Korn Ferry International Announces Fourth Quarter and Fiscal 2014 Results of Operations

Highlights
-- Korn Ferry reports record quarterly fee revenue of $251.7 million in the fourth quarter of 2014, an increase of 10.4% (the effect of exchange rates was not significant), from Q4 FY'13, with increases realized across all segments:
Futurestep 20.3%
Leadership and Talent Consulting 10.1%
Executive Recruitment 8.3%
-- Adjusted EBITDA margin was 13.7% in Q4 FY'14 compared to 12.2% in Q4 FY'13.
-- Q4 FY'14 diluted earnings per share was $0.43 compared to $0.25 in Q4 FY'13. Adjusted diluted earnings per share was $0.32 in Q4 FY'13, which excludes $3.5 million of net restructuring and integration/acquisition costs. No such costs were incurred in Q4 FY'14.
-- For the full year of FY'14, Korn Ferry reports record annual fee revenue of $960.3 million, an increase of 18.1% (19.1% on a constant currency basis) over FY'13. Adjusting for the prior year acquisitions, annual fee revenue increased 9.3% over FY'13.
-- FY'14 diluted earnings per share was $1.48 compared to $0.70 in FY'13. Adjusted diluted earnings per share was $1.60 in FY'14 and $1.10 in FY'13, excluding $8.6 million and $26.5 million of net restructuring, integration/acquisition and separation costs, respectively.

PR Newswire

LOS ANGELES, June 16, 2014 /PRNewswire/ -- Korn/Ferry International (KFY), a single source of leadership and talent consulting services, today announced record quarterly and annual fee revenues of $251.7 million and $960.3 million for the fourth quarter and FY'14, respectively.  Fourth quarter diluted earnings per share were $0.43.  Full year adjusted diluted earnings per share were $1.60, excluding restructuring, integration/acquisition, and separation costs of $8.6 million.  Including such costs, diluted earnings per share was $1.48 for the year ended April 30, 2014.

"Korn Ferry closed out the fiscal year with a strong quarter – 10.7% growth in fee revenue for the quarter and 19.1% growth for the year, at constant currency – which represents the strongest top line results in the company's history, with earnings per share of $0.43," said Gary D. Burnison, CEO, Korn Ferry. "Korn Ferry's performance is a testament to our differentiated strategy, robust intellectual property and talented people."     


Financial Results


(dollars in millions, except per share amounts)





Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Fee revenue

$       251.7


$      227.9


$     960.3


$      812.8


Total revenue

$       260.8


$      238.6


$     995.6


$      849.7


Operating income

$         24.5


$        15.4


$       91.6


$        43.9


Operating margin

9.7%


6.8%


9.5%


5.4%


Net income

$         21.2


$        12.2


$       72.7


$        33.3


Basic earnings per share

$         0.44


$        0.26


$       1.51


$        0.71


Diluted earnings per share

$         0.43


$        0.25


$       1.48


$        0.70











EBITDA Results (a):

Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


EBITDA

$         34.5


$        24.3


$     129.7


$        71.3


EBITDA margin

13.7%


10.7%


13.5%


8.8%







Adjusted Results (b):

Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Operating income

$         24.5


$        18.9


$     100.2


$        70.4


Operating margin

9.7%


8.3%


10.4%


8.7%


EBITDA (a)

$         34.5


$        27.8


$     138.3


$        97.8


EBITDA margin (a)

13.7%


12.2%


14.4%


12.0%


Net income

$         21.2


$        15.6


$       78.5


$        52.8


Basic earnings per share

$         0.44


$        0.33


$       1.63


$        1.12


Diluted earnings per share

$         0.43


$        0.32


$       1.60


$        1.10




(a)

EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude restructuring charges (net of recoveries), 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):

 


Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Restructuring charges, net of recoveries

$                  —


$             2.9


$            3.7


$            22.8


Integration/acquisition costs

$                  —


$             0.6


$            0.4


$              3.1


Separation costs

$                  —


$              —


$            4.5


$              0.6


Fiscal 2014 Fourth Quarter Results 

Fee revenue was $251.7 million in Q4 FY'14, an increase of $23.8 million, or 10.4% (the effect of exchange rates was not significant), compared to the year-ago quarter, primarily driven by an $11.4 million, $6.3 million, and a  $6.1 million increase in fee revenue in Executive Recruitment, Futurestep and Leadership & Talent Consulting, respectively.  The overall fee revenue increase was driven by fee revenue growth in financial services, technology, life science/healthcare and the industrial sectors.

Compensation and benefit expenses were $170.6 million in Q4 FY'14, an increase of $16.2 million, or 10.5%, compared to the year-ago quarter.  The increase was due to an increase in performance related bonus expense resulting from the increase in fee revenue and profitability, as well as an increase in salaries and related payroll taxes.  The increase in salaries and related payroll taxes was due to a 3.5% increase in the average headcount in Q4 FY'14 compared to Q4 FY'13. 

General and administrative expenses were $39.1 million in Q4 FY'14, a decrease of $1.0 million, or 2.5%, from the year-ago quarter, primarily due to a decrease in office and premise expense of $1.6 million due to synergies obtained from the PDI Ninth House and Global Novations acquisitions (the "prior year acquisitions") and a decrease in foreign exchange loss of $0.6 million, offset by an increase in travel and business development related expenses in Q4 FY'14 compared to the year-ago quarter.

Adjusted EBITDA was $34.5 million in Q4 FY'14, an increase of $6.7 million, or 24.1%, compared to Q4 FY'13.  Adjusted EBITDA margin was 13.7% and 12.2% in Q4 FY'14 and Q4 FY'13, respectively. 

On a GAAP basis, operating income was $24.5 million in Q4 FY'14 and $15.4 million in Q4 FY'13 resulting in a margin of 9.7% in the current quarter compared to 6.8% in the year-ago quarter. 

Fiscal 2014 Results 

Fee revenue was $960.3 million in FY'14, an increase of $147.5 million, or 18.1% (19.1% on a constant currency basis), compared to FY'13.  Adjusting for the prior year acquisitions, fee revenue was $888.4 million in FY'14, an increase of $75.6 million, or 9.3%, compared to FY'13.  The increase in fee revenue was driven by a 9.2% increase in the number of engagements billed in FY'14 compared to FY'13.  The overall fee revenue increase was driven by fee revenue growth in life science/healthcare, industrial, technology and financial services sectors.

Adjusted EBITDA was $138.3 million during FY'14, an increase of $40.5 million, or 41.4%, compared to FY'13.  Adjusted EBITDA margin was 14.4% and 12.0% in FY'14 and FY'13, respectively. 

On a GAAP basis, operating income was $91.6 million in FY'14, an increase of $47.7 million, or 108.7%, compared to FY'13, resulting in an operating margin of 9.5% in the current year compared to 5.4% in the prior year.

Balance Sheet and Liquidity

Cash and marketable securities were $468.3 million at April 30, 2014, compared to $366.0 million at April 30, 2013.  Cash and marketable securities include $116.2 million held in trust for deferred compensation plans at April 30, 2014, compared to $98.0 million at April 30, 2013.  Cash and marketable securities increased by $102.3 million from April 30, 2013, primarily attributable to cash provided by operating activities, partially offset by bonuses earned in fiscal 2013 and paid during the first quarter of fiscal 2014 and $15.0 million in contingent consideration paid to selling stockholders of PDI Ninth House.

Results by Segment

Selected Executive Recruitment Data

(dollars in millions)







Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Fee revenue

$      148.2


$     136.8


$     568.9


$      522.5


Total revenue

$      153.7


$     142.8


$     591.2


$      544.8


Operating income

$        28.4


$       26.5


$     116.4


$        81.0


Operating margin

19.1%


19.4%


20.5%


15.5%











Ending number of consultants

432


399


432


399


Average number of consultants

431


395


416


400


Engagements billed

3,048


2,718


8,144


7,554


New engagements (a)

1,303


1,231


5,052


4,750


 


EBITDA Results (b):

Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


EBITDA

$        31.7


$       29.4


$    126.5


$        91.2


EBITDA margin

21.4%


21.5%


22.2%


17.5%











Adjusted Results (c):

Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Operating income

$        28.4


$        23.9


$    117.7


$        89.7


Operating margin

19.1%


17.5%


20.7%


17.2%


EBITDA (b)

$        31.7


$        26.8


$    127.8


$        99.9


EBITDA margin (b)

21.4%


19.6%


22.5%


19.1%




(a)

Represents new engagements opened in the respective period.



(b)

EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).



(c)

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

 


Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Restructuring charges, net of recoveries

$                  —


$            (2.6)


$             1.3


$              8.1


Separation costs

$                  —


$                —


$              —


$              0.6


Executive Recruitment

Fee revenue was $148.2 million in Q4 FY'14, an increase of $11.4 million, or 8.3% (the effect of exchange rates was not significant), compared to Q4 FY'13.  The increase in fee revenue was driven by increases in Europe, North America and Asia Pacific, partially offset by a decrease in Latin America.  This increase is primarily attributed to a 12.1% increase in the number of executive recruitment engagements billed, offset by a 3.4% decrease in the weighted-average fees billed per engagement in Q4 FY'14 compared to the Q4 FY'13. 

Adjusted EBITDA was $31.7 million during Q4 FY'14, an increase of $4.9 million, or 18.3%, compared to Q4 FY'13.  This increase is primarily attributed to the $11.4 million increase in fee revenue in Q4 FY'14 as compared to Q4 FY'13, partially offset by an increase of $5.9 million in compensation and benefit expenses driven primarily by an increase in performance related bonus expense and salaries and related payroll taxes.  For the full year, adjusted EBITDA increased by $27.9 million due to a $46.4 million increase in fee revenue and a decrease in general and administrative expenses offset by an increase in compensation and benefit expenses.

On a GAAP basis, operating income was $28.4 million in Q4 FY'14, an increase of $1.9 million, or 7.2%, compared to Q4 FY'13, resulting in an operating margin of 19.1% in the current quarter compared to 19.4% in the year-ago quarter.  On a GAAP basis, operating income was $116.4 million in FY'14, an increase of $35.4 million, or 43.7%, compared to FY'13, resulting in an operating margin of 20.5% in FY'14 compared to 15.5% in FY'13.

 


Selected Leadership & Talent Consulting Data

(dollars in millions)



Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Fee revenue

$        66.2


$       60.1


$     254.6


$      168.1


Total revenue

$        68.4


$       63.1


$     263.0


$      176.6


Operating (loss) income

$          6.8


$       (1.3)


$       23.8


$          6.4


Operating margin

10.3%


(2.1)%


9.4%


3.8%











Ending number of consultants (a)

127


133


127


133


Staff utilization (b)

70%


67%


67%


64%







EBITDA Results (c):

Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


EBITDA

$        10.0


$        1.2


$       36.4


$        12.4


EBITDA margin 

15.1%


2.0%


14.3%


7.4%







Adjusted Results (d):

Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Operating income

$          6.8


$         3.8


$       25.0


$        16.6


Operating margin

10.3%


6.3%


9.8%


9.9%


EBITDA (c)

$         10.0


$         6.3


$       37.6


$        22.6


EBITDA margin (c)

15.1%


10.4%


14.8%


13.4%




(a)

Represents number of employees originating consulting services.



(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):


 


Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Restructuring charges, net of recoveries

$                  —


$             5.1


$            1.2


$            10.2


Leadership & Talent Consulting

Fee revenue was $66.2 million in Q4 FY'14, an increase of $6.1 million, or 10.1% (the effect of exchange rates was not significant), from the year-ago quarter.  The increase in fee revenue was driven by increases in North America and Europe.  This increase is primarily attributed to an increase in consulting fee revenue of $3.8 million and an increase in product revenue of $2.3 million in Q4 FY'14 compared to the year-ago quarter.

Adjusted EBITDA was $10.0 million during Q4 FY'14, an increase of $3.7 million, or 58.7%, compared to Q4 FY'13.  Adjusted EBITDA margin was 15.1% in Q4 FY'14 compared to 10.4% in Q4 FY'13 due to an increase in fee revenue of $6.1 million and a decrease in general administrative expenses of $1.2 million, offset by an increase in compensation and benefit expense of $4.2 million.  The decrease in general and administrative expenses was due to a decrease in office and premise expense due to synergies obtained from the prior year acquisitions.  The increase in compensation and benefit expenses was due to an increase in performance related bonus expense, salaries and related payroll taxes, and an increase in the use of outside contractors.  For the full year, adjusted EBITDA was $37.6 million, an increase of $15.0 million, or 66.4%, compared to FY'13.  Adjusted EBITDA margin was 14.8% compared 13.4% in FY'13. 

On a GAAP basis, operating income was $6.8 million in Q4 FY'14, an increase of $8.1 million compared to the year-ago quarter, resulting in an operating margin of 10.3% in the current quarter compared to (2.1%) in the year-ago quarter.  On a GAAP basis, operating income was $23.8 million in FY'14, an increase of $17.4 million compared to FY'13 resulting in an operating margin of 9.4% in FY'14 compared to 3.8% in FY'13.


Selected Futurestep Data

(dollars in millions)



Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Fee revenue

$        37.3


$       31.0


$      136.8


$      122.2


Total revenue

$        38.7


$       32.7


$      141.4


$      128.3


Operating income

$          4.3


$         3.9


$        13.3


$        11.0


Operating margin

11.7%


12.4%


9.8%


9.0%











Engagements billed

1,205


1,032


3,246


3,074


New engagements (a)

598


524


2,427


2,308







EBITDA Results (b):

Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


EBITDA

$          4.8


$         4.1


$        15.7


$        12.2


EBITDA margin

13.1%


13.3%


11.5%


10.0%







Adjusted Results (c):

Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Operating income

$          4.3


$         4.3


$        14.5


$        14.5


Operating margin

11.7%


13.8%


10.6%


11.9%


EBITDA (b)

$          4.8


$         4.5


$        16.9


$        15.7


EBITDA margin (b)

13.1%


14.7%


12.3%


12.9%




(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):



 


Fourth Quarter


Year to Date



FY'14


FY'13


FY'14


FY'13


Restructuring charges, net of recoveries

$                  —


$             0.4


$            1.2


$              3.5


Futurestep

Fee revenue was $37.3 million in Q4 FY'14, an increase of $6.3 million, or 20.3% (21.0% on a constant currency basis), compared to the year-ago quarter.  The increase in fee revenue was driven by a 16.8% increase in the number of engagements billed and a 3.0% increase in the weighted average fees billed per engagement in Q4 FY'14 compared to Q4 FY'13.  The increase was primarily due to large recruitment process outsourcing contracts entered into in the first six months of FY'14, which continued to be delivered in the current quarter and an increase in professional recruitment.

Adjusted EBITDA was $4.8 million during Q4 FY'14, an increase of $0.3 million, or 6.7%, compared to Q4 FY'13, due primarily to the increase in fee revenue of $6.3 million, offset by an increase in compensation and benefit expenses of $4.6 million (due to an increase in performance related bonus expense and headcount), an increase in cost of services expense of $0.7 million and an increase in general and administrative expenses of $0.5 million.  For the full year, adjusted EBITDA increased $1.2 million due to the $14.6 million increase in fee revenue, partially offset by an increase in compensation and benefit expenses of $11.0 million and $2.3 million in cost of services expenses.  The increase in compensation and benefit expenses for the full year is primarily driven by an increase in staffing to accommodate a number of larger recruitment process outsourcing contracts won by the Company in the current fiscal year and an increase in performance related bonus expense.

On a GAAP basis, operating income was $4.3 million in Q4 FY'14, an increase of $0.4 million, compared to Q4 FY'13, resulting in an operating margin of 11.7% in the current quarter compared to 12.4% in the year-ago quarter.  On a GAAP basis, operating income was $13.3 million in FY'14, an increase of $2.3 million, compared to FY'13, resulting in an operating margin of 9.8% in FY'14 compared to 9.0% in FY'13.

Outlook                                                        

As previously disclosed, over the past year we have implemented common technology systems designed to allow us to further integrate our legacy businesses with our recent acquisitions.  Due to the efficiencies we expect to gain from these investments, other integration items from recent acquisitions and other cost savings initiatives, we plan to take additional actions to rationalize our cost structure in Q1 FY'15.  We estimate the realized savings in FY'15 associated with these actions to be in the range of $0.08 to $0.10 per diluted earnings share with the cost of these actions in Q1 FY'15 to be in the range of $0.06 to $0.08 per diluted earnings share.  Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, Q1 FY'15 fee revenue is likely to range from $240 million to $250 million and, after taking into consideration the actions discussed above, adjusted diluted earnings per share are likely to range from $0.37 to $0.43 with diluted earnings per share as measured by Generally Accepted Accounting Principles likely to range from $0.29 to $0.37

Earnings Conference Call Webcast

The earnings conference call will be held today at 5:00 PM (EDT) and hosted by CEO Gary Burnison, CFO Robert Rozek and SVP Finance Gregg Kvochak.  The conference call will be webcast and available online at www.kornferry.com, accessible through the Investor Relations section.  We will also post to this section of our website earnings slides, which will accompany our webcast, and other important information, and encourage you to review the information that we make available on our website.

About Korn Ferry

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), integration/acquisition and separation costs;
  • adjusted net income, adjusted to exclude restructuring (net of recoveries), integration/acquisition and separation costs, net of income tax effect;
  • adjusted basic and diluted earnings per share, adjusted to exclude restructuring (net of recoveries), 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), 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.

KORN FERRY AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 (in thousands, except per share amounts) 













 Three Months Ended 


 Year Ended 



 April 30, 


 April 30, 



2014


2013


2014


2013



 (unaudited) 





 Fee revenue 


$ 251,712


$ 227,902


$ 960,301


$ 812,831

 Reimbursed out-of-pocket engagement expenses 


9,086


10,705


35,258


36,870

           Total revenue 


260,798


238,607


995,559


849,701










 Compensation and benefits 


170,595


154,487


646,889


555,346

 General and administrative expenses 


39,109


40,096


152,040


142,771

 Reimbursed expenses 


9,086


10,705


35,258


36,870

 Cost of services 


10,213


9,129


39,910


28,977

 Depreciation and amortization 


7,315


5,877


26,172


19,004

 Restructuring charges, net 


-


2,921


3,682


22,857

           Total operating expenses 


236,318


223,215


903,951


805,825










 Operating income  


24,480


15,392


91,608


43,876

 Other income, net 


2,018


2,501


9,769


6,309

 Interest expense, net 


(261)


(644)


(2,363)


(2,365)

           Income before provision for income taxes 









               and equity in earnings of unconsolidated subsidiaries 


26,237


17,249


99,014


47,820

 Equity in earnings of unconsolidated subsidiaries 


677


543


2,169


2,110

 Income tax provision  


5,703


5,595


28,492


16,637

            Net income 


$   21,211


$   12,197


$   72,691


$   33,293










 Earnings per common share: 









      Basic 


$       0.44


$       0.26


$       1.51


$       0.71

      Diluted 


$       0.43


$       0.25


$       1.48


$       0.70










 Weighted-average common shares outstanding: 









      Basic 


48,523


47,452


48,162


47,224

      Diluted 


49,458


48,345


49,145


47,883

 

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

 (unaudited) 

























Three Months Ended April 30,


Year Ended April 30,



2014




2013


% Change


2014




2013


% Change


















Fee Revenue:
















Executive recruitment:

















North America

$    80,230




$    77,511


4%


$  306,768




$  290,317


6%


EMEA 

40,175




32,242


25%


147,917




128,807


15%


Asia Pacific

21,753




19,199


13%


84,816




73,221


16%


South America

6,028




7,839


(23%)


29,374




30,134


(3%)

Total executive recruitment

148,186




136,791


8%


568,875




522,479


9%

Leadership & Talent Consulting

66,279




60,116


10%


254,636




168,115


51%

Futurestep

37,247




30,995


20%


136,790




122,237


12%


Total fee revenue

251,712




227,902


10%


960,301




812,831


18%

 Reimbursed out-of-pocket engagement expenses 

9,086




10,705


(15%)


35,258




36,870


(4%)


Total revenue

$  260,798




$  238,607


9%


$  995,559




$  849,701


17%


















Reconciliation of Operating Income (GAAP) to Adjusted Operating Income




























Operating Income:



Margin




Margin




Margin




Margin

Executive recruitment:

















North America

$    18,483


23.0%


$    17,104


22.1%


$    70,256


22.9%


$    58,832


20.3%


EMEA

4,699


11.7%


4,137


12.8%


23,168


15.7%


9,173


7.1%


Asia Pacific

4,380


20.1%


3,482


18.1%


17,274


20.4%


6,973


9.5%


South America

761


12.6%


1,761


22.5%


5,654


19.2%


5,987


19.9%

Total executive recruitment

28,323


19.1%


26,484


19.4%


116,352


20.5%


80,965


15.5%

Leadership & Talent Consulting

6,855


10.3%


(1,292)


(2.1%)


23,847


9.4%


6,424


3.8%

Futurestep

4,343


11.7%


3,834


12.4%


13,352


9.8%


10,975


9.0%

Corporate

(15,041)




(13,634)




(61,943)




(54,488)




 Total operating income

$    24,480


9.7%


$    15,392


6.8%


$    91,608


9.5%


$    43,876


5.4%



































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


























Executive recruitment:

















North America

$             -


-


$     (1,853)


(2.4%)


$         816


0.3%


$      3,583


1.2%


EMEA

-


-


(770)


(2.4%)


460


0.3%


4,498


3.5%


Asia Pacific

-


-


16


0.1%


60


0.0%


629


0.9%


South America

-


-


-


-


-


-


-


-

Total executive recruitment

-


-


(2,607)


(1.9%)


1,336


0.2%


8,710


1.7%

Leadership & Talent Consulting

-


-


5,080


8.4%


1,149


0.4%


10,198


6.1%

Futurestep

-


-


441


1.4%


1,134


0.8%


3,527


2.9%

Corporate





598




4,957




4,044




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

$             -


-


$      3,512


1.5%


$      8,576


0.9%


$    26,479


3.3%



































Adjusted Operating Income:















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


Margin




Margin




Margin




Margin

Executive recruitment:

















North America

$    18,483


23.0%


$    15,251


19.7%


$    71,072


23.2%


$    62,415


21.5%


EMEA

4,699


11.7%


3,367


10.4%


23,628


16.0%


13,671


10.6%


Asia Pacific

4,380


20.1%


3,498


18.2%


17,334


20.4%


7,602


10.4%


South America

761


12.6%


1,761


22.5%


5,654


19.2%


5,987


19.9%

Total executive recruitment

28,323


19.1%


23,877


17.5%


117,688


20.7%


89,675


17.2%

Leadership & Talent Consulting

6,855


10.3%


3,788


6.3%


24,996


9.8%


16,622


9.9%

Futurestep

4,343


11.7%


4,275


13.8%


14,486


10.6%


14,502


11.9%

Corporate 

(15,041)




(13,036)




(56,986)




(50,444)




 Total adjusted operating income 

$    24,480


9.7%


$    18,904


8.3%


$  100,184


10.4%


$    70,355


8.7%

 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (in thousands, except per share amounts) 













April 30,



2014


2013

ASSETS





Cash and cash equivalents


$    333,717


$    224,066

Marketable securities


9,566


20,347

Receivables due from clients, net of allowance for doubtful accounts 





of $9,513 and $9,097 respectively


175,986


161,508

Income taxes and other receivables


8,244


8,944

Deferred income taxes


4,486


3,511

Prepaid expenses and other assets


29,955


28,724

Total current assets


561,954


447,100






Marketable securities, non-current


124,993


121,569

Property and equipment, net


60,434


53,628

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


94,274


85,873

Deferred income taxes


55,039


63,203

Goodwill


257,582


257,293

Intangible assets, net


49,560


58,187

Investments and other assets


29,830


28,376

Total assets


$ 1,233,666


$ 1,115,229






LIABILITIES AND STOCKHOLDERS' EQUITY





Accounts payable


$      19,375


$      19,460

Income taxes payable


13,014


5,502

Compensation and benefits payable


192,035


160,298

Other accrued liabilities


62,509


83,291

Total current liabilities


286,933


268,551






Deferred compensation and other retirement plans


169,235


159,706

Other liabilities


21,962


22,504

Total liabilities


478,130


450,761






Stockholders' equity





Common stock: $0.01 par value, 150,000 shares authorized, 62,282 and 





61,022 shares issued and 49,811 and 48,734 shares outstanding, respectively


449,631


431,508

Retained earnings


308,781


236,090

Accumulated other comprehensive loss, net


(2,388)


(2,631)

Stockholders' equity


756,024


664,967

Less:  notes receivable from stockholders


(488)


(499)

Total stockholders' equity


755,536


664,468

Total liabilities and stockholders' equity


$ 1,233,666


$ 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 



April 30, 2014


April 30, 2013



As Reported


Adjustments


As Adjusted


As Reported


Adjustments


As Adjusted














 Fee revenue 


$ 251,712




$ 251,712


$ 227,902




$ 227,902

 Reimbursed out-of-pocket engagement expenses 


9,086




9,086


10,705




10,705

           Total revenue 


260,798




260,798


238,607




238,607














 Compensation and benefits 


170,595




170,595


154,487




154,487

 General and administrative expenses 


39,109




39,109


40,096


(591)


39,505

 Reimbursed expenses 


9,086




9,086


10,705




10,705

 Cost of services 


10,213




10,213


9,129




9,129

 Depreciation and amortization 


7,315




7,315


5,877




5,877

 Restructuring charges, net 


-




-


2,921


(2,921)


-

           Total operating expenses 


236,318


-


236,318


223,215


(3,512)


219,703














 Operating income 


24,480


-


24,480


15,392


3,512


18,904














 Other income, net 


2,018




2,018


2,501




2,501

 Interest expense, net 


(261)




(261)


(644)




(644)

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














26,237


-


26,237


17,249


3,512


20,761

 Equity in earnings of unconsolidated subsidiaries 


677




677


543




543

 Income tax provision (1) (2) 


5,703




5,703


5,595


119


5,714

            Net income 


$   21,211


$                 -


$   21,211


$   12,197


$          3,393


$   15,590














 Earnings per common share: 













      Basic 


$       0.44




$       0.44


$       0.26




$       0.33

      Diluted 


$       0.43




$       0.43


$       0.25




$       0.32














 Weighted-average common shares outstanding: 













      Basic 


48,523




48,523


47,452




47,452

      Diluted 


49,458




49,458


48,345




48,345














 Explanation of Non-GAAP Adjustments 













(1)

The adjustments result in an effective tax rate of 28% for the as adjusted amounts for the three months ended April 30, 2013.

(2)

The three months ended April 30, 2013, includes the tax effect on restructuring charges and integration/acquisition costs associated with the acquisition of PDI Ninth House.

 


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) 





























 Year Ended 


 Year Ended 



April 30, 2014


April 30, 2013



As Reported


Adjustments


As Adjusted


As Reported


Adjustments


As Adjusted














 Fee revenue 


$   960,301




$   960,301


$   812,831




$   812,831

 Reimbursed out-of-pocket engagement expenses 


35,258




35,258


36,870




36,870

           Total revenue 


995,559




995,559


849,701




849,701














 Compensation and benefits 


646,889


(4,500)


642,389


555,346


(516)


554,830

 General and administrative expenses 


152,040


(394)


151,646


142,771


(3,106)


139,665

 Reimbursed expenses 


35,258




35,258


36,870




36,870

 Cost of services 


39,910




39,910


28,977




28,977

 Depreciation and amortization 


26,172




26,172


19,004




19,004

 Restructuring charges, net 


3,682


(3,682)


-


22,857


(22,857)


-

           Total operating expenses 


903,951


(8,576)


895,375


805,825


(26,479)


779,346














 Operating income 


91,608


8,576


100,184


43,876


26,479


70,355














 Other income, net 


9,769




9,769


6,309




6,309

 Interest expense, net 


(2,363)




(2,363)


(2,365)




(2,365)

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














99,014


8,576


107,590


47,820


26,479


74,299

 Equity in earnings of unconsolidated subsidiaries 


2,169




2,169


2,110




2,110

 Income tax provision (1) (2) 


28,492


2,796


31,288


16,637


6,953


23,590

            Net income  


$     72,691


$           5,780


$     78,471


$     33,293


$         19,526


$     52,819














 Earnings per common share: 













      Basic 


$          1.51




$          1.63


$          0.71




$          1.12

      Diluted 


$          1.48




$          1.60


$          0.70




$          1.10














 Weighted-average common shares outstanding: 













      Basic 


48,162




48,162


47,224




47,224

      Diluted 


49,145




49,145


47,883




47,883














 Explanation of Non-GAAP Adjustments 

(1)

The adjustments result in an effective tax rate of 29% and 32% for the as adjusted amounts for the year ended April 30, 2014 and 2013, respectively.

(2)

The year ended April 30, 2014 and 2013 include the tax effect on restructuring charges, separation costs, and integration/acquisition costs associated with the acquisition of PDI Ninth House.

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)






 Three Months Ended April 30, 2014 



 Executive Recruitment 


 Leadership & Talent Consulting 


 Futurestep 


 Corporate 


 Consolidated 












 Fee revenue 


$    148,186


$     66,279


$      37,247


$               -


$        251,712












 Net income 










$           21,211

       Other income, net 










(2,018)

       Interest expense, net 










261

       Equity in earnings of unconsolidated subsidiaries 










(677)

       Income tax provision 










5,703

 Operating income (loss) 


$      28,323


$       6,855


$        4,343


$   (15,041)


24,480

       Depreciation and amortization 


2,614


3,161


512


1,028


7,315

       Other income (loss), net 


683


(39)


7


1,367


2,018

       Equity in earnings of unconsolidated subsidiaries 


125


-


-


552


677

 EBITDA 


31,745


9,977


4,862


(12,094)


34,490

 EBITDA margin 


21.4%


15.1%


13.1%




13.7%












 Adjusted EBITDA 


$      31,745


$       9,977


$        4,862


$   (12,094)


$           34,490

 Adjusted EBITDA margin 


21.4%


15.1%


13.1%




13.7%

























 Three Months Ended April 30, 2013 



 Executive Recruitment 


 Leadership & Talent Consulting 


 Futurestep 


 Corporate 


 Consolidated 












 Fee revenue 


$    136,791


$     60,116


$      30,995


$               -


$        227,902












 Net income 










$           12,197

       Other income, net 










(2,501)

       Interest expense, net 










644

       Equity in earnings of unconsolidated subsidiaries 










(543)

       Income tax provision 










5,595

 Operating income (loss) 


$      26,484


$      (1,292)


$        3,834


$   (13,634)


15,392

       Depreciation and amortization 


2,243


2,625


240


769


5,877

       Other income (loss), net 


518


(146)


36


2,093


2,501

       Equity in earnings of unconsolidated subsidiaries 


129


-


-


414


543

 EBITDA 


29,374


1,187


4,110


(10,358)


24,313

 EBITDA margin 


21.5%


2.0%


13.3%




10.7%












       Restructuring (recoveries) charges, net 


(2,607)


5,080


441


7


2,921

       Integration/acquisition costs 


-


-


-


591


591

 Adjusted EBITDA 


$      26,767


$       6,267


$        4,551


$     (9,760)


$           27,825

 Adjusted EBITDA margin 


19.6%


10.4%


14.7%




12.2%

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)






 Year Ended April 30, 2014 



 Executive Recruitment 


 Leadership & Talent Consulting 


 Futurestep 


 Corporate 


 Consolidated 












 Fee revenue 


$    568,875


$   254,636


$   136,790


$               -


$        960,301












 Net income 










$          72,691

       Other income, net 









(9,769)

       Interest expense, net 









2,363

       Equity in earnings of unconsolidated subsidiaries 










(2,169)

       Income tax provision 









28,492

 Operating income (loss) 

$    116,352


$     23,847


$     13,352


$  (61,943)


91,608

       Depreciation and amortization 

8,012


12,491


1,797


3,872


26,172

       Other income, net 

1,769


106


583


7,311


9,769

       Equity in earnings of unconsolidated subsidiaries 


383


-


-


1,786


2,169

 EBITDA 


126,516


36,444


15,732


(48,974)


129,718

 EBITDA margin 


22.2%


14.3%


11.5%




13.5%












       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 


$    127,852


$     37,593


$     16,866


$  (44,017)


$        138,294

 Adjusted EBITDA margin 

22.5%


14.8%


12.3%




14.4%

























 Year Ended April 30, 2013 



 Executive Recruitment 


 Leadership & Talent Consulting 


 Futurestep 


 Corporate 


 Consolidated 












 Fee revenue 


$    522,479


$   168,115


$   122,237


$               -


$        812,831












 Net income 










$          33,293

       Other income, net 









(6,309)

       Interest expense, net 









2,365

       Equity in earnings of unconsolidated subsidiaries 










(2,110)

       Income tax provision 









16,637

 Operating income (loss) 

$      80,965


$       6,424


$     10,975


$  (54,488)


43,876

       Depreciation and amortization 

8,991


6,012


1,180


2,821


19,004

       Other income (loss), net 

793


(75)


51


5,540


6,309

       Equity in earnings of unconsolidated subsidiaries 

434


-


-


1,676


2,110

 EBITDA 


91,183


12,361


12,206


(44,451)


71,299

 EBITDA margin 


17.5%


7.4%


10.0%




8.8%












       Restructuring charges, net 

8,194


10,198


3,527


938


22,857

       Integration/acquisition costs 

-


-


-


3,106


3,106

       Separation costs 


516


-


-


-


516

 Adjusted EBITDA 


$      99,893


$     22,559


$     15,733


$  (40,407)


$          97,778

 Adjusted EBITDA margin 

19.1%


13.4%


12.9%




12.0%

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