07.12.2016 13:05:00

Korn Ferry International Announces Second Quarter Fiscal 2017 Results of Operations

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

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

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

Selected Financial Results

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



Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


Fee revenue

$       401.9


$      280.6


$     777.5


$      548.0


Total revenue

$       415.0


$      291.4


$     807.9


$      570.7


Operating income

$         46.5


$        29.0


$       51.1


$        61.9


Operating margin

11.6%


10.3%


6.6%


11.3%


Net income attributable to Korn Ferry

$         30.2


$        18.0


$      33.4


$        41.1


Basic earnings per share

$         0.53


$        0.36


$      0.59


$        0.82


Diluted earnings per share

$         0.52


$        0.35


$      0.58


$        0.81











EBITDA Results (b):

Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


EBITDA

$        57.5


$        34.0


$      77.7


$        75.0


EBITDA margin

14.3%


12.1%


10.0%


13.7%











Adjusted Results (c):

Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


Adjusted fee revenue

           N/A


           N/A


$     781.1


$      548.0


Adjusted EBITDA (b)

$         63.3


$        46.0


$     119.7


$        87.7


Adjusted EBITDA margin (b)

15.7%


16.4%


15.4%


16.0%


Adjusted net income attributable to Korn Ferry

$         34.1


$        25.8


$       63.6


$        49.3


Adjusted basic earnings per share

$         0.60


$        0.51


$       1.12


$        0.98


Adjusted diluted earnings per share

$         0.59


$        0.51


$       1.11


$        0.97


___________

(a)

Numbers may not total due to rounding.

(b)

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

(c)

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




Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


Integration/acquisition costs

$               5.8


$             12.0


$           13.8


$             12.7


Restructuring charges, net

$                —


$                —


$           24.5


$                —


Deferred revenue adjustment related to the Hay Group acquisition

$                —


$                —


$             3.5


$                —


Write-off of debt issuance costs

$                —


$                —


$             1.0


$                —


 

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

  • The growth was primarily due to increases in fee revenue in Hay Group and Futurestep segments.
  • The increase in Hay Group is due to the acquisition that took place in the third quarter of fiscal 2016.

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

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

Results by Segment


Selected Executive Search Data

(dollars in millions) (a)



Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


Fee revenue

$       156.2


$     156.5


$       302.6


$      308.6


Total revenue

$       160.6


$     161.5


$       312.1


$      319.5


Operating income

$         37.4


$       39.2


$         64.4


$        74.1


Operating margin

24.0%


25.1%


21.3%


24.0%











Ending number of consultants

501


494


501


494


Average number of consultants

495


490


495


473


Engagements billed

3,486


3,152


5,312


4,845


New engagements (b)

1,509


1,380


2,955


2,752











EBITDA Results (c):

Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


EBITDA

$         39.0


$        40.6


$       67.9


$        77.5


EBITDA margin

25.0%


26.0%


22.4%


25.1%











Adjusted Results (d):

Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


Adjusted EBITDA (c)

$        39.0


$        40.6


$       70.7


$        77.5


Adjusted EBITDA margin (c)

25.0%


26.0%


23.4%


25.1%


___________

(a) 

Numbers may not total due to rounding.

(b) 

Represents new engagements opened in the respective period.

(c)

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

(d)

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




Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


Restructuring charges, net

$                 —


$                —


$             2.8


$                —


 

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

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

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

 

Selected Hay Group Data

(dollars in millions) (a)







Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


Fee revenue

$      188.8


$       73.6


$       363.4


$    142.8


Total revenue

$      192.4


$       76.0


$       373.9


$    147.4


Operating income

$        22.9


$         7.8


$         15.2


$      15.3


Operating margin

12.1%


10.6%


4.2%


10.7%











Ending number of consultants (b)

563


184


563


184


Staff utilization (c)

69%


71%


68%


70%











EBITDA Results (d):

Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


EBITDA

$         31.0


$       11.3


$       31.5


$        21.7


EBITDA margin

16.4%


15.4%


8.7%


15.2%











Adjusted Results (e):

Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


Adjusted fee revenue

          N/A


          N/A


$     367.0


$      142.8


Adjusted EBITDA (d)

$        35.3


$        14.7


$       65.1


$        25.4


Adjusted EBITDA margin (d)

18.7%


19.9%


17.9%


17.8%











___________

(a)

Numbers may not total due to rounding.

(b)

Represents number of employees originating consulting services. 

(c)

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

(d)

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

(e)

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




Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


Integration/acquisition costs

$               4.4


$               3.3


$             8.6


$               3.6


Restructuring charges, net

$                —


$                 —


$           21.5


$                —


Deferred revenue adjustment related to the Hay Group acquisition

$                —


$                 —


$             3.5


$                —


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

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

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

Selected Futurestep Data

(dollars in millions) (a)








Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


Fee revenue

$        56.8


$       50.5


$       111.5


$        96.6


Total revenue

$        62.0


$       53.9


$       121.9


$      103.8


Operating income

$          7.8


$         6.9


$         15.3


$        13.1


Operating margin

13.7%


13.6%


13.7%


13.5%











Engagements billed (b)

1,025


893


1,595


1,363


New engagements (c)

559


462


1,078


933











EBITDA Results (d):

Second Quarter


Year to Date



FY'17


FY'16


FY'17


FY'16


EBITDA

$           8.5


$          7.5


$       16.6


$        14.3


EBITDA margin

14.9%


14.8%


14.9%


14.8%


____________

(a)

Numbers may not total due to rounding.

(b)

Represents search engagements billed.

(c)

Represents new search engagements opened in the respective period.

(d)

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

 

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

  • The higher fee revenue was driven by a $4.4 million increase in recruitment process outsourcing in Q2 FY'17 compared to Q2 FY'16.
  • The rest of the increase was due to a 15% increase in engagements billed in Q2 FY'17 compared to Q2 FY'16, that drove higher fee revenue from professional search, which represents 44% of Futurestep fee revenue.

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

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

Outlook

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

  • Q3 FY'17 fee revenue is expected to be in the range of $370 million and $390 million; and
  • Q3 FY'17 diluted earnings per share is likely to range between $0.36 to $0.46.

On a consolidated as adjusted basis:

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

 


Q3 FY'17

Earnings Per Share Outlook(1)



Low


High


Consolidated diluted earnings per share

$                            0.36


$                         0.46


   Integration/acquisition costs

0.04


0.03


   Restructuring charges, net

0.06


0.04


   Retention bonuses

0.07


0.07


   Tax rate impact

(0.05)


(0.04)


Consolidated adjusted diluted earnings per share

$                            0.48


$                         0.56


____________

(1)

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

 

Earnings Conference Call Webcast

The earnings conference call will be held today at 7:30 AM (EST) and hosted by CEO Gary Burnison, CFO Robert Rozek and SVP Finance Gregg Kvochak.  The conference call will be webcast and available online at ir.kornferry.com. We will also post to this section of our website earnings slides, which will accompany our webcast, and other important information, and encourage you to review the information that we make available on our website.

About Korn Ferry

Korn Ferry is the preeminent global people and organizational advisory firm.  We help leaders, organizations and societies succeed by releasing the full power and potential of people.  Our nearly 7,000 colleagues deliver services through Executive Search, Hay Group and Futurestep divisions.  Visit kornferry.com for more information.

Forward-Looking Statements

Statements in this press release and our conference call that relate to future results and events ("forward-looking statements") are based on Korn Ferry's current expectations.  These statements, which include words such as "believes", "expects" or "likely", include references to our outlook.  Readers are cautioned not to place undue reliance on such statements.  Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties that are beyond the control of Korn Ferry.  The potential risks and uncertainties include those relating to competition, the dependence on attracting and retaining qualified and experienced consultants, our ability to successfully integrate acquired businesses including Hay Group, our ability to recognize the anticipated benefits of the acquisition of Hay Group which may be affected by, among other things, competition, our ability to grow and manage growth profitability, maintain relationships with customers and suppliers and retain key employees, costs related to the acquisition of Hay Group, maintaining our brand name and professional reputation, potential legal liability, the portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure with our growth, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, consolidation of industries we serve, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, impairment of goodwill and other intangible assets, deferred tax assets, seasonality, our ability to successfully rationalize our cost structure and employment liability risk.  For a detailed description of risks and uncertainties that could cause differences, please refer to Korn Ferry's periodic filings with the Securities and Exchange Commission.  Korn Ferry disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures

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

  • adjusted net income attributable to Korn/Ferry International, adjusted to exclude restructuring charges, net, integration/acquisition costs, write-off of debt issuance costs and includes the deferred revenue adjustment related to the Hay Group acquisition, net of income tax effect;
  • adjusted basic and diluted earnings per share, adjusted to exclude restructuring charges, net, integration/acquisition costs, write-off of debt issuance costs and includes the deferred revenue adjustment related to the Hay Group acquisition, net of income tax effect; and in the case of the outlook section, also adjusted for tax rate impact;
  • constant currency amounts that represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period;
  • EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin;
  • Adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring charges, net, integration/acquisition costs and includes the deferred revenue adjustment related to the Hay Group acquisition, and Adjusted EBITDA margin; and
  • Adjusted fee revenue, which includes revenue that Hay Group would have realized over the ensuing year if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue.

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

Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn Ferry's performance by excluding certain charges and other items that may not be indicative of Korn Ferry's ongoing operating results.  These non-GAAP financial measures are performance measures and are not indicative of the liquidity of Korn Ferry.  These charges represent 1) costs we incurred to acquire and integrate the Hay Group acquisition, 2) charges we incurred to restructure the combined company due to the acquisition of Hay Group, 3) debt issuance costs written-off upon replacement of credit facility and 4) revenue that Hay Group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue.  As such, reported fee revenue can make fee revenue and operating results appear to fluctuate more than they would if business combination accounting did not require deferred revenue to be written off. Adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of GAAP, rather, it is an adjustment for a short period of time that will provide better comparability in the current and future periods.  Management believes the presentation of adjusted fee revenue assists management in its evaluation of ongoing operations and provides useful information to investors because it allows investors to make more meaningful period-to-period comparisons of the Company's operating results, to better identify operating trends that may otherwise be distorted by write-offs required under business combination accounting and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.  Management no longer has adjusted fee revenue after Q1 FY'17.  The use of these non-GAAP financial measures facilitates comparisons to Korn Ferry's historical performance.  Korn Ferry includes these non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.  Management  further believes that EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company.  In the case of constant currency amounts, management believes the presentation of such information provides meaningful supplemental information regarding Korn Ferry's performance as excluding the impact of exchange rate changes on Korn Ferry's financial performance allows investors to make more meaningful period-to-period comparisons of the Company's operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making. 

[Tables attached]

KORN FERRY AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 (in thousands, except per share amounts) 











 Three Months Ended 


 Six Months Ended 


 October 31, 


 October 31, 


2016


2015


2016


2015


 (unaudited) 

 Fee revenue 

$ 401,917


$ 280,600


$ 777,538


$ 547,994

 Reimbursed out-of-pocket engagement expenses 

13,037


10,739


30,349


22,680

           Total revenue 

414,954


291,339


807,887


570,674









 Compensation and benefits 

270,609


188,608


533,576


368,064

 General and administrative expenses 

54,134


44,563


109,476


82,054

 Reimbursed expenses 

13,037


10,739


30,349


22,680

 Cost of services 

18,874


11,236


35,706


21,356

 Depreciation and amortization 

11,752


7,180


23,196


14,603

 Restructuring charges, net 

-


-


24,520


-

           Total operating expenses 

368,406


262,326


756,823


508,757









 Operating income  

46,548


29,013


51,064


61,917

 Other (loss) income, net 

(879)


(2,646)


3,380


(2,720)

 Interest expense, net 

(2,736)


(544)


(5,797)


(843)

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

42,933


25,823


48,647


58,354

 Equity in earnings of unconsolidated subsidiaries 

29


540


108


1,265

 Income tax provision  

11,906


8,392


13,631


18,566

 Net income 

31,056


17,971


35,124


41,053

           Net income attributable to noncontrolling interest 

(904)


-


(1,764)


-

 Net income attributable to Korn/Ferry International 

$   30,152


$   17,971


$   33,360


$   41,053









 Earnings per common share attributable to Korn/Ferry International: 








      Basic 

$       0.53


$       0.36


$       0.59


$       0.82

      Diluted 

$       0.52


$       0.35


$       0.58


$       0.81









 Weighted-average common shares outstanding: 








      Basic 

56,614


49,981


56,401


49,737

      Diluted 

56,983


50,362


56,863


50,233









 Cash dividends declared per share: 

$       0.10


$       0.10


$       0.20


$       0.20

 

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

 (unaudited) 

























Three Months Ended October 31,


Six Months Ended October 31,



2016




2015


% Change


2016




2015


% Change


















Fee Revenue:
















Executive search:

















North America

$   92,732




$   92,788


(0%)


$ 174,534




$ 183,147


(5%)


EMEA 

34,779




36,570


(5%)


70,149




72,660


(3%)


Asia Pacific

19,470




20,998


(7%)


39,096




40,213


(3%)


Latin America

9,247




6,116


51%


18,810




12,542


50%

Total executive search

156,228




156,472


(0%)


302,589




308,562


(2%)

Hay Group

188,842




73,602


157%


363,424




142,842


154%

Futurestep

56,847




50,526


13%


111,525




96,590


15%


Total fee revenue

401,917




280,600


43%


777,538




547,994


42%

 Reimbursed out-of-pocket engagement expenses 

13,037




10,739


21%


30,349




22,680


34%


Total revenue

$ 414,954




$ 291,339


42%


$ 807,887




$ 570,674


42%


















Operating Income (Loss):



Margin




Margin




Margin




Margin

Executive search:

















North America

$   26,272


28.3%


$   27,422


29.6%


$   42,740


24.5%


$   51,567


28.2%


EMEA

6,847


19.7%


6,929


18.9%


12,874


18.4%


13,205


18.2%


Asia Pacific

2,028


10.4%


3,907


18.6%


4,130


10.6%


6,893


17.1%


Latin America

2,284


24.7%


970


15.9%


4,614


24.5%


2,478


19.8%

Total executive search

37,431


24.0%


39,228


25.1%


64,358


21.3%


74,143


24.0%

Hay Group

22,943


12.1%


7,778


10.6%


15,200


4.2%


15,273


10.7%

Futurestep

7,787


13.7%


6,896


13.6%


15,300


13.7%


13,085


13.5%

Corporate

(21,613)




(24,889)




(43,794)




(40,584)




 Total operating income

$   46,548


11.6%


$   29,013


10.3%


$   51,064


6.6%


$   61,917


11.3%

 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (in thousands, except per share amounts) 










October 31,


April 30,


2016


2016

ASSETS

 (unaudited) 



Cash and cash equivalents

$    250,033


$    273,252

Marketable securities

29,766


11,338

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

360,788


315,975

Income taxes and other receivables

23,455


20,579

Prepaid expenses and other assets

51,314


43,130

Total current assets

715,356


664,274





Marketable securities, non-current

110,217


130,092

Property and equipment, net

108,371


95,436

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

110,888


107,296

Deferred income taxes

26,235


27,163

Goodwill

586,290


590,072

Intangible assets, net

225,037


233,027

Investments and other assets

67,679


51,240

Total assets

$ 1,950,073


$ 1,898,600





LIABILITIES AND STOCKHOLDERS' EQUITY




Accounts payable

$      27,711


$      26,634

Income taxes payable

3,015


8,396

Compensation and benefits payable

176,218


266,211

Term loan

19,754


30,000

Other accrued liabilities

138,738


145,023

Total current liabilities

365,436


476,264





Deferred compensation and other retirement plans

214,032


216,113

Term loan, non-current

246,099


110,000

Deferred tax liabilities

14,090


5,088

Other liabilities

56,272


43,834

Total liabilities

895,929


851,299





Stockholders' equity




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

703,073


702,098

Retained earnings

422,723


401,113

Accumulated other comprehensive loss, net

(75,243)


(57,911)

Total Korn/Ferry International stockholders' equity

1,050,553


1,045,300

Noncontrolling interest

3,591


2,001

Total stockholders' equity

1,054,144


1,047,301

Total liabilities and stockholders' equity

$ 1,950,073


$ 1,898,600

 

KORN FERRY AND SUBSIDIARIES

 RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES 

 (in thousands, except per share amounts) 











 Three Months Ended 


 Six Months Ended 


 October 31, 


 October 31, 


2016


2015


2016


2015


 (unaudited) 

 Fee revenue 

$ 401,917


$ 280,600


$ 777,538


$ 547,994

 Deferred revenue adjustment due to acquisition (1) 

-


-


3,535


-

           Adjusted fee revenue 

$ 401,917


$ 280,600


$ 781,073


$ 547,994









 Operating income 

$   46,548


$   29,013


$   51,064


$   61,917

 Depreciation and amortization 

11,752


7,180


23,196


14,603

 Other (loss) income, net 

(879)


(2,646)


3,380


(2,720)

 Equity in earnings of unconsolidated subsidiaries, net 

29


540


108


1,265

           EBITDA 

57,450


34,087


77,748


75,065

 Deferred revenue adjustment due to acquisition (1) 

-


-


3,535


-

 Restructuring charges, net (2) 

-


-


24,520


-

 Integration/acquisition costs (3) 

5,820


11,994


13,847


12,668

           Adjusted EBITDA 

$   63,270


$   46,081


$ 119,650


$   87,733









 Operating margin 

11.6%


10.3%


6.6%


11.3%

 Depreciation and amortization 

2.9%


2.6%


3.0%


2.7%

 Other (loss) income, net 

(0.2%)


(1.0%)


0.4%


(0.5%)

 Equity in earnings of unconsolidated subsidiaries, net 

-


0.2%


-


0.2%

            EBITDA margin 

14.3%


12.1%


10.0%


13.7%

 Deferred revenue adjustment due to acquisition (1) 

-


-


0.5%


-

 Restructuring charges, net (2) 

-


-


3.1%


-

 Integration/acquisition costs (3) 

1.4%


4.3%


1.8%


2.3%

           Adjusted EBITDA margin 

15.7%


16.4%


15.4%


16.0%









 Net income attributable to Korn/Ferry International 

$   30,152


$   17,971


$   33,360


$   41,053

 Deferred revenue adjustment due to acquisition (1) 

-


-


3,535


-

 Restructuring charges, net (2) 

-


-


24,520


-

 Integration/acquisition costs (3) 

5,820


11,994


13,847


12,668

 Write-off of debt issuance costs (4) 

-


-


954


-

 Tax effect on the above items (5) 

(1,916)


(4,168)


(12,634)


(4,383)

           Adjusted net income attributable to Korn/Ferry International 

$   34,056


$   25,797


$   63,582


$   49,338









 Basic earnings per common share 

$       0.53


$       0.36


$       0.59


$       0.82

 Deferred revenue adjustment due to acquisition (1) 

-


-


0.06


-

 Restructuring charges, net (2) 

-


-


0.43


-

 Integration/acquisition costs (3) 

0.10


0.24


0.25


0.25

 Write-off of debt issuance costs (4) 

-


-


0.02


-

 Tax effect on the above items (5) 

(0.03)


(0.09)


(0.23)


(0.09)

           Adjusted basic earnings per share 

$       0.60


$       0.51


$       1.12


$       0.98









 Diluted earnings per common share 

$       0.52


$       0.35


$       0.58


$       0.81

 Deferred revenue adjustment due to acquisition (1) 

-


-


$       0.06


-

 Restructuring charges, net (2) 

-


-


$       0.43


-

 Integration/acquisition costs (3) 

0.10


0.24


$       0.24


0.25

 Write-off of debt issuance costs (4) 

-


-


$       0.02


-

 Tax effect on the above items (5) 

(0.03)


(0.08)


$      (0.22)


(0.09)

           Adjusted diluted earnings per share 

$       0.59


$       0.51


$       1.11


$       0.97



 Explanation of Non-GAAP Adjustments 

(1)

Increase in fee revenue relating to the deferred revenue recorded on the opening balance sheet of Hay Group, required by fair value accounting. The adjustment is included in the Hay Group segment.  On a GAAP basis, Hay Group fee revenue was $363.4 million during the six months ended October 31, 2016.  On an adjusted basis, Hay Group fee revenue was $367.0 million during the six months ended October 31, 2016. 

(2)

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

(3)

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

(4)

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

(5)

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

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)





 Three Months Ended October 31, 2016 


 Executive Search 










 North
America 


 EMEA 


 Asia Pacific 


 Latin
America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 



















 Fee revenue 

$              92,732


$ 34,779


$       19,470


$               9,247


$ 156,228


$   188,842


$         56,847


$                  -


$           401,917



















 Net income attributable to Korn/Ferry International 

















$             30,152

 Net income attributable to noncontrolling interest 

















904

       Other loss, net 

















879

       Interest expense, net 

















2,736

       Equity in earnings of unconsolidated subsidiaries, net 

















(29)

       Income tax provision 

















11,906

 Operating income (loss) 

$              26,272


$   6,847


$          2,028


$               2,284


$   37,431


$     22,943


$           7,787


$     (21,613)


46,548

       Depreciation and amortization 

990


229


264


174


1,657


8,025


669


1,401


11,752

       Other income (loss), net 

(92)


(80)


24


24


(124)


(11)


-


(744)


(879)

       Equity in earnings of unconsolidated subsidiaries, net 

29


-


-


-


29


-


-


-


29

 EBITDA 

27,199


6,996


2,316


2,482


38,993


30,957


8,456


(20,956)


57,450

 EBITDA margin 

29.3%


20.1%


11.9%


26.8%


25.0%


16.4%


14.9%




14.3%



















       Integration/acquisition costs 

-


-


-


-


-


4,365


-


1,455


5,820

 Adjusted EBITDA 

$              27,199


$   6,996


$          2,316


$               2,482


$   38,993


$     35,322


$           8,456


$     (19,501)


$             63,270

 Adjusted EBITDA margin 

29.3%


20.1%


11.9%


26.8%


25.0%


18.7%


14.9%




15.7%






































 Three Months Ended October 31, 2015 


 Executive Search 










 North
America 


 EMEA 


 Asia Pacific 


 Latin
America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 



















 Fee revenue 

$              92,788


$ 36,570


$       20,998


$               6,116


$ 156,472


$     73,602


$         50,526


$                  -


$           280,600



















 Net income attributable to Korn/Ferry International 

















$             17,971

 Net income attributable to noncontrolling interest 

















-

       Other loss, net 

















2,646

       Interest expense, net 

















544

       Equity in earnings of unconsolidated subsidiaries, net 

















(540)

       Income tax provision 

















8,392

 Operating income (loss) 

$              27,422


$   6,929


$          3,907


$                  970


$   39,228


$        7,778


$           6,896


$     (24,889)


29,013

       Depreciation and amortization 

832


232


223


73


1,360


3,588


578


1,654


7,180

       Other (loss) income, net 

(127)


7


(6)


33


(93)


(17)


8


(2,544)


(2,646)

       Equity in earnings of unconsolidated subsidiaries, net 

140


-


-


-


140


-


-


400


540

 EBITDA 

28,267


7,168


4,124


1,076


40,635


11,349


7,482


(25,379)


34,087

 EBITDA margin 

30.5%


19.6%


19.6%


17.6%


26.0%


15.4%


14.8%




12.1%



















       Integration/acquisition costs 

-


-


-


-


-


3,310


-


8,684


11,994

 Adjusted EBITDA 

$              28,267


$   7,168


$          4,124


$               1,076


$   40,635


$     14,659


$           7,482


$     (16,695)


$             46,081

 Adjusted EBITDA margin 

30.5%


19.6%


19.6%


17.6%


26.0%


19.9%


14.8%




16.4%

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)





Six Months Ended October 31, 2016 


 Executive Search 










 North
America 


 EMEA 


 Asia Pacific 


 Latin
America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 



















 Fee revenue 

$            174,534


$ 70,149


$       39,096


$            18,810


$ 302,589


$   363,424


$       111,525


$                  -


$           777,538



















 Net income attributable to Korn/Ferry International 

















$             33,360

 Net income attributable to noncontrolling interest 

















1,764

       Other income, net 

















(3,380)

       Interest expense, net 

















5,797

       Equity in earnings of unconsolidated subsidiaries, net 

















(108)

       Income tax provision 

















13,631

 Operating income (loss) 

$              42,740


$ 12,874


$          4,130


$               4,614


$   64,358


$     15,200


$         15,300


$     (43,794)


51,064

       Depreciation and amortization 

1,820


440


489


288


3,037


16,041


1,292


2,826


23,196

       Other income (loss), net 

196


(56)


111


97


348


224


(2)


2,810


3,380

       Equity in earnings of unconsolidated subsidiaries, net 

108


-


-


-


108


-


-


-


108

 EBITDA 

44,864


13,258


4,730


4,999


67,851


31,465


16,590


(38,158)


77,748

 EBITDA margin 

25.7%


18.9%


12.1%


26.6%


22.4%


8.7%


14.9%




10.0%



















       Restructuring charges, net 

1,706


128


622


360


2,816


21,488


-


216


24,520

       Integration/acquisition costs 

-


-


-


-


-


8,629


-


5,218


13,847

       Deferred revenue adjustment due to acquisition 

-


-


-


-


-


3,535


-


-


3,535

 Adjusted EBITDA 

$              46,570


$ 13,386


$          5,352


$               5,359


$   70,667


$     65,117


$         16,590


$     (32,724)


$           119,650

 Adjusted EBITDA margin 

26.7%


19.1%


13.7%


28.5%


23.4%


17.9%


14.9%




15.4%







































Six Months Ended October 31, 2015 


 Executive Search 










 North
America 


 EMEA  


 Asia Pacific 


 Latin
America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 



















 Fee revenue 

$            183,147


$ 72,660


$       40,213


$            12,542


$ 308,562


$   142,842


$         96,590


$                  -


$           547,994



















 Net income attributable to Korn/Ferry International 

















$             41,053

 Net income attributable to noncontrolling interest 

















-

       Other loss, net 

















2,720

       Interest expense, net 

















843

       Equity in earnings of unconsolidated subsidiaries, net 

















(1,265)

       Income tax provision 

















18,566

 Operating income (loss) 

$              51,567


$ 13,205


$          6,893


$               2,478


$   74,143


$     15,273


$         13,085


$     (40,584)


61,917

       Depreciation and amortization 

1,659


597


469


151


2,876


7,336


1,163


3,228


14,603

       Other (loss) income, net 

(95)


150


12


272


339


(880)


8


(2,187)


(2,720)

       Equity in earnings of unconsolidated subsidiaries, net 

226


-


-


-


226


-


-


1,039


1,265

 EBITDA 

53,357


13,952


7,374


2,901


77,584


21,729


14,256


(38,504)


75,065

 EBITDA margin 

29.1%


19.2%


18.3%


23.1%


25.1%


15.2%


14.8%




13.7%



















       Integration/acquisition costs 

-


-


-


-


-


3,639


-


9,029


12,668

 Adjusted EBITDA 

$              53,357


$ 13,952


$          7,374


$               2,901


$   77,584


$     25,368


$         14,256


$     (29,475)


$             87,733

 Adjusted EBITDA margin 

29.1%


19.2%


18.3%


23.1%


25.1%


17.8%


14.8%




16.0%

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/korn-ferry-international-announces-second-quarter-fiscal-2017-results-of-operations-300374242.html

SOURCE Korn Ferry

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