Form: 8-K

Current report filing

March 6, 2018

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 Third Quarter Fiscal 2018 Results of Operations

Highlights

 

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

 

Futurestep

     29.4

Executive Search

     18.1

Hay Group

     12.7

 

  •   Operating income was $48.6 million in Q3 FY’18 with an operating margin of 10.9%. Adjusted EBITDA was $70.3 million with Adjusted EBITDA margin of 15.7%.

 

  •   Q3 FY’18 diluted earnings per share was $0.48 compared to diluted earnings per share of $0.42 in Q3 FY’17. Adjusted diluted earnings per share was $0.70 in Q3 FY’18, compared to adjusted diluted earnings per share in Q3 FY’17 of $0.53.

 

  •   The Company continued to return capital to stockholders during the quarter, paying $5.7 million in dividends and repurchasing $3.3 million worth of its outstanding shares.

 

  •   The Company declared a quarterly dividend of $0.10 per share on March 5, 2018 payable on April 13, 2018 to stockholders of record on March 26, 2018.

Los Angeles, CA, March 6, 2018 – Korn/Ferry International (NYSE: KFY), a global organizational consulting firm, today announced fee revenue of $447.6 million for its third quarter of fiscal 2018. In addition, third quarter diluted earnings per share was $0.48 and adjusted diluted earnings per share was $0.70. Adjusted diluted earnings per share for the third quarter excluded $12.7 million, or $0.22 per share, comprised of the impact of the United States Tax Cut and Jobs Act (“Tax Act”) and integration/acquisition costs net of related taxes.

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

 

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Selected Financial Results

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

 

     Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

Fee revenue

   $ 447.6     $ 381.9     $ 1,291.9     $ 1,159.5  

Total revenue

   $ 460.8     $ 394.2     $ 1,331.2     $ 1,202.1  

Operating income

   $ 48.6     $ 30.5     $ 140.6     $ 81.6  

Operating margin

     10.9     8.0     10.9     7.0

Net income attributable to Korn Ferry

   $ 27.2     $ 23.9     $ 92.6     $ 57.3  

Basic earnings per share

   $ 0.49     $ 0.42     $ 1.65     $ 1.01  

Diluted earnings per share

   $ 0.48     $ 0.42     $ 1.63     $ 1.00  
EBITDA Results (b):    Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

EBITDA

   $ 68.6     $ 46.6     $ 192.5     $ 124.4  

EBITDA margin

     15.3     12.2     14.9     10.7
Adjusted Results (c):    Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

Adjusted fee revenue

   $ 447.6     $ 381.9     $ 1,291.9     $ 1,163.0  

Adjusted EBITDA (b)

   $ 70.3     $ 55.3     $ 199.3     $ 174.9  

Adjusted EBITDA margin (b)

     15.7     14.5     15.4     15.0

Adjusted net income attributable to Korn Ferry

   $ 39.9     $ 30.1     $ 108.9     $ 93.7  

Adjusted basic earnings per share

   $ 0.71     $ 0.53     $ 1.94     $ 1.65  

Adjusted diluted earnings per share

   $ 0.70     $ 0.53     $ 1.92     $ 1.63  

 

(a) Numbers may not total due to rounding.
(b) EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude restructuring charges, net and integration/acquisition costs and includes the FY’17 deferred revenue adjustment related to the acquisition of HG (Luxembourg) S.à.r.l (“Legacy Hay”). EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(c) Adjusted results are non-GAAP financial measures that adjust for the following, as applicable (see attached reconciliations):

 

     Third Quarter      Year to Date  
     FY’18      FY’17      FY’18      FY’17  

Income tax impact due to the enactment of the Tax Act

   $      11.3       $ —         $          11.3       $ —     

Integration/acquisition costs

   $ 1.7       $       4.8       $ 6.7       $        18.7   

Restructuring charges, net

   $ —         $ 3.8       $ 0.1       $ 28.3   

Deferred revenue adjustment related to the Legacy Hay acquisition

   $ —         $ —         $ —         $ 3.5   

Write-off of debt issuance costs

   $ —         $ —         $ —         $ 1.0   

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

 

Futurestep

     29.4

Executive Search

     18.1

Hay Group

     12.7

Fee revenue growth in the quarter was partially offset by increased compensation and benefits as well as general and administrative expenses resulting in operating income and Adjusted EBITDA growing 59.3% and 27.1%, respectively, as compared to Q3 FY’17 and diluted earnings per share and Adjusted diluted earnings per share growing 14.3% and 32.1%, respectively, as compared to Q3 FY’17.

 

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Results by Segment

Selected Executive Search Data

(dollars in millions) (a)

 

     Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

Fee revenue

   $ 180.4     $ 152.8     $ 518.4     $ 455.4  

Total revenue

   $ 185.5     $ 157.1     $ 531.9     $ 469.2  

Operating income

   $ 34.3     $ 29.3     $ 102.4     $ 93.7  

Operating margin

     19.0     19.2     19.7     20.6

Ending number of consultants

     536       507       536       507  

Average number of consultants

     537       504       527       498  

Engagements billed

     3,671       3,328       7,709       7,113  

New engagements (b)

     1,564       1,453       4,735       4,424  
EBITDA Results (c):    Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

EBITDA

   $ 37.2     $ 31.4     $ 110.0     $ 99.2  

EBITDA margin

     20.6     20.5     21.2     21.8
Adjusted Results (d):    Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

Adjusted EBITDA (c)

   $ 37.2     $ 32.6     $ 110.3     $ 103.2  

Adjusted EBITDA margin (c)

     20.6     21.3     21.3     22.7

 

(a) Numbers may not total due to rounding.
(b) Represents new engagements opened in the respective period.
(c) EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(d) Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):

 

     Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

Restructuring charges, net

   $     —         $     1.2         $     3         $     4.0      

Fee revenue was $180.4 million in Q3 FY’18, an increase of $27.6 million or 18.1% (an increase of $22.0 million or 14.4% on a constant currency basis) compared to Q3 FY’17. The overall increase in fee revenue was attributable to higher fee revenue in the North American, EMEA and APAC regions.

Operating income was $34.3 million in Q3 FY’18 compared to $29.3 million in Q3 FY’17. Operating margin was 19.0% in Q3 FY’18 compared to 19.2% in the year-ago quarter. The increase in operating income was due to higher fee revenue, offset by an increase in compensation and benefits expense driven by 6.4% increase in headcount and performance related bonus expense.

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

 

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Selected Hay Group Data

(dollars in millions) (a)

 

     Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

Fee revenue

   $ 198.1     $ 175.7     $ 577.5     $ 539.1  

Total revenue

   $ 202.0     $ 179.0     $ 589.1     $ 552.8  

Operating income

   $ 27.1     $ 16.0     $ 72.5     $ 31.2  

Operating margin

     13.7     9.1     12.6     5.8

Ending number of consultants (b)

     590       559       590       559  

Staff utilization (c)

     64     62     65     66
EBITDA Results (d):    Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

EBITDA

   $ 35.3     $ 24.2     $ 97.1     $ 55.6  

EBITDA margin

     17.8     13.8     16.8     10.3
Adjusted Results (e):    Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

Adjusted fee revenue

   $ 198.1     $ 175.7     $ 577.5     $ 542.6  

Adjusted EBITDA (d)

   $ 36.9     $ 30.1     $ 103.3     $ 95.2  

Adjusted EBITDA margin (d)

     18.6     17.1     17.9     17.5

 

(a) Numbers may not total due to rounding.
(b) Represents number of employees originating consulting services.
(c) Calculated by dividing the number of hours our full-time Hay Group professional staff record to engagements during the period, by the total available working hours during the same period.
(d) EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(e) Adjusted results are non-GAAP financial measures that adjust for the following, as applicable (see attached reconciliations):

 

     Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

Integration/acquisition costs

   $   1.6         $   3.4         $   6.5         $   12.0      

Restructuring (recoveries) charges, net

   $ —     $ 2.5     $ (0.2)     $ 24.0  

Deferred revenue adjustment related to the Legacy Hay acquisition

   $     $     $ —     $ 3.5  

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

Operating income was $27.1 million in Q3 FY’18 with an operating margin of 13.7% in the current quarter compared to $16.0 million and 9.1%, respectively, in the year-ago quarter. The change in operating income was primarily due to higher fee revenue compared to the year-ago quarter, offset by increases in compensation and benefits expense driven by an increase in average consultant headcount in Q3 FY’18 compared to Q3 FY’17 and an increase in performance related bonus expense.

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

 

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Selected Futurestep Data

(dollars in millions) (a)

 

     Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

Fee revenue

   $ 69.1     $ 53.4     $ 196.0     $ 165.0  

Total revenue

   $ 73.3     $ 58.1     $ 210.2     $ 180.0  

Operating income

   $ 10.1     $ 6.5     $ 27.7     $ 21.8  

Operating margin

     14.6     12.3     14.1     13.2

Engagements billed (b)

     1,284       1,096       2,677       2,206  

New engagements (c)

     730       539       2,173       1,617  
EBITDA Results (d):    Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

EBITDA

   $ 10.8     $ 7.3     $ 30.0     $ 23.9  

EBITDA margin

     15.6     13.7     15.3     14.5
EBITDA Results (e):    Third Quarter     Year to Date  
     FY’18     FY’17     FY’18     FY’17  

Adjusted EBITDA (d)

   $ 10.8     $ 7.4     $ 30.0     $ 24.0  

Adjusted EBITDA margin (d)

     15.6     13.9     15.3     14.6

 

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

 

     Third Quarter      Year to Date  
     FY’18      FY’17      FY’18      FY’17  

Restructuring charges, net

   $     —           $       0.1         $     —           $     0.1     

Fee revenue was $69.1 million in Q3 FY’18, an increase of $15.7 million or 29.4% (a $13.3 million or 24.9% increase on a constant currency basis), compared to the year-ago quarter. The higher fee revenue was primarily driven by an increase in recruitment process outsourcing and professional search of $9.9 million and $6.0 million, respectively, in Q3 FY’18 compared to Q3 FY’17.

Operating income was $10.1 million in Q3 FY’18, an increase of $3.6 million compared to Q3 FY’17 operating income of $6.5 million. Operating margin was 14.6% in the current quarter compared to 12.3% in the year-ago quarter. The change in operating income was primarily due to higher fee revenue compared to the year-ago quarter, offset by increases in compensation and benefits expense driven by a 31.5% increase in headcount associated with increased recruitment process outsourcing engagements and higher performance related bonus expense.

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

Outlook

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

 

  •   Q4 FY’18 fee revenue is expected to be in the range of $448 million and $462 million; and

 

  •   Q4 FY’18 diluted earnings per share is likely to range between $0.66 to $0.70.

 

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On a consolidated adjusted basis:

 

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

 

     Q4 FY’18
Earnings Per Share
Outlook (1)
 
     Low      High  

Consolidated diluted earnings per share

   $ 0.66      $ 0.70  

Retention bonuses

     0.04        0.04  

Tax rate impact

     (0.01      (0.01
  

 

 

    

 

 

 

Consolidated adjusted diluted earnings per share

   $ 0.69      $ 0.73  
  

 

 

    

 

 

 

 

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

Earnings Conference Call Webcast

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

 

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About Korn Ferry

Korn Ferry is a global organizational consulting firm. We help companies design their organization – the structure, the roles and responsibilities, as well as how they compensate, develop and motivate their people. As importantly, we help organizations select and hire the talent they need to execute their strategy. Our approximately 7,000 colleagues serve clients in more than 50 countries. Visit kornferry.com for more information.

Forward-Looking Statements

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

 

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

 

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

 

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

 

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

 

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

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

 

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Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn Ferry’s performance by excluding certain charges and other items that may not be indicative of Korn Ferry’s ongoing operating results. These non-GAAP financial measures are performance measures and are not indicative of the liquidity of Korn Ferry. These charges represent 1) the tax impact associated with the Tax Act, 2) costs we incurred to acquire and integrate the Legacy Hay acquisition, 3) charges we incurred to restructure the combined company due to the acquisition of Legacy Hay, 4) debt issuance costs written-off upon replacement of our credit facility and 5) revenue that Hay Group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue. As such, reported fee revenue can make fee revenue and operating results appear to fluctuate more than they would if business combination accounting did not require deferred revenue to be written off. Adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of GAAP, rather, it is an adjustment for a short period of time that will provide better comparability in the current and future periods. Management believes the presentation of adjusted fee revenue assists management in its evaluation of ongoing operations and provides useful information to investors because it allows investors to make more meaningful period-to-period comparisons of the Company’s operating results, to better identify operating trends that may otherwise be distorted by write-offs required under business combination accounting and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making. Management no longer has adjusted fee revenue after Q1 FY’17. The use of non-GAAP financial measures facilitates comparisons to Korn Ferry’s historical performance. Korn Ferry includes non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making. Management further believes that EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company. In the case of constant currency amounts, management believes the presentation of such information provides useful supplemental information regarding Korn Ferry’s performance as excluding the impact of exchange rate changes on Korn Ferry’s financial performance allows investors to make more meaningful period-to-period comparisons of the Company’s operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making.

[Tables attached]

 

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KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

 

     Three Months Ended
January 31
     Nine Months Ended
January 31
 
     2018      2017      2018      2017  
     (unaudited)  

Fee revenue

     $     447,581         $     381,918         $   1,291,853         $   1,159,456   

Reimbursed out-of-pocket engagement expenses

     13,189         12,277         39,302         42,626   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     460,770         394,195         1,331,155         1,202,082   
  

 

 

    

 

 

    

 

 

    

 

 

 

Compensation and benefits

     310,751         262,438         885,748         796,014   

General and administrative expenses

     58,516         56,818         175,380         166,294   

Reimbursed expenses

     13,189         12,277         39,302         42,626   

Cost of services

     17,467         16,545         53,163         52,251   

Depreciation and amortization

     12,225         11,774         36,881         34,970   

Restructuring charges, net

     -             3,801         78         28,321   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     412,148         363,653         1,190,552         1,120,476   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     48,622         30,542         140,603         81,606   

Other income, net

     7,689         4,200         14,847         7,580   

Interest expense, net

     (2,665)        (2,402)        (7,904)        (8,199)  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     53,646         32,340         147,546         80,987   

Equity in earnings of unconsolidated subsidiaries

     97         113         187         221   

Income tax provision

     26,316         8,075         54,145         21,706   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

     27,427         24,378         93,588         59,502   

Net income attributable to noncontrolling interest

     (180)        (481)        (969)        (2,245)  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to Korn/Ferry International

     $ 27,247         $ 23,897         $ 92,619         $ 57,257   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share attributable to Korn/Ferry International:

           

Basic

     $ 0.49         $ 0.42         $ 1.65         $ 1.01   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

     $ 0.48         $ 0.42         $ 1.63         $ 1.00   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average common shares outstanding:

           

Basic

     55,252         56,173         55,479         56,325   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

     55,997         56,702         56,236         56,917   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash dividends declared per share:

     $ 0.10         $ 0.10         $ 0.30         $ 0.30   
  

 

 

    

 

 

    

 

 

    

 

 

 


KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

 

    Three Months Ended January 31,      Nine Months Ended January 31,  
    2018            2017     % Change      2018            2017     % Change  

Fee Revenue:

                  

Executive search:

                  

North America

  $ 102,716        $ 84,827       21.1%      $ 296,093        $ 259,361       14.2%  

EMEA

    46,782          39,147       19.5%        128,249          109,296       17.3%  

Asia Pacific

    24,493          21,012       16.6%        71,983          60,108       19.8%  

Latin America

    6,425          7,835       (18.0%)        22,048          26,645       (17.3%)  
 

 

 

      

 

 

      

 

 

      

 

 

   

Total executive search

    180,416          152,821       18.1%        518,373          455,410       13.8%  

Hay Group

    198,056          175,662       12.7%        577,462          539,086       7.1%  

Futurestep

    69,109          53,435       29.3%        196,018          164,960       18.8%  
 

 

 

      

 

 

      

 

 

      

 

 

   

Total fee revenue

    447,581          381,918       17.2%        1,291,853          1,159,456       11.4%  

Reimbursed out-of-pocket engagement expenses

    13,189          12,277       7.4%        39,302          42,626       (7.8%)  
 

 

 

      

 

 

      

 

 

      

 

 

   

Total revenue

  $ 460,770        $ 394,195       16.9%      $ 1,331,155        $ 1,202,082       10.7%  
 

 

 

      

 

 

      

 

 

      

 

 

   
Operating Income (Loss):         Margin            Margin            Margin            Margin  

Executive search:

                  

North America

  $ 21,313       20.7%      $ 17,718       20.9%      $ 66,253       22.4%      $ 60,458       23.3%  

EMEA

    7,329       15.7%        8,175       20.9%        20,349       15.9%        21,049       19.3%  

Asia Pacific

    5,289       21.6%        2,086       9.9%        12,811       17.8%        6,216       10.3%  

Latin America

    408       6.4%        1,352       17.3%        2,961       13.4%        5,966       22.4%  
 

 

 

      

 

 

      

 

 

      

 

 

   

Total executive search

    34,339       19.0%        29,331       19.2%        102,374       19.7%        93,689       20.6%  

Hay Group

    27,079       13.7%        15,988       9.1%        72,532       12.6%        31,188       5.8%  

Futurestep

    10,056       14.6%        6,549       12.3%        27,702       14.1%        21,849       13.2%  

Corporate

    (22,852        (21,326        (62,005        (65,120  
 

 

 

      

 

 

      

 

 

      

 

 

   

Total operating income

  $ 48,622       10.9%      $ 30,542       8.0%      $ 140,603       10.9%      $ 81,606       7.0%  
 

 

 

      

 

 

      

 

 

      

 

 

   


CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

     January 31
2018
     April 30,
2017
 
     (unaudited)         

ASSETS

     

Cash and cash equivalents

     $ 389,990         $ 410,882   

Marketable securities

     14,807         4,363   

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

     397,845         345,314   

Income taxes and other receivables

     25,985         31,573   

Prepaid expenses and other assets

     63,409         51,542   
  

 

 

    

 

 

 

Total current assets

     892,036         843,674   
  

 

 

    

 

 

 

Marketable securities, non-current

     124,196         115,574   

Property and equipment, net

     116,767         109,567   

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

     118,248         113,067   

Deferred income taxes

     23,222         20,175   

Goodwill

     586,561         576,865   

Intangible assets, net

     206,733         217,319   

Investments and other assets

     98,769         66,657   
  

 

 

    

 

 

 

Total assets

     $     2,166,532         $     2,062,898   
  

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Accounts payable

     $ 28,359         $ 37,481   

Income taxes payable

     17,128         4,526   

Compensation and benefits payable

     234,411         248,354   

Term loan

     23,192         19,754   

Other accrued liabilities

     163,784         148,464   
  

 

 

    

 

 

 

Total current liabilities

     466,874         458,579   
  

 

 

    

 

 

 

Deferred compensation and other retirement plans

     233,595         219,905   

Term loan, non-current

     217,969         236,222   

Deferred tax liabilities

     7,619         7,014   

Other liabilities

     59,581         54,130   
  

 

 

    

 

 

 

Total liabilities

     985,638         975,850   
  

 

 

    

 

 

 

Stockholders’ equity

     

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

     679,277         692,527   

Retained earnings

     537,353         461,976   

Accumulated other comprehensive loss, net

     (38,671)        (71,064)  
  

 

 

    

 

 

 

Total Korn/Ferry International stockholders’ equity

     1,177,959         1,083,439   

Noncontrolling interest

     2,935         3,609   
  

 

 

    

 

 

 

Total stockholders’ equity

     1,180,894         1,087,048   
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

     $     2,166,532         $ 2,062,898   
  

 

 

    

 

 

 


KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

 

     Three Months Ended
January 31
     Nine Months Ended January 31  
     2018      2017      2018      2017  
     (unaudited)  

Fee revenue

     $       447,581        $       381,918         $       1,291,853         $       1,159,456   

Deferred revenue adjustment due to acquisition (1)

     -             -             -             3,535   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted fee revenue

     $ 447,581         $ 381,918         $ 1,291,853         $ 1,162,991   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     $ 48,622         $ 30,542         $ 140,603         $ 81,606   

Depreciation and amortization

     12,225         11,774         36,881         34,970   

Other income, net

     7,689         4,200         14,847         7,580   

Equity in earnings of unconsolidated subsidiaries, net

     97         113         187         221   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

     68,633         46,629         192,518         124,377   

Deferred revenue adjustment due to acquisition (1)

     -             -             -             3,535   

Restructuring charges, net (2)

     -             3,801         78         28,321   

Integration/acquisition costs (3)

     1,673         4,830         6,654         18,677   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

     $ 70,306         $ 55,260         $ 199,250         $ 174,910   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating margin

     10.9%        8.0%        10.9%        7.0%  

Depreciation and amortization

     2.7%        3.1%        2.9%        3.0%  

Other income, net

     1.7%        1.1%        1.1%        0.7%  

Equity in earnings of unconsolidated subsidiaries, net

     -             -             -             -       
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA margin

     15.3%        12.2%        14.9%        10.7%  

Deferred revenue adjustment due to acquisition (1)

     -             -             -             0.3%  

Restructuring charges, net (2)

     -             1.0%        -             2.4%  

Integration/acquisition costs (3)

     0.4%        1.3%        0.5%        1.6%  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA margin

     15.7%        14.5%        15.4%        15.0%  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to Korn/Ferry International

     $ 27,247         $ 23,897         $ 92,619         $ 57,257   

Deferred revenue adjustment due to acquisition (1)

     -             -             -             3,535   

Restructuring charges, net (2)

     -             3,801         78         28,321   

Integration/acquisition costs (3)

     1,673         4,830         6,654         18,677   

Write-off of debt issuance costs (4)

     -             -             -             954   

Tax effect on the above items (5)

     (368)        (2,440)        (1,773)        (15,074)  

Tax effect of Tax Act (6)

     11,345         -             11,345         -       
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted net income attributable to Korn/Ferry International

     $ 39,897         $ 30,088         $ 108,923         $ 93,670   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per common share

     $ 0.49         $ 0.42         $ 1.65         $ 1.01   

Deferred revenue adjustment due to acquisition (1)

     -             -             -             0.06   

Restructuring charges, net (2)

     -             0.07         -             0.50   

Integration/acquisition costs (3)

     0.03         0.08         0.12         0.33   

Write-off of debt issuance costs (4)

     -             -             -             0.02   

Tax effect on the above items (5)

     (0.01)        (0.04)        (0.03)        (0.27)  

Tax effect of Tax Act (6)

     0.20         -             0.20         -       
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted basic earnings per share

     $ 0.71         $ 0.53         $ 1.94         $ 1.65   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

     $ 0.48         $ 0.42         $ 1.63         $ 1.00   

Deferred revenue adjustment due to acquisition (1)

     -             -             -             0.06   

Restructuring charges, net (2)

     -             0.07         -             0.49   

Integration/acquisition costs (3)

     0.03         0.08         0.12         0.33   

Write-off of debt issuance costs (4)

     -             -             -             0.02   

Tax effect on the above items (5)

     (0.01)        (0.04)        (0.03)        (0.27)  

Tax effect of Tax Act (6)

     0.20         -             0.20         -       
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted diluted earnings per share

     $ 0.70         $ 0.53         $ 1.92         $ 1.63   
  

 

 

    

 

 

    

 

 

    

 

 

 

Explanation of Non-GAAP Adjustments

 

(1) This represents the deferred revenue recorded on the opening balance sheet of Hay Group, required by fair value accounting. The adjustment is included in the Hay Group segment for the nine months ended January 31, 2017. Management no longer has adjusted fee revenue after Q1 FY’17.
(2) Restructuring plan implemented in order to rationalize our cost structure by eliminating redundant positions and consolidating office space due to the acquisition of Legacy Hay on December 1, 2015.
(3) Costs associated with completing the acquisition of Legacy Hay, such as legal and professional fees, and the on-going integration expenses to combine the companies.
(4) Write-off of debt issuance costs as a result of replacing our prior Credit Agreement with a new senior secured Credit Agreement.
(5) Tax effect on deferred revenue adjustment associated with the acquisition of Legacy Hay, restructuring charges, net, integration/acquisition costs and write-off of debt issuance cost.
(6) The tax impact due to the Tax Act.


KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 

    Three Months Ended January 31, 2018  
    Executive Search                          
    North
America
    EMEA     Asia
Pacific
    Latin
America
    Subtotal     Hay
Group
    Futurestep     Corporate     Consolidated  

Fee revenue

  $ 102,716     $ 46,782     $ 24,493     $ 6,425     $ 180,416     $ 198,056     $ 69,109     $ —       $ 447,581  

Total revenue

  $ 106,332     $ 47,763     $ 24,942     $ 6,456     $ 185,493     $ 201,961     $ 73,316     $ —       $ 460,770  

Net income attributable to Korn/Ferry International

                  $ 27,247  

Net income attributable to noncontrolling interest

                    180  

Other income, net

                    (7,689)  

Interest expense, net

                    2,665  

Equity in earnings of unconsolidated
subsidiaries, net

                    (97)  

Income tax provision

                    26,316  
                 

 

 

 

Operating income (loss)

  $ 21,313     $ 7,329     $ 5,289     $ 408     $ 34,339     $ 27,079     $ 10,056     $ (22,852)       48,622  

Depreciation and amortization

    990       458       361       113       1,922       7,882       733       1,688       12,225  

Other income, net

    585       37       185       40       847       370       2       6,470       7,689  

Equity in earnings of unconsolidated
subsidiaries, net

    97       —         —         —         97       —         —         —         97  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    22,985       7,824       5,835       561       37,205       35,331       10,791       (14,694)       68,633  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

    22.4%       16.7%       23.8%       8.7%       20.6%       17.8%       15.6%         15.3%  

Integration/acquisition costs

    —         —         —         —         —         1,593       —         80       1,673  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 22,985     $ 7,824     $ 5,835     $ 561     $ 37,205     $ 36,924     $ 10,791     $ (14,614     $ 70,306  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

    22.4%       16.7%       23.8%       8.7%       20.6%       18.6%       15.6%         15.7%  
    Three Months Ended January 31, 2017  
    Executive Search                          
    North
America
    EMEA     Asia
Pacific
    Latin
America
    Subtotal     Hay
Group
    Futurestep     Corporate     Consolidated  

Fee revenue

  $ 84,827     $ 39,147     $ 21,012     $ 7,835     $ 152,821     $ 175,662     $ 53,435     $ —       $ 381,918  

Total revenue

  $ 87,975     $ 39,965     $ 21,336     $ 7,856     $ 157,132     $ 178,962     $ 58,101     $ —       $ 394,195  

Net income attributable to Korn/Ferry International

                  $ 23,897  

Net income attributable to noncontrolling interest

                    481  

Other income, net

                    (4,200)  

Interest expense, net

                    2,402  

Equity in earnings of unconsolidated
subsidiaries, net

                    (113)  

Income tax provision

                    8,075  
                 

 

 

 

Operating income (loss)

  $ 17,718     $ 8,175     $ 2,086     $ 1,352     $ 29,331     $ 15,988     $ 6,549     $ (21,326)       30,542  

Depreciation and amortization

    996       226       268       (21)       1,469       8,061       789       1,455       11,774  

Other income (loss), net

    316       19       60       61       456       122       (2)       3,624       4,200  

Equity in earnings of unconsolidated
subsidiaries, net

    113       —         —         —         113       —         —         —         113  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    19,143       8,420       2,414       1,392       31,369       24,171       7,336       (16,247)       46,629  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

    22.6%       21.5%       11.5%       17.8%       20.5%       13.8%       13.7%         12.2%  

Restructuring charges, net

    —         —         893       309       1,202       2,519       80       —         3,801  

Integration/acquisition costs

    —         —         —         —         —         3,364       —         1,466       4,830  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 19,143     $ 8,420     $ 3,307     $ 1,701     $ 32,571     $ 30,054     $ 7,416     $ (14,781)     $ 55,260  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

    22.6%       21.5%       15.7%       21.7%       21.3%       17.1%       13.9%         14.5%  


KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 

    Nine Months Ended January 31, 2018  
    Executive Search                          
    North
America
    EMEA     Asia
Pacific
    Latin
America
    Subtotal     Hay
Group
    Futurestep     Corporate     Consolidated  

Fee revenue

  $ 296,093     $ 128,249     $ 71,983     $ 22,048     $ 518,373     $ 577,462     $ 196,018     $ —       $ 1,291,853  

Total revenue

  $ 305,866     $ 130,894     $ 73,009     $ 22,114     $ 531,883     $ 589,093     $ 210,179     $ —       $ 1,331,155  

Net income attributable to Korn/Ferry International

                  $ 92,619  

Net income attributable to noncontrolling interest

                    969  

Other income, net

                    (14,847)  

Interest expense, net

                    7,904  

Equity in earnings of unconsolidated
subsidiaries, net

                    (187)  

Income tax provision

                    54,145  
                 

 

 

 

Operating income (loss)

  $ 66,253     $ 20,349     $ 12,811     $ 2,961     $ 102,374     $ 72,532     $ 27,702     $ (62,005)       140,603  

Depreciation and amortization

    2,923       1,345       1,052       331       5,651       24,110       2,313       4,807       36,881  

Other income, net

    1,157       136       384       99       1,776       459       10       12,602       14,847  

Equity in earnings of unconsolidated
subsidiaries, net

    187       —         —         —         187       —         —         —         187  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    70,520       21,830       14,247       3,391       109,988       97,101       30,025       (44,596)       192,518  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

    23.8%       17.0%       19.8%       15.4%       21.2%       16.8%       15.3%         14.9%  

Restructuring charges (recoveries), net

    —         —         313       —         313       (241)       6       —         78  

Integration/acquisition costs

    —         —         —         —         —         6,455       —         199       6,654  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 70,520     $ 21,830     $ 14,560     $ 3,391     $ 110,301     $ 103,315     $ 30,031     $ (44,397)     $ 199,250  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

    23.8%       17.0%       20.2%       15.4%       21.3%       17.9%       15.3%         15.4%  
    Nine Months Ended January 31, 2017  
    Executive Search                          
    North
America
    EMEA     Asia
Pacific
    Latin
America
    Subtotal     Hay
Group
    Futurestep     Corporate     Consolidated  

Fee revenue

  $ 259,361     $ 109,296     $ 60,108     $ 26,645     $ 455,410     $ 539,086     $ 164,960     $ —       $ 1,159,456  

Deferred revenue adjustment due to acquisition

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted fee revenue

  $ 259,361     $ 109,296     $ 60,108     $ 26,645     $ 455,410     $ 542,621     $ 164,960     $ —       $ 1,162,991  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

  $ 269,302     $ 111,721     $ 61,445     $ 26,766     $ 469,234     $ 552,822     $ 180,026     $ —       $ 1,202,082  

Net income attributable to Korn/Ferry International

                  $ 57,257  

Net income attributable to noncontrolling interest

                    2,245  

Other income, net

                    (7,580)  

Interest expense, net

                    8,199  

Equity in earnings of unconsolidated
subsidiaries, net

                    (221)  

Income tax provision

                    21,706  
                 

 

 

 

Operating income (loss)

  $ 60,458     $ 21,049     $ 6,216     $ 5,966     $ 93,689     $ 31,188     $ 21,849     $ (65,120)       81,606  

Depreciation and amortization

    2,816       666       757       267       4,506       24,102       2,081       4,281       34,970  

Other income (loss), net

    512       (37)       171       158       804       346       (4)       6,434       7,580  

Equity in earnings of unconsolidated
subsidiaries, net

    221       —         —         —         221       —         —         —         221  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    64,007       21,678       7,144       6,391       99,220       55,636       23,926       (54,405)       124,377  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

    24.7%       19.8%       11.9%       24.0%       21.8%       10.3%       14.5%         10.7%  

Restructuring charges, net

    1,706       128       1,515       669       4,018       24,007       80       216       28,321  

Integration/acquisition costs

    —         —         —         —         —         11,993       —         6,684       18,677  

Deferred revenue adjustment due to acquisition

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 65,713     $ 21,806     $ 8,659     $ 7,060     $ 103,238     $ 95,171     $ 24,006     $ (47,505)     $ 174,910  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

    25.3%       20.0%       14.4%       26.5%       22.7%       17.5%       14.6%         15.0%