Form 8-K KORN FERRY INTERNATIONAL For: Jun 15

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 15, 2016

 

 

KORN/FERRY INTERNATIONAL

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		001-14505		95-2623879
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

1900 Avenue of the Stars, Suite 2600

Los Angeles, California 90067

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (310) 552-1834

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02 Results of Operations and Financial Condition.

On June 15, 2016, Korn/Ferry International (the “Company”) issued a press release announcing its fourth quarter fiscal year 2016 results. A copy of the press release is attached hereto as Exhibit 99.1. The information in this Item 2.02 and the exhibit hereto are furnished to, but not filed with, the Securities and Exchange Commission.

Item 8.01 Other Events.

On June 15, 2016, the Board of Directors of the Company declared a cash dividend of $0.10 per share that will be paid on July 15, 2016 to holders of the Company’s common stock of record at the close of business on June 27, 2016. The declaration and payment of future dividends under the quarterly dividend policy will be at the discretion of the Board of Directors and will depend upon many factors, including the Company’s earnings, capital requirements, financial conditions, the terms of the Company’s indebtedness and other factors that the Board of Directors may deem to be relevant. The Company may amend, revoke or suspend the dividend policy at any time and for any reason at its discretion.

Item 9.01 Financial Statements and Exhibits.

 

(d)

Exhibits

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

		KORN/FERRY INTERNATIONAL
		(Registrant)
Date: June 15, 2016
		/s/ Robert P. Rozek
		(Signature)
		Name:		Robert P. Rozek
		Title:		Executive Vice President, Chief Financial Officer and Chief Corporate Officer

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EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Press release, dated June 15, 2016

Exhibit 99.1

For Immediate Release

Contacts:

Investor Relations: Gregg Kvochak, (310) 556-8550

For Media: Dan Gugler, (310) 226-2645

Korn Ferry International Announces Fourth Quarter and Fiscal 2016 Results of Operations

Highlights

 

•

Korn Ferry reports record annual and fourth quarter fee revenue, driven by organic growth, as well as the Hay Group acquisition.

 

•

The North America region of Executive Search and the Futurestep segment continued to deliver strong revenue growth.

 

•

Significant progress continues to be made on the Hay Group integration.

 

•

The Company entered into a Credit Agreement with a syndicate of banks providing for enhanced financial flexibility.

 

•

The Company declared a quarterly dividend of $0.10 per share on June 15, 2016, payable on July 15, 2016 to stockholders of record on June 27, 2016.

Los Angeles, CA, June 15, 2016 – Korn/Ferry International (NYSE: KFY), the preeminent global people and organizational advisory firm, today announced record fourth quarter and annual fee revenue of $399.9 million and $1.3 billion, or $405.0 million and $1.3 billion on an adjusted basis, respectively. Fourth quarter diluted earnings per share and adjusted diluted earnings per share were $0.10 and $0.58, respectively. FY’16 diluted earnings per share were $0.58 and adjusted diluted earnings per share were $2.08. The adjusted diluted earnings per share for the fourth quarter and the full year excluded $32.9 million and $103.9 million, respectively, of restructuring charges, net, integration/acquisition and separation costs, a deferred revenue adjustment related to the Hay Group acquisition (which also impacted adjusted fee revenue) and a non-cash loss relating to the Venezuelan currency devaluation.

“Korn Ferry closed strong in the final quarter of its fiscal year with fee revenue of $399.9 million representing 47% growth, or adjusted fee revenue of $405.0 million representing 49% growth, and diluted earnings per share of $0.10, or adjusted diluted earnings per share of $0.58,” said Gary D. Burnison, CEO Korn Ferry. “I am enormously proud of our company and the results we have achieved during the quarter, and at the same time, continuing to deliver on the Hay Group integration at a scope and pace that has exceeded our initial expectations.

“We are in the midst of creating a new firm – with 65% of our colleagues new to the organization in the last three years, due to expansion and growth. We are a company that accelerates our clients’ business performance through solutions and productized services that span from strategy implementation and organizational design to recruitment and leadership development to compensation and reward strategies. Our advisory business, now bolstered by our Hay Group combination, has given us more reasons to engage with clients. Also, our recruiting businesses, Executive Search and Futurestep, have never been stronger than they were in the fourth quarter. We are indeed creating the preeminent organizational and people advisory firm,” Burnison added.

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Hay Group Integration

In the fourth quarter of FY’16, we continued to make significant progress on the Hay Group integration. The majority of our fourth quarter efforts were focused on activities associated with integration of our go-to-market activities, our intellectual property and content, our solution sets and service offerings, and our back office systems and business processes. We incurred a minimal amount of restructuring costs, including real estate co-location. The fourth quarter results benefitted from the third quarter restructuring and integration actions with the new Hay Group segment EBITDA margin coming in at 5.6%, or 15.9% on an adjusted basis.

As previously disclosed, the integration of Hay Group will be substantially complete in Q1 FY’17, which will include additional consolidation of office space and the elimination of other redundant operational and general and administrative expenses. We estimate the cost of these actions to be in the range of $20 million to $26 million, resulting in incremental annualized savings of approximately $17 million to $23 million.

Selected Financial Results

(dollars in millions, except per share amounts)

 

		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
Fee revenue		$	399.9			$	271.8			$	1,292.1			$	1,028.2
Total revenue		$	417.1			$	282.2			$	1,346.7			$	1,066.1
Operating income		$	4.9			$	28.1			$	52.7			$	114.0
Operating margin			1.2	%			10.3	%			4.1	%			11.1	%
Net income attributable to Korn Ferry		$	5.8			$	25.5			$	30.9			$	88.4
Basic earnings per share		$	0.10			$	0.51			$	0.58			$	1.78
Diluted earnings per share		$	0.10			$	0.51			$	0.58			$	1.76
EBITDA Results (a):		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
EBITDA		$	21.4			$	40.2			$	85.8			$	151.3
EBITDA margin			5.4	%			14.8	%			6.6	%			14.7	%
Adjusted Results (b):		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
Adjusted fee revenue		$	405.0			$	271.8			$	1,303.1			$	1,028.2
Adjusted EBITDA (a)		$	54.3			$	40.7			$	189.7			$	161.7
Adjusted EBITDA margin (a)			13.4	%			15.0	%			14.6	%			15.7	%
Adjusted net income attributable to Korn Ferry		$	32.8			$	25.6			$	110.9			$	95.5
Adjusted basic earnings per share		$	0.58			$	0.52			$	2.10			$	1.93
Adjusted diluted earnings per share		$	0.58			$	0.51			$	2.08			$	1.90

 

(a)

EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude restructuring charges (recoveries), net, integration/acquisition costs, and includes the deferred revenue adjustment related to the Hay Group acquisition and separation costs. EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).

(b)	Adjusted results are non-GAAP financial measures that adjust for the following (see attached reconciliations):

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		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
Deferred revenue adjustment related to the Hay Group acquisition		$	5.1			$	—			$	11.0			$	—
Restructuring charges, net		$	2.4			$	—			$	33.0			$	9.5
Integration/acquisition costs		$	11.7			$	0.5			$	45.5			$	0.9
Venezuelan foreign currency loss		$	13.7			$	—			$	13.7			$	—
Separation costs		$	—			$	—			$	0.7			$	—

Fiscal 2016 Fourth Quarter Results

Fee revenue was $399.9 million in Q4 FY’16 and adjusted fee revenue was $405.0 million (including $5.1 million in deferred revenue adjustment related to the Hay Group acquisition).

 

•

Excluding fee revenue related to the Hay Group acquisition, fee revenue in Q4 FY’16 increased 4.9% (7.1% on a constant currency basis), compared to Q4 FY’15.

 

•

The growth was primarily due to increases in fee revenue in the North America region of Executive Search and the Futurestep segment.

Operating margin was 1.2% in Q4 FY’16 compared to 10.3% in the year-ago quarter. The decrease in operating margin was due to an increase in integration/acquisition costs as well as restructuring charges, net, a foreign currency loss relating to the devaluation of the Venezuelan currency and the deferred revenue adjustment referenced above.

EBITDA margin was 5.4% and Adjusted EBITDA margin was 13.4%. The year-over-year decline in Adjusted EBITDA margin (160 bps) was primarily due to an increase in compensation and benefits expense in the Futurestep segment and North America region of Executive Search to support the growth in revenue and an increased bonus expense associated with better than budgeted performance.

Fiscal 2016 Results

Fee revenue was $1,292.1 million in FY’16 and adjusted fee revenue was $1,303.1 million (including $11.0 million in deferred revenue adjustment related to the Hay Group acquisition).

 

•

Excluding fee revenue related to the Hay Group acquisition, fee revenue increased 7.5% (12.4% on a constant currency basis), compared to FY’15.

 

•

Similar to the fourth quarter, the increase in fee revenue was primarily in the North America region of Executive Search and the Futurestep segment. In addition, a portion of the growth relates to Pivot Leadership which was acquired on March 1, 2015.

Operating income was $52.7 million in FY’16, resulting in an operating margin of 4.1% in FY’16 compared to 11.1% in FY’15. The decrease in operating income and margin was due to an increase in integration/acquisition and restructuring costs as well as a foreign currency loss relating to the devaluation of the Venezuelan currency and the deferred revenue adjustment referenced above.

In FY’16, the Company’s EBITDA margin was 6.6% and Adjusted EBITDA margin was 14.6%. The year-over-year decline (110 bps) in Adjusted EBITDA margin was caused by the net impact of adverse market movements on the assets and liabilities associated with our deferred compensation programs, foreign currency losses, and the effect of a non-recurring gain in FY’15 relating to an insurance reimbursement for expenses incurred in prior years. The EBITDA margin for the combined Hay Group business was 3.7% and on an adjusted basis, the EBITDA margin was 16.4%, which is consistent with the prior year.

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Results by Segment

Selected Executive Search Data

(dollars in millions)

 

		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
Fee revenue		$	159.7			$	156.6			$	622.9			$	597.4
Total revenue		$	165.4			$	161.7			$	644.5			$	619.3
Operating income		$	23.0			$	31.3			$	131.7			$	119.0
Operating margin			14.4	%			20.0	%			21.1	%			19.9	%
Ending number of consultants			488				452				488				452
Average number of consultants			490				448				470				442
Engagements billed			3,395				3,175				8,375				8,480
New engagements (a)			1,463				1,382				5,517				5,165
EBITDA Results (b):		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
EBITDA		$	24.6			$	33.4			$	137.8			$	127.0
EBITDA margin			15.4	%			21.3	%			22.1	%			21.3	%
Adjusted Results (c):		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
Adjusted EBITDA (b)		$	31.2			$	33.4			$	151.7			$	132.4
Adjusted EBITDA margin (b)			19.5	%			21.3	%			24.3	%			22.2	%

 

(a)	Represents new engagements opened in the respective period.

(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 exclude the following (see attached reconciliations):

 

		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
Restructuring charges, net		$	—			$	—			$	7.3			$	5.4
Venezuelan foreign currency loss		$	6.6			$	—			$	6.6			$	—

Executive Search

Fee revenue was $159.7 million in Q4 FY’16, an increase of 2.0% (4.5% on a constant currency basis) compared to Q4 FY’15. The overall increase in fee revenue was primarily attributable to higher fee revenues in our North America region.

Operating income was $23.0 million in Q4 FY’16. Operating margin was 14.4% in Q4 FY’16 compared to 20.0% in Q4 FY’15. Operating income and margin were negatively impacted by the foreign currency loss relating to the devaluation of the Venezuelan currency and higher compensation and benefits expense associated with better revenue performance.

EBITDA was $24.6 million in Q4 FY’16 with an EBITDA margin of 15.4% (negatively impacted by the same factors as operating income). Adjusted EBITDA was $31.2 million with an Adjusted EBITDA margin of 19.5%, slightly down from the prior year due primarily to the factors referenced above.

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Selected Hay Group Data

(dollars in millions)

 

		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
Fee revenue		$	187.7			$	72.8			$	471.1			$	267.1
Total revenue		$	194.7			$	75.3			$	488.2			$	275.2
Operating income (loss)		$	2.9			$	8.4			$	(3.4	)		$	28.2
Operating margin			1.5	%			11.5	%			(0.7	)%			10.6	%
Ending number of consultants (a)			562				164				562				164
Staff utilization (b)			70	%			74	%			67	%			71	%
EBITDA Results (c):		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
EBITDA		$	10.5			$	12.1			$	17.5			$	41.6
EBITDA margin			5.6	%			16.6	%			3.7	%			15.6	%
Adjusted Results (d):		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
Adjusted fee revenue		$	192.8			$	72.8			$	482.1			$	267.1
Adjusted EBITDA (c)		$	30.7			$	12.1			$	78.9			$	44.4
Adjusted EBITDA margin (c)			15.9	%			16.6	%			16.4	%			16.6	%

 

(a)	Represents number of employees originating consulting services. FY’16 includes approximately 393 consultants from the acquisition of Legacy Hay.

(b)	Calculated by dividing the number of hours our full-time Hay Group professional staff record to engagements during the period, by the total available working hours during the same 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):

 

		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
Deferred revenue adjustment related to the Hay Group acquisition		$	5.1			$	—			$	11.0			$	—
Restructuring charges, net		$	2.5			$	—			$	25.7			$	2.8
Integration/acquisition costs		$	5.5			$	—			$	17.6			$	—
Venezuelan foreign currency loss		$	7.1			$	—			$	7.1			$	—

Hay Group

Fee revenue was $187.7 million and, on an adjusted basis, fee revenue was $192.8 million in Q4 FY’16 (including $5.1 million in deferred revenue adjustment related to the Hay Group acquisition). The acquisition of Hay Group contributed $114.9 million in fee revenue and $120.0 million on an adjusted basis in Q4 FY’16. Excluding Hay Group revenues, fee revenue was flat quarter-over-quarter and up 1.2% on a constant currency basis.

Operating income was $2.9 million in Q4 FY’16, resulting in an operating margin of 1.5%. The decrease in the margin from the prior year quarter was primarily due to the deferred revenue adjustment related to the Hay Group acquisition, restructuring charges, net, integration/acquisition costs and Venezuelan foreign currency loss.

EBITDA was $10.5 million in Q4 FY’16, with a margin of 5.6%. Adjusted EBITDA was $30.7 million

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during Q4 FY’16, at an Adjusted EBITDA margin of 15.9%. As referenced above, the Company continues to make significant progress on the Hay Group integration as reflected in the Q4 FY’16 Adjusted EBITDA margin after only five months of ownership.

Selected Futurestep Data

(dollars in millions)

 

		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
Fee revenue		$	52.5			$	42.4			$	198.1			$	163.7
Total revenue		$	57.0			$	45.2			$	214.0			$	171.6
Operating income		$	7.0			$	5.5			$	26.7			$	19.9
Operating margin			13.3	%			13.1	%			13.5	%			12.2	%
Engagements billed (a)			978				791				2,149				1,968
New engagements (b)			547				440				1,913				1,590
EBITDA Results (c):		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
EBITDA		$	7.9			$	6.1			$	29.5			$	21.9
EBITDA margin			15.0	%			14.4	%			14.9	%			13.4	%
Adjusted Results (d):		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
Adjusted EBITDA (c)		$	7.9			$	6.1			$	29.5			$	23.0
Adjusted EBITDA margin (c)			15.0	%			14.4	%			14.9	%			14.1	%

 

(a)	Represents search engagements billed.

(b)	Represents new search 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 exclude the following (see attached reconciliations):

 

		Fourth Quarter								Year to Date
		FY’16				FY’15				FY’16				FY’15
Restructuring charges, net		$	—			$	—			$	—			$	1.1

Futurestep

Fee revenue was $52.5 million in Q4 FY’16, an increase of 23.8% (27.1% on a constant currency basis), compared to the year-ago quarter.

 

•

The higher fee revenue was driven by a $5.6 million increase in recruitment process outsourcing in Q4 FY’16 compared to Q4 FY’15.

 

•

The rest of the increase was due to higher fee revenue in professional search due to a 23.6% increase in engagements billed in Q4 FY’16 compared to Q4 FY’15.

Operating income was $7.0 million in Q4 FY’16, an increase of $1.5 million, compared to Q4 FY’15, resulting in an operating margin of 13.3% in the current quarter compared to 13.1% in the year-ago quarter.

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EBITDA and Adjusted EBITDA were both $7.9 million during Q4 FY’16. EBITDA and Adjusted EBITDA margin were 15.0%, an increase of 60 bps from the prior year.

New Credit Agreement

On June 15, 2016, the Company entered into a new senior secured $400 million Credit Agreement (the “Agreement”) with a syndicate of banks and Wells Fargo Bank, National Association as administrative agent, to provide for enhanced financial flexibility and in recognition of the accelerated pace of the Hay Group integration. The Agreement provides for, among other things: (a) a new senior secured term loan facility in an aggregate principal amount of $275 million (the “Term Facility”); (b) a new senior secured revolving credit facility (the “Revolver”) in an aggregate principal amount of $125 million, (c) annual term loan amortization of 7.5%, 7.5%, 10.0%, 10.0%, and 10.0%, with the remaining principal due at maturity (d) certain customary affirmative and negative covenants, including a maximum consolidated total leverage ratio and a minimum interest coverage ratio, and (e) an expanded definition of permitted add-backs to Adjusted EBITDA in recognition of the accelerated integration actions referenced above. The proceeds from the Agreement will be used to repay existing indebtedness and for working capital and general corporate purposes.

Both the Revolver and the Term Facility mature on June 15, 2021 and may be prepaid and terminated early by the Company at any time without premium or penalty (subject to customary LIBOR breakage fees).

Outlook

Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, on a consolidated basis:

 

•

Q1 FY’17 fee revenue is expected to be in the range of $371 million and $391 million; and

 

•

Q1 FY’17 diluted earnings per share is likely to range between $0.02 to $0.20.

On a consolidated as adjusted basis:

 

•

Q1 FY’17 adjusted fee revenue is expected to be in the range of $375 million and $395 million; and

 

•

Q1 FY’17 adjusted diluted earnings per share is likely to range from $0.50 to $0.58.

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(1)

Korn Ferry consolidated adjusted fee revenue is a non-GAAP financial measure that includes revenue that Hay Group would have realized over the ensuing year if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue.

(2)	Consolidated as adjusted diluted earnings per share is a non-GAAP financial measure that excludes the items listed below in the table above.

Earnings Conference Call Webcast

The earnings conference call will be held today at 4:30 PM (EDT) and hosted by CEO Gary Burnison, CFO Robert Rozek and SVP Finance Gregg Kvochak. The conference call will be webcast and available online at www.kornferry.com, accessible through the Investor Relations section. 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 the preeminent global people and organizational advisory firm. We help leaders, organizations and societies succeed by releasing the full power and potential of people. Our nearly 7,000 colleagues deliver services through Executive Search, Hay Group and Futurestep divisions. Visit www.kornferry.com for more information.

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Forward-Looking Statements

Statements in this press release and our conference call that relate to future results and events (“forward-looking statements”) are based on Korn Ferry’s current expectations. These statements, which include words such as “believes”, “expects” or “likely”, include references to our outlook. Readers are cautioned not to place undue reliance on such statements. 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 competition, the dependence on attracting and retaining qualified and experienced consultants, our ability to successfully integrate acquired businesses including Hay Group, our ability to recognize the anticipated benefits of the acquisition of Hay Group which may be affected by, among other things, competition, our ability to grow and manage growth profitability, maintain relationships with customers and suppliers and retain key employees, costs related to the acquisition of Hay Group, maintaining our brand name and professional reputation, potential legal liability, the portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure with our growth, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, consolidation of industries we serve, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, impairment of goodwill and other intangible assets, deferred tax assets, seasonality, our ability to successfully rationalize our cost structure 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 International, adjusted to exclude restructuring charges, net, integration/acquisition costs, separation costs and includes the deferred revenue adjustment related to the Hay Group acquisition, net of income tax effect;

 

•

adjusted basic and diluted earnings per share, adjusted to exclude restructuring charges, net, integration/acquisition costs, separation costs and includes the deferred revenue adjustment related to the Hay Group acquisition, net of income tax effect; and in the case of the outlook section, also adjusted for Venezuelan exchange rate and tax rate impact;

 

•

constant currency amounts that represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period;

 

•

EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin;

 

•

Adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring charges, net, integration/acquisition costs, separation costs and includes the deferred revenue adjustment related to the Hay Group acquisition, and Adjusted EBITDA margin;

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Consolidated adjusted fee revenue, which includes revenue that Hay Group would have realized over the ensuing year if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue; and

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 and other items 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 represent 1) costs we incurred to acquire and integrate the Hay Group acquisition, 2) charges we incurred to restructure the combined company due to the acquisition of Hay Group, 3) foreign currency losses due to the devaluation of the Venezuelan currency and 4) revenue that Hay Group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue. As such, reported fee revenue can make fee revenue and operating results appear to fluctuate more than they would if business combination accounting did not require deferred revenue to be written off. Adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of GAAP, rather, it is an adjustment for a short period of time that will provide better comparability in the current and future periods. Management believes the presentation of adjusted fee revenue assists management in its evaluation of ongoing operations and provides useful information to investors because it 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 distorted by write-offs required under business combination accounting 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. Management will no longer have adjusted fee revenue after Q1 FY’17. The use of these non-GAAP financial measures facilitates comparisons to Korn Ferry’s historical performance. Korn Ferry includes these 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. In the case of constant currency amounts, management believes the presentation of such information provides meaningful 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]

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KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

		Three Months Ended April 30,								Year Ended April 30,
		2016				2015				2016				2015
		(unaudited)
Fee revenue		$	399,960			$	271,717			$	1,292,112			$	1,028,152
Reimbursed out-of-pocket engagement expenses			17,201				10,436				54,602				37,914
Total revenue			417,161				282,153				1,346,714				1,066,066
Compensation and benefits			286,852				182,886				897,345				691,450
General and administrative expenses			73,569				41,637				213,018				145,917
Reimbursed expenses			17,201				10,436				54,602				37,914
Cost of services			20,974				11,868				59,824				39,692
Depreciation and amortization			11,287				7,234				36,220				27,597
Restructuring charges, net			2,436				—				33,013				9,468
Total operating expenses			412,319				254,061				1,294,022				952,038
Operating income			4,842				28,092				52,692				114,028
Other income (loss), net			5,645				4,397				(4,167	)			7,458
Interest income (expense), net			1,452				(358	)			237				(1,784	)
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries			11,939				32,131				48,762				119,702
Equity in earnings of unconsolidated subsidiaries			185				485				1,631				2,181
Income tax provision			5,749				7,134				18,960				33,526
Net income			6,375				25,482				31,433				88,357
Net income attributable to noncontrolling interest			(520	)			—				(520	)			—
Net income attributable to Korn/Ferry International		$	5,855			$	25,482			$	30,913			$	88,357
Earnings per common share attributable to Korn/Ferry International:
Basic		$	0.10			$	0.51			$	0.58			$	1.78
Diluted		$	0.10			$	0.51			$	0.58			$	1.76
Weighted-average common shares outstanding:
Basic			56,012				49,288				52,372				49,052
Diluted			56,574				49,890				52,929				49,766
Cash dividends declared per share:		$	0.10			$	0.10			$	0.40			$	0.10

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KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

 

		Three Months Ended April 30,																Year Ended April 30,
		2016								2015				% Change				2016								2015				% Change
Fee Revenue:
Executive search:
North America		$	94,678							$	87,579				8	%		$	371,345							$	330,634				12	%
EMEA			36,161								39,677				(9	%)			144,319								153,465				(6	%)
Asia Pacific			21,199								22,533				(6	%)			80,506								84,148				(4	%)
Latin America			7,661								6,794				13	%			26,744								29,160				(8	%)
Total executive search			159,699								156,583				2	%			622,914								597,407				4	%
Hay Group			187,795								72,749				158	%			471,145								267,018				76	%
Futurestep			52,466								42,385				24	%			198,053								163,727				21	%
Total fee revenue			399,960								271,717				47	%			1,292,112								1,028,152				26	%
Reimbursed out-of-pocket engagement expenses			17,201								10,436				65	%			54,602								37,914				44	%
Total revenue		$	417,161							$	282,153				48	%		$	1,346,714							$	1,066,066				26	%
Operating Income (Loss):						Margin								Margin								Margin								Margin
Executive search:
North America		$	19,857				21.0	%		$	20,030				22.9	%		$	100,381				27.0	%		$	80,818				24.4	%
EMEA			5,695				15.7	%			5,530				13.9	%			20,607				14.3	%			18,867				12.3	%
Asia Pacific			2,904				13.7	%			4,589				20.4	%			12,572				15.6	%			14,631				17.4	%
Latin America			(5,498	)			(71.8	%)			1,191				17.5	%			(1,854	)			(6.9	%)			4,704				16.1	%
Total executive search			22,958				14.4	%			31,340				20.0	%			131,706				21.1	%			119,020				19.9	%
Hay Group			2,871				1.5	%			8,376				11.5	%			(3,415	)			(0.7	%)			28,175				10.6	%
Futurestep			6,987				13.3	%			5,573				13.1	%			26,702				13.5	%			19,940				12.2	%
Corporate			(27,974	)							(17,197	)							(102,301	)							(53,107	)
Total operating (loss) income		$	4,842				1.2	%		$	28,092				10.3	%		$	52,692				4.1	%		$	114,028				11.1	%

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KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

		April 30,
		2016				2015
ASSETS
Cash and cash equivalents		$	273,252			$	380,838
Marketable securities			11,338				25,757
Receivables due from clients, net of allowance for doubtful accounts of $11,292 and $9,958 respectively			315,975				188,543
Income taxes and other receivables			20,579				10,966
Prepaid expenses and other assets			43,130				31,054
Total current assets			664,274				637,158
Marketable securities, non-current			130,092				118,819
Property and equipment, net			95,436				62,088
Cash surrender value of company owned life insurance policies, net of loans			107,296				102,691
Deferred income taxes			83,715				59,841
Goodwill			590,072				254,440
Intangible assets, net			233,027				47,901
Investments and other assets			51,240				34,863
Total assets		$	1,955,152			$	1,317,801
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable		$	26,634			$	19,238
Income taxes payable			8,396				3,813
Compensation and benefits payable			266,211				219,364
Term loan			30,000				—
Other accrued liabilities			145,023				63,595
Total current liabilities			476,264				306,010
Deferred compensation and other retirement plans			216,113				173,432
Term loan, non-current			110,000				—
Deferred tax liabilities			61,640				—
Other liabilities			43,834				23,110
Total liabilities			907,851				502,552
Stockholders’ equity
Common stock: $0.01 par value, 150,000 shares authorized, 69,723 and 62,863 shares issued and 57,272 and 50,573 shares outstanding, respectively			702,098				463,839
Retained earnings			401,113				392,033
Accumulated other comprehensive loss, net			(57,911	)			(40,623	)
Noncontrolling interest			2,001				—
Total stockholders’ equity			1,047,301				815,249
Total liabilities and stockholders’ equity		$	1,955,152			$	1,317,801

---

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

 

		Three Months Ended April 30,								Year Ended April 30,
		2016				2015				2016				2015
		(unaudited)
Fee revenue		$	399,960			$	271,717			$	1,292,112			$	1,028,152
Deferred revenue adjustment due to acquisition (1)			5,096				—				10,967				—
Adjusted fee revenue		$	405,056			$	271,717			$	1,303,079			$	1,028,152
Operating income		$	4,842			$	28,092			$	52,692			$	114,028
Depreciation and amortization			11,287				7,234				36,220				27,597
Other income (loss), net			5,645				4,397				(4,167	)			7,458
Equity in earnings of unconsolidated subsidiaries, net			185				485				1,631				2,181
Net income attributable to noncontrolling interest			(520	)			—				(520	)			—
EBITDA			21,439				40,208				85,856				151,264
Deferred revenue adjustment due to acquisition (1)			5,096				—				10,967				—
Restructuring charges, net (2)			2,436				—				33,013				9,468
Integration/acquisition costs (3)			11,594				514				45,409				959
Venezuelan foreign currency loss (4)			13,720				—				13,720				—
Separation costs (5)			—				—				744				—
Adjusted EBITDA		$	54,285			$	40,722			$	189,709			$	161,691
Operating margin			1.2	%			10.3	%			4.1	%			11.1	%
Depreciation and amortization			2.8	%			2.7	%			2.8	%			2.7	%
Other income (loss), net			1.4	%			1.6	%			(0.3	%)			0.7	%
Equity in earnings of unconsolidated subsidiaries, net			0.1	%			0.2	%			0.1	%			0.2	%
Net income attributable to noncontrolling interest			(0.1	%)			—				(0.1	%)			—
EBITDA margin			5.4	%			14.8	%			6.6	%			14.7	%
Deferred revenue adjustment due to acquisition (1)			1.2	%			—				0.8	%			—
Restructuring charges, net (2)			0.6	%			—				2.5	%			0.9	%
Integration/acquisition costs (3)			2.8	%			0.2	%			3.5	%			0.1	%
Venezuelan foreign currency loss (4)			3.4	%			—				1.1	%			—
Separation costs (5)			—				—				0.1	%			—
Adjusted EBITDA margin			13.4	%			15.0	%			14.6	%			15.7	%
Net income attributable to Korn/Ferry International		$	5,855			$	25,482			$	30,913			$	88,357
Deferred revenue adjustment due to acquisition (1)			5,096				—				10,967				—
Restructuring charges, net (2)			2,436				—				33,013				9,468
Integration/acquisition costs (3)			11,594				514				45,409				959
Venezuelan foreign currency loss (4)			13,720				—				13,720				—
Separation costs (5)			—				—				744				—
Tax effect on the above items (6)			(5,846	)			(332	)			(23,819	)			(3,282	)
Adjusted net income attributable to Korn/Ferry International		$	32,855			$	25,664			$	110,947			$	95,502
Basic earnings per common share		$	0.10			$	0.51			$	0.58			$	1.78
Deferred revenue adjustment due to acquisition (1)			0.09				—				0.20				—
Restructuring charges, net (2)			0.04				—				0.63				0.19
Integration/acquisition costs (3)			0.21				0.01				0.87				0.02
Venezuelan foreign currency loss (4)			0.24				—				0.26				—
Separation costs (5)			—				—				0.01				—
Tax effect on the above items (6)			(0.10	)			—				(0.45	)			(0.06	)
Adjusted basic earnings per share		$	0.58			$	0.52			$	2.10			$	1.93
Diluted earnings per common share		$	0.10			$	0.51			$	0.58			$	1.76
Deferred revenue adjustment due to acquisition (1)			0.09				—				0.20				—
Restructuring charges, net (2)			0.04				—				0.62				0.19
Integration/acquisition costs (3)			0.21				—				0.86				0.02
Venezuelan foreign currency loss (4)			0.24				—				0.26				—
Separation costs (5)			—				—				0.01				—
Tax effect on the above items (6)			(0.10	)			—				(0.45	)			(0.07	)
Adjusted diluted earnings per share		$	0.58			$	0.51			$	2.08			$	1.90

Explanation of Non-GAAP Adjustments

(1)

Increase in fee revenue relating to the deferred revenue recorded on the opening balance sheet of Hay Group, required by fair value accounting. The adjustment is included in the Hay Group segment. On a GAAP basis, Hay Group fee revenue was $187.7 million and $471.1 million during the three months and year ended April 30, 2016, respectively. On an adjusted basis, Hay Group fee revenue was $192.8 million and $482.1 million during the three months and year ended April 30, 2016, respectively.

(2)	Restructuring plan implemented in order to rationalize our cost structure by eliminating redundant positions and consolidating office space due to the acquisition of Legacy Hay on December 1, 2015.

(3)	Cost associated with completing the acquisition of Hay Group, such as legal and professional fees, and the on-going integration expenses to combine the companies.

(4)	Foreign currency loss associated with the devaluation of the Venezuelan currency.

(5)	Certain senior management separation charges.

(6)	Tax effect on deferred revenue adjustment associated with the acquisition of Hay Group, restructuring charges, net, integration/acquisition costs, foreign currency loss associated with the devaluation of the Venezuelan currency and separation costs.

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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 April 30, 2016
		Executive Search
		North America				EMEA				Asia Pacific				Latin America				Subtotal				Hay Group				Futurestep				Corporate				Consolidated
Fee revenue		$	94,678			$	36,161			$	21,199			$	7,661			$	159,699			$	187,795			$	52,466			$	—			$	399,960
Net income																																		$	6,375
Other income, net																																			(5,645	)
Interest income, net																																			(1,452	)
Equity in earnings of unconsolidated subsidiaries, net																																			(185	)
Income tax provision																																			5,749
Operating income (loss)		$	19,857			$	5,695			$	2,904			$	(5,498	)		$	22,958			$	2,871			$	6,987			$	(27,974	)			4,842
Depreciation and amortization			796				219				237				88				1,340				7,796				614				1,537				11,287
Other income (loss), net			278				206				123				31				638				(131	)			277				4,861				5,645
Equity in earnings of unconsolidated subsidiaries, net			185				—				—				—				185				—				—				—				185
Net income attributable to noncontrolling interest			—				—				—				(491	)			(491	)			(29	)			—				—				(520	)
EBITDA			21,116				6,120				3,264				(5,870	)			24,630				10,507				7,878				(21,576	)			21,439
EBITDA margin			22.3	%			16.9	%			15.4	%			(76.6	%)			15.4	%			5.6	%			15.0	%							5.4	%
Restructuring charges, net			15				(59	)			—				(6	)			(50	)			2,441				49				(4	)			2,436
Integration/acquisition costs			—				—				—				—				—				5,555				—				6,039				11,594
Venezuelan foreign currency loss			—				—				—				6,635				6,635				7,085				—				—				13,720
Deferred revenue adjustment due to acquisition			—				—				—				—				—				5,096				—				—				5,096
Adjusted EBITDA		$	21,131			$	6,061			$	3,264			$	759			$	31,215			$	30,684			$	7,927			$	(15,541	)		$	54,285
Adjusted EBITDA margin			22.3	%			16.8	%			15.4	%			9.9	%			19.5	%			15.9	%			15.0	%							13.4	%
		Three Months Ended April 30, 2015
		Executive Search
		North America				EMEA				Asia Pacific				Latin America				Subtotal				Hay Group				Futurestep				Corporate				Consolidated
Fee revenue		$	87,579			$	39,677			$	22,533			$	6,794			$	156,583			$	72,749			$	42,385			$	—			$	271,717
Net income																																		$	25,482
Other income, net																																			(4,397	)
Interest expense, net																																			358
Equity in earnings of unconsolidated subsidiaries, net																																			(485	)
Income tax provision																																			7,134
Operating income (loss)		$	20,030			$	5,530			$	4,589			$	1,191			$	31,340			$	8,376			$	5,573			$	(17,197	)			28,092
Depreciation and amortization			853				398				274				101				1,626				3,579				508				1,521				7,234
Other income, net			190				14				86				22				312				89				27				3,969				4,397
Equity in earnings of unconsolidated subsidiaries, net			145				—				—				—				145				—				—				340				485
EBITDA			21,218				5,942				4,949				1,314				33,423				12,044				6,108				(11,367	)			40,208
EBITDA margin			24.2	%			15.0	%			22.0	%			19.3	%			21.3	%			16.6	%			14.4	%							14.8	%
Acquisition costs			—				—				—				—				—				—				—				514				514
Adjusted EBITDA		$	21,218			$	5,942			$	4,949			$	1,314			$	33,423			$	12,044			$	6,108			$	(10,853	)		$	40,722
Adjusted EBITDA margin			24.2	%			15.0	%			22.0	%			19.3	%			21.3	%			16.6	%			14.4	%							15.0	%

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KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 

		Year Ended April 30, 2016
		Executive Search
		North America				EMEA				Asia Pacific				Latin America				Subtotal				Hay Group				Futurestep				Corporate				Consolidated
Fee revenue		$	371,345			$	144,319			$	80,506			$	26,744			$	622,914			$	471,145			$	198,053			$	—			$	1,292,112
Net income																																		$	31,433
Other loss, net																																			4,167
Interest income, net																																			(237	)
Equity in earnings of unconsolidated subsidiaries, net																																			(1,631	)
Income tax provision																																			18,960
Operating income (loss)		$	100,381			$	20,607			$	12,572			$	(1,854	)		$	131,706			$	(3,415	)		$	26,702			$	(102,301	)			52,692
Depreciation and amortization			3,267				1,029				941				312				5,549				21,854				2,386				6,431				36,220
Other (loss) income, net			(147	)			433				21				312				619				(868	)			364				(4,282	)			(4,167	)
Equity in earnings of unconsolidated subsidiaries, net			437				—				—				—				437				—				—				1,194				1,631
Net income attributable to noncontrolling interest			—				—				—				(491	)			(491	)			(29	)			—				—				(520	)
EBITDA			103,938				22,069				13,534				(1,721	)			137,820				17,542				29,452				(98,958	)			85,856
EBITDA margin			28.0	%			15.3	%			16.8	%			(6.4	%)			22.1	%			3.7	%			14.9	%							6.6	%
Restructuring charges, net			499				5,807				577				322				7,205				25,682				49				77				33,013
Integration/acquisition costs			—				—				—				—				—				17,607				—				27,802				45,409
Venezuelan foreign currency loss			—				—				—				6,635				6,635				7,085				—				—				13,720
Deferred revenue adjustment due to acquisition			—				—				—				—				—				10,967				—				—				10,967
Separation costs			—				—				—				—				—				—				—				744				744
Adjusted EBITDA		$	104,437			$	27,876			$	14,111			$	5,236			$	151,660			$	78,883			$	29,501			$	(70,335	)		$	189,709
Adjusted EBITDA margin			28.1	%			19.3	%			17.5	%			19.6	%			24.3	%			16.4	%			14.9	%							14.6	%
		Year Ended April 30, 2015
		Executive Search
		North America				EMEA				Asia Pacific				Latin America				Subtotal				Hay Group				Futurestep				Corporate				Consolidated
Fee revenue		$	330,634			$	153,465			$	84,148			$	29,160			$	597,407			$	267,018			$	163,727			$	—			$	1,028,152
Net income																																		$	88,357
Other income, net																																			(7,458	)
Interest expense, net																																			1,784
Equity in earnings of unconsolidated subsidiaries, net																																			(2,181	)
Income tax provision																																			33,526
Operating income (loss)		$	80,818			$	18,867			$	14,631			$	4,704			$	119,020			$	28,175			$	19,940			$	(53,107	)			114,028
Depreciation and amortization			3,515				1,764				1,045				350				6,674				13,427				1,882				5,614				27,597
Other income (loss), net			288				83				369				109				849				(22	)			54				6,577				7,458
Equity in earnings of unconsolidated subsidiaries, net			426				—				—				—				426				—				—				1,755				2,181
EBITDA			85,047				20,714				16,045				5,163				126,969				41,580				21,876				(39,161	)			151,264
EBITDA margin			25.7	%			13.5	%			19.1	%			17.7	%			21.3	%			15.6	%			13.4	%							14.7	%
Restructuring charges, net			1,151				3,987				17				229				5,384				2,758				1,154				172				9,468
Acquisition costs			—				—				—				—				—				—				—				959				959
Adjusted EBITDA		$	86,198			$	24,701			$	16,062			$	5,392			$	132,353			$	44,338			$	23,030			$	(38,030	)		$	161,691
Adjusted EBITDA margin			26.1	%			16.1	%			19.1	%			18.5	%			22.2	%			16.6	%			14.1	%							15.7	%