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Korn Ferry International Announces Third Quarter Fiscal 2017 Results of Operations

LOS ANGELES, March 6, 2017 /PRNewswire/ --

Highlights

  • Korn Ferry reports an 11% increase in Q3 FY'17 fee revenue compared to the year ago-quarter, primarily driven by the acquisition in Hay Group.
  • Futurestep's new business in the quarter reached a record high of $103.8 million, with a record $83 million in Solutions new business.
  • Operating margin was 8.0% in Q3 FY'17 compared to an operating margin of (4.1)% in Q3 FY'16.  Adjusted EBITDA margin increased to 14.5% in Q3 FY'17 from 13.6% in Q3 FY'16.
  • Q3 FY'17 diluted earnings per share was $0.42 compared to diluted loss per share of $0.30 in Q3 FY'16.  Adjusted diluted earnings per share was $0.53 in Q3 FY'17, compared to adjusted diluted earnings per share in Q3 FY'16 of $0.52.
  • The Company continued to repurchase shares in the open market with cumulative share repurchases of 893,000 since October 2016, representing a reduction of approximately 1.6% of outstanding shares of common stock.
  • The Company declared a quarterly dividend of $0.10 per share on March 6, 2017, payable on April 14, 2017 to stockholders of record on March 23, 2017.

Korn/Ferry International (KFY), the preeminent global people and organizational advisory firm, today announced third quarter fee revenue of $381.9 million.  Q3 FY'17 diluted earnings per share and adjusted diluted earnings per share were $0.42 and $0.53, respectively.  Adjusted diluted earnings per share exclude $8.6 million, or $0.15 per share, of restructuring charges, net and integration/acquisition costs.

"I am pleased to report an 11% increase in fee revenue to $382 million and strong profitability with adjusted diluted earnings per share of $0.53 and adjusted EBITDA of approximately $55 million during our recently completed third quarter, benefitted by the acquisition of Hay Group," said Gary D. Burnison, CEO of Korn Ferry.  "I'm confident the steps we have taken since combining with the Hay Group – broadening our solutions, unifying two outstanding workforces and streamlining our operations – have not only created the world's leading organizational and people advisory firm, but a transformational platform for growth and scale."

Selected Financial Results


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





Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



Fee revenue

$       381.9


$       344.2


$  1,159.5


$     892.2



Total revenue

$       394.2


$       358.9


$  1,202.1


$     929.6



Operating income (loss)

$         30.5


$       (14.1)


$       81.6


$       47.8



Operating margin

8.0 %


(4.1) %


7.0 %


5.4 %



Net income (loss) attributable to Korn Ferry

$         23.9


$       (16.0)


$      57.3


$       25.1



Basic earnings (loss) per share

$         0.42


$       (0.30)


$      1.01


$       0.49



Diluted earnings (loss) per share

$         0.42


$       (0.30)


$      1.00


$       0.48













EBITDA Results (b):

Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



EBITDA

$         46.6


$       (10.6)


$     124.4


$       64.4



EBITDA margin

12.2 %


(3.1) %


10.7 %


7.2 %













Adjusted Results (c):

Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



Adjusted fee revenue

$       381.9


$       350.1


$ 1,163.0


$      898.1



Adjusted EBITDA (b)

$         55.3


$         47.7


$    174.9


$      135.4



Adjusted EBITDA margin (b)

14.5 %


13.6 %


15.0 %


15.1 %



Adjusted net income attributable to Korn Ferry

$         30.1


$         28.8


$      93.7


$        78.1



Adjusted basic earnings per share

$         0.53


$         0.53


$      1.65


$        1.51



Adjusted diluted earnings per share

$         0.53


$         0.52


$      1.63


$        1.50




___________

(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, net, integration/acquisition costs and separation costs and includes the deferred revenue adjustment related to the acquisition in Hay Group (formerly known as Leadership & Talent Consulting ("Legacy LTC") and combined with HG (Luxembourg) S.à.r.l ("Legacy Hay")).  EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations). 

(c)

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




Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



Integration/acquisition costs

$              4.8


$               21.1


$             18.7


$             33.8



Restructuring charges, net

$              3.8


$               30.6


$             28.3


$             30.6



Deferred revenue adjustment related to the Legacy Hay acquisition

$               —


$                 5.9


$               3.5


$               5.9



Separation costs

$               —


$                 0.7


$                —


$               0.7



Write-off of debt issuance costs

$               —


$                  —


$               1.0


$                —



 

Fee revenue was $381.9 million in Q3 FY'17, an increase of 11.0% (13.3% increase on a constant currency basis) compared to Q3 FY'16.  The growth was primarily due to an increase in fee revenue associated with the acquisition of Legacy Hay that was completed on December 1, 2015, and organic growth in Futurestep fee revenue.

Operating margin was 8.0% in Q3 FY'17 compared to (4.1)% in the year-ago quarter.  EBITDA margin was 12.2% in Q3 FY'17 compared to (3.1)% in Q3 FY'16.  In Q3 FY'17, the increase in operating and EBITDA margin was primarily due to a decrease in both restructuring charges, net and integration/acquisition costs and higher fee revenues.

Adjusted EBITDA margin was 14.5%, compared to 13.6% in the year-ago quarter.  The increase in Adjusted EBITDA margin was primarily due to the improvement in margins in the Hay Group segment due to the synergies achieved in connection with the Legacy Hay acquisition.

Results by Segment




Selected Executive Search Data


(dollars in millions) (a)





Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



Fee revenue

$       152.8


$     154.6


$       455.4


$      463.2



Total revenue

$       157.1


$     159.6


$       469.2


$      479.1



Operating income

$         29.3


$       34.6


$         93.7


$      108.7



Operating margin

19.2 %


22.4 %


20.6 %


23.5 %













Ending number of consultants

507


492


507


492



Average number of consultants

504


493


498


472



Engagements billed

3,328


2,975


7,113


6,440



New engagements (b)

1,453


1,302


4,424


4,054













EBITDA Results (c):

Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



EBITDA

$         31.4


$        35.7


$       99.2


$      113.2



EBITDA margin

20.5 %


23.0 %


21.8 %


24.4 %













Adjusted Results (d):

Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



Adjusted EBITDA (c)

$        32.6


$        43.0


$     103.2


$      120.5



Adjusted EBITDA margin (c)

21.3 %


27.7 %


22.7 %


26.0 %




___________

(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):




Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



Restructuring charges, net

$               1.2


$               7.3


$             4.0


$               7.3



 

Fee revenue was $152.8 million in Q3 FY'17, a decrease of $1.8 million (an increase of $1.8 million on a constant currency basis) compared to Q3 FY'16. 

Operating income was $29.3 million in Q3 FY'17 compared to $34.6 million in Q3 FY'16.  Operating margin was 19.2% in Q3 FY'17 compared to 22.4% in the year-ago quarter.  The decrease in operating income and operating margin was due to lower fee revenue, higher compensation and benefits cost associated with recent new hires, the unfavorable impact of an increase in the fair value of amounts owed under certain deferred compensation plans and the unfavorable impact of foreign exchange rates.

EBITDA was $31.4 million in Q3 FY'17 with an EBITDA margin of 20.5% compared to $35.7 million and 23.0%, respectively, in Q3 FY'16.  Adjusted EBITDA was $32.6 million in Q3 FY'17 with an Adjusted EBITDA margin of 21.3% compared to $43.0 million and 27.7%, respectively, in Q3 FY'16.  

Selected Hay Group Data


(dollars in millions) (a)





Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



Fee revenue

$      175.7


$     140.6


$       539.1


$     283.4



Total revenue

$      179.0


$     146.1


$       552.8


$     293.5



Operating income (loss)

$        16.0


$     (21.6)


$         31.2


$       (6.3)



Operating margin

9.1 %


(15.3) %


5.8 %


(2.2) %













Ending number of consultants (b)

559


183


559


183



Staff utilization (c)

62 %


62 %


66 %


65 %













EBITDA Results (d):

Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



EBITDA

$        24.2


$      (14.7)


$         55.6


$          7.0



EBITDA margin

13.8 %


(10.5) %


10.3 %


2.5 %













Adjusted Results (e):

Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



Adjusted fee revenue

$      175.7


$      146.5


$       542.6


$      289.3



Adjusted EBITDA (d)

$        30.1


$        22.8


$         95.2


$        48.2



Adjusted EBITDA margin (d)

17.1 %


15.6 %


17.5 %


16.7 %




___________

(a) 

Numbers may not total due to rounding.

(b)

Represents number of employees originating consulting services.  Prior year numbers do not include Legacy Hay employees because those employees were not mapped to our existing job categories.

(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):




Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



Integration/acquisition costs

$               3.4


$              8.4


$           12.0


$             12.1



Restructuring charges, net

$               2.5


$            23.2


$           24.0


$             23.2



Deferred revenue adjustment related to the Legacy Hay acquisition

$                —


$              5.9


$             3.5


$               5.9



 

Fee revenue was $175.7 million in Q3 FY'17 compared to $140.6 million in Q3 FY'16, an increase of $35.1 million or 25.0% (a $38.2 million or 27.2% increase on a constant currency basis) compared to the year-ago quarter.  The increase in fee revenue is primarily attributed to the Legacy Hay acquisition that was completed on December 1, 2015. 

Operating income was $16.0 million in Q3 FY'17, resulting in an operating margin of 9.1%.  Operating income increased by $37.6 million from the operating loss of $21.6 million in Q3 FY'16.  The change in operating income was primarily due to higher fee revenue and a decrease in restructuring charges, partially offset by increases in compensation and benefit expense and general and administrative expenses.

EBITDA was $24.2 million in Q3 FY'17, with a margin of 13.8%, up from an EBITDA loss and margin of $14.7 million and (10.5)%, respectively, in the year-ago quarter.  Adjusted EBITDA was $30.1 million in Q3 FY'17, an increase of $7.3 million compared to Q3 FY'16, resulting in an Adjusted EBITDA margin of 17.1% in the current quarter compared to 15.6% in the year-ago quarter. 

Selected Futurestep Data


(dollars in millions) (a)





Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



Fee revenue

$        53.4


$         49.0


$     165.0


$      145.6



Total revenue

$        58.1


$         53.2


$     180.0


$      157.0



Operating income

$          6.5


$           6.6


$       21.8


$        19.7



Operating margin

12.3 %


13.5 %


13.2 %


13.5 %













Engagements billed (b)

1,096


824


2,206


1,718



New engagements (c)

539


435


1,617


1,366













EBITDA Results (d):

Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



EBITDA

$           7.3


$          7.3


$       23.9


$        21.6



EBITDA margin

13.7 %


14.9 %


14.5 %


14.8 %













Adjusted Results (e):

Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



Adjusted EBITDA (d)

$           7.4


$          7.3


$       24.0


$        21.6



Adjusted EBITDA margin (d)

13.9 %


14.9 %


14.6 %


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).

(e)

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




Third Quarter


Year to Date




FY'17


FY'16


FY'17


FY'16



Restructuring charges, net

$               0.1


$                 —


$             0.1


$                —



 

Fee revenue was $53.4 million in Q3 FY'17, an increase of $4.4 million or 9.0% (a $5.7 million or 11.6% increase on a constant currency basis), compared to the year-ago quarter.  

Operating income was $6.5 million in Q3 FY'17, essentially flat compared to Q3 FY'16.   Operating margin was 12.3% in the current quarter compared to 13.5% in the year-ago quarter.  The decline in operating margin was due to an increase in compensation and benefits expense primarily driven by the need to service an increase in engagements in the recruitment process outsourcing business tied to strong Q2 and Q3 FY'17 new engagements.

EBITDA and Adjusted EBITDA were $7.3 million and $7.4 million, respectively, during Q3 FY'17, essentially flat compared to Q3 FY'16.

Outlook

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

  • Q4 FY'17 fee revenue is expected to be in the range of $398 million and $412 million; and
  • Q4 FY'17 diluted earnings per share is likely to range between $0.41 to $0.49.

On a consolidated adjusted basis:

  • Q4 FY'17 adjusted diluted earnings per share is expected to be in the range from $0.57 to $0.63.

 


Q4 FY'17

Earnings Per Share Outlook(1)




Low


High



Consolidated diluted earnings per share

$          0.41


$          0.49



  Integration/acquisition costs

0.03


0.02



  Restructuring charges,net

0.14


0.12



  Retention bonuses

0.05


0.05



  Tax rate impact

(0.06)


(0.05)



Consolidated adjusted diluted earnings per share

$          0.57


$          0.63




____________

(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 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 ir.kornferry.com.  We will also post to this section of our website earnings slides, which will accompany our webcast, and other important information, and encourage you to review the information that we make available on our website.

About Korn Ferry

Korn Ferry is 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 Legacy Hay, our ability to recognize the anticipated benefits of the acquisition of Legacy Hay 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 Legacy Hay, maintaining our brand name and professional reputation, potential legal liability, the portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure with our growth, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, consolidation of industries we serve, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, impairment of goodwill and other intangible assets, deferred tax assets, seasonality, our ability to successfully rationalize our cost structure and employment liability risk.  For a detailed description of risks and uncertainties that could cause differences, please refer to Korn Ferry's periodic filings with the Securities and Exchange Commission.  Korn Ferry disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures

This press release contains financial information calculated other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP").  In particular, it includes:

  • adjusted net income attributable to Korn/Ferry International, adjusted to exclude restructuring charges, net, integration/acquisition costs, separation costs, write-off of debt issuance costs and includes the deferred revenue adjustment related to the Legacy Hay acquisition, net of income tax effect;
  • adjusted basic and diluted earnings per share, adjusted to exclude restructuring charges, net, integration/acquisition costs, separation costs, write-off of debt issuance costs and includes the deferred revenue adjustment related to the Legacy Hay 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 separation costs and includes the deferred revenue adjustment related to the Legacy Hay 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.

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 Legacy Hay acquisition, 2) charges we incurred to restructure the combined company due to the acquisition of Legacy Hay, 3) separation costs, 4) debt issuance costs written-off upon replacement of our credit facility and 5) 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 non-GAAP financial measures facilitates comparisons to Korn Ferry's historical performance.  Korn Ferry includes non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.  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 useful supplemental information regarding Korn Ferry's performance as excluding the impact of exchange rate changes on Korn Ferry's financial performance allows investors to make more meaningful period-to-period comparisons of the Company's operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making. 

[Tables attached]

 

KORN FERRY AND SUBSIDIARIES


 CONSOLIDATED STATEMENTS OF OPERATIONS 


 (in thousands, except per share amounts) 
















 Three Months Ended 


 Nine Months Ended 




 January 31, 


 January 31, 




2017


2016


2017


2016




 (unaudited) 


 Fee revenue 


$ 381,918


$ 344,158


$ 1,159,456


$ 892,152


 Reimbursed out-of-pocket engagement expenses 


12,277


14,721


42,626


37,401


           Total revenue 


394,195


358,879


1,202,082


929,553












 Compensation and benefits 


262,438


242,429


796,014


610,493


 General and administrative expenses 


56,818


57,395


166,294


139,449


 Reimbursed expenses 


12,277


14,721


42,626


37,401


 Cost of services 


16,545


17,494


52,251


38,850


 Depreciation and amortization 


11,774


10,330


34,970


24,933


 Restructuring charges, net 


3,801


30,577


28,321


30,577


           Total operating expenses 


363,653


372,946


1,120,476


881,703












 Operating income (loss) 


30,542


(14,067)


81,606


47,850


 Other income (loss), net 


4,200


(7,092)


7,580


(9,812)


 Interest expense, net 


(2,402)


(372)


(8,199)


(1,215)


           Income (loss) before provision (benefit) for income taxes and equity in earnings of unconsolidated subsidiaries 


32,340


(21,531)


80,987


36,823


 Equity in earnings of unconsolidated subsidiaries 


113


181


221


1,446


 Income tax provision (benefit) 


8,075


(5,355)


21,706


13,211


 Net income (loss) 


24,378


(15,995)


59,502


25,058


           Net income attributable to noncontrolling interest 


(481)


-


(2,245)


-


 Net income (loss) attributable to Korn/Ferry International 


$   23,897


$ (15,995)


$      57,257


$   25,058












 Earnings (loss) per common share attributable to Korn/Ferry International: 









      Basic 


$       0.42


$      (0.30)


$           1.01


$       0.49


      Diluted 


$       0.42


$      (0.30)


$           1.00


$       0.48












 Weighted-average common shares outstanding: 










      Basic 


56,173


54,003


56,325


51,159


      Diluted 


56,702


54,003


56,917


51,683












 Cash dividends declared per share: 


$       0.10


$       0.10


$           0.30


$       0.30












 

KORN FERRY AND SUBSIDIARIES


FINANCIAL SUMMARY BY SEGMENT


(in thousands)


 (unaudited) 




























Three Months Ended January 31,


Nine Months Ended January 31,




2017




2016


% Change


2017




2016


% Change




















Fee Revenue:

















Executive search:


















North America

$   84,827




$   93,520


(9%)


$    259,361




$ 276,667


(6%)



EMEA 

39,147




35,498


10%


109,296




108,158


1%



Asia Pacific

21,012




19,094


10%


60,108




59,307


1%



Latin America

7,835




6,541


20%


26,645




19,083


40%


Total executive search

152,821




154,653


(1%)


455,410




463,215


(2%)


Hay Group

175,662




140,508


25%


539,086




283,350


90%


Futurestep

53,435




48,997


9%


164,960




145,587


13%



Total fee revenue

381,918




344,158


11%


1,159,456




892,152


30%


 Reimbursed out-of-pocket engagement expenses 

12,277




14,721


(17%)


42,626




37,401


14%



Total revenue

$ 394,195




$ 358,879


10%


$ 1,202,082




$ 929,553


29%




















Operating Income (Loss):



Margin




Margin




Margin




Margin


Executive search:


















North America

$   17,718


20.9%


$   28,957


31.0%


$      60,458


23.3%


$   80,524


29.1%



EMEA

8,175


20.9%


1,707


4.8%


21,049


19.3%


14,912


13.8%



Asia Pacific

2,086


9.9%


2,775


14.5%


6,216


10.3%


9,668


16.3%



Latin America

1,352


17.3%


1,166


17.8%


5,966


22.4%


3,644


19.1%


Total executive search

29,331


19.2%


34,605


22.4%


93,689


20.6%


108,748


23.5%


Hay Group

15,988


9.1%


(21,559)


(15.3%)


31,188


5.8%


(6,286)


(2.2%)


Futurestep

6,549


12.3%


6,630


13.5%


21,849


13.2%


19,715


13.5%


Corporate

(21,326)




(33,743)




(65,120)




(74,327)





 Total operating income (loss)

$   30,542


8.0%


$ (14,067)


(4.1%)


$      81,606


7.0%


$   47,850


5.4%


 

KORN FERRY AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


 (in thousands, except per share amounts) 
















January 31,


April 30,




2017


2016


ASSETS


 (unaudited) 




Cash and cash equivalents


$    351,305


$    273,252


Marketable securities


4,139


11,338


Receivables due from clients, net of allowance for doubtful accounts of $14,025 and $11,292 respectively







343,105


315,975


Income taxes and other receivables


23,828


20,579


Prepaid expenses and other assets


52,012


43,130


Total current assets


774,389


664,274








Marketable securities, non-current


111,289


130,092


Property and equipment, net


108,836


95,436


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


111,949


107,296


Deferred income taxes


23,810


27,163


Goodwill


581,034


590,072


Intangible assets, net


221,047


233,027


Investments and other assets


64,197


51,240


Total assets


$ 1,996,551


$ 1,898,600








LIABILITIES AND STOCKHOLDERS' EQUITY






Accounts payable


$      31,477


$      26,634


Income taxes payable


7,570


8,396


Compensation and benefits payable


198,807


266,211


Term loan


19,754


30,000


Other accrued liabilities


150,009


145,023


Total current liabilities


407,617


476,264








Deferred compensation and other retirement plans


221,385


216,113


Term loan, non-current


241,161


110,000


Deferred tax liabilities


7,301


5,088


Other liabilities


51,085


43,834


Total liabilities


928,549


851,299








Stockholders' equity






Common stock: $0.01 par value, 150,000 shares authorized, 70,759 and 69,273 shares issued and 57,326 and 57,272 shares outstanding, respectively







700,696


702,098


Retained earnings


440,824


401,113


Accumulated other comprehensive loss, net


(76,099)


(57,911)


Total Korn/Ferry International stockholders' equity


1,065,421


1,045,300


Noncontrolling interest


2,581


2,001


Total stockholders' equity


1,068,002


1,047,301


Total liabilities and stockholders' equity


$ 1,996,551


$ 1,898,600


 

KORN FERRY AND SUBSIDIARIES


 RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES 


 (in thousands, except per share amounts) 
















 Three Months Ended 


 Nine Months Ended 




 January 31, 


 January 31, 




2017


2016


2017


2016




 (unaudited) 


 Fee revenue 


$ 381,918


$ 344,158


$ 1,159,456


$ 892,152


 Deferred revenue adjustment due to acquisition (1) 


-


5,871


3,535


5,871


           Adjusted fee revenue 


$ 381,918


$ 350,029


$ 1,162,991


$ 898,023












 Operating income (loss) 


$   30,542


$ (14,067)


$      81,606


$   47,850


 Depreciation and amortization 


11,774


10,330


34,970


24,933


 Other income (loss), net 


4,200


(7,092)


7,580


(9,812)


 Equity in earnings of unconsolidated subsidiaries, net 


113


181


221


1,446


           EBITDA 


46,629


(10,648)


124,377


64,417


 Deferred revenue adjustment due to acquisition (1) 


-


5,871


3,535


5,871


 Restructuring charges, net (2) 


3,801


30,577


28,321


30,577


 Integration/acquisition costs (3) 


4,830


21,147


18,677


33,815


 Separation costs (4) 


-


744


-


744


           Adjusted EBITDA 


$   55,260


$   47,691


$    174,910


$ 135,424












 Operating margin 


8.0%


(4.1%)


7.0%


5.4%


 Depreciation and amortization 


3.1%


3.0%


3.0%


2.8%


 Other (loss) income, net 


1.1%


(2.1%)


0.7%


(1.1%)


 Equity in earnings of unconsolidated subsidiaries, net 


-


0.1%


-


0.1%


            EBITDA margin 


12.2%


(3.1%)


10.7%


7.2%


 Deferred revenue adjustment due to acquisition (1) 


-


1.7%


0.3%


0.6%


 Restructuring charges, net (2) 


1.0%


8.7%


2.4%


3.4%


 Integration/acquisition costs (3) 


1.3%


6.1%


1.6%


3.8%


 Separation costs (4) 


-


0.2%


-


0.1%


           Adjusted EBITDA margin 


14.5%


13.6%


15.0%


15.1%












 Net income (loss) attributable to Korn/Ferry International 


$   23,897


$ (15,995)


$      57,257


$   25,058


 Deferred revenue adjustment due to acquisition (1) 


-


5,871


3,535


5,871


 Restructuring charges, net (2) 


3,801


30,577


28,321


30,577


 Integration/acquisition costs (3) 


4,830


21,147


18,677


33,815


 Separation costs (4) 


-


744


-


744


 Write-off of debt issuance costs (5) 


-


-


954


-


 Tax effect on the above items (6) 


(2,440)


(13,590)


(15,074)


(17,973)


           Adjusted net income attributable to Korn/Ferry International 


$   30,088


$   28,754


$      93,670


$   78,092












 Basic earnings (loss) per common share 


$       0.42


$      (0.30)


$           1.01


$       0.49


 Deferred revenue adjustment due to acquisition (1) 


-


0.11


0.06


0.11


 Restructuring charges, net (2) 


0.07


0.57


0.50


0.59


 Integration/acquisition costs (3) 


0.08


0.39


0.33


0.65


 Separation costs (4) 


-


0.01


-


0.01


 Write-off of debt issuance costs (5) 


-


-


0.02


-


 Tax effect on the above items (6) 


(0.04)


(0.25)


(0.27)


(0.34)


           Adjusted basic earnings per share 


$       0.53


$       0.53


$           1.65


$       1.51












 Diluted earnings (loss) per common share 


$       0.42


$      (0.30)


$           1.00


$       0.48


 Deferred revenue adjustment due to acquisition (1) 


-


0.11


0.06


0.11


 Restructuring charges, net (2) 


0.07


0.56


0.49


0.59


 Integration/acquisition costs (3) 


0.08


0.39


0.33


0.65


 Separation costs (4) 


-


0.01


-


0.01


 Write-off of debt issuance costs (5) 


-


-


0.02


-


 Tax effect on the above items (6) 


(0.04)


(0.25)


(0.27)


(0.34)


           Adjusted diluted earnings per share 


$       0.53


$       0.52


$           1.63


$       1.50






















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 $539.1 million during the nine months ended January 31, 2017 and $140.6 million and $283.4 million during the three  and nine months ended January 31, 2016,  respectively.  On an adjusted basis, Hay Group fee revenue was $542.6 million during the nine months ended January 31, 2017 and $146.5 million and $289.3 million during the three and nine months ended January 31, 2016, respectively. 

(2)

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

(3)

Costs associated with completing the acquisition of Legacy Hay, such as legal and professional fees, and the on-going integration expenses to combine the companies. 

(4)

Certain senior management separation charges. 

(5)

Write-off of debt issuance costs as a result of replacing our prior Credit Agreement with a new senior secured Credit Agreement. 

(6)

Tax effect on deferred revenue adjustment associated with the acquisition of Legacy Hay, restructuring charges, net, integration/acquisition costs, separation costs and the write-off of debt issuance costs. 

 

KORN FERRY AND SUBSIDIARIES


RECONCILIATION OF NET INCOME (LOSS) AND OPERATING INCOME (LOSS) (GAAP) TO


EBITDA AND ADJUSTED EBITDA (NON-GAAP)


(in thousands)


(unaudited)








 Three Months Ended January 31, 2017 




 Executive Search 












 North
America 


 EMEA 


 Asia Pacific 


 Latin
America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 






















 Fee revenue 


$             84,827


$ 39,147


$       21,012


$               7,835


$ 152,821


$   175,662


$        53,435


$                  -


$           381,918


 Total revenue 


$             87,975


$ 39,965


$       21,336


$               7,856


$ 157,132


$   178,962


$        58,101


$                  -


$           394,195






















 Net income attributable to Korn/Ferry International 
















$             23,897


 Net income attributable to noncontrolling interest 
















481


 Other income, net 


















(4,200)


 Interest expense, net 


















2,402


 Equity in earnings of unconsolidated subsidiaries, net 


















(113)


 Income tax provision 


















8,075


 Operating income (loss) 


$             17,718


$   8,175


$         2,086


$               1,352


$   29,331


$     15,988


$           6,549


$     (21,326)


30,542


 Depreciation and amortization 


996


226


268


(21)


1,469


8,061


789


1,455


11,774


 Other income (loss), net 


316


19


60


61


456


122


(2)


3,624


4,200


 Equity in earnings of unconsolidated  subsidiaries, net 


113


-


-


-


113


-


-


-


113


 EBITDA 


19,143


8,420


2,414


1,392


31,369


24,171


7,336


(16,247)


46,629


 EBITDA margin 


22.6%


21.5%


11.5%


17.8%


20.5%


13.8%


13.7%




12.2%






















 Restructuring charges, net 


-


-


893


309


1,202


2,519


80


-


3,801


 Integration/acquisition costs 


-


-


-


-


-


3,364


-


1,466


4,830


 Adjusted EBITDA 


$             19,143


$   8,420


$         3,307


$               1,701


$   32,571


$     30,054


$           7,416


$     (14,781)


$             55,260


 Adjusted EBITDA margin 


22.6%


21.5%


15.7%


21.7%


21.3%


17.1%


13.9%




14.5%












































 Three Months Ended January 31, 2016 




 Executive Search 












 North
America 


 EMEA 


 Asia Pacific 


 Latin
America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 






















 Fee revenue 


$             93,520


$ 35,498


$       19,094


$               6,541


$ 154,653


$   140,508


$        48,997


$                  -


$           344,158


 Deferred revenue adjustment due to acquisition   

-


-


-


-


-


5,871


-


-


5,871


 Adjusted fee revenue   


$             93,520


$ 35,498


$       19,094


$               6,541


$ 154,653


$   146,379


$        48,997


$                  -


$           350,029


 Total revenue   


$             97,097


$ 36,417


$       19,603


$               6,545


$ 159,662


$   146,079


$        53,138


$                  -


$           358,879






















 Net loss attributable to Korn/Ferry International 
















$            (15,995)


 Net income attributable to noncontrolling interest 
















-


 Other loss, net 


















7,092


 Interest expense, net 


















372


 Equity in earnings of unconsolidated  subsidiaries, net 


















(181)


 Income tax benefit 


















(5,355)


 Operating income (loss) 


$             28,957


$   1,707


$         2,775


$               1,166


$   34,605


$    (21,559)


$           6,630


$     (33,743)


(14,067)


 Depreciation and amortization 


812


213


235


73


1,333


6,722


609


1,666


10,330


 Other income (loss), net 


(330)


77


(114)


9


(358)


143


79


(6,956)


(7,092)


 Equity in earnings of unconsolidated subsidiaries, net 


26


-


-


-


26


-


-


155


181


 EBITDA 


29,465


1,997


2,896


1,248


35,606


(14,694)


7,318


(38,878)


(10,648)


 EBITDA margin 


31.5%


5.6%


15.2%


19.1%


23.0%


(10.5%)


14.9%




(3.1%)






















 Restructuring charges, net 


484


5,866


577


328


7,255


23,241


-


81


30,577


 Integration/acquisition costs 


-


-


-


-


-


8,413


-


12,734


21,147


 Deferred revenue adjustment due to acquisition 


-


-


-


-


-


5,871


-


-


5,871


 Separation costs 


-


-


-


-


-


-


-


744


744


 Adjusted EBITDA 


$             29,949


$   7,863


$         3,473


$               1,576


$   42,861


$     22,831


$           7,318


$     (25,319)


$             47,691


 Adjusted EBITDA margin 


32.0%


22.2%


18.2%


24.1%


27.7%


15.6%


14.9%




13.6%


 

KORN FERRY AND SUBSIDIARIES


RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO


EBITDA AND ADJUSTED EBITDA (NON-GAAP)


(in thousands)


(unaudited)








 Nine Months Ended January 31, 2017 




 Executive Search 












 North
America 


 EMEA 


 Asia Pacific 


 Latin
America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 






















 Fee revenue 


$           259,361


$ 109,296


$       60,108


$            26,645


$ 455,410


$   539,086


$      164,960


$                  -


$        1,159,456


 Deferred revenue adjustment due to acquisition   


-


-


-


-


-


3,535


-


-


3,535


 Adjusted fee revenue   


$           259,361


$ 109,296


$       60,108


$            26,645


$ 455,410


$   542,621


$      164,960


$                  -


$        1,162,991


 Total revenue   


$           269,302


$ 111,721


$       61,445


$            26,766


$ 469,234


$   552,822


$      180,026


$                  -


$        1,202,082






















 Net income attributable to Korn/Ferry International 
















$             57,257


 Net income attributable to noncontrolling interest 
















2,245


 Other income, net 


















(7,580)


 Interest expense, net 


















8,199


 Equity in earnings of unconsolidated subsidiaries, net 


















(221)


 Income tax provision 


















21,706


 Operating income (loss) 


$             60,458


$   21,049


$         6,216


$               5,966


$   93,689


$     31,188


$        21,849


$     (65,120)


81,606


 Depreciation and amortization 


2,816


666


757


267


4,506


24,102


2,081


4,281


34,970


 Other income (loss), net 


512


(37)


171


158


804


346


(4)


6,434


7,580


 Equity in earnings of unconsolidated subsidiaries, net 


221


-


-


-


221


-


-


-


221


 EBITDA 


64,007


21,678


7,144


6,391


99,220


55,636


23,926


(54,405)


124,377


 EBITDA margin 


24.7%


19.8%


11.9%


24.0%


21.8%


10.3%


14.5%




10.7%






















 Restructuring charges, net 


1,706


128


1,515


669


4,018


24,007


80


216


28,321


 Integration/acquisition costs 


-


-


-


-


-


11,993


-


6,684


18,677


 Deferred revenue adjustment due to acquisition 


-


-


-


-


-


3,535


-


-


3,535


 Adjusted EBITDA 


$             65,713


$   21,806


$         8,659


$               7,060


$ 103,238


$     95,171


$        24,006


$     (47,505)


$           174,910


 Adjusted EBITDA margin 


25.3%


20.0%


14.4%


26.5%


22.7%


17.5%


14.6%




15.0%












































 Nine Months Ended January 31, 2016 




 Executive Search 












 North
America 


 EMEA  


 Asia Pacific 


 Latin
America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 






















 Fee revenue 


$           276,667


$ 108,158


$       59,307


$            19,083


$ 463,215


$   283,350


$      145,587


$                  -


$           892,152


 Deferred revenue adjustment due to acquisition   


-


-


-


-


-


5,871


-


-


5,871


 Adjusted fee revenue   


$           276,667


$ 108,158


$       59,307


$            19,083


$ 463,215


$   289,221


$      145,587


$                  -


$           898,023


 Total revenue   


$           287,694


$ 111,097


$       61,210


$            19,095


$ 479,096


$   293,511


$      156,946


$                  -


$           929,553






















 Net income attributable to Korn/Ferry International 
















$             25,058


 Net income attributable to noncontrolling interest 
















-


 Other loss, net 


















9,812


 Interest expense, net 


















1,215


 Equity in earnings of unconsolidated subsidiaries, net 


















(1,446)


 Income tax provision 


















13,211


 Operating income (loss) 


$             80,524


$   14,912


$         9,668


$               3,644


$ 108,748


$      (6,286)


$        19,715


$     (74,327)


47,850


 Depreciation and amortization 


2,471


810


704


224


4,209


14,058


1,772


4,894


24,933


 Other (loss) income, net 


(425)


227


(102)


281


(19)


(737)


87


(9,143)


(9,812)


 Equity in earnings of unconsolidated subsidiaries, net 


252


-


-


-


252


-


-


1,194


1,446


 EBITDA 


82,822


15,949


10,270


4,149


113,190


7,035


21,574


(77,382)


64,417


 EBITDA margin 


29.9%


14.7%


17.3%


21.7%


24.4%


2.5%


14.8%




7.2%






















 Restructuring charges, net 


484


5,866


577


328


7,255


23,241


-


81


30,577


 Integration/acquisition costs 


-


-


-


-


-


12,052


-


21,763


33,815


 Deferred revenue adjustment due to acquisition 


-


-


-


-


-


5,871


-


-


5,871


 Separation costs 


-


-


-


-


-


-


-


744


744


 Adjusted EBITDA 


$             83,306


$   21,815


$       10,847


$               4,477


$ 120,445


$     48,199


$        21,574


$     (54,794)


$           135,424


 Adjusted EBITDA margin 


30.1%


20.2%


18.3%


23.5%


26.0%


16.7%


14.8%




15.1%


 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/korn-ferry-international-announces-third-quarter-fiscal-2017-results-of-operations-300418624.html