Form: 8-K

Current report filing

September 6, 2018

Documents

Exhibit 99.1

 

 

 

 

 

 

 

FOR IMMEDIATE RELEASE

  

Contacts:

 

  

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

 

  

Media: Dan Gugler, (310) 226-2645

 

Korn Ferry Announces First Quarter Fiscal 2019

Results of Operations

 

Highlights

 

▪

Korn Ferry reports fee revenue of $465.6 million in Q1 FY’19, a 16.0% increase from Q1 FY’18, driven by organic growth in all solutions.

 

▪

During the first quarter the Company announced a rebranding campaign under which it is sunsetting all sub-brands and moving to one unified brand – Korn Ferry.  In connection with this, the Company incurred a charge in the amount of $106.6 million related to tradenames from prior acquisitions that the Company will no longer be using, resulting in an operating loss of $55.1 million with an operating margin of (11.8%).  Adjusted EBITDA was $70.8 million with Adjusted EBITDA margin of 15.2%.

 

▪

Q1 FY’19 diluted loss per share was $0.70 compared to diluted earnings per share of $0.51 in Q1 FY’18.  Adjusted diluted earnings per share was $0.78 in Q1 FY’19 compared to Adjusted diluted earnings per share in Q1 FY’18 of $0.55.

 

▪

The Company declared a quarterly dividend of $0.10 per share on September 5, 2018 payable on October 15, 2018 to stockholders of record on September 28, 2018.

 

Los Angeles, CA, September 6, 2018 – Korn/Ferry International (NYSE: KFY), a global organizational consulting firm, today announced first quarter fee revenue of $465.6 million.  First quarter diluted loss per share was $0.70 and Adjusted diluted earnings per share was $0.78.  Adjusted diluted earnings per share for the first quarter excludes the $106.6 million charge as discussed above and $3.1 million related to retention awards from a prior acquisition, or $1.48 per share.

“I am pleased to report fee revenue of approximately $466 million and strong profits, with Adjusted EBITDA of approximately $71 million during our recently completed first quarter.  Overall, our revenues are up 16% year over year, with balanced growth across the firm,” said Gary D. Burnison, CEO of Korn Ferry.  “As disclosed last quarter, we are sunsetting our legacy logos and migrating to one unified brand – Korn Ferry.  Over the next 15 months, we will continue to move our organization towards an industry, solution and geographic orientation to capture the substantial opportunity we have as an organizational consulting firm.”

 

 

 

 

 

 

 

1

 

Selected Financial Results

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

 

 

First Quarter

 

 

 

FY’19

 

 

FY’18

 

Fee revenue

 

$

465.6

 

 

$

401.3

 

Total revenue

 

$

478.4

 

 

$

414.9

 

Operating (loss) income

 

$

(55.1

)

 

$

41.9

 

Operating margin

 

 

(11.8

%)

 

 

10.5

%

Net (loss) income attributable to Korn Ferry

 

$

(38.6

)

 

$

29.0

 

Basic (loss) earnings per share

 

$

(0.70

)

 

$

0.52

 

Diluted (loss) earnings per share

 

$

(0.70

)

 

$

0.51

 

 

EBITDA Results (b):

 

First Quarter

 

 

 

FY’19

 

 

FY’18

 

EBITDA

 

$

(38.9

)

 

$

57.5

 

EBITDA margin

 

 

(8.3

%)

 

 

14.3

%

 

Adjusted Results (c):

 

First Quarter

 

 

 

FY’19

 

 

FY’18

 

Adjusted EBITDA (b)

 

$

70.8

 

 

$

60.4

 

Adjusted EBITDA margin (b)

 

 

15.2

%

 

 

15.0

%

Adjusted net income attributable to Korn Ferry

 

$

44.2

 

 

$

31.2

 

Adjusted basic earnings per share

 

$

0.79

 

 

$

0.55

 

Adjusted diluted earnings per share

 

$

0.78

 

 

$

0.55

 

___________

(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 tradename write-offs, integration/acquisition costs and restructuring charges, net.  EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).

(c)

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

 

 

 

First Quarter

 

 

 

FY’19

 

 

FY’18

 

Tradename write-offs

$

 

106.6

 

$

 

—

 

Integration/acquisition costs

$

 

3.1

 

$

 

2.6

 

Restructuring charges, net

$

 

—

 

$

 

0.3

 

 

Fee revenue was $465.6 million in Q1 FY’19, an increase of 16.0% (15.7% increase on a constant currency basis) compared to Q1 FY’18.  The increase in fee revenue was due to organic growth in all solutions.

Operating margin was (11.8%) in Q1 FY’19 compared to 10.5% in the year-ago quarter.  The decrease in operating margin was primarily due to the $106.6 million tradename write-offs in Q1 FY’19 and an increase in compensation and benefits, partially offset by an increase in fee revenue.

Adjusted EBITDA margin was 15.2%, compared to 15.0% in the year-ago quarter.

2

 

 

Results by Segment

Selected Executive Search Data

(dollars in millions) (a)

 

 

First Quarter

 

 

 

FY’19

 

 

FY’18

 

Fee revenue

 

$

192.9

 

 

$

161.2

 

Total revenue

 

$

198.0

 

 

$

165.8

 

Operating income

 

$

40.9

 

 

$

32.9

 

Operating margin

 

 

21.2

%

 

 

20.4

%

 

 

 

 

 

 

 

 

 

Ending number of consultants

 

 

545

 

 

 

532

 

Average number of consultants

 

 

543

 

 

 

525

 

Engagements billed

 

 

3,822

 

 

 

3,615

 

New engagements (b)

 

 

1,708

 

 

 

1,659

 

 

EBITDA Results (c):

 

First Quarter

 

 

 

FY’19

 

 

FY’18

 

EBITDA

 

$

46.8

 

 

$

35.2

 

EBITDA margin

 

 

24.2

%

 

 

21.8

%

 

Adjusted Results (d):

 

First Quarter

 

 

 

FY’19

 

 

FY’18

 

Adjusted EBITDA (c)

 

$

46.8

 

 

$

35.2

 

Adjusted EBITDA margin (c)

 

 

24.2

%

 

 

21.9

%

___________

(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 restructuring charges, net (see attached reconciliations).

 

Fee revenue was $192.9 million in Q1 FY’19, an increase of $31.7 million or 19.7% (19.3% on a constant currency basis) compared to Q1 FY’18.  The increase in fee revenue was attributable to higher fee revenue in all regions.

Operating income was $40.9 million in Q1 FY’19 compared to $32.9 million in Q1 FY’18. Operating margin was 21.2% in Q1 FY’19 compared to 20.4% in the year-ago quarter.  The increase in operating income was due to higher fee revenue in Q1 FY’19 compared to Q1 FY’18, partially offset by an increase in compensation and benefits expense driven by 3.6% increase in average headcount and an increase in performance related bonus expense.

Adjusted EBITDA was $46.8 million in Q1 FY’19 with an Adjusted EBITDA margin of 24.2% compared to $35.2 million and 21.9%, respectively, in the year-ago quarter.

 

 

 

 

 

 

 

 

3

 

Selected Advisory Data

(dollars in millions) (a)

 

 

 

First Quarter

 

 

 

FY’19

 

 

FY’18

 

Fee revenue

 

$

195.4

 

 

$

179.5

 

Total revenue

 

$

200.1

 

 

$

183.3

 

Operating (loss) income

 

$

(83.1

)

 

$

19.1

 

Operating margin

 

 

(42.5

%)

 

 

10.6

%

 

 

 

 

 

 

 

 

 

Ending number of consultants (b)

 

 

563

 

 

 

583

 

Staff utilization (c)

 

 

67

%

 

 

63

%

 

EBITDA Results (d):

 

First Quarter

 

 

 

FY’19

 

 

FY’18

 

EBITDA

 

$

(75.1

)

 

$

27.6

 

EBITDA margin

 

 

(38.4

%)

 

 

15.4

%

 

Adjusted Results (e):

 

First Quarter

 

 

 

FY’19

 

 

FY’18

 

Adjusted EBITDA (d)

 

$

34.5

 

 

$

30.4

 

Adjusted EBITDA margin (d)

 

 

17.7

%

 

 

16.9

%

 ___________

(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 Advisory 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 (see attached reconciliations):

 

 

 

First Quarter

 

 

 

FY’19

 

 

FY’18

 

Tradename write-offs

 

$

106.6

 

 

$

—

 

Integration/acquisition costs

 

$

3.0

 

 

$

2.5

 

Restructuring charges, net

 

$

—

 

 

$

0.2

 

 

Fee revenue was $195.4 million in Q1 FY’19 compared to $179.5 million in Q1 FY’18, an increase of $15.9 million or 8.9% (8.6% on a constant currency basis) compared to Q1 FY’18.  The increase in fee revenue was driven by increases in each of our Advisory solution areas, primarily from Consulting.

Operating loss was $83.1 million in Q1 FY’19 with an operating margin of (42.5%) compared to operating income of $19.1 million and an operating margin of 10.6% in the year-ago quarter.  The change of $102.2 million from operating income in the year-ago quarter to operating loss in the current quarter was primarily due to the tradename write-offs in Q1 FY’19 of $106.6 million.

Adjusted EBITDA was $34.5 million in Q1 FY’19 with an Adjusted EBITDA margin of 17.7% compared to $30.4 million and 16.9%, respectively, in the year-ago quarter.

4

 

Selected RPO and Professional Search Data

(dollars in millions) (a)

 

 

First Quarter

 

 

 

FY’19

 

 

FY’18

 

Fee revenue

 

$

77.3

 

 

$

60.6

 

Total revenue

 

$

80.2

 

 

$

65.8

 

Operating income

 

$

11.6

 

 

$

8.2

 

Operating margin

 

 

15.1

%

 

 

13.6

%

 

 

 

 

 

 

 

 

 

Engagements billed (b)

 

 

1,346

 

 

 

1,205

 

New engagements (c)

 

 

771

 

 

 

732

 

 

EBITDA Results (d):

 

First Quarter

 

 

 

FY’19

 

 

FY’18

 

EBITDA

 

$

12.5

 

 

$

9.0

 

EBITDA margin

 

 

16.2

%

 

 

14.9

%

___________

(a)

Numbers may not total due to rounding.

(b)

Represents professional search engagements billed.

(c)

Represents new professional search engagements opened in the respective period.

(d)

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

 

Fee revenue was $77.3 million in Q1 FY’19, an increase of $16.7 million or 27.6% (27.2% increase on a constant currency basis), compared to the year-ago quarter.  The higher fee revenue was primarily driven by an increase in fee revenue in recruitment process outsourcing and professional search of $9.3 million and $7.4 million, respectively, in Q1 FY’19 compared to Q1 FY’18.

Operating income was $11.6 million in Q1 FY’19, an increase of $3.4 million compared to Q1 FY’18 operating income of $8.2 million.  Operating margin was 15.1% in the current quarter compared to 13.6% in the year-ago quarter.  

EBITDA was $12.5 million during Q1 FY’19, an increase of $3.5 million compared to Q1 FY’18.  EBITDA margin was 16.2% in Q1 FY’19 and 14.9% in Q1 FY’18.

Outlook

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

 

▪

Q2 FY’19 fee revenue is expected to be in the range of $470 million and $490 million; and

 

▪

Q2 FY’19 diluted earnings per share is likely to range between $0.73 to $0.81.

On a consolidated adjusted basis:

 

▪

Q2 FY’19 Adjusted diluted earnings per share is expected to be in the range from $0.76 to $0.84.

5

 

 

 

 

Q2 FY’19

Earnings Per Share Outlook (1)

 

 

 

Low

 

 

High

 

Consolidated diluted earnings per share

 

$

0.73

 

 

$

0.81

 

Retention bonuses

 

$

0.04

 

 

$

0.04

 

Tax rate impact

 

$

(0.01

)

 

$

(0.01

)

Consolidated as Adjusted diluted earnings per share

 

$

0.76

 

 

$

0.84

 

___________

(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 (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.

6

 

About Korn Ferry

 

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

Forward-Looking Statements

Statements in this press release and our conference call that relate to future results and events (“forward-looking statements”) are based on Korn Ferry’s current expectations.  These statements, which include words such as “believes”, “expects” or “likely”, include references to our outlook.  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 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 restructuring charges, net, integration/acquisition costs and tradename write-offs, net of income tax effect;

 

•

Adjusted basic and diluted earnings per share, adjusted to exclude restructuring charges, net, integration/acquisition costs and tradename write-offs, 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; and

 

•

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

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

7

 

 

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) costs we incurred to acquire and integrate a portion of our Advisory business, 2) charges we incurred to restructure the combined company due to the acquisition of a portion of our Advisory business, and 3) tradename write-offs associated with the rebranding plan initiated by Korn Ferry.  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]

 

 

8

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

 

 

 

Three Months Ended

 

 

 

July 31,

 

 

 

2018

 

 

2017

 

 

 

(unaudited)

 

Fee revenue

 

$

465,568

 

 

$

401,254

 

Reimbursed out-of-pocket engagement expenses

 

 

12,794

 

 

 

13,663

 

           Total revenue

 

 

478,362

 

 

 

414,917

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

321,905

 

 

 

272,756

 

General and administrative expenses

 

 

168,724

 

 

 

58,261

 

Reimbursed expenses

 

 

12,794

 

 

 

13,663

 

Cost of services

 

 

18,327

 

 

 

15,813

 

Depreciation and amortization

 

 

11,731

 

 

 

12,209

 

Restructuring charges, net

 

 

-

 

 

 

280

 

           Total operating expenses

 

 

533,481

 

 

 

372,982

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

(55,119

)

 

 

41,935

 

Other income, net

 

 

4,491

 

 

 

3,354

 

Interest expense, net

 

 

(4,103

)

 

 

(3,680

)

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

 

 

 

 

 

 

 

 

               and equity in earnings of unconsolidated subsidiaries

 

 

(54,731

)

 

 

41,609

 

Equity in earnings of unconsolidated subsidiaries

 

 

29

 

 

 

30

 

Income tax (benefit) provision

 

 

(16,110

)

 

 

12,210

 

Net (loss) income

 

 

(38,592

)

 

 

29,429

 

           Net income attributable to noncontrolling interest

 

 

(19

)

 

 

(388

)

Net (loss) income attributable to Korn/Ferry International

 

$

(38,611

)

 

$

29,041

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

      Basic

 

$

(0.70

)

 

$

0.52

 

      Diluted

 

$

(0.70

)

 

$

0.51

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

      Basic

 

 

55,378

 

 

 

55,795

 

      Diluted

 

 

55,378

 

 

 

56,403

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

2018

 

 

 

 

2017

 

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive Search:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

$

112,097

 

 

 

 

$

91,833

 

 

 

22.1

%

 

EMEA

 

46,654

 

 

 

 

 

40,121

 

 

 

16.3

%

 

Asia Pacific

 

26,295

 

 

 

 

 

21,578

 

 

 

21.9

%

 

Latin America

 

7,878

 

 

 

 

 

7,659

 

 

 

2.9

%

Total Executive Search

 

192,924

 

 

 

 

 

161,191

 

 

 

19.7

%

Advisory

 

195,375

 

 

 

 

 

179,453

 

 

 

8.9

%

RPO and Professional Search

 

77,269

 

 

 

 

 

60,610

 

 

 

27.5

%

 

Total fee revenue

 

465,568

 

 

 

 

 

401,254

 

 

 

16.0

%

Reimbursed out-of-pocket engagement expenses

 

12,794

 

 

 

 

 

13,663

 

 

 

(6.4

%)

 

Total revenue

$

478,362

 

 

 

 

$

414,917

 

 

 

15.3

%

 

Operating (loss) income:

 

 

 

 

Margin

 

 

 

 

 

 

Margin

 

Executive Search:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

$

26,514

 

 

 

23.7

%

 

$

22,070

 

 

 

24.0

%

 

EMEA

 

6,969

 

 

 

14.9

%

 

 

6,675

 

 

 

16.6

%

 

Asia Pacific

 

6,641

 

 

 

25.3

%

 

 

3,141

 

 

 

14.6

%

 

Latin America

 

754

 

 

 

9.6

%

 

 

1,026

 

 

 

13.4

%

Total Executive Search

 

40,878

 

 

 

21.2

%

 

 

32,912

 

 

 

20.4

%

Advisory

 

(83,079

)

 

 

(42.5

%)

 

 

19,055

 

 

 

10.6

%

RPO and Professional Search

 

11,645

 

 

 

15.1

%

 

 

8,245

 

 

 

13.6

%

Corporate

 

(24,563

)

 

 

 

 

 

 

(18,277

)

 

 

 

 

 

Total operating (loss) income

$

(55,119

)

 

 

(11.8

%)

 

$

41,935

 

 

 

10.5

%

 

 

 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

 

 

July 31,

 

 

April 30,

 

 

 

 

2018

 

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

365,729

 

 

$

520,848

 

Marketable securities

 

 

10,952

 

 

 

14,293

 

Receivables due from clients, net of allowance for doubtful accounts

 

 

 

 

 

 

 

 

of $19,201 and $17,845 at July 31, 2018 and April 30, 2018, respectively

 

 

397,559

 

 

 

384,996

 

Income taxes and other receivables

 

 

36,999

 

 

 

29,089

 

Unearned compensation

 

 

40,713

 

 

 

37,333

 

Prepaid expenses and other assets

 

 

32,056

 

 

 

27,700

 

Total current assets

 

 

884,008

 

 

 

1,014,259

 

 

 

 

 

 

 

 

 

 

Marketable securities, non-current

 

 

123,124

 

 

 

122,792

 

Property and equipment, net

 

 

123,318

 

 

 

119,901

 

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

 

 

121,828

 

 

 

120,087

 

Deferred income taxes

 

 

39,512

 

 

 

25,520

 

Goodwill

 

 

581,858

 

 

 

584,222

 

Intangible assets, net

 

 

93,050

 

 

 

203,216

 

Unearned compensation, non-current

 

 

92,378

 

 

 

78,295

 

Investments and other assets

 

 

20,394

 

 

 

19,622

 

Total assets

 

$

2,079,470

 

 

$

2,287,914

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

35,325

 

 

$

35,196

 

Income taxes payable

 

 

25,790

 

 

 

23,034

 

Compensation and benefits payable

 

 

175,477

 

 

 

304,980

 

Term loan

 

 

26,629

 

 

 

24,911

 

Other accrued liabilities

 

 

150,534

 

 

 

170,339

 

Total current liabilities

 

 

413,755

 

 

 

558,460

 

 

 

 

 

 

 

 

 

 

Deferred compensation and other retirement plans

 

 

234,468

 

 

 

227,729

 

Term loan, non-current

 

 

204,654

 

 

 

211,311

 

Deferred tax liabilities

 

 

1,609

 

 

 

9,105

 

Other liabilities

 

 

60,364

 

 

 

61,694

 

Total liabilities

 

 

914,850

 

 

 

1,068,299

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock: $0.01 par value, 150,000 shares authorized, 72,171 and 71,631 shares

 

 

 

 

 

 

 

 

issued and 56,938 and 56,517 shares outstanding at July 31, 2018 and April 30, 2018,

 

 

 

 

 

 

 

 

respectively

 

 

681,060

 

 

 

683,942

 

Retained earnings

 

 

537,015

 

 

 

572,800

 

Accumulated other comprehensive loss, net

 

 

(56,488

)

 

 

(40,135

)

Total Korn/Ferry International stockholders' equity

 

 

1,161,587

 

 

 

1,216,607

 

Noncontrolling interest

 

 

3,033

 

 

 

3,008

 

Total stockholders' equity

 

 

1,164,620

 

 

 

1,219,615

 

Total liabilities and stockholders' equity

 

$

2,079,470

 

 

$

2,287,914

 

 

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

 

July 31,

 

 

 

2018

 

 

2017

 

 

 

(unaudited)

 

Operating (loss) income

 

$

(55,119

)

 

$

41,935

 

Depreciation and amortization

 

 

11,731

 

 

 

12,209

 

Other income, net

 

 

4,491

 

 

 

3,354

 

Equity in earnings of unconsolidated subsidiaries, net

 

 

29

 

 

 

30

 

           EBITDA

 

 

(38,868

)

 

 

57,528

 

Restructuring charges, net (1)

 

 

-

 

 

 

280

 

Integration/acquisition costs (2)

 

 

3,107

 

 

 

2,588

 

Tradename write-offs (3)

 

 

106,555

 

 

 

-

 

           Adjusted EBITDA

 

$

70,794

 

 

$

60,396

 

 

 

 

 

 

 

 

 

 

Operating margin

 

 

(11.8

%)

 

 

10.5

%

Depreciation and amortization

 

 

2.5

%

 

 

3.0

%

Other income, net

 

 

1.0

%

 

 

0.8

%

Equity in earnings of unconsolidated subsidiaries, net

 

 

-

 

 

 

-

 

            EBITDA margin

 

 

(8.3

%)

 

 

14.3

%

Restructuring charges, net (1)

 

 

-

 

 

 

0.1

%

Integration/acquisition costs (2)

 

 

0.6

%

 

 

0.6

%

Tradename write-offs (3)

 

 

22.9

%

 

 

-

 

           Adjusted EBITDA margin

 

 

15.2

%

 

 

15.0

%

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to Korn/Ferry International

 

$

(38,611

)

 

$

29,041

 

Restructuring charges, net (1)

 

 

-

 

 

 

280

 

Integration/acquisition costs (2)

 

 

3,107

 

 

 

2,588

 

Tradename write-offs (3)

 

 

106,555

 

 

 

-

 

Tax effect on the above items (4)

 

 

(26,893

)

 

 

(724

)

           Adjusted net income attributable to Korn/Ferry International

 

$

44,158

 

 

$

31,185

 

 

 

 

 

 

 

 

 

 

Basic (loss) earnings per common share

 

$

(0.70

)

 

$

0.52

 

Restructuring charges, net (1)

 

 

-

 

 

 

-

 

Integration/acquisition costs (2)

 

 

0.06

 

 

 

0.05

 

Tradename write-offs (3)

 

 

1.92

 

 

 

-

 

Tax effect on the above items (4)

 

 

(0.49

)

 

 

(0.02

)

           Adjusted basic earnings per share

 

$

0.79

 

 

$

0.55

 

 

 

 

 

 

 

 

 

 

Diluted (loss) earnings per common share

 

$

(0.70

)

 

$

0.51

 

Restructuring charges, net (1)

 

 

-

 

 

 

-

 

Integration/acquisition costs (2)

 

 

0.06

 

 

 

0.05

 

Tradename write-offs (3)

 

 

1.90

 

 

 

-

 

Tax effect on the above items (4)

 

 

(0.48

)

 

 

(0.01

)

           Adjusted diluted earnings per share

 

$

0.78

 

 

$

0.55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Explanation of Non-GAAP Adjustments

 

 

 

 

 

 

 

 

(1) Restructuring plan implemented in order to rationalize our cost structure by eliminating redundant positions and consolidating office

 

space due to a previous acquisition that took place on December 1, 2015.

 

(2) Costs associated with completing a previous acquisition, such as legal and professional fees, and the on-going integration

 

expenses to combine the companies.

 

(3) The Company is implementing a plan to go to market under a single, master brand architecture to simplify the Company’s

 

organizational structure by eliminating and/or consolidating certain legal entities and implementing a rebranding of the Company

 

to offer the Company’s current products and services using the “Korn Ferry” name, branding and trademarks. As a result

 

of this the Company was required under U.S. generally accepted accounting principles to record a one-time,

 

non-cash tradename write-offs.

 

(4) Tax effect on restructuring charges, net, integration/acquisition costs and tradename write-offs.

 

 

 

 

 

 

 

 

 

 

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET (LOSS) INCOME AND OPERATING (LOSS) INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 

 

 

Three Months Ended July 31, 2018

 

 

 

Executive Search

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

EMEA

 

 

Asia Pacific

 

 

Latin America

 

 

Subtotal

 

 

Advisory

 

 

RPO and Professional Search

 

 

Corporate

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue

 

$

112,097

 

 

$

46,654

 

 

$

26,295

 

 

$

7,878

 

 

$

192,924

 

 

$

195,375

 

 

$

77,269

 

 

$

-

 

 

$

465,568

 

Total revenue

 

$

115,757

 

 

$

47,749

 

 

$

26,625

 

 

$

7,903

 

 

$

198,034

 

 

$

200,147

 

 

$

80,181

 

 

$

-

 

 

$

478,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Korn/Ferry

    International

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(38,611

)

Net income attributable to noncontrolling

    interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

Other income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,491

)

Interest expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,103

 

Equity in earnings of unconsolidated

        subsidiaries, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29

)

Income tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,110

)

Operating income (loss)

 

$

26,514

 

 

$

6,969

 

 

$

6,641

 

 

$

754

 

 

$

40,878

 

 

$

(83,079

)

 

$

11,645

 

 

$

(24,563

)

 

 

(55,119

)

Depreciation and amortization

 

 

979

 

 

 

370

 

 

 

370

 

 

 

107

 

 

 

1,826

 

 

 

7,431

 

 

 

761

 

 

 

1,713

 

 

 

11,731

 

Other income (loss), net

 

 

3,472

 

 

 

340

 

 

 

175

 

 

 

37

 

 

 

4,024

 

 

 

570

 

 

 

105

 

 

 

(208

)

 

 

4,491

 

Equity in earnings of unconsolidated

        subsidiaries, net

 

 

29

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29

 

EBITDA

 

 

30,994

 

 

 

7,679

 

 

 

7,186

 

 

 

898

 

 

 

46,757

 

 

 

(75,078

)

 

 

12,511

 

 

 

(23,058

)

 

 

(38,868

)

EBITDA margin

 

 

27.6

%

 

 

16.5

%

 

 

27.3

%

 

 

11.4

%

 

 

24.2

%

 

 

(38.4

%)

 

 

16.2

%

 

 

 

 

 

 

(8.3

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Integration/acquisition costs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,027

 

 

 

-

 

 

 

80

 

 

 

3,107

 

Tradename write-offs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

106,555

 

 

 

-

 

 

 

-

 

 

 

106,555

 

Adjusted EBITDA

 

$

30,994

 

 

$

7,679

 

 

$

7,186

 

 

$

898

 

 

$

46,757

 

 

$

34,504

 

 

$

12,511

 

 

$

(22,978

)

 

$

70,794

 

Adjusted EBITDA margin

 

 

27.6

%

 

 

16.5

%

 

 

27.3

%

 

 

11.4

%

 

 

24.2

%

 

 

17.7

%

 

 

16.2

%

 

 

 

 

 

 

15.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended July 31, 2017

 

 

 

Executive Search

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

EMEA

 

 

Asia Pacific

 

 

Latin America

 

 

Subtotal

 

 

Advisory

 

 

RPO and Professional Search

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,354

)

Interest expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,680

 

Equity in earnings of unconsolidated

        subsidiaries, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30

)

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,210

 

Operating income (loss)

 

$

22,070

 

 

$

6,675

 

 

$

3,141

 

 

$

1,026

 

 

$

32,912

 

 

$

19,055

 

 

$

8,245

 

 

$

(18,277

)

 

 

41,935

 

Depreciation and amortization

 

 

949

 

 

 

428

 

 

 

320

 

 

 

107

 

 

 

1,804

 

 

 

8,085

 

 

 

796

 

 

 

1,524

 

 

 

12,209

 

Other income, net

 

 

282

 

 

 

56

 

 

 

105

 

 

 

20

 

 

 

463

 

 

 

431

 

 

 

8

 

 

 

2,452

 

 

 

3,354

 

Equity in earnings of unconsolidated

        subsidiaries, net

 

 

30

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

30

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

30

 

EBITDA

 

 

23,331

 

 

 

7,159

 

 

 

3,566

 

 

 

1,153

 

 

 

35,209

 

 

 

27,571

 

 

 

9,049

 

 

 

(14,301

)

 

 

57,528

 

EBITDA margin

 

 

25.4

%

 

 

17.8

%

 

 

16.5

%

 

 

15.1

%

 

 

21.8

%

 

 

15.4

%

 

 

14.9

%

 

 

 

 

 

 

14.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring charges, net

 

 

-

 

 

 

-

 

 

 

40

 

 

 

-

 

 

 

40

 

 

 

240

 

 

 

-

 

 

 

-

 

 

 

280

 

Integration/acquisition costs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,549

 

 

 

-

 

 

 

39

 

 

 

2,588

 

Adjusted EBITDA

 

$

23,331

 

 

$

7,159

 

 

$

3,606

 

 

$

1,153

 

 

$

35,249

 

 

$

30,360

 

 

$

9,049

 

 

$

(14,262

)

 

$

60,396

 

Adjusted EBITDA margin

 

 

25.4

%

 

 

17.8

%

 

 

16.7

%

 

 

15.1

%

 

 

21.9

%

 

 

16.9

%

 

 

14.9

%

 

 

 

 

 

 

15.0

%