March 11, 2021 - 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, 2021

☐	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, 2021 was 54,006,769 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, 2021 (unaudited) and April 30, 2020	1

	Consolidated Statements of Income (unaudited) for the three and nine months ended January 31, 2021 and 2020	2

	Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended January 31, 2021 and 2020	3

	Consolidated Statements of Stockholders’ Equity (unaudited) for three and nine months ended January 31, 2021 and 2020	4

	Consolidated Statements of Cash Flows (unaudited) for the nine months ended January 31, 2021 and 2020	5

	Notes to Consolidated Unaudited Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	48

	Part II. Other Information

Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	49

Item 2.	Unregistered Sales of Equity Securities Use of Proceeds and Issuer Purchases of Equity Securities	49

Item 5.	Other Information	49

Item 6.	Exhibits	50

	Signatures	51

Item 1. Consolidated Financial Statements

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	January 31, 2021			April 30, 2020
	(unaudited)
	(in thousands, except per share data)
ASSETS
Cash and cash equivalents	$	694,128		$	689,244
Marketable securities		45,931			41,951
Receivables due from clients, net of allowance for doubtful accounts of $29,174 and $23,795 at January 31, 2021 and April 30, 2020, respectively		448,448			397,165
Income taxes and other receivables		45,154			38,755
Unearned compensation		53,188			43,117
Prepaid expenses and other assets		28,737			26,851
Total current assets		1,315,586			1,237,083

Marketable securities, non-current		157,023			132,134
Property and equipment, net		134,226			142,728
Operating lease right-of-use assets, net		182,675			195,077
Cash surrender value of company-owned life insurance policies, net of loans		162,549			146,408
Deferred income taxes		57,865			55,479
Goodwill		625,549			613,943
Intangible assets, net		97,696			111,926
Unearned compensation, non-current		104,650			79,510
Investments and other assets		25,648			29,540
Total assets	$	2,863,467		$	2,743,828
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	37,858		$	45,684
Income taxes payable		9,664			21,158
Compensation and benefits payable		301,147			280,911
Operating lease liability, current		48,998			54,851
Other accrued liabilities		237,743			221,603
Total current liabilities		635,410			624,207

Deferred compensation and other retirement plans		333,551			289,136
Operating lease liability, non-current		164,656			180,766
Long-term debt		394,629			394,144
Deferred tax liabilities		380			1,056
Other liabilities		39,847			30,828
Total liabilities		1,568,473			1,520,137

Stockholders' equity
Common stock: $0.01 par value, 150,000 shares authorized, 74,911 and 73,205 shares issued and 53,997 and 54,450 shares outstanding at January 31, 2021 and April 30, 2020, respectively		576,798			585,560
Retained earnings		774,303			742,993
Accumulated other comprehensive loss, net		(57,914	)		(107,172	)
Total Korn Ferry stockholders' equity		1,293,187			1,221,381
Noncontrolling interest		1,807			2,310
Total stockholders' equity		1,294,994			1,223,691
Total liabilities and stockholders' equity	$	2,863,467		$	2,743,828

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,
	2021			2020			2021			2020
	(in thousands, except per share data)
Fee revenue	$	475,360		$	515,325		$	1,254,896		$	1,492,263
Reimbursed out-of-pocket engagement expenses		2,520			12,654			7,656			36,091
Total revenue		477,880			527,979			1,262,552			1,528,354

Compensation and benefits		326,333			348,597			917,530			1,014,475
General and administrative expenses		47,271			71,355			140,836			199,171
Reimbursed expenses		2,520			12,654			7,656			36,091
Cost of services		20,028			30,822			50,198			66,371
Depreciation and amortization		15,735			14,863			46,068			40,355
Restructuring charges, net		838			18,093			30,732			18,093
Total operating expenses		412,725			496,384			1,193,020			1,374,556

Operating income		65,155			31,595			69,532			153,798
Other income, net		14,935			5,055			26,374			8,014
Interest expense, net		(7,298	)		(6,919	)		(21,686	)		(15,186	)
Income before provision for income taxes		72,792			29,731			74,220			146,626
Income tax provision		21,204			8,775			25,409			38,988
Net income		51,588			20,956			48,811			107,638
Net income attributable to noncontrolling interest		(269	)		(963	)		(547	)		(1,890	)
Net income attributable to Korn Ferry	$	51,319		$	19,993		$	48,264		$	105,748

Earnings per common share attributable to Korn Ferry:
Basic	$	0.95		$	0.37		$	0.89		$	1.92
Diluted	$	0.94		$	0.36		$	0.88		$	1.90

Weighted-average common shares outstanding:
Basic		52,596			53,999			53,030			54,611
Diluted		53,013			54,264			53,396			55,006

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,
	2021			2020			2021			2020
	(in thousands)
Net income	$	51,588		$	20,956		$	48,811		$	107,638

Other comprehensive income:
Foreign currency translation adjustments		25,071			497			47,374			(3,588	)
Deferred compensation and pension plan adjustments, net of tax		663			943			1,988			1,933
Net unrealized loss on marketable securities, net of tax		(5	)		(5	)		(39	)		(5	)
Net unrealized gain (loss) on interest rate swap, net of tax		—			495			—			(456	)
Comprehensive income		77,317			22,886			98,134			105,522
Less: comprehensive income attributable to noncontrolling interest		(257	)		(1,057	)		(612	)		(1,932	)
Comprehensive income attributable to Korn Ferry	$	77,060		$	21,829		$	97,522		$	103,590

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
Net Income		—			—			51,319			—			51,319			269

Form: 10-Q

Documents