Form: 8-K

Current report filing

September 6, 2017

Exhibit 99.1

 

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FOR IMMEDIATE RELEASE   Contacts:
  Investor Relations: Gregg Kvochak, (310) 556-8550
  Media: Dan Gugler, (310) 226-2645

Korn Ferry International Announces First Quarter Fiscal 2018 Results of Operations

Highlights

 

  •   Korn Ferry reports fee revenue of $401.3 million in Q1 FY’18, a 6.8% increase from Q1 FY’17, driven by organic growth in all lines of business.

 

  •   Operating income was $40.7 million in Q1 FY’18 with an operating margin of 10.2%. Adjusted EBITDA was $59.4 million with Adjusted EBITDA margin of 14.8%.

 

  •   Q1 FY’18 diluted earnings per share was $0.51 and adjusted diluted earnings per share was $0.55.

 

  •   The Company continued to return capital to stockholders during the quarter, paying $5.8 million in dividends and repurchasing $4.0 million worth of its outstanding shares. As of September 5th, the cumulative share repurchases since the program started in October 2016 amount to $57.4 million, which equates to almost 2.0 million shares.

 

  •   The Company declared a quarterly dividend of $0.10 per share on September 5, 2017 payable on October 13, 2017 to stockholders of record on September 27, 2017.

Los Angeles, CA, September 6, 2017 – Korn/Ferry International (NYSE: KFY), the preeminent global people and organizational advisory firm, today announced first quarter fee revenue of $401.3 million. First quarter diluted earnings per share was $0.51 and adjusted diluted earnings per share was $0.55. Adjusted diluted earnings per share for the first quarter excluded $2.1 million, or $0.04 per share, of integration/acquisition costs and a small amount of real estate related restructuring charges, both net of related taxes.

“I am pleased to report fee revenue of $401.3 million, up almost 7% year over year (almost 8% on a constant currency basis), for our recently completed first quarter. Profits were also strong, with diluted earnings per share and adjusted diluted earnings per share of $0.51 and $0.55 and Adjusted EBITDA of approximately $59 million. All three of our business lines experienced growth,” said Gary D. Burnison, CEO of Korn Ferry. “We are making substantial investments in our operations and offering progressive solutions for the talent and organizational challenges faced by our clients. Korn Ferry is not only the world’s leading executive search firm – the scale and scope of our broader offerings account for more than half of our revenue. Our company stands at the intersection of talent and strategy and more than ever we’re helping our clients drive performance through their people.”

 

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Selected Financial Results

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

 

     First Quarter  
     FY’18     FY’17  

Fee revenue

   $ 401.3     $ 375.6  

Total revenue

   $ 414.9     $ 392.9  

Operating income

   $ 40.7     $ 4.5  

Operating margin

     10.2     1.2

Net income attributable to Korn Ferry

   $ 29.0     $ 3.2  

Basic earnings per share

   $ 0.52     $ 0.06  

Diluted earnings per share

   $ 0.51     $ 0.06  
EBITDA Results (b):    First Quarter  
     FY’18     FY’17  

EBITDA

   $ 56.5     $ 20.3  

EBITDA margin

     14.1     5.4
Adjusted Results (c):    First Quarter  
     FY’18     FY’17  

Adjusted fee revenue

   $ 401.3     $ 379.2  

Adjusted EBITDA (b)

   $ 59.4     $ 56.4  

Adjusted EBITDA margin (b)

     14.8     14.9

Adjusted net income attributable to Korn Ferry

   $ 31.2     $ 29.5  

Adjusted basic earnings per share

   $ 0.55     $ 0.52  

Adjusted diluted earnings per share

   $ 0.55     $ 0.52  

 

    

(a)    Numbers may not total due to rounding.

     

(b)    EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude  restructuring charges, net and integration/acquisition costs and includes the deferred revenue adjustment related to the acquisition of HG  (Luxembourg) S.à.r.l (“Legacy Hay”). EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP  financial measures (see attached reconciliations).

     

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

     

     First Quarter  
     FY’18     FY’17  

Restructuring charges, net

   $ 0.3     $ 24.5  

Integration/acquisition costs

   $ 2.6     $ 8.0  

Deferred revenue adjustment related to the Legacy Hay acquisition

   $ —     $ 3.5  

Write-off of debt issuance costs

   $ —     $ 1.0  

Fee revenue was $401.3 million in Q1 FY’18, an increase of 6.8% (7.7% increase on a constant currency basis) compared to Q1 FY’17. The increase in fee revenue was due to organic growth in all lines of business.

Operating margin was 10.2% in Q1 FY’18 compared to 1.2% in the year-ago quarter. The increase in operating margin was primarily due to an increase in fee revenues of $25.7 million and a decrease in restructuring charges of $24.2 million, offset by an increase in compensation expenses of $11.0 million due to a 6.1% increase in headcount.

Adjusted EBITDA margin was 14.8%, compared to 14.9% in the year-ago quarter.

 

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Results by Segment

Selected Executive Search Data

(dollars in millions) (a)

 

     First Quarter  
     FY’18     FY’17  

Fee revenue

   $ 161.2     $ 146.4  

Total revenue

   $ 165.8     $ 151.5  

Operating income

   $ 32.8     $ 26.9  

Operating margin

     20.4     18.4

 

Ending number of consultants

     532       488  

Average number of consultants

     525       488  

Engagements billed

     3,615       3,226  

New engagements (b)

     1,659       1,446  
EBITDA Results (c):    First Quarter  
     FY’18     FY’17  

EBITDA

   $ 35.1     $ 28.9  

EBITDA margin

     21.8     19.7
Adjusted Results (d):    First Quarter  
     FY’18     FY’17  

Adjusted EBITDA (c)

   $ 35.2     $ 31.7  

Adjusted EBITDA margin (c)

     21.8     21.6

 

    

(a)    Numbers may not total due to rounding.

     

(b)    Represents new engagements opened in the respective period.

     

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

     

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

     

     First Quarter  
     FY’18     FY’17  

Restructuring charges, net

   $     —     $     2.8  

Fee revenue was $161.2 million in Q1 FY’18, an increase of $14.8 million or 10.1% (an increase of $16.0 million or 10.9% on a constant currency basis) compared to Q1 FY’17. The overall increase in fee revenue was primarily attributable to higher fee revenue in North America, EMEA and APAC regions.

Operating income was $32.8 million in Q1 FY’18 compared to $26.9 million in Q1 FY’17. Operating margin was 20.4% in Q1 FY’18 compared to 18.4% in the year-ago quarter. The increase in operating income was due to higher fee revenue in Q1 FY’18 compared to Q1 FY’17, offset by an increase in compensation expenses of $8.8 million due to an 8.0% increase in headcount.

Adjusted EBITDA was $35.2 million in Q1 FY’18 with an Adjusted EBITDA margin of 21.8% compared to $31.7 million and 21.6%, respectively, in the year-ago quarter.

 

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Selected Hay Group Data

(dollars in millions) (a)

 

     First Quarter  
     FY’18     FY’17  

Fee revenue

   $ 179.5     $ 174.6  

Total revenue

   $ 183.3     $ 181.5  

Operating income (loss)

   $ 19.1     $ (7.7

Operating margin

     10.6     (4.4 )% 

 

Ending number of consultants (b)

     583       566  

Staff utilization (c)

     63     67
EBITDA Results (d):    First Quarter  
     FY’18     FY’17  

EBITDA

   $ 27.2     $ 0.5  

EBITDA margin

     15.2     0.3
Adjusted Results (e):    First Quarter  
     FY’18     FY’17  

Adjusted fee revenue

   $ 179.5     $ 178.1  

Adjusted EBITDA (d)

   $ 30.0     $ 29.8  

Adjusted EBITDA margin (d)

     16.7     16.7

 

    

(a)    Numbers may not total due to rounding.

     

(b)    Represents number of employees originating consulting services.

     

(c)    Calculated by dividing the number of hours our full-time Hay Group professional staff record to engagements during the period, by the  total available working hours during the same period.

     

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

     

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

     

     First Quarter  
     FY’18     FY’17  

Restructuring charges, net

   $ 0.2     $ 21.5  

Integration/acquisition costs

   $ 2.5     $ 4.3  

Deferred revenue adjustment related to the Legacy Hay acquisition

   $ —     $ 3.5  

Fee revenue was $179.5 million in Q1 FY’18 compared to $174.6 million in Q1 FY’17, an increase of $4.9 million or 2.8% (an increase of $6.6 million or 3.8% on a constant currency basis) compared to Q1 FY’17. The increase in fee revenue is primarily driven by increases in product revenue.

Operating income was $19.1 million in Q1 FY’18, resulting in an operating margin of 10.6% in the current quarter compared to (4.4)% in the year-ago quarter. Operating income increased by $26.8 million from an operating loss of $7.7 million in Q1 FY’17. The change in operating income was primarily due to a decrease in restructuring charges, net by $21.3 million in Q1 FY’18 compared to the year-ago quarter and an increase in fee revenue.

Adjusted EBITDA was $30.0 million in Q1 FY’18, essentially flat compared to Q1 FY’17, resulting in Adjusted EBITDA margin of 16.7% in both the current and year-ago quarters.

 

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Selected Futurestep Data

(dollars in millions) (a)

 

     First Quarter  
     FY’18     FY’17  

Fee revenue

   $ 60.6     $ 54.7  

Total revenue

   $ 65.8     $ 60.0  

Operating income

   $ 8.2     $ 7.5  

Operating margin

     13.6     13.7

 

Engagements billed (b)

     1,205       921  

New engagements (c)

     732       519  
EBITDA Results (d):    First Quarter  
     FY’18     FY’17  

EBITDA

   $ 9.0     $ 8.1  

EBITDA margin

     14.9     14.9

 

(a) Numbers may not total due to rounding.
(b) Represents search engagements billed.
(c) Represents new search engagements opened in the respective period.
(d) EBITDA and EBITDA margin are non-GAAP financial measures (see attached reconciliations).

Fee revenue was $60.6 million in Q1 FY’18, an increase of $5.9 million or 10.8% (a $6.3 million or 11.5% increase on a constant currency basis), compared to the year-ago quarter. The higher fee revenue was primarily driven by an increase in recruitment process outsourcing and professional search of $5.2 million and $1.4 million, respectively, in Q1 FY’18 compared to Q1 FY’17.

Operating income was $8.2 million in Q1 FY’18, an increase of $0.7 million compared to Q1 FY’17 operating income of $7.5 million. Operating margin was 13.6% in the current quarter compared to 13.7% in the year-ago quarter.

EBITDA was $9.0 million during Q1 FY’18, an increase of $0.9 million compared to Q1 FY’17. EBITDA margin was 14.9% in both Q1 FY’18 and Q1 FY’17.

Outlook

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

 

  •   Q2 FY’18 fee revenue is expected to be in the range of $412 million and $428 million; and

 

  •   Q2 FY’18 diluted earnings per share is likely to range between $0.54 to $0.62.

On a consolidated adjusted basis:

 

  •   Q2 FY’18 adjusted diluted earnings per share is expected to be in the range from $0.58 to $0.66.

 

     Q2 FY’18
Earnings Per Share
Outlook (1)
 
     Low     High  

Consolidated diluted earnings per share

   $ 0.54     $ 0.62      

Restructuring charges, net

     0.01       0.01  

Retention bonuses

     0.05       0.05  

Tax rate impact

     (0.02     (0.02
  

 

 

   

 

 

 

Consolidated adjusted diluted earnings per share

   $ 0.58     $ 0.66  
  

 

 

   

 

 

 

 

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

 

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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.

 

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About Korn Ferry

Korn Ferry is the preeminent global people and organizational advisory firm. We help leaders, organizations and societies succeed by releasing the full power and potential of people. Our more than 7,000 colleagues deliver services through Executive Search, Hay Group and Futurestep divisions. Visit kornferry.com for more information.

Forward-Looking Statements

Statements in this press release and our conference call that relate to future results and events (“forward-looking statements”) are based on Korn Ferry’s current expectations. These statements, which include words such as “believes”, “expects” or “likely”, include references to our outlook. Readers are cautioned not to place undue reliance on such statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties that are beyond the control of Korn Ferry. The potential risks and uncertainties include those relating to competition, changes in demand for our services as a result of automation, the dependence on attracting and retaining qualified and experienced consultants, our ability to successfully integrate acquired businesses including Legacy Hay, our ability to recognize the anticipated benefits of the acquisition of Legacy Hay which may be affected by, among other things, competition, our ability to grow and manage growth profitability, maintain relationships with customers and suppliers and retain key employees, costs related to the acquisition of Legacy Hay, maintaining our brand name and professional reputation, potential legal liability, the portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure with our growth, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, changes to data security, data privacy and data protection laws, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, consolidation of industries we serve, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, impairment of goodwill and other intangible assets, deferred tax assets, seasonality, our ability to successfully rationalize our cost structure and employment liability risk. For a detailed description of risks and uncertainties that could cause differences, please refer to Korn Ferry’s periodic filings with the Securities and Exchange 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 International, adjusted to exclude restructuring charges, net, integration/acquisition costs and write-off of debt issuance costs and to include the deferred revenue adjustment related to the Legacy Hay acquisition, net of income tax effect;

 

  •   adjusted basic and diluted earnings per share, adjusted to exclude restructuring charges, net, integration/acquisition costs and write-off of debt issuance costs and to include the deferred revenue adjustment related to the Legacy Hay acquisition, net of income tax effect; and in the case of the outlook section, also adjusted for tax rate impact;

 

  •   constant currency (calculated using a quarterly average) amounts that represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period;

 

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

 

  •   Adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring charges, net and integration/acquisition costs and to include the deferred revenue adjustment related to the Legacy Hay acquisition and Adjusted EBITDA margin; and

 

  •   adjusted fee revenue, which includes revenue that Hay Group would have realized over the ensuing year if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue.

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

Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn Ferry’s performance by excluding certain charges and other items that may not be indicative of Korn Ferry’s ongoing operating results. These non-GAAP financial measures are performance measures and are not indicative of the

 

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liquidity of Korn Ferry. These charges represent 1) costs we incurred to acquire and integrate the Legacy Hay acquisition, 2) charges we incurred to restructure the combined company due to the acquisition of Legacy Hay, 3) debt issuance costs written-off upon replacement of our credit facility and 4) revenue that Hay Group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue. As such, reported fee revenue can make fee revenue and operating results appear to fluctuate more than they would if business combination accounting did not require deferred revenue to be written off. Adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of GAAP, rather, it is an adjustment for a short period of time that will provide better comparability in the current and future periods. Management believes the presentation of adjusted fee revenue assists management in its evaluation of ongoing operations and provides useful information to investors because it allows investors to make more meaningful period-to-period comparisons of the Company’s operating results, to better identify operating trends that may otherwise be distorted by write-offs required under business combination accounting and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making. Management no longer has adjusted fee revenue after Q1 FY’17. The use of non-GAAP financial measures facilitates comparisons to Korn Ferry’s historical performance. Korn Ferry includes non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making. Management further believes that EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company. In the case of constant currency amounts, management believes the presentation of such information provides useful supplemental information regarding Korn Ferry’s performance as excluding the impact of exchange rate changes on Korn Ferry’s financial performance allows investors to make more meaningful period-to-period comparisons of the Company’s operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making.

[Tables attached]

 

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KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

     Three Months Ended
July 31
 
     2017     2016  
     (unaudited)  

Fee revenue

   $ 401,254     $ 375,621  

Reimbursed out-of-pocket engagement expenses

     13,663       17,312  
  

 

 

   

 

 

 

Total revenue

     414,917       392,933  
  

 

 

   

 

 

 

Compensation and benefits

     273,954       262,967  

General and administrative expenses

     58,261       55,342  

Reimbursed expenses

     13,663       17,312  

Cost of services

     15,813       16,832  

Depreciation and amortization

     12,209       11,444  

Restructuring charges, net

     280       24,520  
  

 

 

   

 

 

 

Total operating expenses

     374,180       388,417  
  

 

 

   

 

 

 

Operating income

     40,737       4,516  

Other income, net

     3,532       4,259  

Interest expense, net

     (2,660     (3,061
  

 

 

   

 

 

 

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

     41,609       5,714  

Equity in earnings of unconsolidated subsidiaries

     30       79  

Income tax provision

     12,210       1,725  
  

 

 

   

 

 

 

Net income

     29,429       4,068  

Net income attributable to noncontrolling interest

     (388     (860
  

 

 

   

 

 

 

Net income attributable to Korn/Ferry International

   $ 29,041     $ 3,208  
  

 

 

   

 

 

 

Earnings per common share attributable to Korn/Ferry International:

    

Basic

   $ 0.52     $ 0.06  
  

 

 

   

 

 

 

Diluted

   $ 0.51     $ 0.06  
  

 

 

   

 

 

 

Weighted-average common shares outstanding:

    

Basic

     55,795       56,189  
  

 

 

   

 

 

 

Diluted

     56,403       56,576  
  

 

 

   

 

 

 

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,  
     2017           2016     % Change  

Fee Revenue:

        

Executive search:

        

North America

   $ 91,833       $ 81,802       12.3

EMEA

     40,121         35,370       13.4

Asia Pacific

     21,578         19,626       9.9

Latin America

     7,659         9,563       (19.9 %) 
  

 

 

     

 

 

   

Total executive search

     161,191         146,361       10.1

Hay Group

     179,453         174,582       2.8

Futurestep

     60,610         54,678       10.8
  

 

 

     

 

 

   

Total fee revenue

     401,254         375,621       6.8

Reimbursed out-of-pocket engagement expenses

     13,663         17,312       (21.1 %) 
  

 

 

     

 

 

   

Total revenue

   $ 414,917       $ 392,933       5.6
  

 

 

     

 

 

   
Operating Income (Loss):        Margin         Margin  

Executive search:

        

North America

   $ 21,995       24.0   $ 16,468       20.1

EMEA

     6,675       16.6     6,027       17.0

Asia Pacific

     3,141       14.6     2,102       10.7

Latin America

     1,026       13.4     2,330       24.4
  

 

 

     

 

 

   

Total executive search

     32,837       20.4     26,927       18.4

Hay Group

     19,083       10.6     (7,743     (4.4 %) 

Futurestep

     8,237       13.6     7,513       13.7

Corporate

     (19,420       (22,181  
  

 

 

     

 

 

   

Total operating income

   $ 40,737       10.2   $ 4,516       1.2
  

 

 

     

 

 

   


KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

     July 31,
2017
    April 30,
2017
 
ASSETS    (unaudited)        

Cash and cash equivalents

   $ 282,019     $ 410,882  

Marketable securities

     11,651       4,363  

Receivables due from clients, net of allowance for doubtful accounts of $16,088 and $15,455 at July 31, 2017 and April 30, 2017, respectively

     365,657       345,314  

Income taxes and other receivables

     44,035       31,573  

Prepaid expenses and other assets

     62,525       51,542  
  

 

 

   

 

 

 

Total current assets

     765,887       843,674  
  

 

 

   

 

 

 

Marketable securities, non-current

     114,608       115,574  

Property and equipment, net

     112,787       109,567  

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

     113,866       113,067  

Deferred income taxes

     19,387       20,175  

Goodwill

     583,265       576,865  

Intangible assets, net

     213,910       217,319  

Investments and other assets

     90,617       66,657  
  

 

 

   

 

 

 

Total assets

   $ 2,014,327     $ 2,062,898  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Accounts payable

   $ 32,658     $ 37,481  

Income taxes payable

     7,204       4,526  

Compensation and benefits payable

     145,752       248,354  

Term loan

     19,754       19,754  

Other accrued liabilities

     153,386       148,464  
  

 

 

   

 

 

 

Total current liabilities

     358,754       458,579  
  

 

 

   

 

 

 

Deferred compensation and other retirement plans

     220,894       219,905  

Term loan, non-current

     231,284       236,222  

Deferred tax liabilities

     18,758       7,014  

Other liabilities

     55,886       54,130  
  

 

 

   

 

 

 

Total liabilities

     885,576       975,850  
  

 

 

   

 

 

 

Stockholders’ equity

    

Common stock: $0.01 par value, 150,000 shares authorized, 71,480 and 70,811 shares issued and 57,246 and 56,938 shares outstanding at July 31, 2017 and April 30, 2017, respectively

     694,146       692,527  

Retained earnings

     485,194       461,976  

Accumulated other comprehensive loss, net

     (54,691     (71,064
  

 

 

   

 

 

 

Total Korn/Ferry International stockholders’ equity

     1,124,649       1,083,439  

Noncontrolling interest

     4,102       3,609  
  

 

 

   

 

 

 

Total stockholders’ equity

     1,128,751       1,087,048  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,014,327     $ 2,062,898  
  

 

 

   

 

 

 


KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

 

     Three Months Ended
July 31,
 
     2017     2016  
     (unaudited)  

Fee revenue

   $ 401,254     $ 375,621  

Deferred revenue adjustment due to acquisition (1)

     —         3,535  
  

 

 

   

 

 

 

Adjusted fee revenue

   $ 401,254     $ 379,156  
  

 

 

   

 

 

 

Operating income

   $ 40,737     $ 4,516  

Depreciation and amortization

     12,209       11,444  

Other income, net

     3,532       4,259  

Equity in earnings of unconsolidated subsidiaries, net

     30       79  
  

 

 

   

 

 

 

EBITDA

     56,508       20,298  

Deferred revenue adjustment due to acquisition (1)

     —         3,535  

Restructuring charges, net (2)

     280       24,520  

Integration/acquisition costs (3)

     2,588       8,027  
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 59,376     $ 56,380  
  

 

 

   

 

 

 

Operating margin

     10.2     1.2

Depreciation and amortization

     3.0     3.0

Other income, net

     0.9     1.1

Equity in earnings of unconsolidated subsidiaries, net

     —         0.1
  

 

 

   

 

 

 

EBITDA margin

     14.1     5.4

Deferred revenue adjustment due to acquisition (1)

     —         0.9

Restructuring charges, net (2)

     0.1     6.5

Integration/acquisition costs (3)

     0.6     2.1
  

 

 

   

 

 

 

Adjusted EBITDA margin

     14.8     14.9
  

 

 

   

 

 

 

Net income attributable to Korn/Ferry International

   $ 29,041     $ 3,208  

Deferred revenue adjustment due to acquisition (1)

     —         3,535  

Restructuring charges, net (2)

     280       24,520  

Integration/acquisition costs (3)

     2,588       8,027  

Write-off of debt issuance costs (4)

     —         954  

Tax effect on the above items (5)

     (724     (10,718
  

 

 

   

 

 

 

Adjusted net income attributable to Korn/Ferry International

   $ 31,185     $ 29,526  
  

 

 

   

 

 

 

Basic earnings per common share

   $ 0.52     $ 0.06  

Deferred revenue adjustment due to acquisition (1)

     —         0.06  

Restructuring charges, net (2)

     —         0.43  

Integration/acquisition costs (3)

     0.05       0.14  

Write-off of debt issuance costs (4)

     —         0.02  

Tax effect on the above items (5)

     (0.02     (0.19
  

 

 

   

 

 

 

Adjusted basic earnings per share

   $ 0.55     $ 0.52  
  

 

 

   

 

 

 

Diluted earnings per common share

   $ 0.51     $ 0.06  

Deferred revenue adjustment due to acquisition (1)

     —         0.06  

Restructuring charges, net (2)

     —         0.43  

Integration/acquisition costs (3)

     0.05       0.14  

Write-off of debt issuance costs (4)

     —         0.02  

Tax effect on the above items (5)

     (0.01     (0.19
  

 

 

   

 

 

 

Adjusted diluted earnings per share

   $ 0.55     $ 0.52  
  

 

 

   

 

 

 

Explanation of Non-GAAP Adjustments

 

(1) This represents the deferred revenue recorded on the opening balance sheet of Hay Group, required by fair value accounting. The adjustment is included in the Hay Group segment for the three months ended July 31, 2016. On a GAAP basis, Hay Group fee revenue was $179.5 million and $174.6 million during the three months ended July 31, 2017 and 2016, respectively. On an adjusted basis, Hay Group fee revenue was $178.1 million during the three months ended July 31, 2016.
(2) Restructuring plan implemented in order to rationalize our cost structure by eliminating redundant positions and consolidating office space due to the acquisition of Legacy Hay on December 1, 2015.
(3) Costs associated with completing the acquisition of Legacy Hay, such as legal and professional fees, and the on-going integration expenses to combine the companies.
(4) Write-off of debt issuance costs as a result of replacing our prior Credit Agreement with a new senior secured Credit Agreement.
(5) Tax effect on deferred revenue adjustment associated with the acquisition of Legacy Hay, restructuring charges, net, integration/acquisition costs and write-off of debt issuance cost.


KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

 

    Three Months Ended July 31, 2017  
    Executive Search                          
    North
America
    EMEA     Asia
Pacific
    Latin
America
    Subtotal     Hay
Group
    Futurestep     Corporate     Consolidated  

Fee revenue

  $ 91,833     $ 40,121     $ 21,578     $ 7,659     $ 161,191     $ 179,453     $ 60,610     $ —       $ 401,254  

Total revenue

  $ 95,205     $ 41,058     $ 21,880     $ 7,664     $ 165,807     $ 183,296     $ 65,814     $ —       $ 414,917  

Net income attributable to Korn/Ferry International

                  $ 29,041  

Net income attributable to noncontrolling interest

                    388  

Other income, net

                    (3,532

Interest expense, net

                    2,660  

Equity in earnings of unconsolidated subsidiaries, net

                    (30

Income tax provision

                    12,210  
                 

 

 

 

Operating income (loss)

  $ 21,995     $ 6,675     $ 3,141     $ 1,026     $ 32,837     $ 19,083     $ 8,237     $ (19,420     40,737  

Depreciation and amortization

    949       428       320       107       1,804       8,085       796       1,524       12,209  

Other income, net

    282       56       105       20       463       32       8       3,029       3,532  

Equity in earnings of unconsolidated subsidiaries, net

    30       —         —         —         30       —         —         —         30  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    23,256       7,159       3,566       1,153       35,134       27,200       9,041       (14,867     56,508  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

    25.3     17.8     16.5     15.1     21.8     15.2     14.9       14.1

Restructuring charges, net

    —         —         40       —         40       240       —         —         280  

Integration/acquisition costs

    —         —         —         —         —         2,549       —         39       2,588  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 23,256     $ 7,159     $ 3,606     $ 1,153     $ 35,174     $ 29,989     $ 9,041     $ (14,828   $ 59,376  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

    25.3     17.8     16.7     15.1     21.8     16.7     14.9       14.8
    Three Months Ended July 31, 2016  
    Executive Search                          
    North
America
    EMEA     Asia
Pacific
    Latin
America
    Subtotal     Hay
Group
    Futurestep     Corporate     Consolidated  

Fee revenue

  $ 81,802     $ 35,370     $ 19,626     $ 9,563     $ 146,361     $ 174,582     $ 54,678     $ —       $ 375,621  

Deferred revenue adjustment due to acquisition

    —         —         —         —         —         3,535       —         —         3,535  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted fee revenue

  $ 81,802     $ 35,370     $ 19,626     $ 9,563     $ 146,361     $ 178,117     $ 54,678     $ —       $ 379,156  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

  $ 85,425     $ 36,249     $ 20,180     $ 9,614     $ 151,468     $ 181,508     $ 59,957     $ —       $ 392,933  

Net income attributable to Korn/Ferry International

                  $ 3,208  

Net income attributable to noncontrolling interest

                    860  

Other income, net

                    (4,259

Interest expense, net

                    3,061  

Equity in earnings of unconsolidated subsidiaries, net

                    (79

Income tax provision

                    1,725  
                 

 

 

 

Operating income (loss)

  $ 16,468     $ 6,027     $ 2,102     $ 2,330     $ 26,927     $ (7,743   $ 7,513     $ (22,181     4,516  

Depreciation and amortization

    830       211       225       114       1,380       8,016       623       1,425       11,444  

Other income (loss), net

    288       24       87       73       472       235       (2     3,554       4,259  

Equity in earnings of unconsolidated subsidiaries, net

    79       —         —         —         79       —         —         —         79  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    17,665       6,262       2,414       2,517       28,858       508       8,134       (17,202     20,298  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

    21.6     17.7     12.3     26.3     19.7     0.3     14.9       5.4

Restructuring charges, net

    1,706       128       622       360       2,816       21,488       —         216       24,520  

Integration/acquisition costs

    —         —         —         —         —         4,264       —         3,763       8,027  

Deferred revenue adjustment due to acquisition

    —         —         —         —         —         3,535       —         —         3,535  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 19,371     $ 6,390     $ 3,036     $ 2,877     $ 31,674     $ 29,795     $ 8,134     $ (13,223   $ 56,380  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

    23.7     18.1     15.5     30.1     21.6     16.7     14.9       14.9