8,269        8,568          8,568   
  

 

 

      

 

 

    

 

 

      

 

 

  

Total revenue

      246,237          246,237        204,799          204,799   
  

 

 

      

 

 

    

 

 

      

 

 

  

Compensation and benefits

      161,296        (2,000 )      159,296        133,035          133,035   

General and administrative expenses

      35,795          35,795        33,317          33,317   

Reimbursed expenses

      8,269          8,269        8,568          8,568   

Cost of services

      11,132          11,132        7,318          7,318   

Depreciation and amortization

      6,580          6,580        4,297          4,297   

Restructuring charges, net

      —            —          15,495        (15,495 )      —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total operating expenses

      223,072        (2,000 )      221,072        202,030        (15,495 )      186,535   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income

      23,165        2,000        25,165        2,769        15,495        18,264   

Other income, net

      4,352          4,352        1,529          1,529   

Interest expense, net

      (638 )        (638 )      (762 )        (762 ) 
  

 

 

      

 

 

    

 

 

      

 

 

  

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

      26,879        2,000        28,879        3,536        15,495        19,031   

Equity in earnings of unconsolidated subsidiaries

      557          557        344          344   

Income tax provision (1) (2)

      8,677        791        9,468        2,684        4,889        7,573   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income

    $ 18,759      $ 1,209      $ 19,968      $ 1,196      $ 10,606      $ 11,802   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Earnings per common share:

             

Basic

    $ 0.39        $ 0.41      $ 0.03        $ 0.25   
  

 

 

      

 

 

    

 

 

      

 

 

  

Diluted

    $ 0.38        $ 0.41      $ 0.03        $ 0.25   
  

 

 

      

 

 

    

 

 

      

 

 

  

Weighted-average common shares outstanding:

             

Basic

      48,118          48,118        47,269          47,269   
  

 

 

      

 

 

    

 

 

      

 

 

  

Diluted

      48,816          48,816        47,834          47,834   
  

 

 

      

 

 

    

 

 

      

 

 

  

Explanation of Non-GAAP Adjustments

 

(1) The adjustments result in an effective tax rate of 33% and 40% for the as adjusted amounts for the three months ended October 31, 2013 and 2012, respectively.
(2) The three months ended October 31, 2013, includes the tax effect on separation charges, while the three months ended October 31, 2012, includes the tax effect on restructuring charges.

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP)

(in thousands, except per share amounts)

(unaudited)

 

     Six Months Ended     Six Months Ended  
     October 31, 2013     October 31, 2012  
     As Reported     Adjustments     As Adjusted     As Reported     Adjustments     As Adjusted  

Fee revenue

    $ 466,405        $ 466,405      $ 382,925        $ 382,925   

Reimbursed out-of-pocket engagement expenses

      17,419          17,419        17,897          17,897   
  

 

 

      

 

 

    

 

 

      

 

 

  

Total revenue

      483,824          483,824        400,822          400,822   
  

 

 

      

 

 

    

 

 

      

 

 

  

Compensation and benefits

      314,066        (4,500 )      309,566        261,071          261,071   

General and administrative expenses

      75,666        (394 )      75,272        66,760          66,760   

Reimbursed expenses

      17,419          17,419        17,897          17,897   

Cost of services

      20,641          20,641        11,782          11,782   

Depreciation and amortization

      12,524          12,524        8,039          8,039   

Restructuring charges, net

      3,682        (3,682 )      —          15,495        (15,495 )      —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total operating expenses

      443,998        (8,576 )      435,422        381,044        (15,495 )      365,549   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income

      39,826        8,576        48,402        19,778        15,495        35,273   

Other income, net

      6,619          6,619        512          512   

Interest expense, net

      (1,229 )        (1,229 )      (1,361 )        (1,361 ) 
  

 

 

      

 

 

    

 

 

      

 

 

  

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

      45,216        8,576        53,792        18,929        15,495        34,424   

Equity in earnings of unconsolidated subsidiaries

      1,022          1,022        974          974   

Income tax provision (1) (2)

      16,062        2,796        18,858        8,289        4,889        13,178   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income

    $ 30,176      $ 5,780      $ 35,956      $ 11,614      $ 10,606      $ 22,220   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Earnings per common share:

             

Basic

    $ 0.63        $ 0.75      $ 0.25        $ 0.47   
  

 

 

      

 

 

    

 

 

      

 

 

  

Diluted

    $ 0.62        $ 0.74      $ 0.24        $ 0.47   
  

 

 

      

 

 

    

 

 

      

 

 

  

Weighted-average common shares outstanding:

             

Basic

      47,892          47,892        47,040          47,040   
  

 

 

      

 

 

    

 

 

      

 

 

  

Diluted

      48,748          48,748        47,658          47,658   
  

 

 

      

 

 

    

 

 

      

 

 

  

Explanation of Non-GAAP Adjustments

 

(1) The adjustments result in an effective tax rate of 35% and 38% for the as adjusted amounts for the six months ended October 31, 2013 and 2012, respectively.
(2) The six months ended October 31, 2013 includes the tax effect on restructuring charges, separation costs, and integration/acquisition costs associated with the acquisition of PDI Ninth House, while the six months ended October 31, 2012, includes the tax effect on restructuring charges.

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 

     Three Months Ended October 31, 2013  
     Executive
Recruitment		     Leadership
& Talent
Consulting		     Futurestep     Corporate     Consolidated  

Fee revenue

    $ 139,992      $ 66,078      $ 31,898      $ —        $ 237,968   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income

            $ 18,759   

Other income, net

              (4,352 ) 

Interest expense, net

              638   

Equity in earnings of unconsolidated subsidiaries

              (557 ) 

Income tax provision

              8,677   
          

 

 

  

Operating income (loss)

    $ 28,127      $ 7,006      $ 2,539      $ (14,507 )      23,165   

Depreciation and amortization

      2,000        3,161        440        979        6,580   

Other income (loss), net

      451        45        (17 )      3,873        4,352   

Equity in earnings of unconsolidated subsidiaries

      120        —          —          437        557   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

EBITDA

      30,698        10,212        2,962        (9,218 )      34,654   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

EBITDA margin

      21.9 %      15.5 %      9.3 %        14.6 % 

Separation costs

      —          —          —          2,000        2,000   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA

    $ 30,698      $ 10,212      $ 2,962      $ (7,218 )    $ 36,654   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA margin

      21.9 %      15.5 %      9.3 %        15.4 % 
     Three Months Ended October 31, 2012  
     Executive
Recruitment		     Leadership
& Talent
Consulting		     Futurestep     Corporate     Consolidated  

Fee revenue

    $ 127,748      $ 38,452      $ 30,031      $ —        $ 196,231   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income

            $ 1,196   

Other income, net

              (1,529 ) 

Interest expense, net

              762   

Equity in earnings of unconsolidated subsidiaries

              (344 ) 

Income tax provision

              2,684   
          

 

 

  

Operating income (loss)

    $ 10,385      $ 6,252      $ 237      $ (14,105 )      2,769   

Depreciation and amortization

      2,295        1,006        320        676        4,297   

Other (loss) income, net

      (108 )      19        1        1,617        1,529   

Equity in earnings of unconsolidated subsidiaries

      (70 )      —          —          414        344   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

EBITDA

      12,502        7,277        558        (11,398 )      8,939   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

EBITDA margin

      9.8 %      18.9 %      1.9 %        4.6 % 

Restructuring charges, net

      10,801        677        3,086        931        15,495   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA

    $ 23,303      $ 7,954      $ 3,644      $ (10,467 )    $ 24,434   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA margin

      18.2 %      20.7 %      12.1 %        12.5 % 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 

     Six Months Ended October 31, 2013  
     Executive
Recruitment		     Leadership
& Talent
Consulting		     Futurestep     Corporate     Consolidated  

Fee revenue

    $ 276,647      $ 126,140      $ 63,618      $ —        $ 466,405   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income

            $ 30,176   

Other income, net

              (6,619 ) 

Interest expense, net

              1,229   

Equity in earnings of unconsolidated subsidiaries

              (1,022 ) 

Income tax provision

              16,062   
          

 

 

  

Operating income (loss)

    $ 56,407      $ 11,341      $ 5,084      $ (33,006 )      39,826   

Depreciation and amortization

      3,778        6,058        848        1,840        12,524   

Other income, net

      832        53        548        5,186        6,619   

Equity in earnings of unconsolidated subsidiaries

      222        —          —          800        1,022   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

EBITDA

      61,239        17,452        6,480        (25,180 )      59,991   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

EBITDA margin

      22.1 %      13.8 %      10.2 %        12.9 % 

Restructuring charges, net

      1,336        1,149        1,134        63        3,682   

Separation costs

      —          —          —          4,500        4,500   

Integration/acquisition costs

      —          —          —          394        394   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA

    $ 62,575      $ 18,601      $ 7,614      $ (20,223 )    $ 68,567   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA margin

      22.6 %      14.7 %      12.0 %        14.7 % 
     Six Months Ended October 31, 2012  
     Executive
Recruitment		     Leadership
& Talent
Consulting		     Futurestep     Corporate     Consolidated  

Fee revenue

    $ 255,194      $ 66,844      $ 60,887      $ —        $ 382,925   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income

            $ 11,614   

Other income, net

              (512 ) 

Interest expense, net

              1,361   

Equity in earnings of unconsolidated subsidiaries

              (974 ) 

Income tax provision

              8,289   
          

 

 

  

Operating income (loss)

    $ 32,834      $ 10,514      $ 3,419      $ (26,989 )      19,778   

Depreciation and amortization

      4,501        1,623        616        1,299        8,039   

Other (loss) income, net

      (50 )      34        10        518        512   

Equity in earnings of unconsolidated subsidiaries

      157        —          —          817        974   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

EBITDA

      37,442        12,171        4,045        (24,355 )      29,303   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

EBITDA margin

      14.7 %      18.2 %      6.6 %        7.7 % 

Restructuring charges, net

      10,801        677        3,086        931        15,495   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA

    $ 48,243      $ 12,848      $ 7,131      $ (23,424 )    $ 44,798   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA margin

      18.9 %      19.2 %      11.7 %        11.7 %