Korn Ferry Announces Second Quarter Fiscal 2014 Results of Operations

Key highlights for the second quarter of fiscal 2014 are as follows:
-- Korn Ferry reports record quarterly fee revenue of $238.0 million in Q2 FY'14, an increase of 23% on a constant currency basis compared to Q2 FY'13 (21% at actual exchange rates). Excluding the prior year acquisitions, quarterly fee revenue increased 8% on a constant currency basis from Q2 FY'13.
-- Fee revenue in Executive Recruitment was $140.1 million in Q2 FY'14, which grew 11%, on a constant currency basis, from Q2 FY'13.
-- Fee revenue in Leadership & Talent Consulting was $66.0 million in Q2 FY'14, up 73%, on a constant currency basis, from Q2 FY'13 and up 9% sequentially.
-- Fee revenue in Futurestep was $31.9 million in Q2 FY'14, up 8%, on a constant currency basis, from Q2 FY'13.
-- Q2 FY'14 adjusted EBITDA margin was 15.4% compared to adjusted EBITDA margin of 12.5% in Q2 FY'13.
-- Q2 FY'14 adjusted diluted earnings per share, excluding separation charges of $2.0 million, was a record $0.41 compared to adjusted diluted earnings per share, excluding net restructuring charges of $15.5 million, of $0.25 in Q2 FY'13. Including such costs, Q2 FY'14 and Q2 FY'13 diluted earnings per share was $0.38 and $0.03, respectively.

PR Newswire

LOS ANGELES, Dec. 4, 2013 /PRNewswire/ -- Korn Ferry (KFY), a single source of leadership and talent consulting services, today announced record second quarter results with fee revenue of $238.0 million and adjusted diluted earnings per share of $0.41, excluding separation charges of $2.0 million.  Including such charges, diluted earnings per share was $0.38 in the three months ended October 31, 2013.

"I am extremely proud of what Korn Ferry has accomplished.  The second quarter represented the strongest top line results in the company's history and represents a 23% year over year increase in fee revenue, or 8% excluding the prior year acquisitions, on a constant currency basis.   Once again, we delivered strong margin expansion and earnings per share growth in the quarter.  Our firm's alignment to broad talent management offerings is taking hold, as evidenced by our non-Search businesses generating 41% of the revenue mix aided by the performance of the prior year acquisitions – an all-time high," said Gary D. Burnison, CEO of Korn Ferry.  "In the current economy, the winning companies will be those that can find and develop outperforming leaders in an underperforming economy.  This environment is creating an opportunity for Korn Ferry – as we help clients drive growth by more effectively linking their business and talent strategies."

Financial Results

(dollars in millions, except per share amounts)



Second Quarter


Year to Date


FY'14


FY'13


FY'14


FY'13

Fee revenue

$          238.0


$        196.2


$       466.4


$         382.9

Total revenue

$          246.2


$        204.8


$       483.8


$         400.8

Operating income

$            23.2


$             2.8


$         39.8


$           19.8

Operating margin

9.7%


1.4%


8.5%


5.2%

Net income

$            18.8


$            1.2


$         30.2


$           11.6

Basic earnings per share

$            0.39


$          0.03


$         0.63


$           0.25

Diluted earnings per share

$            0.38


$          0.03


$         0.62


$           0.24









EBITDA Results (a):

Second Quarter


Year to Date


FY'14


FY'13


FY'14


FY'13

EBITDA

$            34.7


$             8.9


$         60.0


$           29.3

EBITDA margin

14.6%


4.6%


12.9%


7.7%





Adjusted Results (b):

Second Quarter


Year to Date


FY'14


FY'13


FY'14


FY'13

Operating income

$            25.2


$          18.3


$         48.4


$           35.3

Operating margin

10.6%


9.3%


10.4%


9.2%

EBITDA (a)

$            36.7


$          24.4


$         68.6


$           44.8

EBITDA margin (a)

15.4%


12.5%


14.7%


11.7%

Net income

$            20.0


$          11.8


$         36.0


$           22.2

Basic earnings per share

$            0.41


$          0.25


$         0.75


$           0.47

Diluted earnings per share

$            0.41


$          0.25


$         0.74


$           0.47

____________

(a)

EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude restructuring charges (net of recoveries) and/or transaction, integration/acquisition and separation costs.  EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliation). 



(b)

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




Second Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Separation costs

$                 2.0


$               —


$            4.5


$                 —


Restructuring charges, net of recoveries

$                  —


$           15.5


$            3.7


$             15.5


Integration/acquisition costs

$                  —


$               —


$            0.4


$                 —


Fee revenue was $238.0 million in Q2 FY'14, an increase of $41.8 million, or 23% on a constant currency basis (21% at actual exchange rates), compared to Q2 FY'13, primarily due to an increase of $27.6 million and $12.3 million in fee revenue in Leadership & Talent Consulting and Executive Recruitment, respectively.  The overall fee revenue increase was driven by fee revenue growth in the life science/healthcare, industrial, technology and financial services sectors.  Excluding the PDI Ninth House and Global Novations acquisitions (the "prior year acquisitions"), fee revenue increased 7% in Q2 FY'14 compared to the year-ago quarter (8% on a constant currency basis) to $204.7 million in Q2 FY'14 from $191.0 million in Q2 FY'13.

Compensation and benefit expenses were $161.3 million in Q2 FY'14, an increase of $28.2 million, or 21%, compared to Q2 FY'13.  The prior year acquisitions contributed $14.5 million to the increase in compensation and benefit expenses.  The remainder of the increase was due to an increase in performance related bonus expense, salaries and related payroll taxes and an increase in expense associated with company contributions to deferred compensation plans.  The increase in the performance related bonus expense resulted from an increase in fee revenue and profitability. The increase in salaries and related payroll taxes was due to an increase in the headcount in both Futurestep and Leadership & Talent Consulting.

General and administrative expenses were $35.8 million in Q2 FY'14, an increase of $2.4 million, or 7%, compared to Q2 FY'13.  The prior year acquisitions contributed $3.6 million to the increase in general and administrative expenses in Q2 FY'14 compared to Q2 FY'13.  Excluding the costs from the prior year acquisitions, there was a decline in general and administrative expenses of $1.2 million during the same period.  The decline was due to a gain as a result of favorable exchange rates in Q2 FY'14 compared to Q2 FY'13 and a decrease in business development expenses.

Adjusted EBITDA was $36.7 million in Q2 FY'14, an increase of $12.3 million, or 50%, compared to Q2 FY'13.  Adjusted EBITDA margin was 15.4% and 12.5% in Q2 FY'14 and Q2 FY'13, respectively. 

On a GAAP basis, operating income was $23.2 million in Q2 FY'14, an increase of $20.4 million, or 729%, compared to Q2 FY'13 resulting in a margin of 9.7% in the current quarter compared to 1.4% in the year-ago quarter. 

Balance Sheet and Liquidity

Cash and marketable securities were $314.9 million at October 31, 2013, compared to $366.0 million at April 30, 2013.  Cash and marketable securities include $118.0 million held in trust for deferred compensation plans at October 31, 2013, compared to $98.0 million at April 30, 2013.  Cash and marketable securities decreased by $51.1 million from April 30, 2013, mainly due to Q1 FY'14 payments of FY'13 annual bonuses and contingent consideration paid to selling shareholders of PDI Ninth House partially offset by cash provided by operating activities.

 

Results by Segment


Selected Executive Recruitment Data

(dollars in millions)



Second Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Fee revenue

$         140.1


$       127.8


$       276.7


$         255.2


Total revenue

$         145.3


$       133.1


$       287.8


$         266.3


Operating income

$           28.1


$         10.5


$         56.4


$           32.9


Operating margin

20.1%


8.1%


20.4%


12.9%











Ending number of consultants

412


402


412


402


Average number of consultants

414


409


406


401


Engagements billed

2,965


2,656


4,690


4,377


New engagements (a)

1,300


1,172


2,516


2,381











EBITDA Results (b):

Second Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


EBITDA

$           30.7


$         12.5


$         61.2


$           37.4


EBITDA margin

21.9%


9.8%


22.1%


14.7%







Adjusted Results (c):

Second Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Operating income

$            28.1


$         21.2


$         57.7


$           43.6


Operating margin

20.1%


16.6%


20.9%


17.1%


EBITDA (b)

$            30.7


$         23.2


$         62.5


$           48.1


EBITDA margin (b)

21.9%


18.2%


22.6%


18.9%


____________

(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):




Second Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Restructuring charges, net of recoveries

$                  —


$           10.7


$            1.3


$            10.7


Executive Recruitment

Fee revenue was $140.1 million in Q2 FY'14, an increase of $12.3 million, or 11% on a constant currency basis (10% at actual exchange rates), compared to Q2 FY'13.  The increase in fee revenue was driven by fee revenue increases in all regions with the largest increases in North America and Asia.  This increase is primarily attributed to a 12% increase in the number of executive recruitment engagements billed, partially offset by a 2% decrease in the weighted-average fee billed per engagement compared to the year-ago quarter. 

Adjusted EBITDA was $30.7 million during Q2 FY'14, an increase of $7.5 million, or 32%, compared to Q2 FY'13.  Adjusted EBITDA margin was 21.9%, in Q2 FY'14 compared to 18.2% in Q2 FY'13.  This increase is primarily attributed to the $12.3 million increase in fee revenue in Q2 FY'14 as compared to Q2 FY'13, combined with a decrease of $1.1 million in general and administrative expenses, partially offset by an increase of $6.8 million in compensation and benefit expenses driven primarily by an increase in performance related bonus expense. 

On a GAAP basis, operating income was $28.1 million in Q2 FY'14, an increase of $17.6 million, or 168% ($6.9 million, or 33% on an adjusted basis), compared to Q2 FY'13, resulting in an operating margin of 20.1% in the current quarter compared to 8.1% in the year-ago quarter. 

 

Selected Leadership & Talent Consulting Data

(dollars in millions)



Second Quarter


Year to Date


FY'14


FY'13


FY'14


FY'13

Fee revenue

$           66.0


$         38.4


$       126.1


$           66.8

Total revenue

$           68.2


$         40.6


$       130.3


$           70.4

Operating income

$             7.0


$           6.2


$         11.3


$           10.5

Operating margin

10.6%


16.3%


9.0%


15.7%









Ending number of consultants (a)

129


72


129


72

Staff utilization (b)

70%


67%


68%


66%









 

EBITDA Results (c):

Second Quarter


Year to Date


FY'14


FY'13


FY'14


FY'13

EBITDA

$           10.3


$           7.3


$         17.5


$           12.2

EBITDA margin

15.5%


18.9%


13.8%


18.2%





 

Adjusted Results (d):

Second Quarter


Year to Date


FY'14


FY'13


FY'14


FY'13

Operating income

$              7.0


$            6.9


$         12.5


$           11.2

Operating margin

10.6%


18.0%


9.9%


16.7%

EBITDA (c)

$            10.3


$            8.0


$         18.7


$           12.9

EBITDA margin (c)

15.5%


20.7%


14.7%


19.2%









____________

(a)

Represents number of employees originating consulting services. FY'14 and FY'13 include approximately 70 consultants and 22 consultants, respectively, from the prior year acquisitions.



(b)

Calculated by dividing the number of hours of our full-time LTC professional staff, who recorded time to an engagement 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 exclude the following (see attached reconciliations):




Second Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Restructuring charges, net of recoveries

$                  —


$             0.7


$            1.2


$              0.7


Leadership & Talent Consulting

Fee revenue was $66.0 million in Q2 FY'14, an increase of $27.6 million, or 73% on a constant currency basis (72% at actual exchange rates), from the year-ago quarter.  Excluding the prior year acquisitions, fee revenue was essentially flat on a constant currency basis, in Q2 FY'14 compared to Q2 FY'13, but up 3% sequentially.  

Adjusted EBITDA was $10.3 million during Q2 FY'14, an increase of $2.3 million, or 29%, compared to Q2 FY'13.  Adjusted EBITDA margin was 15.5% compared to 20.7% in Q2 FY'13.  The increase in adjusted EBITDA is due to an increase in fee revenue, partially offset by an increase in compensation and benefit expenses, both primarily related to the prior year acquisitions. 

On a GAAP basis, operating income was $7.0 million in Q2 FY'14, an increase of $0.8 million, or 13%, compared to Q2 FY'13 driven by an increase in productivity as measured by staff utilization.  Operating margin was 10.6% in the current quarter compared to 16.3% in the year-ago quarter.

 

Selected Futurestep Data

(dollars in millions)



Second Quarter


Year to Date


FY'14


FY'13


FY'14


FY'13

Fee revenue

$             31.9


$         30.0


$         63.6


$             60.9

Total revenue

$             32.7


$         31.1


$         65.7


$             64.1

Operating income

$               2.6


$           0.2


$           5.1


$               3.4

Operating margin

8.0%


0.8%


8.0%


5.6%









Engagements billed

1,195


1,152


1,952


2,005

New engagements (a)

620


626


1,245


1,271









EBITDA Results (b):

Second Quarter


Year to Date


FY'14


FY'13


FY'14


FY'13

EBITDA

$               3.0


$            0.5


$            6.5


$               4.0

EBITDA margin

9.3%


1.9%


10.2%


6.6%







Adjusted Results (c):

Second Quarter


Year to Date


FY'14


FY'13


FY'14


FY'13

 

Operating income

$               2.6


$            3.3


$           6.3


$                6.5

 

Operating margin

8.0%


11.1%


9.8%


10.7%

 

EBITDA (b)

$               3.0


$            3.6


$           7.7


$                7.1

 

EBITDA margin (b)

9.3%


12.1%


12.0%


11.7%

____________

(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):




Second Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Restructuring charges, net of recoveries

$                  —


$             3.1


$            1.2


$              3.1


Futurestep

Fee revenue was $31.9 million in Q2 FY'14, an increase of $1.9 million, or 8% on a constant currency basis (6% at actual exchange rates), compared to the year-ago quarter.  The increase in fee revenue was driven by a 4% increase in the number of engagements billed and a 2% increase in weighted-average fee billed per engagement in Q2 FY'14 compared to Q2 FY'13 driven by increases in recruitment process outsourcing and non-executive and other professional recruitment.

Adjusted EBITDA was $3.0 million during Q2 FY'14, a decrease of $0.6 million, or 17%, compared to Q2 FY'13.  Adjusted EBITDA margin decreased to 9.3% in Q2 FY'14 compared to 12.1% in Q2 FY'13.  The decrease in Adjusted EBITDA and Adjusted EBITDA margin was primarily due to an increase of $1.9 million in compensation and benefit expenses, an increase in cost of services expense of $0.4 million, and an increase in general and administrative of $0.2 million, partially offset by an increase in fee revenue of $1.9 million.  The increase in compensation and benefit expenses was driven by an increase in salaries and related payroll taxes due to a 13% increase in the average headcount primarily associated with an increase in staffing to accommodate a number of larger recruitment process outsourcing contracts won by the Company in the quarter and for which delivery will occur in subsequent periods. 

On a GAAP basis, operating income was $2.6 million in Q2 FY'14, an increase of $2.4 million, compared to Q2 FY'13 resulting in an operating margin of 8.0% in the current quarter compared to 0.8% in the year-ago quarter. 

Outlook          

The third quarter is our seasonal low quarter due to the heavy concentration of holidays which results in lower productivity.  Given this and assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, fee revenue is expected to be in the range of $221 million to $237 million in Q3 FY'14 and diluted earnings per share are likely to be in the range of $0.30 to $0.38.

Earnings Conference Call Webcast

The earnings conference call will be held today at 5:00 PM (EST) and hosted by CEO Gary Burnison, CFO Robert Rozek and SVP Finance Gregg Kvochak.  The conference call will be webcast and available online at www.kornferry.com, accessible through the Investor Relations section.

About Korn Ferry

At Korn Ferry, we design, build, attract and ignite talent.  Since our inception, clients have trusted us to help recruit world-class leadership.  Today, we are a single source for leadership and talent consulting services to empower businesses and leaders to reach their goals.  Our solutions range from executive recruitment and leadership development programs, to enterprise learning, succession planning and recruitment process outsourcing (RPO).  Visit www.kornferry.com for more information on Korn Ferry, and www.kornferryinstitute.com for thought leadership, intellectual property and research.

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, 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 the 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 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 operating income and operating margin, adjusted to exclude restructuring (net of recoveries) and/or transaction, integration/acquisition and separation costs;
  • adjusted net income, adjusted to exclude restructuring (net of recoveries) and/or transaction, integration/acquisition and separation costs, net of income tax effect;
  • adjusted basic and diluted earnings per share, adjusted to exclude restructuring (net of recoveries) and/or transaction,  integration/acquisition and separation costs, net of income tax effect;
  • 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; and
  • adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring (net of recoveries) and/or transaction, integration/acquisition and separation costs, and adjusted EBITDA margin.

This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial information determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn Ferry's performance by excluding certain charges and other items that may not be indicative of Korn Ferry's ongoing operating results.  The use of these non-GAAP financial measures facilitate 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]

 










KORN FERRY AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 (in thousands, except per share amounts) 













 Three Months Ended 


 Six Months Ended 



 October 31, 


 October 31, 



2013


2012


2013


2012



 (unaudited) 

 Fee revenue 


$ 237,968


$ 196,231


$ 466,405


$ 382,925

 Reimbursed out-of-pocket engagement expenses 


8,269


8,568


17,419


17,897

           Total revenue 


246,237


204,799


483,824


400,822










 Compensation and benefits 


161,296


133,035


314,066


261,071

 General and administrative expenses 


35,795


33,317


75,666


66,760

 Reimbursed expenses 


8,269


8,568


17,419


17,897

 Cost of services 


11,132


7,318


20,641


11,782

 Depreciation and amortization 


6,580


4,297


12,524


8,039

 Restructuring charges, net 


-


15,495


3,682


15,495

           Total operating expenses 


223,072


202,030


443,998


381,044










 Operating income  


23,165


2,769


39,826


19,778

 Other income, net 


4,352


1,529


6,619


512

 Interest expense, net 


(638)


(762)


(1,229)


(1,361)

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










26,879


3,536


45,216


18,929

 Equity in earnings of unconsolidated subsidiaries 


557


344


1,022


974

 Income tax provision  


8,677


2,684


16,062


8,289

            Net income 


$   18,759


$     1,196


$   30,176


$   11,614










 Earnings per common share: 









      Basic 


$       0.39


$       0.03


$       0.63


$       0.25

      Diluted 


$       0.38


$       0.03


$       0.62


$       0.24










 Weighted-average common shares outstanding: 









      Basic 


48,118


47,269


47,892


47,040

      Diluted 


48,816


47,834


48,748


47,658

 

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

 (unaudited) 

























Three Months Ended October 31,


Six Months Ended October 31,



2013




2012


% Change


2013




2012


% Change


















Fee Revenue:
















Executive recruitment:

















North America

$   75,183




$   69,441


8%


$ 149,330




$ 141,547


5%


EMEA 

34,221




33,142


3%


68,598




62,965


9%


Asia Pacific

21,722




18,338


18%


42,850




35,721


20%


South America

8,866




6,827


30%


15,869




14,961


6%

Total executive recruitment

139,992




127,748


10%


276,647




255,194


8%

Leadership & Talent Consulting

66,078




38,452


72%


126,140




66,844


89%

Futurestep

31,898




30,031


6%


63,618




60,887


4%


Total fee revenue

237,968




196,231


21%


466,405




382,925


22%

 Reimbursed out-of-pocket engagement expenses 

8,269




8,568


(3%)


17,419




17,897


(3%)


Total revenue

$ 246,237




$ 204,799


20%


$ 483,824




$ 400,822


21%


















Reconciliation of Operating Income (GAAP) to Adjusted Operating Income






















Operating Income:



Margin




Margin




Margin




Margin

Executive recruitment:

















North America

$   15,530


20.7%


$     9,017


13.0%


$   31,854


21.3%


$   27,091


19.1%


EMEA

5,860


17.1%


(929)


(2.8%)


11,820


17.2%


859


1.4%


Asia Pacific

4,472


20.6%


1,080


5.9%


8,972


20.9%


1,578


4.4%


South America

2,265


25.5%


1,217


17.8%


3,761


23.7%


3,306


22.1%

Total executive recruitment

28,127


20.1%


10,385


8.1%


56,407


20.4%


32,834


12.9%

Leadership & Talent Consulting

7,006


10.6%


6,252


16.3%


11,341


9.0%


10,514


15.7%

Futurestep

2,539


8.0%


237


0.8%


5,084


8.0%


3,419


5.6%

Corporate

(14,507)




(14,105)




(33,006)




(26,989)




 Total operating income

$   23,165


9.7%


$     2,769


1.4%


$   39,826


8.5%


$   19,778


5.2%



































Restructuring, Separation, and Integration/Acquisition Costs, net:





Executive recruitment:

















North America

$            -


-


$     5,436


7.8%


$        816


0.6%


$     5,436


3.9%


EMEA

-


-


4,752


14.3%


460


0.7%


4,752


7.5%


Asia Pacific

-


-


613


3.3%


60


0.2%


613


1.7%


South America

-


-


-


-


-


-


-


-

Total executive recruitment

-


-


10,801


8.5%


1,336


0.5%


10,801


4.2%

Leadership & Talent Consulting

-


-


677


1.7%


1,149


0.9%


677


1.0%

Futurestep

-


-


3,086


10.3%


1,134


1.8%


3,086


5.1%

Corporate

2,000




931




4,957




931




 Total restructuring, separation, and integration/acquisition costs, net

$     2,000


0.9%


$   15,495


7.9%


$     8,576


1.9%


$   15,495


4.0%



































Adjusted Operating Income:














  (Excluding Restructuring, Separation, and Integration/Acquisition Costs, net)

Margin




Margin




Margin




Margin

Executive recruitment:

















North America

$   15,530


20.7%


$   14,453


20.8%


$   32,670


21.9%


$   32,527


23.0%


EMEA

5,860


17.1%


3,823


11.5%


12,280


17.9%


5,611


8.9%


Asia Pacific

4,472


20.6%


1,693


9.2%


9,032


21.1%


2,191


6.1%


South America

2,265


25.5%


1,217


17.8%


3,761


23.7%


3,306


22.1%

Total executive recruitment

28,127


20.1%


21,186


16.6%


57,743


20.9%


43,635


17.1%

Leadership & Talent Consulting

7,006


10.6%


6,929


18.0%


12,490


9.9%


11,191


16.7%

Futurestep

2,539


8.0%


3,323


11.1%


6,218


9.8%


6,505


10.7%

Corporate 

(12,507)




(13,174)




(28,049)




(26,058)




 Total adjusted operating income 

$   25,165


10.6%


$   18,264


9.3%


$   48,402


10.4%


$   35,273


9.2%

 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (in thousands, except per share amounts) 













October 31,


April 30,



2013


2013

ASSETS


 (unaudited) 



Cash and cash equivalents


$    182,628


$    224,066

Marketable securities


6,531


20,347

Receivables due from clients, net of allowance for doubtful accounts

of $9,775 and $9,097 respectively






199,247


161,508

Income taxes and other receivables


6,675


8,944

Deferred income taxes


2,622


3,511

Prepaid expenses and other assets


31,097


28,724

Total current assets


428,800


447,100






Marketable securities, non-current


125,754


121,569

Property and equipment, net


52,651


53,628

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


90,898


85,873

Deferred income taxes


60,552


63,203

Goodwill


259,071


257,293

Intangible assets, net


53,879


58,187

Investments and other assets


28,841


28,376

Total assets


$ 1,100,446


$ 1,115,229






LIABILITIES AND STOCKHOLDERS' EQUITY





Accounts payable


$      18,281


$      19,460

Income taxes payable


9,251


5,502

Compensation and benefits payable


119,163


160,298

Other accrued liabilities


61,332


83,291

Total current liabilities


208,027


268,551






Deferred compensation and other retirement plans


167,792


159,706

Other liabilities


20,800


22,504

Total liabilities


396,619


450,761






Stockholders' equity





Common stock: $0.01 par value, 150,000 shares authorized, 61,729 and

61,022 shares issued and 49,441 and 48,734 shares outstanding, respectively






439,377


431,508

Retained earnings


266,266


236,090

Accumulated other comprehensive loss, net


(1,322)


(2,631)

Stockholders' equity


704,321


664,967

Less:  notes receivable from stockholders


(494)


(499)

Total stockholders' equity


703,827


664,468

Total liabilities and stockholders' equity


$ 1,100,446


$ 1,115,229

 


KORN FERRY AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP) 

 (in thousands, except per share amounts) 

 (unaudited) 





























 Three Months Ended 


 Three Months Ended 



October 31, 2013


October 31, 2012



As Reported


Adjustments


As Adjusted


As Reported


Adjustments


As Adjusted














 Fee revenue 


$ 237,968




$ 237,968


$ 196,231




$      196,231

 Reimbursed out-of-pocket engagement expenses 


8,269




8,269


8,568




8,568

           Total revenue 


246,237




246,237


204,799




204,799














 Compensation and benefits 


161,296


(2,000)


159,296


133,035




133,035

 General and administrative expenses 


35,795




35,795


33,317




33,317

 Reimbursed expenses 


8,269




8,269


8,568




8,568

 Cost of services 


11,132




11,132


7,318




7,318

 Depreciation and amortization 


6,580




6,580


4,297




4,297

 Restructuring charges, net 


-




-


15,495


(15,495)


-

           Total operating expenses 


223,072


(2,000)


221,072


202,030


(15,495)


186,535














 Operating income 


23,165


2,000


25,165


2,769


15,495


18,264














 Other income, net 


4,352




4,352


1,529




1,529

 Interest expense, net 


(638)




(638)


(762)




(762)

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














26,879


2,000


28,879


3,536


15,495


19,031

 Equity in earnings of unconsolidated subsidiaries 


557




557


344




344

 Income tax provision (1) (2) 


8,677


791


9,468


2,684


4,889


7,573

            Net income 


$   18,759


$           1,209


$   19,968


$     1,196


$         10,606


$        11,802














 Earnings per common share: 













      Basic 


$       0.39




$       0.41


$       0.03




$            0.25

      Diluted 


$       0.38




$       0.41


$       0.03




$            0.25














 Weighted-average common shares outstanding: 













      Basic 


48,118




48,118


47,269




47,269

      Diluted 


48,816




48,816


47,834




47,834















 Explanation of Non-GAAP Adjustments 









(1)

The adjustments result in an effective tax rate of 33% and 40% for the as adjusted amounts for the three months ended October 31, 2013 and 2012, respectively. 

(2)

The three months ended October 31, 2013, includes the tax effect on separation charges, while the three months ended October 31, 2012, includes the tax effect on restructuring charges.

 


KORN FERRY AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP) 

 (in thousands, except per share amounts) 

 (unaudited) 





























 Six Months Ended 


 Six Months Ended 



October 31, 2013


October 31, 2012



As Reported


Adjustments


As Adjusted


As Reported


Adjustments


As Adjusted














 Fee revenue 


$ 466,405




$ 466,405


$ 382,925




$      382,925

 Reimbursed out-of-pocket engagement expenses 


17,419




17,419


17,897




17,897

           Total revenue 


483,824




483,824


400,822




400,822














 Compensation and benefits 


314,066


(4,500)


309,566


261,071




261,071

 General and administrative expenses 


75,666


(394)


75,272


66,760




66,760

 Reimbursed expenses 


17,419




17,419


17,897




17,897

 Cost of services 


20,641




20,641


11,782




11,782

 Depreciation and amortization 


12,524




12,524


8,039




8,039

 Restructuring charges, net 


3,682


(3,682)


-


15,495


(15,495)


-

           Total operating expenses 


443,998


(8,576)


435,422


381,044


(15,495)


365,549














 Operating income 


39,826


8,576


48,402


19,778


15,495


35,273














 Other income, net 


6,619




6,619


512




512

 Interest expense, net 


(1,229)




(1,229)


(1,361)




(1,361)

           Income before provision for income taxes

and equity in earnings of unconsolidated subsidiaries 














45,216


8,576


53,792


18,929


15,495


34,424

 Equity in earnings of unconsolidated subsidiaries 


1,022




1,022


974




974

 Income tax provision (1) (2) 


16,062


2,796


18,858


8,289


4,889


13,178

            Net income  


$   30,176


$           5,780


$   35,956


$   11,614


$         10,606


$        22,220














 Earnings per common share: 













      Basic 


$       0.63




$       0.75


$       0.25




$            0.47

      Diluted 


$       0.62




$       0.74


$       0.24




$            0.47














 Weighted-average common shares outstanding: 













      Basic 


47,892




47,892


47,040




47,040

      Diluted 


48,748




48,748


47,658




47,658












 Explanation of Non-GAAP Adjustments 






(1)

The adjustments result in an effective tax rate of 35% and 38% for the as adjusted amounts for the six months ended October 31, 2013 and 2012, respectively. 

(2)

The six months ended October 31, 2013 includes the tax effect on restructuring charges, separation costs, and integration/acquisition costs associated with the acquisition of PDI Ninth House, while the six months ended October 31, 2012, includes the tax effect on restructuring charges. 

 

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, 2013 



 Executive Recruitment 


 Leadership & Talent Consulting 


 Futurestep 


 Corporate 


 Consolidated 












 Fee revenue 


$      139,992


$       66,078


$       31,898


$                -


$          237,968












 Net income 










$            18,759

       Other income, net 










(4,352)

       Interest expense, net 










638

       Equity in earnings of unconsolidated subsidiaries 










(557)

       Income tax provision 










8,677

 Operating income (loss) 


$        28,127


$         7,006


$         2,539


$    (14,507)


23,165

       Depreciation and amortization 


2,000


3,161


440


979


6,580

        Other income (loss), net 


451


45


(17)


3,873


4,352

       Equity in earnings of unconsolidated subsidiaries 


120


-


-


437


557

 EBITDA 


30,698


10,212


2,962


(9,218)


34,654

 EBITDA margin 


21.9%


15.5%


9.3%




14.6%












       Separation costs 


-


-


-


2,000


2,000

 Adjusted EBITDA 


$        30,698


$       10,212


$         2,962


$      (7,218)


$            36,654

 Adjusted EBITDA margin 


21.9%


15.5%


9.3%




15.4%

























 Three Months Ended October 31, 2012 



 Executive Recruitment 


 Leadership & Talent Consulting 


 Futurestep 


 Corporate 


 Consolidated 












 Fee revenue 


$      127,748


$       38,452


$       30,031


$                -


$          196,231












 Net income 










$              1,196

       Other income, net 










(1,529)

       Interest expense, net 










762

       Equity in earnings of unconsolidated subsidiaries 










(344)

       Income tax provision 










2,684

 Operating income (loss) 


$        10,385


$         6,252


$            237


$    (14,105)


2,769

       Depreciation and amortization 


2,295


1,006


320


676


4,297

       Other (loss) income, net 


(108)


19


1


1,617


1,529

       Equity in earnings of unconsolidated subsidiaries 


(70)


-


-


414


344

 EBITDA 


12,502


7,277


558


(11,398)


8,939

 EBITDA margin 


9.8%


18.9%


1.9%




4.6%












       Restructuring charges, net 


10,801


677


3,086


931


15,495

 Adjusted EBITDA 


$        23,303


$         7,954


$         3,644


$    (10,467)


$            24,434

 Adjusted EBITDA margin 


18.2%


20.7%


12.1%




12.5%

 

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, 2013 



 Executive Recruitment 


 Leadership & Talent Consulting 


 Futurestep 


 Corporate 


 Consolidated 












 Fee revenue 


$      276,647


$     126,140


$       63,618


$                -


$          466,405












 Net income 










$            30,176

       Other income, net 










(6,619)

       Interest expense, net 










1,229

       Equity in earnings of unconsolidated subsidiaries 










(1,022)

       Income tax provision 










16,062

 Operating income (loss) 


$        56,407


$       11,341


$         5,084


$    (33,006)


39,826

       Depreciation and amortization 


3,778


6,058


848


1,840


12,524

       Other income, net 


832


53


548


5,186


6,619

       Equity in earnings of unconsolidated subsidiaries 


222


-


-


800


1,022

 EBITDA 


61,239


17,452


6,480


(25,180)


59,991

 EBITDA margin 


22.1%


13.8%


10.2%




12.9%












       Restructuring charges, net 


1,336


1,149


1,134


63


3,682

       Separation costs 


-


-


-


4,500


4,500

       Integration/acquisition costs 


-


-


-


394


394

 Adjusted EBITDA 


$        62,575


$       18,601


$         7,614


$    (20,223)


$            68,567

 Adjusted EBITDA margin 


22.6%


14.7%


12.0%




14.7%

























 Six Months Ended October 31, 2012 



 Executive Recruitment 


 Leadership & Talent Consulting 


 Futurestep 


 Corporate 


 Consolidated 












 Fee revenue 


$      255,194


$       66,844


$       60,887


$                -


$          382,925












 Net income 










$            11,614

       Other income, net 










(512)

       Interest expense, net 










1,361

       Equity in earnings of unconsolidated subsidiaries 










(974)

       Income tax provision 










8,289

 Operating income (loss) 


$        32,834


$       10,514


$         3,419


$    (26,989)


19,778

       Depreciation and amortization 


4,501


1,623


616


1,299


8,039

       Other (loss) income, net 


(50)


34


10


518


512

       Equity in earnings of unconsolidated subsidiaries 


157


-


-


817


974

 EBITDA 


37,442


12,171


4,045


(24,355)


29,303

 EBITDA margin 


14.7%


18.2%


6.6%




7.7%












       Restructuring charges, net 


10,801


677


3,086


931


15,495

 Adjusted EBITDA 


$        48,243


$       12,848


$         7,131


$    (23,424)


$            44,798

 Adjusted EBITDA margin 


18.9%


19.2%


11.7%




11.7%

Rates

View Comments (0)