Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

December 9, 2020

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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

OR

 

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)

(310552-1834

(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.

1


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.

2


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.

 

3


 

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

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Loss, Net

 

 

Equity

 

 

Interest

 

 

Equity