Korn Ferry Announces Third Quarter Fiscal 2021 Results of Operations
Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced third quarter fee revenue of $475.4 million. Third quarter diluted earnings per share was $0.94 and adjusted diluted earnings per share was $0.95, both are all-time highs. Adjusted diluted earnings per share for the third quarter excludes an aggregate of $0.6 million, or $0.01 per share, of restructuring charges net of tax, due to the coronavirus pandemic (“COVID-19”).
“Our performance for the fiscal third quarter demonstrates the resilience of our business and continued extension of our brand, with strong sequential fee revenue growth of 9% and our earnings and profitability reaching record highs,” said Gary D. Burnison, CEO, Korn Ferry. “I am incredibly proud of the tireless commitment that all our Korn Ferry colleagues have shown in helping our clients re-imagine their organizational structures, recruit and retain talent and develop their people in the face of extraordinary challenges.”
“In a post-pandemic world, there will continue to be heightened demand for transformational consulting skills and expertise,” Burnison continued. “The steps we have taken to evolve our business into a more efficient, profitable, growth-oriented organization have positioned Korn Ferry to provide our clients with unparalleled expertise, data, and innovation support. With people at the center of our strategy, we are achieving our growth objectives, delivering long-term value creation to shareholders and establishing Korn Ferry as the preeminent global organizational consultancy.”
Selected Financial Results
(dollars in millions, except per share amounts) (a)
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Fee revenue
$
475.4
$
515.3
$
1,254.9
$
1,492.3
Total revenue
$
477.9
$
528.0
$
1,262.6
$
1,528.4
Operating income
$
65.2
$
31.6
$
69.5
$
153.8
Operating margin
13.7
%
6.1
%
5.5
%
10.3
%
Net income attributable to Korn Ferry
$
51.3
$
20.0
$
48.3
$
105.7
Basic earnings per share
$
0.95
$
0.37
$
0.89
$
1.92
Diluted earnings per share
$
0.94
$
0.36
$
0.88
$
1.90
EBITDA Results (b):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
EBITDA
$
95.8
$
51.5
$
142.0
$
202.2
EBITDA margin
20.2
%
10.0
%
11.3
%
13.5
%
Adjusted Results (c):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Adjusted EBITDA (b)
$
96.7
$
78.1
$
173.4
$
231.4
Adjusted EBITDA margin (b)
20.3
%
15.2
%
13.8
%
15.5
%
Adjusted net income attributable to Korn Ferry
$
51.9
$
41.0
$
71.1
$
128.7
Adjusted basic earnings per share
$
0.96
$
0.75
$
1.31
$
2.33
Adjusted diluted earnings per share
$
0.95
$
0.75
$
1.30
$
2.31
___________
(a)
Numbers may not total due to rounding.
(b)
EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude integration/acquisition costs, net restructuring charges and separation costs. EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(c)
Adjusted results are non-GAAP financial measures that adjust for the following, as applicable (see attached reconciliations):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Integration/acquisition costs
$
—
$
6.7
$
0.7
$
9.3
Restructuring charges, net
$
0.8
$
18.1
$
30.7
$
18.1
Separation costs
$
—
$
1.8
$
—
$
1.8
Debt refinancing costs
$
—
$
0.8
$
—
$
0.8
Fee revenue was $475.4 million in Q3 FY’21, a decrease of 8% (down 9% on a constant currency basis) compared to Q3 FY’20. While RPO and Professional Search saw a year-over-year increase of almost 4%, Digital and Executive Search declined year-over-year as those businesses continued on the path to full recovery from the impact of COVID-19 on economies around the world.
Operating margin was 13.7% in Q3 FY’21 compared to 6.1% in the year-ago quarter. Adjusted EBITDA margin was 20.3%, compared to 15.2% in the year-ago quarter. Net income attributable to Korn Ferry was $51.3 million in Q3 FY’21 compared to $20.0 million in Q3 FY’20.
The year-over-year improvement in each of the above measures of profitability was due to the cost saving actions the Company took in response to the impact of COVID-19 as well as the fact that the Company recorded $18 million in restructuring charges in Q3 FY’20 in connection with the acquisitions of Miller Heiman Group, Achieve Forum and Strategy Execution (collectively, the “acquired companies”). These positive factors were partially offset by the decline in revenues described above.
Results by Segment
Selected Consulting Data
(dollars in millions) (a)
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Fee revenue
$
136.3
$
140.5
$
362.3
$
422.1
Total revenue
$
136.6
$
144.3
$
363.2
$
433.8
Operating income
$
22.2
$
2.7
$
25.9
$
24.3
Operating margin
16.3
%
1.9
%
7.1
%
5.8
%
Ending number of consultants and execution staff (b)
1,528
1,792
1,528
1,792
Hours worked in thousands (c)
372
428
1,137
1,344
Average billed rate (d)
$
367
$
328
$
319
$
314
EBITDA Results (e):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
EBITDA
$
27.2
$
7.6
$
40.1
$
38.9
EBITDA margin
19.9
%
5.4
%
11.1
%
9.2
%
Adjusted Results (f):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Adjusted EBITDA (e)
$
27.5
$
18.7
$
54.3
$
50.0
Adjusted EBITDA margin (e)
20.2
%
13.3
%
15.0
%
11.8
%
___________
(a)
Numbers may not total due to rounding.
(b)
Represents number of employees originating, delivering and executing consulting services.
(c)
The number of hours worked by consultant and execution staff during the period.
(d)
The amount of fee revenue divided by the number of hours worked by consultants and execution staff.
(e)
EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(f)
Adjusted results are non-GAAP financial measures that adjust for the following (see attached reconciliations):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Restructuring charges, net
$
0.3
$
11.1
$
14.2
$
11.1
Fee revenue was $136.3 million in Q3 FY’21 compared to $140.5 million in Q3 FY’20, a decrease of $4.2 million or 3% (down 4% on a constant currency basis). While COVID-19 has had an impact on Consulting fee revenue when compared to the year-ago quarter, the diversity of our consulting services and our ability to adapt to delivering the services in a virtual world has led to an increase in fee revenue of 37% over the past two fiscal quarters.
Operating income was $22.2 million in Q3 FY’21 with an operating margin of 16.3% compared to operating income of $2.7 million and an operating margin of 1.9% in the year-ago quarter. This change resulted from a decrease in net restructuring charges, a decrease in compensation and benefits expense driven by a reduction in headcount and decreases in both general and administrative expenses and cost of services expense, all of which resulted from the cost saving initiatives that were put in place. These expense reductions were partially offset by the decline in fee revenue as outlined above.
Adjusted EBITDA was $27.5 million in Q3 FY’21 with an Adjusted EBITDA margin of 20.2% compared to $18.7 million and 13.3%, respectively, in the year-ago quarter. The increase in Adjusted EBITDA was due to the same factors impacting operating income outlined above except for net restructuring charges.
Selected Digital Data
(dollars in millions) (a)
Digital is an integrated platform that gives clients direct access to people and organizational data, insights, analytics, and digital assets that when used together, give clients a common language for all talent matters.
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Fee revenue
$
75.8
$
99.4
$
206.8
$
223.1
Total revenue
$
76.0
$
100.7
$
207.0
$
224.4
Operating income
$
19.2
$
8.5
$
32.4
$
41.0
Operating margin
25.4
%
8.5
%
15.7
%
18.4
%
Ending number of consultants
302
464
302
464
Subscription & License fee revenue
$
22.6
$
21.3
$
66.3
$
52.7
EBITDA Results (b):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
EBITDA
$
27.1
$
14.5
$
54.7
$
54.7
EBITDA margin
35.8
%
14.6
%
26.4
%
24.5
%
Adjusted Results (c):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Adjusted EBITDA (b)
$
27.1
$
25.9
$
58.2
$
66.1
Adjusted EBITDA margin (b)
35.8
%
26.0
%
28.1
%
29.6
%
___________
(a)
Numbers may not total due to rounding.
(b)
EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(c)
Adjusted results are non-GAAP financial measures that adjust for the following (see attached reconciliations):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Integration/acquisition costs
$
—
$
4.3
$
0.6
$
4.3
Restructuring charges, net
$
—
$
7.0
$
2.9
$
7.0
Fee revenue was $75.8 million in Q3 FY’21 compared to $99.4 million in Q3 FY’20, a decrease of $23.6 million or 24% (down 25% on a constant currency basis). Due to COVID-19 and the related contraction in economic activity, the Company experienced a decline in demand for pay data and professional development products and services. As economies around the world recover and companies pivot from in person to virtual delivery, the Company expects demand for these products and services to return to pre-pandemic levels.
Operating income was $19.2 million in Q3 FY’21 with an operating margin of 25.4% compared to operating income of $8.5 million and an operating margin of 8.5% in the year-ago quarter. Contributing to the increase were decreases in compensation and benefits expense, general and administrative expenses, net restructuring charges, cost of services expense and integration/acquisition costs relating to the acquired companies, partially offset by a decrease in fee revenue as outlined above.
Adjusted EBITDA was $27.1 million in Q3 FY’21 with an Adjusted EBITDA margin of 35.8% compared to $25.9 million and 26.0%, respectively, in the year-ago quarter. The increase in Adjusted EBITDA was due to the same factors impacting operating income described above except for restructuring charges and integration/acquisition costs.
Selected Executive Search Data
(dollars in millions) (a)
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Fee revenue
$
168.1
$
183.6
$
436.3
$
564.6
Total revenue
$
168.5
$
188.0
$
438.0
$
578.0
Operating income
$
26.9
$
32.7
$
40.2
$
119.6
Operating margin
16.0
%
17.8
%
9.2
%
21.2
%
Ending number of consultants
522
582
522
582
Average number of consultants
517
583
539
573
Engagements billed
3,260
3,767
6,464
8,077
New engagements (b)
1,301
1,565
3,747
4,835
EBITDA Results (c):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
EBITDA
$
41.3
$
38.9
$
67.6
$
131.8
EBITDA margin
24.6
%
21.2
%
15.5
%
23.3
%
Adjusted Results (d):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Adjusted EBITDA (c)
$
41.7
$
40.7
$
78.0
$
133.6
Adjusted EBITDA margin (c)
24.8
%
22.1
%
17.9
%
23.7
%
________
(a)
Numbers may not total due to rounding.
(b)
Represents new engagements opened in the respective period.
(c)
EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(d)
Adjusted results are non-GAAP financial measures that adjust for the following (see attached reconciliations):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Restructuring charges, net
$
0.4
$
—
$
10.4
$
—
Separation costs
$
—
$
1.8
$
—
$
1.8
Fee revenue was $168.1 million and $183.6 million in Q3 FY’21 and Q3 FY’20, respectively, a year-over-year decrease of $15.5 million or 8% (down 10% on a constant currency basis). The decrease in fee revenue was attributable to a decline in fee revenue in all regions, except North America which was essentially flat, due to the decrease in demand for our products and services because of the worldwide economic downturn associated with COVID-19.
Operating income was $26.9 million in Q3 FY’21 compared to operating income of $32.7 million in Q3 FY’20. Operating margin was 16.0% in Q3 FY’21 compared to 17.8% in the year-ago quarter. The change was mainly due to a decrease in fee revenue in Q3 FY’21 as compared to the year-ago quarter, partially offset by a decrease in compensation and benefits expense driven by a reduction in headcount and a decline in general and administrative expenses, all of which resulted from the cost saving initiatives that were put in place.
Adjusted EBITDA was $41.7 million in Q3 FY’21 with an Adjusted EBITDA margin of 24.8% compared to $40.7 million and 22.1%, respectively, in the year-ago quarter. The increase in Adjusted EBITDA was due to the same factors impacting operating income described above and an increase in other income, net compared to year-ago quarter.
Selected RPO and Professional Search Data
(dollars in millions) (a)
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Fee revenue
$
95.2
$
91.9
$
249.5
$
282.4
Total revenue
$
96.8
$
95.0
$
254.3
$
292.2
Operating income
$
18.4
$
14.1
$
33.0
$
44.3
Operating margin
19.3
%
15.4
%
13.2
%
15.7
%
Engagements billed (b)
1,430
1,375
2,659
3,030
New engagements (c)
867
711
2,088
2,171
EBITDA Results (d):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
EBITDA
$
19.5
$
15.2
$
36.3
$
47.5
EBITDA margin
20.5
%
16.6
%
14.5
%
16.8
%
Adjusted Results (e):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Adjusted EBITDA (d)
$
19.6
$
15.2
$
39.5
$
47.5
Adjusted EBITDA margin (d)
20.6
%
16.6
%
15.8
%
16.8
%
___________
(a)
Numbers may not total due to rounding.
(b)
Represents professional search engagements billed.
(c)
Represents new professional search engagements opened in the respective period.
(d)
EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(e)
Adjusted results are non-GAAP financial measures that adjust for the following (see attached reconciliations):
Third Quarter
Year to Date
FY’21
FY’20
FY’21
FY’20
Restructuring charges, net
$
0.1
$
—
$
3.2
$
—
Fee revenue was $95.2 million in Q3 FY’21, an increase of $3.3 million or 4% (1% increase on a constant currency basis), compared to the year-ago quarter. The higher fee revenue was driven by an increase in recruitment process outsourcing (“RPO”) fee revenue of $4.0 million, partially offset by a small decrease in Professional Search of $0.7 million due to the worldwide economic downturn associated with COVID-19. For the quarter, RPO fee revenue was up 7% (5% at constant currency) while professional search was down 2% (4% on a constant currency), both compared to the year-ago quarter.
Operating income was $18.4 million in Q3 FY’21, an increase of $4.3 million compared to operating income of $14.1 million in Q3 FY’20. Operating margin was 19.3% in the current quarter compared to 15.4% in the year-ago quarter. Adjusted EBITDA was $19.6 million in Q3 FY’21 with an Adjusted EBITDA margin of 20.6% in Q3 FY’21 compared to $15.2 million and 16.6%, respectively, in the year-ago quarter. The increase in operating income and Adjusted EBITDA was due to the higher fee revenue discussed above and lower general and administrative expenses, partially offset by an increase in compensation and benefits expense.
Outlook
Assuming no new major pandemic lockdowns, worldwide economic conditions, financial markets and foreign exchange rates remain steady, on a consolidated basis:
Q4 FY’21 fee revenue is expected to be in the range of $475 million and $500 million; and Q4 FY’21 diluted earnings per share is expected to range between $0.95 to $1.05.Earnings Conference Call Webcast
The earnings conference call will be held today at 12:00 PM (EST) and hosted by CEO Gary Burnison, CFO Robert Rozek and SVP Finance Gregg Kvochak. The conference call will be webcast and available online at ir.kornferry.com. We will also post to this section of our website earnings slides, which will accompany our webcast, and other important information, and encourage you to review the information that we make available on our website.
About Korn Ferry
Korn Ferry is a global organizational consulting firm. We help clients synchronize strategy and talent to drive superior performance. We work with organizations to design their structures, roles, and responsibilities. We help them hire the right people to bring their strategy to life. And we advise them on how to reward, develop, and motivate their people. Visit kornferry.com for more information.
Forward-Looking Statements
Statements in this press release and our conference call that relate to our outlook, projections, goals, strategies, future plans and expectations, and other statements of future events or conditions are forward-looking statements that involve a number of risks and uncertainties. Words such as “believes”, “expects”, “anticipates”, “goals”, “estimates”, “guidance”, “may”, “should”, “could”, “will” or “likely”, and variations of such words and similar expressions are intended to identify such forward-looking statements. Statements that refer to or are based on estimates, forecasts, projections, uncertain events or assumptions, including statements relating to expected demand for our products and services, the expected benefits of the acquisition of the acquired companies (as defined below), the timing and expected benefits of our restructuring plan, the magnitude and duration of the impact of the COVID-19 outbreak on our business, employees, customers and our ability to provide services in affected regions, and the potential opportunities for our business as a result of worldwide changes in how companies conduct business as a result of COVID-19. Readers are cautioned not to place undue reliance on such statements. Such statements are based on current expectations; actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties that are beyond the control of Korn Ferry. The potential risks and uncertainties include those relating to the magnitude and duration of the negative impact of the COVID-19 outbreak on our business, employees, customers and our ability to provide services in affected regions, global and local political or economic developments in or affecting countries where we have operations, competition, changes in demand for our services as a result of automation, the dependence on and costs of attracting and retaining qualified and experienced consultants, our ability to maintain relationships with customers and suppliers and retain key employees, maintaining our brand name and professional reputation, potential legal liability and regulatory developments, the portability of client relationships, consolidation of the industries we serve, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, changes to data security, data privacy and data protection laws, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, the utilization and billing rates of our consultants, dependence on third parties for the execution of critical functions, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, technical guidance relating to the Tax Act, treaties, or regulations on our business and our company, impairment of goodwill and other intangible assets, deferred tax assets that we may not be able to use, our indebtedness, the phase-out of the London Interbank Offered Rate, expansion of social media platforms, seasonality, ability to effect acquisition and integrate recently acquired companies, including those of Miller Heiman Group, AchieveForum, and Strategy Execution (collectively, the “acquired companies”); the ability to recognize the anticipated benefits of the acquisition of the acquired companies; the costs related to the acquisition of the acquired companies and employment liability risk. For a detailed description of risks and uncertainties that could cause differences, please refer to Korn Ferry’s periodic filings with the Securities and Exchange Commission. Korn Ferry disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Use of Non-GAAP Financial Measures
This press release contains financial information calculated other than in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). In particular, it includes:
Adjusted net income attributable to Korn Ferry, adjusted to exclude integration/acquisition costs, restructuring charges, separation costs and debt refinancing costs net of income tax effect; Adjusted basic and diluted earnings per share, adjusted to exclude integration/acquisition costs, restructuring charges, separation costs and debt refinancing costs net of income tax effect; Constant currency (calculated using a quarterly average) percentages that represent the percentage change that would have resulted had exchange rates in the prior period been the same as those in effect in the current period; EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin; and Adjusted EBITDA, which is EBITDA further adjusted to exclude integration/acquisition costs, restructuring charges and separations costs, and Adjusted EBITDA margin.This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial information determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.
Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn Ferry’s performance by excluding certain charges that may not be indicative of Korn Ferry’s ongoing operating results. These non-GAAP financial measures are performance measures and are not indicative of the liquidity of Korn Ferry. These charges, which are described in the footnotes in the attached reconciliations, represent 1) costs we incurred to acquire and integrate a portion of our Digital business, 2) charges we incurred to restructure the Company as a result of COVID-19 and due to the acquisition of the acquired companies, 3) separation costs and 4) debt refinancing costs. The use of non-GAAP financial measures facilitates comparisons to Korn Ferry’s historical performance. Korn Ferry includes non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making. Adjusted net income attributable to Korn Ferry, adjusted basic and diluted earnings per share and Adjusted EBITDA, exclude certain charges that management does not consider on-going in nature and allows management and investors to make more meaningful period-to-period comparisons of the Company’s operating results. Management further believes that EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company. In the case of constant currency percentages, management believes the presentation of such information provides useful supplemental information regarding Korn Ferry's performance as excluding the impact of exchange rate changes on Korn Ferry's financial performance allows investors to make more meaningful period-to-period comparisons of the Company’s operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.
[Tables attached]
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Three Months Ended
Nine Months Ended
January 31,
January 31,
2021
2020
2021
2020
(unaudited)
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
KORN FERRY AND SUBSIDIARIES
FINANCIAL SUMMARY BY SEGMENT
(dollars in thousands)
(unaudited)
Three Months Ended January 31,
Nine Months Ended January '31,
2021
2020
% Change
2021
2020
% Change
Fee revenue:
Consulting
$
136,268
$
140,525
(3.0
%)
$
362,271
$
422,103
(14.2
%)
Digital
75,791
99,389
(23.7
%)
206,807
223,097
(7.3
%)
Executive Search:
North America
106,002
106,888
(0.8
%)
266,485
332,428
(19.8
%)
EMEA
35,991
44,301
(18.8
%)
97,701
130,652
(25.2
%)
Asia Pacific
21,643
25,089
(13.7
%)
59,702
78,395
(23.8
%)
Latin America
4,468
7,283
(38.7
%)
12,419
23,140
(46.3
%)
Total Executive Search
168,104
183,561
(8.4
%)
436,307
564,615
(22.7
%)
RPO and Professional Search
95,197
91,850
3.6
%
249,511
282,448
(11.7
%)
Total fee revenue
475,360
515,325
(7.8
%)
1,254,896
1,492,263
(15.9
%)
Reimbursed out-of-pocket engagement expenses
2,520
12,654
(80.1
%)
7,656
36,091
(78.8
%)
Total revenue
$
477,880
$
527,979
(9.5
%)
$
1,262,552
$
1,528,354
(17.4
%)
Operating income (loss):
Margin
Margin
Margin
Margin
Consulting
$
22,175
16.3
%
$
2,663
1.9
%
$
25,869
7.1
%
$
24,272
5.8
%
Digital
19,214
25.4
%
8,463
8.5
%
32,410
15.7
%
41,036
18.4
%
Executive Search:
North America
17,655
16.7
%
21,808
20.4
%
32,411
12.2
%
80,254
24.1
%
EMEA
3,114
8.7
%
4,644
10.5
%
(1,596
)
(1.6
%)
18,466
14.1
%
Asia Pacific
5,844
27.0
%
5,070
20.2
%
9,958
16.7
%
17,866
22.8
%
Latin America
264
5.9
%
1,198
16.4
%
(578
)
(4.7
%)
2,999
13.0
%
Total Executive Search
26,877
16.0
%
32,720
17.8
%
40,195
9.2
%
119,585
21.2
%
RPO and Professional Search
18,360
19.3
%
14,144
15.4
%
33,027
13.2
%
44,279
15.7
%
Corporate
(21,471
)
(26,395
)
(61,969
)
(75,374
)
Total operating income
$
65,155
13.7
%
$
31,595
6.1
%
$
69,532
5.5
%
$
153,798
10.3
%
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
January 31,
April 30,
2021
2020
(unaudited)
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
KORN FERRY AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(dollars in thousands, except per share amounts)
Three Months Ended
Nine Months Ended
January 31,
January 31,
2021
2020
2021
2020
(unaudited)
Net income attributable to Korn Ferry
$
51,319
$
19,993
$
48,264
$
105,748
Net income attributable to non-controlling interest
269
963
547
1,890
Net income
51,588
20,956
48,811
107,638
Income tax provision
21,204
8,775
25,409
38,988
Income before provision for income taxes
72,792
29,731
74,220
146,626
Other income, net
(14,935
)
(5,055
)
(26,374
)
(8,014
)
Interest expense, net
7,298
6,919
21,686
15,186
Operating income
65,155
31,595
69,532
153,798
Depreciation and amortization
15,735
14,863
46,068
40,355
Other income, net
14,935
5,055
26,374
8,014
EBITDA
95,825
51,513
141,974
202,167
Integration/acquisition costs (1)
-
6,704
737
9,319
Restructuring charges, net (2)
838
18,093
30,732
18,093
Separation costs (3)
-
1,783
-
1,783
Adjusted EBITDA
$
96,663
$
78,093
$
173,443
$
231,362
Operating margin
13.7
%
6.1
%
5.5
%
10.3
%
Depreciation and amortization
3.3
%
2.9
%
3.7
%
2.7
%
Other income, net
3.2
%
1.0
%
2.1
%
0.5
%
EBITDA margin
20.2
%
10.0
%
11.3
%
13.5
%
Integration/acquisition costs (1)
-
1.3
%
0.1
%
0.7
%
Restructuring charges, net (2)
0.1
%
3.5
%
2.4
%
1.2
%
Separation costs (3)
-
0.4
%
-
0.1
%
Adjusted EBITDA margin
20.3
%
15.2
%
13.8
%
15.5
%
Net income attributable to Korn Ferry
$
51,319
$
19,993
$
48,264
$
105,748
Integration/acquisition costs (1)
-
6,704
737
9,319
Restructuring charges, net (2)
838
18,093
30,732
18,093
Separation costs (3)
-
1,783
-
1,783
Debt refinancing costs (4)
-
828
-
828
Tax effect on the adjusted items (5)
(276
)
(6,451
)
(8,597
)
(7,119
)
Adjusted net income attributable to Korn Ferry
$
51,881
$
40,950
$
71,136
$
128,652
Basic earnings per common share
$
0.95
$
0.37
$
0.89
$
1.92
Integration/acquisition costs (1)
-
0.12
0.01
0.17
Restructuring charges, net (2)
0.02
0.34
0.57
0.33
Separation costs (3)
-
0.03
-
0.03
Debt refinancing costs (4)
-
0.02
-
0.02
Tax effect on the adjusted items (5)
(0.01
)
(0.13
)
(0.16
)
(0.14
)
Adjusted basic earnings per share
$
0.96
$
0.75
$
1.31
$
2.33
Diluted earnings per common share
$
0.94
$
0.36
$
0.88
$
1.90
Integration/acquisition costs (1)
-
0.12
0.01
0.17
Restructuring charges, net (2)
0.02
0.34
0.57
0.33
Separation costs (3)
-
0.03
-
0.03
Debt refinancing costs (4)
-
0.02
-
0.02
Tax effect on the adjusted items (5)
(0.01
)
(0.12
)
(0.16
)
(0.14
)
Adjusted diluted earnings per share
$
0.95
$
0.75
$
1.30
$
2.31
Explanation of Non-GAAP Adjustments
(1)
Costs associated with previous acquisitions, such as legal and professional fees, retention awards and the on-going integration expenses to combine the companies.
(2)
Restructuring charges we incurred to rationalize our cost structure by eliminating redundant positions because of COVID-19 and due to the acquisition of Miller Heiman Group, AchieveForum and Strategy Execution on November 1, 2019.
(3)
Costs associated with certain senior management separation charges.
(4)
Costs to write-off debt issuance costs and interest rate swap as a result of replacing our prior Credit Agreement with a new senior secured Credit Agreement.
(5)
Tax effect on integration/acquisition costs, restructuring charges, net, separation costs and write-offs of debt issuance costs.
KORN FERRY AND SUBSIDIARIES
RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO
EBITDA AND ADJUSTED EBITDA (NON-GAAP)
(in thousands)
(unaudited)
Three Months Ended January 31, 2021
Executive Search
Consulting
Digital
North
America
EMEA
Asia
Pacific
Latin
America
Subtotal
RPO and
Professional
Search
Corporate
Consolidated
Fee revenue
$
136,268
$
75,791
$
106,002
$
35,991
$
21,643
$
4,468
$
168,104
$
95,197
$
-
$
475,360
Total revenue
$
136,593
$
75,967
$
106,325
$
36,016
$
21,680
$
4,468
$
168,489
$
96,831
$
-
$
477,880
Net income attributable to Korn Ferry
$
51,319
Net income attributable to noncontrolling interest
269
Other income, net
(14,935
)
Interest expense, net
7,298
Income tax provision
21,204
Operating income (loss)
$
22,175
$
19,214
$
17,655
$
3,114
$
5,844
$
264
$
26,877
$
18,360
$
(21,471
)
65,155
Depreciation and amortization
4,051
7,403
680
345
231
193
1,449
929
1,903
15,735
Other income, net
943
494
12,611
61
323
1
12,996
242
260
14,935
EBITDA
27,169
27,111
30,946
3,520
6,398
458
41,322
19,531
(19,308
)
95,825
EBITDA margin
19.9
%
35.8
%
29.2
%
9.8
%
29.6
%
10.3
%
24.6
%
20.5
%
20.2
%
Restructuring, charges, net
346
23
(5
)
398
(23
)
-
370
99
-
838
Adjusted EBITDA
$
27,515
$
27,134
$
30,941
$
3,918
$
6,375
$
458
$
41,692
$
19,630
$
(19,308
)
$
96,663
Adjusted EBITDA margin
20.2
%
35.8
%
29.2
%
10.9
%
29.5
%
10.3
%
24.8
%
20.6
%
20.3
%
Three Months Ended January 31, 2020
Executive Search
Consulting
Digital
North
America
EMEA
Asia
Pacific
Latin
America
Subtotal
RPO and
Professional
Search
Corporate
Consolidated
Fee revenue
$
140,525
$
99,389
$
106,888
$
44,301
$
25,089
$
7,283
$
183,561
$
91,850
$
-
$
515,325
Total revenue
$
144,298
$
100,663
$
110,230
$
45,077
$
25,365
$
7,351
$
188,023
$
94,995
$
-
$
527,979
Net income attributable to Korn Ferry
$
19,993
Net income attributable to noncontrolling interest
963
Other income, net
(5,055
)
Interest expense, net
6,919
Income tax provision
8,775
Operating income (loss)
$
2,663
$
8,463
$
21,808
$
4,644
$
5,070
$
1,198
$
32,720
$
14,144
$
(26,395
)
31,595
Depreciation and amortization
4,417
5,832
847
422
329
295
1,893
979
1,742
14,863
Other income (loss), net
558
193
3,963
29
106
162
4,260
88
(44
)
5,055
EBITDA
7,638
14,488
26,618
5,095
5,505
1,655
38,873
15,211
$
(24,697
)
51,513
EBITDA margin
5.4
%
14.6
%
24.9
%
11.5
%
21.9
%
22.7
%
21.2
%
16.6
%
10.0
%
Integration/acquisition costs
-
4,332
-
-
-
-
-
-
2,372
6,704
Restructuring, charges, net
11,061
7,032
-
-
-
-
-
-
-
18,093
Separation costs
-
-
-
1,783
-
-
1,783
-
-
1,783
Adjusted EBITDA
$
18,699
$
25,852
$
26,618
$
6,878
$
5,505
$
1,655
$
40,656
$
15,211
$
(22,325
)
$
78,093
Adjusted EBITDA margin
13.3
%
26.0
%
24.9
%
15.5
%
21.9
%
22.7
%
22.1
%
16.6
%
15.2
%
KORN FERRY AND SUBSIDIARIES
RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO
EBITDA AND ADJUSTED EBITDA (NON-GAAP)
(in thousands)
(unaudited)
Nine Months Ended January 31, 2021
Executive Search
Consulting
Digital
North
America
EMEA
Asia
Pacific
Latin
America
Subtotal
RPO and
Professional
Search
Corporate
Consolidated
Fee revenue
$
362,271
$
206,807
$
266,485
$
97,701
$
59,702
$
12,419
$
436,307
$
249,511
$
-
$
1,254,896
Total revenue
$
363,234
$
207,027
$
267,790
$
97,925
$
59,840
$
12,419
$
437,974
$
254,317
$
-
$
1,262,552
Net income attributable to Korn Ferry
$
48,264
Net income attributable to noncontrolling interest
547
Other income, net
(26,374
)
Interest expense, net
21,686
Income tax provision
25,409
Operating income (loss)
$
25,869
$
32,410
$
32,411
$
(1,596
)
$
9,958
$
(578
)
$
40,195
$
33,027
$
(61,969
)
69,532
Depreciation and amortization
12,123
21,134
2,126
1,062
756
597
4,541
2,814
5,456
46,068
Other income (loss), net
2,067
1,114
21,944
111
715
56
22,826
462
(95
)
26,374
EBITDA
40,059
54,658
56,481
(423
)
11,429
75
67,562
36,303
(56,608
)
141,974
EBITDA margin
11.1
%
26.4
%
21.2
%
(0.4
%)
19.1
%
0.6
%
15.5
%
14.5
%
11.3
%
Integration/acquisition costs
-
556
-
-
-
-
-
-
181
737
Restructuring charges, net
14,223
2,947
958
8,868
181
405
10,412
3,150
-
30,732
Adjusted EBITDA
$
54,282
$
58,161
$
57,439
$
8,445
$
11,610
$
480
$
77,974
$
39,453
$
(56,427
)
$
173,443
Adjusted EBITDA margin
15.0
%
28.1
%
21.6
%
8.6
%
19.4
%
3.9
%
17.9
%
15.8
%
13.8
%
Nine Months Ended January 31, 2020
Executive Search
Consulting
Digital
North
America
EMEA
Asia
Pacific
Latin
America
Subtotal
RPO and
Professional
Search
Corporate
Consolidated
Fee revenue
$
422,103
$
223,097
$
332,428
$
130,652
$
78,395
$
23,140
$
564,615
$
282,448
$
-
$
1,492,263
Total revenue
$
433,832
$
224,371
$
342,753
$
132,830
$
79,201
$
23,211
$
577,995
$
292,156
$
-
$
1,528,354
Net income attributable to Korn Ferry
$
105,748
Net income attributable to noncontrolling interest
1,890
Other income, net
(8,014
)
Interest expense, net
15,186
Income tax provision
38,988
Operating income (loss)
$
24,272
$
41,036
$
80,254
$
18,466
$
17,866
$
2,999
$
119,585
$
44,279
$
(75,374
)
153,798
Depreciation and amortization
13,188
13,156
2,617
1,328
1,004
938
5,887
2,961
5,163
40,355
Other income (loss), net
1,469
528
5,740
148
193
249
6,330
216
(529
)
8,014
EBITDA
38,929
54,720
88,611
19,942
19,063
4,186
131,802
47,456
(70,740
)
202,167
EBITDA margin
9.2
%
24.5
%
26.7
%
15.3
%
24.3
%
18.1
%
23.3
%
16.8
%
13.5
%
Integration/acquisition costs
-
4,332
-
-
-
-
-
-
4,987
9,319
Restructuring charges, net
11,061
7,032
-
-
-
-
-
-
-
18,093
Separation costs
-
-
-
1,783
-
-
1,783
-
-
1,783
Adjusted EBITDA
$
49,990
$
66,084
$
88,611
$
21,725
$
19,063
$
4,186
$
133,585
$
47,456
$
(65,753
)
$
231,362
Adjusted EBITDA margin
11.8
%
29.6
%
26.7
%
16.6
%
24.3
%
18.1
%
23.7
%
16.8
%
15.5
%
View source version on businesswire.com: https://www.businesswire.com/news/home/20210222005201/en/