December 9, 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 October 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 December 2, 2020 was 53,937,912 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, 2020 (unaudited) and April 30, 2020	1

	Consolidated Statements of Operations (unaudited) for the three and six months ended October 31, 2020 and 2019	2

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

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

	Consolidated Statements of Cash Flows (unaudited) for the six months ended October 31, 2020 and 2019	5

	Notes to Consolidated Unaudited Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	46

	Part II. Other Information

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	47

Item 6.	Exhibits	48

	Signatures	49

Item 1. Consolidated Financial Statements

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	October 31, 2020			April 30, 2020
	(unaudited)
	(in thousands, except per share data)
ASSETS
Cash and cash equivalents	$	553,109		$	689,244
Marketable securities		47,719			41,951
Receivables due from clients, net of allowance for doubtful accounts of $27,853 and $23,795 at October 31, 2020 and April 30, 2020, respectively		435,393			397,165
Income taxes and other receivables		52,995			38,755
Unearned compensation		50,688			43,117
Prepaid expenses and other assets		30,984			26,851
Total current assets		1,170,888			1,237,083

Marketable securities, non-current		146,625			132,134
Property and equipment, net		136,035			142,728
Operating lease right-of-use assets, net		183,926			195,077
Cash surrender value of company-owned life insurance policies, net of loans		150,190			146,408
Deferred income taxes		49,908			55,479
Goodwill		621,560			613,943
Intangible assets, net		102,351			111,926
Unearned compensation, non-current		105,569			79,510
Investments and other assets		25,590			29,540
Total assets	$	2,692,642		$	2,743,828
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	37,639		$	45,684
Income taxes payable		10,591			21,158
Compensation and benefits payable		247,016			280,911
Operating lease liability, current		51,961			54,851
Other accrued liabilities		211,704			221,603
Total current liabilities		558,911			624,207

Deferred compensation and other retirement plans		312,187			289,136
Operating lease liability, non-current		167,116			180,766
Long-term debt		394,465			394,144
Deferred tax liabilities		556			1,056
Other liabilities		37,885			30,828
Total liabilities		1,471,120			1,520,137

Stockholders' equity
Common stock: $0.01 par value, 150,000 shares authorized, 74,845 and 73,205 shares issued and 54,153 and 54,450 shares outstanding at October 31, 2020 and April 30, 2020, respectively		575,103			585,560
Retained earnings		728,524			742,993
Accumulated other comprehensive loss, net		(83,655	)		(107,172	)
Total Korn Ferry stockholders' equity		1,219,972			1,221,381
Noncontrolling interest		1,550			2,310
Total stockholders' equity		1,221,522			1,223,691
Total liabilities and stockholders' equity	$	2,692,642		$	2,743,828

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

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended October 31,						Six Months Ended October 31,
	2020			2019			2020			2019
	(in thousands, except per share data)
Fee revenue	$	435,439		$	492,389		$	779,536		$	976,938
Reimbursed out-of-pocket engagement expenses		2,350			11,788			5,136			23,437
Total revenue		437,789			504,177			784,672			1,000,375

Compensation and benefits		307,185			337,382			591,197			665,878
General and administrative expenses		46,476			62,009			93,565			127,816
Reimbursed expenses		2,350			11,788			5,136			23,437
Cost of services		15,901			18,414			30,170			35,549
Depreciation and amortization		15,298			12,715			30,333			25,492
Restructuring charges, net		2,407			—			29,894			—
Total operating expenses		389,617			442,308			780,295			878,172

Operating income		48,172			61,869			4,377			122,203
Other income, net		277			1,133			11,439			2,959
Interest expense, net		(7,494	)		(4,210	)		(14,388	)		(8,267	)
Income before provision for income taxes		40,955			58,792			1,428			116,895
Income tax provision		12,877			15,760			4,205			30,213
Net income (loss)		28,078			43,032			(2,777	)		86,682
Net income attributable to noncontrolling interest		(300	)		(228	)		(278	)		(927	)
Net income (loss) attributable to Korn Ferry	$	27,778		$	42,804		$	(3,055	)	$	85,755

Earnings (loss) per common share attributable to Korn Ferry:
Basic	$	0.51		$	0.78		$	(0.06	)	$	1.54
Diluted	$	0.51		$	0.77		$	(0.06	)	$	1.54

Weighted-average common shares outstanding:
Basic		53,229			54,568			53,246			54,917
Diluted		53,390			54,716			53,246			55,170

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

(unaudited)

	Three Months Ended October 31,						Six Months Ended October 31,
	2020			2019			2020			2019
	(in thousands)
Net income (loss)	$	28,078		$	43,032		$	(2,777	)	$	86,682

Other comprehensive income:
Foreign currency translation adjustments		(2,719	)		1,213			22,303			(4,085	)
Deferred compensation and pension plan adjustments, net of tax		683			495			1,325			990
Net unrealized loss on marketable securities, net of tax		(25	)		—			(34	)		—
Net unrealized loss on interest rate swap, net of tax		—			(356	)		—			(951	)
Comprehensive income		26,017			44,384			20,817			82,636
Less: comprehensive income attributable to noncontrolling interest		(302	)		(112	)		(355	)		(875	)
Comprehensive income attributable to Korn Ferry	$	25,715		$	44,272		$	20,462		$	81,761

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 Korn Ferry						Total
	Common Stock						Retained			Comprehensive			Stockholders'			Noncontrolling			Stockholder's
	Shares			Amount			Earnings			Loss, Net			Equity			Interest			Equity
	(in thousands)
Balance as of April 30, 2020		54,450		$	585,560		$	742,993		$	(107,172	)	$	1,221,381		$	2,310		$	1,223,691
Net loss		—			—			(30,833	)		—			(30,833	)		(22	)		(30,855	)
Other comprehensive income		—			—			—			25,580			25,580			75			25,655
Dividends paid to shareholders		—			—			(5,807	)		—			(5,807	)		—			(5,807	)
Purchase of stock		(161	)		(4,442	)		—			—			(4,442	)		—			(4,442	)
Issuance of stock		580			3,966			—			—			3,966			—			3,966
Stock-based compensation		—			5,813			—			—			5,813			—			5,813
Balance as of July 31, 2020		54,869			590,897			706,353			(81,592	)		1,215,658			2,363			1,218,021
Net Income		—			—			27,778			—			27,778			300			28,078
Other comprehensive (loss) income		—			—			—			(2,063	)		(2,063	)		2			(2,061	)
Dividends paid to shareholders		—			—			(5,607	)		—			(5,607	)		—			(5,607	)
Dividends to noncontrolling interest		—			—			—			—			—			(1,115	)		(1,115	)
Purchase of stock		(757	)		(22,878	)		—			—			(22,878	)		—			(22,878	)
Issuance of stock		41			—			—			—			—			—			—
Stock-based compensation		—			7,084			—			—			7,084			—			7,084
Balance as of October 31, 2020		54,153		$	575,103		$	728,524		$	(83,655	)	$	1,219,972		$	1,550		$	1,221,522

Accumulated

Other

Total

Korn Ferry

Total

Common Stock

Retained

Comprehensive

Stockholders'

Noncontrolling

Stockholder's

Amount

Earnings

Loss, Net

Equity

Interest

Equity

Form: 10-Q

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