March 11, 2020 - 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 January 31, 2020

☐	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 March 5, 2020 was 55,044,489 shares.

KORN FERRY

Table of Contents

Item #	Description	Page

	Part I. Financial Information

Item 1.	Consolidated Financial Statements

	Consolidated Balance Sheets as of January 31, 2020 (unaudited) and April 30, 2019	1

	Consolidated Statements of Income (unaudited) for the three and nine months ended January 31, 2020 and 2019	2

	Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended January 31, 2020 and 2019	3

	Consolidated Statements of Stockholders’ Equity (unaudited) for three and nine months ended January 31, 2020 and 2019	4

	Consolidated Statements of Cash Flows (unaudited) for the nine months ended January 31, 2020 and 2019	6

	Notes to Consolidated Unaudited Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49

Item 4.	Controls and Procedures	50

	Part II. Other Information

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	54

Item 6.	Exhibits	55

	Signatures	56

Item 1. Consolidated Financial Statements

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	January 31, 2020			April 30, 2019
	(unaudited)
	(in thousands, except per share data)
ASSETS
Cash and cash equivalents	$	563,708		$	626,360
Marketable securities		41,022			8,288
Receivables due from clients, net of allowance for doubtful accounts of $25,168 and $21,582 at January 31, 2020 and April 30, 2019, respectively		472,261			404,857
Income taxes and other receivables		38,656			26,767
Unearned compensation		46,386			42,003
Prepaid expenses and other assets		35,094			28,535
Total current assets		1,197,127			1,136,810

Marketable securities, non-current		143,789			132,463
Property and equipment, net		143,230			131,505
Operating lease right-of-use assets, net		209,236			—
Cash surrender value of company-owned life insurance policies, net of loans		145,305			126,000
Deferred income taxes		44,928			43,220
Goodwill		615,513			578,298
Intangible assets, net		116,882			82,948
Unearned compensation, non-current		93,934			80,924
Investments and other assets		29,705			22,684
Total assets	$	2,739,649		$	2,334,852
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	36,044		$	39,156
Income taxes payable		17,128			21,145
Compensation and benefits payable		258,789			328,610
Operating lease liability, current		53,592			—
Other accrued liabilities		194,838			162,047
Total current liabilities		560,391			550,958

Deferred compensation and other retirement plans		283,293			257,635
Operating lease liability, non-current		194,209			—
Long-term debt		393,986			222,878
Deferred tax liabilities		837			1,103
Other liabilities		29,280			58,891
Total liabilities		1,461,996			1,091,465

Stockholders' equity
Common stock: $0.01 par value, 150,000 shares authorized, 73,210 and 72,442 shares issued and 55,258 and 56,431 shares outstanding at January 31, 2020 and April 30, 2019, respectively		604,609			656,463
Retained earnings		749,301			660,845
Accumulated other comprehensive loss, net		(78,810	)		(76,652	)
Total Korn Ferry stockholders' equity		1,275,100			1,240,656
Noncontrolling interest		2,553			2,731
Total stockholders' equity		1,277,653			1,243,387
Total liabilities and stockholders' equity	$	2,739,649		$	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 January 31,						Nine Months Ended January 31,
	2020			2019			2020			2019
	(in thousands, except per share data)
Fee revenue	$	515,325		$	474,504		$	1,492,263		$	1,435,277
Reimbursed out-of-pocket engagement expenses		12,654			11,668			36,091			36,050
Total revenue		527,979			486,172			1,528,354			1,471,327

Compensation and benefits		348,597			321,835			1,014,475			979,575
General and administrative expenses		71,355			61,179			199,171			287,641
Reimbursed expenses		12,654			11,668			36,091			36,050
Cost of services		30,822			17,066			66,371			55,020
Depreciation and amortization		14,863			11,741			40,355			34,490
Restructuring charges, net		18,093			—			18,093			—
Total operating expenses		496,384			423,489			1,374,556			1,392,776

Operating income		31,595			62,683			153,798			78,551
Other income, net		5,055			2,463			8,014			2,483
Interest expense, net		(6,919	)		(4,282	)		(15,186	)		(12,722	)
Income before provision for income taxes		29,731			60,864			146,626			68,312
Income tax provision		8,775			15,420			38,988			14,143
Net income		20,956			45,444			107,638			54,169
Net income attributable to noncontrolling interest		(963	)		(480	)		(1,890	)		(1,782	)
Net income attributable to Korn Ferry	$	19,993		$	44,964		$	105,748		$	52,387

Earnings per common share attributable to Korn Ferry:
Basic	$	0.37		$	0.81		$	1.92		$	0.94
Diluted	$	0.36		$	0.80		$	1.90		$	0.92

Weighted-average common shares outstanding:
Basic		53,999			55,233			54,611			55,358
Diluted		54,264			55,753			55,006			56,181

Cash dividends declared per share:	$	0.10		$	0.10		$	0.30		$	0.30

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

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	Three Months Ended January 31,						Nine Months Ended January 31,
	2020			2019			2020			2019
	(in thousands)
Net income	$	20,956		$	45,444		$	107,638		$	54,169

Other comprehensive income (loss):
Foreign currency translation adjustments		497			6,089			(3,588	)		(21,245	)
Deferred compensation and pension plan adjustments, net of tax		943			273			1,933			819
Net unrealized loss on marketable securities, net of tax		(5	)		—			(5	)		—
Net unrealized gain (loss) on interest rate swap, net of tax		495			(980	)		(456	)		(702	)
Comprehensive income		22,886			50,826			105,522			33,041
Less: comprehensive income attributable to noncontrolling interest		(1,057	)		(552	)		(1,932	)		(1,593	)
Comprehensive income attributable to Korn Ferry	$	21,829		$	50,274		$	103,590		$	31,448

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

Form: 10-Q

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