December 6, 2019 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to ___________

Commission File Number 001-14505

KORN FERRY

(Exact Name of Registrant as Specified in its Charter)

Delaware		95-2623879
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067

(Address of principal executive offices) (Zip Code)

(310) 552-1834

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	KFY	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑			Accelerated filer ☐

Non-accelerated filer ☐			Smaller reporting company ☐
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares outstanding of our common stock as of December 2, 2019 was 55,230,531 shares.

KORN FERRY

Table of Contents

Item #	Description	Page

	Part I. Financial Information

Item 1.	Consolidated Financial Statements

	Consolidated Balance Sheets as of October 31, 2019 (unaudited) and April 30, 2019	1

	Consolidated Statements of Income (unaudited) for the three and six months ended October 31, 2019 and 2018	2

	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and six months ended October 31, 2019 and 2018	3

	Consolidated Statements of Stockholders’ Equity (unaudited) for three and six months ended October 31, 2019 and 2018	4

	Consolidated Statements of Cash Flows (unaudited) for the six months ended October 31, 2019 and 2018	5

	Notes to Consolidated Unaudited Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	41

	Part II. Other Information

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	42

Item 6.	Exhibits	43

	Signatures	44

Item 1. Consolidated Financial Statements

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	October 31, 2019			April 30, 2019
	(unaudited)
	(in thousands, except per share data)
ASSETS
Cash and cash equivalents	$	464,423		$	626,360
Marketable securities		6,508			8,288
Receivables due from clients, net of allowance for doubtful accounts of $23,165 and $21,582 at October 31, 2019 and April 30, 2019, respectively		458,263			404,857
Income taxes and other receivables		40,506			26,767
Unearned compensation		48,195			42,003
Prepaid expenses and other assets		31,603			28,535
Total current assets		1,049,498			1,136,810

Marketable securities, non-current		138,055			132,463
Property and equipment, net		140,685			131,505
Operating lease right-of-use assets, net		214,421			—
Cash surrender value of company-owned life insurance policies, net of loans		128,626			126,000
Deferred income taxes		36,779			43,220
Goodwill		578,307			578,298
Intangible assets, net		76,288			82,948
Unearned compensation, non-current		101,308			80,924
Investments and other assets		22,314			22,684
Total assets	$	2,486,281		$	2,334,852
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	30,599		$	39,156
Income taxes payable		15,018			21,145
Compensation and benefits payable		198,284			328,610
Operating lease liability, current		48,493			—
Other accrued liabilities		158,071			162,047
Total current liabilities		450,465			550,958

Deferred compensation and other retirement plans		274,241			257,635
Operating lease liability, non-current		200,266			—
Long-term debt		273,310			222,878
Deferred tax liabilities		1,064			1,103
Other liabilities		28,444			58,891
Total liabilities		1,227,790			1,091,465

Stockholders' equity
Common stock: $0.01 par value, 150,000 shares authorized, 73,120 and 72,442 shares issued and 55,315 and 56,431 shares outstanding at October 31, 2019 and April 30, 2019, respectively		601,686			656,463
Retained earnings		734,891			660,845
Accumulated other comprehensive loss, net		(80,646	)		(76,652	)
Total Korn Ferry stockholders' equity		1,255,931			1,240,656
Noncontrolling interest		2,560			2,731
Total stockholders' equity		1,258,491			1,243,387
Total liabilities and stockholders' equity	$	2,486,281		$	2,334,852

The accompanying notes are an integral part of these consolidated financial statements.

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three Months Ended October 31,						Six Months Ended October 31,
	2019			2018			2019			2018
	(in thousands, except per share data)
Fee revenue	$	492,389		$	495,205		$	976,938		$	960,773
Reimbursed out-of-pocket engagement expenses		11,788			11,588			23,437			24,382
Total revenue		504,177			506,793			1,000,375			985,155

Compensation and benefits		337,382			335,835			665,878			657,740
General and administrative expenses		62,009			57,738			127,816			226,462
Reimbursed expenses		11,788			11,588			23,437			24,382
Cost of services		18,414			19,627			35,549			37,954
Depreciation and amortization		12,715			11,018			25,492			22,749
Total operating expenses		442,308			435,806			878,172			969,287

Operating income		61,869			70,987			122,203			15,868
Other income (loss), net		1,133			(4,500	)		2,959			20
Interest expense, net		(4,210	)		(4,337	)		(8,267	)		(8,440	)
Income before provision (benefit) for income taxes		58,792			62,150			116,895			7,448
Income tax provision (benefit)		15,760			14,833			30,213			(1,277	)
Net income		43,032			47,317			86,682			8,725
Net income attributable to noncontrolling interest		(228	)		(1,283	)		(927	)		(1,302	)
Net income attributable to Korn Ferry	$	42,804		$	46,034		$	85,755		$	7,423

Earnings per common share attributable to Korn Ferry:
Basic	$	0.78		$	0.82		$	1.54		$	0.13
Diluted	$	0.77		$	0.81		$	1.54		$	0.13

Weighted-average common shares outstanding:
Basic		54,568			55,461			54,917			55,420
Diluted		54,716			56,239			55,170			56,306

Cash dividends declared per share:	$	0.10		$	0.10		$	0.20		$	0.20

The accompanying notes are an integral part of these consolidated financial statements.

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

	Three Months Ended October 31,						Six Months Ended October 31,
	2019			2018			2019			2018
	(in thousands)
Net income	$	43,032		$	47,317		$	86,682		$	8,725

Other comprehensive income (loss):
Foreign currency translation adjustments		1,213			(12,778	)		(4,085	)		(27,334	)
Deferred compensation and pension plan adjustments, net of tax		495			273			990			546
Net unrealized (loss) gain on interest rate swap, net of tax		(356	)		145			(951	)		278
Comprehensive income (loss)		44,384			34,957			82,636			(17,785	)
Less: comprehensive income attributable to noncontrolling interest		(112	)		(1,016	)		(875	)		(1,041	)
Comprehensive income (loss) attributable to Korn Ferry	$	44,272		$	33,941		$	81,761		$	(18,826	)

The accompanying notes are an integral part of these consolidated financial statements.

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

										Accumulated Other			Total
										Comprehensive			Korn Ferry						Total
	Common Stock						Retained			(Loss) Income,			Stockholders'			Noncontrolling			Stockholder's
	Shares			Amount			Earnings			Net			Equity			Interest			Equity
	(in thousands)
Balance as of April 30, 2019		56,431		$	656,463		$	660,845		$	(76,652	)	$	1,240,656		$	2,731		$	1,243,387
Net income		—			—			42,951			—			42,951			699			43,650
Other comprehensive (loss) income		—			—			—			(5,462	)		(5,462	)		64			(5,398	)
Dividends paid to shareholders		—			—			(6,081	)		—			(6,081	)		—			(6,081	)
Purchase of stock		(546	)		(21,329	)		—			—			(21,329	)		—			(21,329	)
Issuance of stock		711			5,074			—			—			5,074			—			5,074
Stock-based compensation		—			5,091			—			—			5,091			—			5,091
Balance as of July 31, 2019		56,596			645,299			697,715			(82,114	)		1,260,900			3,494			1,264,394
Net income		—			—			42,804			—			42,804			228			43,032
Other comprehensive income (loss)		—			—			—			1,468			1,468			(116	)		1,352
Dividends paid to shareholders		—			—			(5,628	)		—			(5,628	)		—			(5,628	)
Dividends paid to noncontrolling interest		—			—			—			—			—			(1,046	)		(1,046	)
Purchase of stock		(1,313	)		(49,325	)		—			—			(49,325	)		—			(49,325	)
Issuance of stock		32			—			—			—			—			—			—
Stock-based compensation		—			5,712			—			—			5,712			—			5,712
Balance as of October 31, 2019		55,315		$	601,686		$	734,891		$	(80,646	)	$	1,255,931		$	2,560		$	1,258,491

Accumulated

Total

Other

Korn Ferry

Total

Common Stock

Retained

Comprehensive

Stockholders'

Noncontrolling

Stockholder's

Amount

Earnings

Loss, Net

Equity

Interest

Equity

(in thousands)

Balance as of April 30, 2018

56,517

683,942

Form: 10-Q

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