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Form 8-K KORN FERRY INTERNATIONAL For: Dec 06

December 7, 2016 7:10 AM EST

 

 

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): December 6, 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))

 

 

 


Item 2.02 Results of Operations and Financial Condition.

On December 7, 2016, Korn/Ferry International (the “Company”) issued a press release announcing its second quarter fiscal year 2017 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 December 6, 2016, the Board of Directors of the Company declared a cash dividend of $0.10 per share that will be paid on January 16, 2017 to holders of the Company’s common stock of record at the close of business on December 20, 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

 

Exhibit 99.1   

Press Release, dated December 7, 2016.


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: December 7, 2016      
  

/s/ Robert P. Rozek

   (Signature)
   Name:    Robert P. Rozek
   Title:   

Executive Vice President, Chief Financial Officer and

Chief Corporate Officer


EXHIBIT INDEX

 

Exhibit No.

  

Description

99.1    Press release, dated December 7, 2016
LOGO    Exhibit 99.1

 

 

    FOR IMMEDIATE RELEASE    Contacts:
   Investor Relations: Gregg Kvochak, (310) 556-8550
   Media: Dan Gugler, (310) 226-2645

Korn Ferry International Announces Second Quarter Fiscal 2017 Results of Operations

Highlights

 

    Korn Ferry reports an increase in Q2 FY’17 fee revenue compared to the year ago-quarter, driven by the Hay Group acquisition and strong revenue growth in Futurestep.

 

    Fee revenue from Hay Group and North America Executive Search increased sequential quarter by $14.2 million and $10.9 million, respectively.

 

    The Company began to execute on its share repurchase authorization by repurchasing 520,000 shares of common stock, representing 1% of our shares outstanding.

 

    The Company declared a quarterly dividend of $0.10 per share on December 6, 2016, payable on January 16, 2017 to stockholders of record on December 20, 2016.

Los Angeles, CA, December 7, 2016 – Korn/Ferry International (NYSE: KFY), the preeminent global people and organizational advisory firm, today announced second quarter fee revenue of $401.9 million. Q2 FY’17 diluted earnings per share and adjusted diluted earnings per share were $0.52 and $0.59, respectively. Adjusted diluted earnings per share exclude $5.8 million or $0.10 per share of integration/acquisition costs.

“I am proud of the performance of our firm during the fiscal second quarter, achieving $402 million of fee revenue, representing 43% year over year growth. Profitability was also strong, with diluted earnings per share and adjusted diluted earnings per share of $0.52 and $0.59, respectively,” said Gary D. Burnison, CEO, Korn Ferry.

“After acquiring Hay Group 12 months ago, we’re now a much more diversified, balanced firm – with half of our revenue mix coming from organizational and talent advisory services and the other half from talent acquisition solutions. The synergies and investments we’ve made during this calendar year have not only enhanced our performance, but have provided us with a platform to both shape and accelerate our own growth. Clients are increasingly gravitating to our complete offerings which span recruitment, organizational design, talent strategy, assessment, leadership development, and compensation and reward services. As we enter 2017, we will continue our commitment to building a world-class people and organizational advisory firm.”

 

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Selected Financial Results

(dollars in millions, except per share amounts) (a)

 

                                           
     Second Quarter     Year to Date  
     FY’17     FY’16     FY’17     FY’16  

Fee revenue

   $ 401.9      $ 280.6      $ 777.5      $ 548.0   

Total revenue

   $ 415.0      $ 291.4      $ 807.9      $ 570.7   

Operating income

   $ 46.5      $ 29.0      $ 51.1      $ 61.9   

Operating margin

     11.6     10.3     6.6     11.3

Net income attributable to Korn Ferry

   $ 30.2      $ 18.0      $ 33.4      $ 41.1   

Basic earnings per share

   $ 0.53      $ 0.36      $ 0.59      $ 0.82   

Diluted earnings per share

   $ 0.52      $ 0.35      $ 0.58      $ 0.81   
EBITDA Results (b):    Second Quarter     Year to Date  
     FY’17     FY’16     FY’17     FY’16  

EBITDA

   $ 57.5      $ 34.0      $ 77.7      $ 75.0   

EBITDA margin

     14.3     12.1     10.0     13.7
Adjusted Results (c):    Second Quarter     Year to Date  
     FY’17     FY’16     FY’17     FY’16  

Adjusted fee revenue

     N/A        N/A      $ 781.1      $ 548.0   

Adjusted EBITDA (b)

   $ 63.3      $ 46.0      $ 119.7      $ 87.7   

Adjusted EBITDA margin (b)

     15.7     16.4     15.4     16.0

Adjusted net income attributable to Korn Ferry

   $ 34.1      $ 25.8      $ 63.6      $ 49.3   

Adjusted basic earnings per share

   $ 0.60      $ 0.51      $ 1.12      $ 0.98   

Adjusted diluted earnings per share

   $ 0.59      $ 0.51      $ 1.11      $ 0.97   

 

(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 restructuring charges (recoveries), net, integration/acquisition costs, and includes the deferred revenue adjustment related to the Hay Group acquisition. 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):

 

                                           
     Second Quarter      Year to Date  
     FY’17     FY’16      FY’17     FY’16  

Integration/acquisition costs

   $     5.8         $   12.0       $   13.8         $   12.7      

Restructuring charges, net

   $ —        $ —         $ 24.5      $ —     

Deferred revenue adjustment related to the Hay Group acquisition

   $ —        $ —         $ 3.5      $ —     

Write-off of debt issuance costs

   $ —        $ —         $ 1.0      $ —     

Fee revenue was $401.9 million in Q2 FY’17, an increase of 43.2% (45% increase on a constant currency basis) compared to Q2 FY’16.

 

    The growth was primarily due to increases in fee revenue in Hay Group and Futurestep segments.

 

    The increase in Hay Group is due to the acquisition that took place in the third quarter of fiscal 2016.

Operating margin was 11.6% in Q2 FY’17 compared to 10.3% in the year-ago quarter. EBITDA margin was 14.3% in Q2 FY’17 compared to 12.1% in Q2 FY’16. In Q2 FY’17, the increase in the operating and EBITDA margins was primarily due to the improvement in margins in the Hay Group segment due to the synergies achieved in connection with the Hay Group integration.

Adjusted EBITDA margin was 15.7%, compared to 16.4% in the year-ago quarter. The decline in Adjusted EBITDA margin was primarily due to a change in the business mix with a greater proportion of revenue being generated by Hay Group and Futurestep, which yield lower margins than Executive Search, partially offset by the synergies achieved in connection with the Hay Group integration.

 

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Results by Segment

Selected Executive Search Data

(dollars in millions) (a)

 

     Second Quarter     Year to Date  
     FY’17     FY’16     FY’17     FY’16  

Fee revenue

   $ 156.2      $ 156.5      $ 302.6      $ 308.6   

Total revenue

   $ 160.6      $ 161.5      $ 312.1      $ 319.5   

Operating income

   $ 37.4      $ 39.2      $ 64.4      $ 74.1   

Operating margin

     24.0     25.1     21.3     24.0

Ending number of consultants

     501        494        501        494   

Average number of consultants

     495        490        495        473   

Engagements billed

     3,486        3,152        5,312        4,845   

New engagements (b)

     1,509        1,380        2,955        2,752   
EBITDA Results (c):    Second Quarter     Year to Date  
     FY’17     FY’16     FY’17     FY’16  

EBITDA

   $ 39.0      $ 40.6      $ 67.9      $ 77.5   

EBITDA margin

     25.0     26.0     22.4     25.1
Adjusted Results (d):    Second Quarter     Year to Date  
     FY’17     FY’16     FY’17     FY’16  

Adjusted EBITDA (c)

   $ 39.0      $ 40.6      $ 70.7      $ 77.5   

Adjusted EBITDA margin (c)

     25.0     26.0     23.4     25.1

 

(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 exclude the following (see attached reconciliations):

       

       

        

       

     Second Quarter     Year to Date  
     FY’17     FY’16     FY’17     FY’16  

Restructuring charges, net

   $ —        $ —        $ 2.8      $ —     

Fee revenue was $156.2 million in Q2 FY’17, essentially flat compared to Q2 FY’16 (with a $2.4 million or 2% increase on a constant currency basis).

Operating income was $37.4 million in Q2 FY’17 compared to $39.2 million in Q2 FY’16. Operating margin was 24.0% in Q2 FY’17 compared to 25.1% in the year-ago quarter. The decrease in operating income and operating margin was due to an increase in compensation and benefits expense of $1.3 million while fee revenue essentially remained flat. The increase in compensation and benefits expense was due to higher salaries and related payroll taxes driven by a 3% increase in average headcount in Q2 FY’17 compared to Q2 FY’16, and reflects our continued growth-related investments back into the business.

EBITDA was $39.0 million in Q2 FY’17 with an EBITDA margin of 25.0% compared to $40.6 million and 26.0%, respectively, in Q2 FY’16. EBITDA and EBITDA margin were both impacted by the same factors as operating income.

 

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Selected Hay Group Data

(dollars in millions) (a)

 

     Second Quarter     Year to Date  
     FY’17     FY’16     FY’17     FY’16  

Fee revenue

   $ 188.8      $ 73.6      $ 363.4      $ 142.8   

Total revenue

   $ 192.4      $ 76.0      $ 373.9      $ 147.4   

Operating income

   $ 22.9      $ 7.8      $ 15.2      $ 15.3   

Operating margin

     12.1     10.6     4.2     10.7

Ending number of consultants (b)

     563        184        563        184   

Staff utilization (c)

     69     71     68     70
EBITDA Results (d):    Second Quarter     Year to Date  
     FY’17     FY’16     FY’17     FY’16  

EBITDA

   $ 31.0      $ 11.3      $ 31.5      $ 21.7   

EBITDA margin

     16.4     15.4     8.7     15.2
Adjusted Results (e):    Second Quarter     Year to Date  
     FY’17     FY’16     FY’17     FY’16  

Adjusted fee revenue

     N/A        N/A      $ 367.0      $ 142.8   

Adjusted EBITDA (d)

   $ 35.3      $ 14.7      $ 65.1      $ 25.4   

Adjusted EBITDA margin (d)

     18.7     19.9     17.9     17.8

 

(a)    Numbers may not total due to rounding.

(b)    Represents number of employees originating consulting services.

(c)    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.

(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):

 

       

       

        

        

       

     Second Quarter     Year to Date  
     FY’17     FY’16     FY’17     FY’16  

Integration/acquisition costs

   $ 4.4      $ 3.3      $ 8.6      $ 3.6   

Restructuring charges, net

   $ —        $ —        $ 21.5      $ —     

Deferred revenue adjustment related to the Hay Group acquisition

   $ —        $ —        $ 3.5      $ —     

Fee revenue was $188.8 million in Q2 FY’17 compared to $73.6 million in Q2 FY’16 (with a $116.6 million or 158.4% increase on a constant currency basis). The quarter-over-quarter increase is primarily attributed to the legacy Hay Group acquisition that took place in the third quarter of fiscal 2016. As a result, consulting fee revenue was higher by $66.0 million in Q2 FY’17 compared to Q2 FY’16 with the remaining increase of $49.2 million being generated by productized services.

Operating income was $22.9 million in Q2 FY’17, resulting in an operating margin of 12.1%, an increase of $15.1 million compared to Q2 FY’16 operating income and margin of $7.8 million and 10.6%, respectively. The change in operating income was primarily due to higher fee revenue of $115.2 million, partially offset by increases in compensation and benefit expense of $72.9 million, $15.5 million in general and administrative expenses, $7.3 million in cost of services and $4.4 million in depreciation and amortization expense. The increase in operating expenses was due to the legacy Hay Group acquisition that took place in the third quarter of fiscal 2016.

EBITDA was $31.0 million in Q2 FY’17, with a margin of 16.4%, up from $11.3 million and 15.4%, respectively, in Q2 FY’16. Adjusted EBITDA was $35.3 million in Q2 FY’17, an increase of $20.6 million compared to Q2 FY’16, resulting in an Adjusted EBITDA margin of 18.7% in the current quarter compared to 19.9% in the year-ago quarter. The increase in Adjusted EBITDA was due to the same factors impacting operating income (excluding depreciation and amortization expense).

 

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Selected Futurestep Data

(dollars in millions) (a)

 

     Second Quarter     Year to Date  
     FY’17     FY’16     FY’17     FY’16  

Fee revenue

   $ 56.8      $ 50.5      $ 111.5      $ 96.6   

Total revenue

   $ 62.0      $ 53.9      $ 121.9      $ 103.8   

Operating income

   $ 7.8      $ 6.9      $ 15.3      $ 13.1   

Operating margin

     13.7     13.6     13.7     13.5

Engagements billed (b)

     1,025        893        1,595        1,363   

New engagements (c)

     559        462        1,078        933   
EBITDA Results (d):    Second Quarter     Year to Date  
     FY’17     FY’16     FY’17     FY’16  

EBITDA

   $ 8.5      $ 7.5      $ 16.6      $ 14.3   

EBITDA margin

     14.9     14.8     14.9     14.8

 

(a) Numbers may not total due to rounding.
(b) Represents search engagements billed.
(c) Represents new search engagements opened in the respective period.
(d) EBITDA and EBITDA margin are non-GAAP financial measures (see attached reconciliations).

Fee revenue was $56.8 million in Q2 FY’17, an increase of 12.5% (14.1% on a constant currency basis), compared to the year-ago quarter.

 

    The higher fee revenue was driven by a $4.4 million increase in recruitment process outsourcing in Q2 FY’17 compared to Q2 FY’16.

 

    The rest of the increase was due to a 15% increase in engagements billed in Q2 FY’17 compared to Q2 FY’16, that drove higher fee revenue from professional search, which represents 44% of Futurestep fee revenue.

Operating income was $7.8 million in Q2 FY’17, an increase of $0.9 million, compared to Q2 FY’16, resulting in an operating margin of 13.7% in the current quarter compared to 13.6% in the year-ago quarter, an increase of 10 bps.

EBITDA was $8.5 million during Q2 FY’17 with an EBITDA margin of 14.9%, an increase of 10 bps from the prior year.

Outlook

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

 

    Q3 FY’17 fee revenue is expected to be in the range of $370 million and $390 million; and

 

    Q3 FY’17 diluted earnings per share is likely to range between $0.36 to $0.46.

On a consolidated as adjusted basis:

 

    Q3 FY’17 adjusted diluted earnings per share is expected to be in the range from $0.48 to $0.56.

 

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     Q3 FY’17  
     Earnings Per Share Outlook(1)  
     Low     High  

Consolidated diluted earnings per share

   $ 0.36      $ 0.46   

Integration/acquisition costs

     0.04        0.03   

Restructuring charges, net

     0.06        0.04   

Retention bonuses

     0.07        0.07   

Tax rate impact

     (0.05     (0.04
  

 

 

   

 

 

 

Consolidated adjusted diluted earnings per share

   $ 0.48      $ 0.56   
  

 

 

   

 

 

 

 

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

Earnings Conference Call Webcast

The earnings conference call will be held today at 7:30 AM (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.

 

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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 kornferry.com for more information.

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, write-off of debt issuance 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, write-off of debt issuance 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 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 and includes the deferred revenue adjustment related to the Hay Group acquisition, and Adjusted EBITDA margin; and

 

    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.

 

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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) debt issuance costs written-off upon replacement of credit facility 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 no longer has 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. 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 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]

 

8


KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

     Three Months Ended
October 31,
    Six Months Ended
October 31,
 
     2016     2015     2016     2015  
     (unaudited)  

Fee revenue

   $ 401,917      $ 280,600      $ 777,538      $ 547,994   

Reimbursed out-of-pocket engagement expenses

     13,037        10,739        30,349        22,680   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     414,954        291,339        807,887        570,674   
  

 

 

   

 

 

   

 

 

   

 

 

 

Compensation and benefits

     270,609        188,608        533,576        368,064   

General and administrative expenses

     54,134        44,563        109,476        82,054   

Reimbursed expenses

     13,037        10,739        30,349        22,680   

Cost of services

     18,874        11,236        35,706        21,356   

Depreciation and amortization

     11,752        7,180        23,196        14,603   

Restructuring charges, net

     —          —          24,520        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     368,406        262,326        756,823        508,757   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     46,548        29,013        51,064        61,917   

Other (loss) income, net

     (879     (2,646     3,380        (2,720

Interest expense, net

     (2,736     (544     (5,797     (843
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries

     42,933        25,823        48,647        58,354   

Equity in earnings of unconsolidated subsidiaries

     29        540        108        1,265   

Income tax provision

     11,906        8,392        13,631        18,566   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     31,056        17,971        35,124        41,053   

Net income attributable to noncontrolling interest

     (904     —          (1,764     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Korn/Ferry International

   $ 30,152      $ 17,971      $ 33,360      $ 41,053   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share attributable to Korn/Ferry International:

        

Basic

   $ 0.53      $ 0.36      $ 0.59      $ 0.82   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.52      $ 0.35      $ 0.58      $ 0.81   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding:

        

Basic

     56,614        49,981        56,401        49,737   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     56,983        50,362        56,863        50,233   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared per share:

   $ 0.10      $ 0.10      $ 0.20      $ 0.20   
  

 

 

   

 

 

   

 

 

   

 

 

 


KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

 

     Three Months Ended October 31,     Six Months Ended October 31,  
     2016            2015     % Change     2016            2015     % Change  

Fee Revenue:

                  

Executive search:

                  

North America

   $ 92,732         $ 92,788        (0%   $ 174,534         $ 183,147        (5%

EMEA

     34,779           36,570        (5%     70,149           72,660        (3%

Asia Pacific

     19,470           20,998        (7%     39,096           40,213        (3%

Latin America

     9,247           6,116        51%        18,810           12,542        50%   
  

 

 

      

 

 

     

 

 

      

 

 

   

Total executive search

     156,228           156,472        (0%     302,589           308,562        (2%

Hay Group

     188,842           73,602        157%        363,424           142,842        154%   

Futurestep

     56,847           50,526        13%        111,525           96,590        15%   
  

 

 

      

 

 

     

 

 

      

 

 

   

Total fee revenue

     401,917           280,600        43%        777,538           547,994        42%   

Reimbursed out-of-pocket engagement expenses

     13,037           10,739        21%        30,349           22,680        34%   
  

 

 

      

 

 

     

 

 

      

 

 

   

Total revenue

   $ 414,954         $ 291,339        42%      $ 807,887         $ 570,674        42%   
  

 

 

      

 

 

     

 

 

      

 

 

   
           Margin            Margin           Margin            Margin  

Operating Income (Loss):

                  

Executive search:

                  

North America

   $ 26,272        28.3%       $ 27,422        29.6%      $ 42,740        24.5%       $ 51,567        28.2%   

EMEA

     6,847        19.7%         6,929        18.9%        12,874        18.4%         13,205        18.2%   

Asia Pacific

     2,028        10.4%         3,907        18.6%        4,130        10.6%         6,893        17.1%   

Latin America

     2,284        24.7%         970        15.9%        4,614        24.5%         2,478        19.8%   
  

 

 

      

 

 

     

 

 

      

 

 

   

Total executive search

     37,431        24.0%         39,228        25.1%        64,358        21.3%         74,143        24.0%   

Hay Group

     22,943        12.1%         7,778        10.6%        15,200        4.2%         15,273        10.7%   

Futurestep

     7,787        13.7%         6,896        13.6%        15,300        13.7%         13,085        13.5%   

Corporate

     (21,613        (24,889       (43,794        (40,584  
  

 

 

      

 

 

     

 

 

      

 

 

   

Total operating income

   $ 46,548        11.6%       $ 29,013        10.3%      $ 51,064        6.6%       $ 61,917        11.3%   
  

 

 

      

 

 

     

 

 

      

 

 

   


KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

     October 31,
2016
    April 30,
2016
 
     (unaudited)        

ASSETS

    

Cash and cash equivalents

   $ 250,033      $ 273,252   

Marketable securities

     29,766        11,338   

Receivables due from clients, net of allowance for doubtful accounts of $12,901 and $11,292 respectively

     360,788        315,975   

Income taxes and other receivables

     23,455        20,579   

Prepaid expenses and other assets

     51,314        43,130   
  

 

 

   

 

 

 

Total current assets

     715,356        664,274   
  

 

 

   

 

 

 

Marketable securities, non-current

     110,217        130,092   

Property and equipment, net

     108,371        95,436   

Cash surrender value of company owned life insurance policies, net of loans

     110,888        107,296   

Deferred income taxes

     26,235        27,163   

Goodwill

     586,290        590,072   

Intangible assets, net

     225,037        233,027   

Investments and other assets

     67,679        51,240   
  

 

 

   

 

 

 

Total assets

   $ 1,950,073      $ 1,898,600   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Accounts payable

   $ 27,711      $ 26,634   

Income taxes payable

     3,015        8,396   

Compensation and benefits payable

     176,218        266,211   

Term loan

     19,754        30,000   

Other accrued liabilities

     138,738        145,023   
  

 

 

   

 

 

 

Total current liabilities

     365,436        476,264   
  

 

 

   

 

 

 

Deferred compensation and other retirement plans

     214,032        216,113   

Term loan, non-current

     246,099        110,000   

Deferred tax liabilities

     14,090        5,088   

Other liabilities

     56,272        43,834   
  

 

 

   

 

 

 

Total liabilities

     895,929        851,299   
  

 

 

   

 

 

 

Stockholders’ equity

    

Common stock: $0.01 par value, 150,000 shares authorized, 70,640 and 69,273 shares issued and 57,601 and 57,272 shares outstanding, respectively

     703,073        702,098   

Retained earnings

     422,723        401,113   

Accumulated other comprehensive loss, net

     (75,243     (57,911
  

 

 

   

 

 

 

Total Korn/Ferry International stockholders’ equity

     1,050,553        1,045,300   

Noncontrolling interest

     3,591        2,001   
  

 

 

   

 

 

 

Total stockholders’ equity

     1,054,144        1,047,301   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,950,073      $ 1,898,600   
  

 

 

   

 

 

 


KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

 

     Three Months Ended
October 31,
    Six Months Ended
October 31,
 
     2016     2015     2016     2015  
     (unaudited)  

Fee revenue

   $ 401,917      $ 280,600      $ 777,538      $ 547,994   

Deferred revenue adjustment due to acquisition (1)

     —          —          3,535        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted fee revenue

   $ 401,917      $ 280,600      $ 781,073      $ 547,994   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

   $ 46,548      $ 29,013      $ 51,064      $ 61,917   

Depreciation and amortization

     11,752        7,180        23,196        14,603   

Other (loss) income, net

     (879     (2,646     3,380        (2,720

Equity in earnings of unconsolidated subsidiaries, net

     29        540        108        1,265   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     57,450        34,087        77,748        75,065   

Deferred revenue adjustment due to acquisition (1)

     —          —          3,535        —     

Restructuring charges, net (2)

     —          —          24,520        —     

Integration/acquisition costs (3)

     5,820        11,994        13,847        12,668   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 63,270      $ 46,081      $ 119,650      $ 87,733   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin

     11.6     10.3     6.6     11.3

Depreciation and amortization

     2.9     2.6     3.0     2.7

Other (loss) income, net

     (0.2 %)      (1.0 %)      0.4     (0.5 %) 

Equity in earnings of unconsolidated subsidiaries, net

     —          0.2     —          0.2
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     14.3     12.1     10.0     13.7

Deferred revenue adjustment due to acquisition (1)

     —          —          0.5     —     

Restructuring charges, net (2)

     —          —          3.1     —     

Integration/acquisition costs (3)

     1.4     4.3     1.8     2.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     15.7     16.4     15.4     16.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Korn/Ferry International

   $ 30,152      $ 17,971      $ 33,360      $ 41,053   

Deferred revenue adjustment due to acquisition (1)

     —          —          3,535        —     

Restructuring charges, net (2)

     —          —          24,520        —     

Integration/acquisition costs (3)

     5,820        11,994        13,847        12,668   

Write-off of debt issuance costs (4)

     —          —          954        —     

Tax effect on the above items (5)

     (1,916     (4,168     (12,634     (4,383
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income attributable to Korn/Ferry International

   $ 34,056      $ 25,797      $ 63,582      $ 49,338   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per common share

   $ 0.53      $ 0.36      $ 0.59      $ 0.82   

Deferred revenue adjustment due to acquisition (1)

     —          —          0.06        —     

Restructuring charges, net (2)

     —          —          0.43        —     

Integration/acquisition costs (3)

     0.10        0.24        0.25        0.25   

Write-off of debt issuance costs (4)

     —          —          0.02        —     

Tax effect on the above items (5)

     (0.03     (0.09     (0.23     (0.09
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted basic earnings per share

   $ 0.60      $ 0.51      $ 1.12      $ 0.98   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per common share

   $ 0.52      $ 0.35      $ 0.58      $ 0.81   

Deferred revenue adjustment due to acquisition (1)

     —          —        $ 0.06        —     

Restructuring charges, net (2)

     —          —        $ 0.43        —     

Integration/acquisition costs (3)

     0.10        0.24      $ 0.24        0.25   

Write-off of debt issuance costs (4)

     —          —        $ 0.02        —     

Tax effect on the above items (5)

     (0.03     (0.08   $ (0.22     (0.09
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted diluted earnings per share

   $ 0.59      $ 0.51      $ 1.11      $ 0.97   
  

 

 

   

 

 

   

 

 

   

 

 

 

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 $363.4 million during the six months ended October 31, 2016. On an adjusted basis, Hay Group fee revenue was $367.0 million during the six months ended October 31, 2016.
(2) Restructuring plan implemented in order to rationalize our cost structure by eliminating redundant positions and consolidating office space due to the acquisition of Hay Group on December 1, 2015.
(3) Costs 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) Write-off of debt issuance costs as a result of replacing the prior Credit Agreement with a new senior secured Credit Agreement.
(5) Tax effect on deferred revenue adjustment associated with the acquisition of Hay Group, restructuring charges, net, integration/acquisition costs and the write-off 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 October 31, 2016  
     Executive Search                          
     North
America
    EMEA     Asia Pacific     Latin
America
    Subtotal     Hay Group     Futurestep     Corporate     Consolidated  

Fee revenue

   $ 92,732      $ 34,779      $ 19,470      $ 9,247      $ 156,228      $ 188,842      $ 56,847      $ —        $ 401,917   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Korn/Ferry International

                   $ 30,152   

Net income attributable to noncontrolling interest

                     904   

Other loss, net

                     879   

Interest expense, net

                     2,736   

Equity in earnings of unconsolidated subsidiaries, net

                     (29

Income tax provision

                     11,906   
                  

 

 

 

Operating income (loss)

   $ 26,272      $ 6,847      $ 2,028      $ 2,284      $ 37,431      $ 22,943      $ 7,787      $ (21,613     46,548   

Depreciation and amortization

     990        229        264        174        1,657        8,025        669        1,401        11,752   

Other income (loss), net

     (92     (80     24        24        (124     (11     —          (744     (879

Equity in earnings of unconsolidated subsidiaries, net

     29        —          —          —          29        —          —          —          29   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     27,199        6,996        2,316        2,482        38,993        30,957        8,456        (20,956     57,450   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     29.3     20.1     11.9     26.8     25.0     16.4     14.9       14.3

Integration/acquisition costs

     —          —          —          —          —          4,365        —          1,455        5,820   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 27,199      $ 6,996      $ 2,316      $ 2,482      $ 38,993      $ 35,322      $ 8,456      $ (19,501   $ 63,270   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     29.3     20.1     11.9     26.8     25.0     18.7     14.9       15.7
     Three Months Ended October 31, 2015  
     Executive Search                          
     North
America
    EMEA     Asia Pacific     Latin
America
    Subtotal     Hay Group     Futurestep     Corporate     Consolidated  

Fee revenue

   $ 92,788      $ 36,570      $ 20,998      $ 6,116      $ 156,472      $ 73,602      $ 50,526      $ —        $ 280,600   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Korn/Ferry International

                   $ 17,971   

Net income attributable to noncontrolling interest

                     —     

Other loss, net

                     2,646   

Interest expense, net

                     544   

Equity in earnings of unconsolidated subsidiaries, net

                     (540

Income tax provision

                     8,392   
                  

 

 

 

Operating income (loss)

   $ 27,422      $ 6,929      $ 3,907      $ 970      $ 39,228      $ 7,778      $ 6,896      $ (24,889     29,013   

Depreciation and amortization

     832        232        223        73        1,360        3,588        578        1,654        7,180   

Other (loss) income, net

     (127     7        (6     33        (93     (17     8        (2,544     (2,646

Equity in earnings of unconsolidated subsidiaries, net

     140        —          —          —          140        —          —          400        540   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     28,267        7,168        4,124        1,076        40,635        11,349        7,482        (25,379     34,087   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     30.5     19.6     19.6     17.6     26.0     15.4     14.8       12.1

Integration/acquisition costs

     —          —          —          —          —          3,310        —          8,684        11,994   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 28,267      $ 7,168      $ 4,124      $ 1,076      $ 40,635      $ 14,659      $ 7,482      $ (16,695   $ 46,081   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     30.5     19.6     19.6     17.6     26.0     19.9     14.8       16.4


KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 

     Six Months Ended October 31, 2016  
     Executive Search                          
     North
America
    EMEA     Asia Pacific     Latin
America
    Subtotal     Hay Group     Futurestep     Corporate     Consolidated  

Fee revenue

   $ 174,534      $ 70,149      $ 39,096      $ 18,810      $ 302,589      $ 363,424      $ 111,525      $ —        $ 777,538   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Korn/Ferry International

                   $ 33,360   

Net income attributable to noncontrolling interest

                     1,764   

Other income, net

                     (3,380

Interest expense, net

                     5,797   

Equity in earnings of unconsolidated subsidiaries, net

                     (108

Income tax provision

                     13,631   
                  

 

 

 

Operating income (loss)

   $ 42,740      $ 12,874      $ 4,130      $ 4,614      $ 64,358      $ 15,200      $ 15,300      $ (43,794     51,064   

Depreciation and amortization

     1,820        440        489        288        3,037        16,041        1,292        2,826        23,196   

Other income (loss), net

     196        (56     111        97        348        224        (2     2,810        3,380   

Equity in earnings of unconsolidated subsidiaries, net

     108        —          —          —          108        —          —          —          108   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     44,864        13,258        4,730        4,999        67,851        31,465        16,590        (38,158     77,748   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     25.7     18.9     12.1     26.6     22.4     8.7     14.9       10.0

Restructuring charges, net

     1,706        128        622        360        2,816        21,488        —          216        24,520   

Integration/acquisition costs

     —          —          —          —          —          8,629        —          5,218        13,847   

Deferred revenue adjustment due to acquisition

     —          —          —          —          —          3,535        —          —          3,535   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 46,570      $ 13,386      $ 5,352      $ 5,359      $ 70,667      $ 65,117      $ 16,590      $ (32,724   $ 119,650   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     26.7     19.1     13.7     28.5     23.4     17.9     14.9       15.4
     Six Months Ended October 31, 2015  
     Executive Search                          
     North
America
    EMEA     Asia Pacific     Latin
America
    Subtotal     Hay Group     Futurestep     Corporate     Consolidated  

Fee revenue

   $ 183,147      $ 72,660      $ 40,213      $ 12,542      $ 308,562      $ 142,842      $ 96,590      $ —        $ 547,994   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Korn/Ferry International

                   $ 41,053   

Net income attributable to noncontrolling interest

                     —     

Other loss, net

                     2,720   

Interest expense, net

                     843   

Equity in earnings of unconsolidated subsidiaries, net

                     (1,265

Income tax provision

                     18,566   
                  

 

 

 

Operating income (loss)

   $ 51,567      $ 13,205      $ 6,893      $ 2,478      $ 74,143      $ 15,273      $ 13,085      $ (40,584     61,917   

Depreciation and amortization

     1,659        597        469        151        2,876        7,336        1,163        3,228        14,603   

Other (loss) income, net

     (95     150        12        272        339        (880     8        (2,187     (2,720

Equity in earnings of unconsolidated subsidiaries, net

     226        —          —          —          226        —          —          1,039        1,265   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     53,357        13,952        7,374        2,901        77,584        21,729        14,256        (38,504     75,065   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     29.1     19.2     18.3     23.1     25.1     15.2     14.8       13.7

Integration/acquisition costs

     —          —          —          —          —          3,639        —          9,029        12,668   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 53,357      $ 13,952      $ 7,374      $ 2,901      $ 77,584      $ 25,368      $ 14,256      $ (29,475   $ 87,733   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     29.1     19.2     18.3     23.1     25.1     17.8     14.8       16.0


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