KORN FERRY LOS ANGELES, Dec. 9, 2015 /PRNewswire/ -- Korn/Ferry International (NYSE: KFY), the preeminent global people and organizational advisory firm, today announced second quarter fee revenue of $280.6 million and adjusted diluted earnings per share of $0.51, excluding integration/acquisition costs of $12.0 million. On a GAAP basis, diluted earnings per share was $0.35 in the three months ended October 31, 2015.
"In our recently completed second fiscal quarter, I am proud to report that Korn Ferry generated the strongest topline results in the Company's history, representing a 16% year-over-year increase in fee revenue on a constant currency basis," said Gary D. Burnison, CEO, Korn Ferry. "Now with the close of our acquisition of Hay Group, we have unified two great organizations to create the preeminent advisor for an organization and its people. As a combined firm, we have an unrivaled ability to address the entire talent continuum, a move that affirms the critical role that people and leadership play in driving organization performance."
Selected Financial Results
(dollars in millions, except per share amounts)
Second Quarter Year to Date
-------------- ------------
FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
Fee revenue $280.6 $255.7 $548.0 $506.9
Total
revenue $291.4 $264.7 $570.7 $525.0
Operating
income $29.0 $34.4 $61.9 $53.0
Operating
margin 10.3% 13.5% 11.3% 10.5%
Net income $18.0 $25.4 $41.1 $39.9
Basic
earnings
per share $0.36 $0.52 $0.82 $0.82
Diluted
earnings
per share $0.35 $0.51 $0.81 $0.80
EBITDA
Results
(a): Second Quarter Year to Date
-------------- ------------
FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
EBITDA $34.0 $44.0 $75.0 $72.0
EBITDA
margin 12.1% 17.2% 13.7% 14.2%
Adjusted
Results
(b): Second Quarter Year to Date
-------------- ------------
EBITDA (a) FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
$46.0 $44.0 $87.7 $81.9
EBITDA
margin (a) 16.4% 17.2% 16.0% 16.2%
Net income $25.8 $25.4 $49.3 $46.9
Basic
earnings
per share $0.51 $0.52 $0.98 $0.96
Diluted
earnings
per share $0.51 $0.51 $0.97 $0.94
____________
(a) EBITDA refers to earnings before interest, taxes,
depreciation and amortization. Adjusted EBITDA
further adjusts EBITDA to exclude restructuring
charges and integration/acquisition costs.
EBITDA, EBITDA margin, adjusted EBITDA and
adjusted EBITDA margin are non-GAAP financial
measures (see attached reconciliations)
(b) Adjusted results are non-GAAP financial measures
that exclude the following (see attached
reconciliations):
Second Quarter Year to Date
-------------- ------------
FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
Integration/acquisition
costs $12.0 $ - $12.7 $ -
Restructuring charges, net $ - $ - $ - $9.9
Fee revenue was $280.6 million in Q2 FY'16, an increase of $24.9 million, or 9.7% ($41.3 million, or 16.2% on a constant currency basis), compared to Q2 FY'15, primarily due to increases of $10.1 million, $7.5 million, and $7.3 million in fee revenue in Futurestep, Executive Recruitment, and Leadership & Talent Consulting, respectively. The overall fee revenue increase was driven by fee revenue growth in certain of our major markets - financial services, life science/healthcare, technology and education/non-profit, partially offset by a decline in industrial and consumer goods.
Compensation and benefit expenses were $188.6 million in Q2 FY'16, an increase of $13.9 million, or 8.0%, compared to the year-ago quarter. The increase was driven, in part, by higher salaries (increase of $9.3 million) due to a 19.9% increase in the average consultant headcount in Q2 FY'16 compared to Q2 FY'15 and $3.3 million in integration costs associated with the Hay Group acquisition.
General and administrative expenses were $44.6 million in Q2 FY'16, an increase of $14.5 million compared to Q2 FY'15. The increase was driven by acquisition costs of $8.6 million that were incurred in Q2 FY'16 related to the Hay Group acquisition and from the fact that in Q2 FY'15, the Company received a $6.2 million insurance reimbursement that reduced legal fees in Q2 FY'15. Neutralizing the effect of these items, general and administrative expenses were essentially flat year-over-year.
Adjusted EBITDA was $46.0 million in Q2 FY'16, an increase of $2.0 million, or 4.5%, compared to Q2 FY'15. Adjusted EBITDA margin was 16.4% in Q2 FY'16 and 17.2% in Q2 FY'15. Adjusted EBITDA margin for Q2 FY'15 was favorably impacted (by approximately 90 basis points) by the insurance reimbursement discussed above, partially offset by higher other professional fees and additional performance-related bonus expense.
On a GAAP basis, operating income was $29.0 million in Q2 FY'16 and $34.4 million in Q2 FY'15, resulting in an operating margin of 10.3% in Q2 FY'16 compared to 13.5% in the year-ago quarter. The decrease in operating income was due to the increases in compensation and benefit expenses and general and administrative expenses as discussed above, offset by an increase in fee revenue.
Balance Sheet and Liquidity
Cash and marketable securities were $417.7 million at October 31, 2015, compared to $525.4 million at April 30, 2015. Cash and marketable securities decreased by $107.7 million from April 30, 2015, primarily due to Q1 FY'16 payments of FY'15 annual bonuses and $10.3 million in dividend payments made to stockholders during the year, partially offset by cash provided by operating activities. Net of amounts held in trust for deferred compensation plans and accrued bonuses, cash and marketable securities were $186.2 million and $235.6 million at October 31, 2015 and April 30, 2015, respectively. As of October 31, 2015 and April 30, 2015, we held $121.6 million and $143.4 million, respectively, of cash and cash equivalents in foreign locations, net of amounts held in trust for deferred compensation plans and bonuses.
The Company declared a quarterly dividend of $0.10 per share on December 8, 2015, payable on January 15, 2016 to stockholders of record on December 21, 2015.
Results by Segment
Selected Executive Recruitment Data
(dollars in millions)
Second Quarter Year to Date
-------------- ------------
FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
Fee revenue $156.5 $149.0 $308.6 $297.4
Total revenue $161.5 $154.4 $319.5 $308.6
Operating income $39.2 $29.9 $74.1 $54.1
Operating margin 25.1% 20.1% 24.0% 18.2%
Ending number of
consultants 494 440 494 440
Average number of
consultants 490 441 473 436
Engagements billed 3,152 3,054 4,845 4,937
New engagements
(a) 1,380 1,261 2,752 2,513
EBITDA Results
(b): Second Quarter Year to Date
-------------- ------------
FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
EBITDA $40.6 $32.0 $77.5 $58.4
EBITDA margin 26.0% 21.5% 25.1% 19.6%
Adjusted Results
(c): Second Quarter Year to Date
-------------- ------------
FY'16 FY'15 FY'16 FY'15
----- ----- -----
EBITDA (b) $40.6 $32.0 $77.5 $63.9
EBITDA margin (b) 26.0% 21.5% 25.1% 21.5%
____________
(a) Represents new engagements opened in
the respective period.
(b) EBITDA, EBITDA margin, adjusted EBITDA
and adjusted EBITDA margin are non-
GAAP financial measures (see attached
reconciliations).
(c) Adjusted results are non-GAAP
financial measures that exclude the
following (see attached
reconciliations):
Second Quarter Year to Date
-------------- ------------
FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
Restructuring charges,
net $ - $ - $ - $5.5
Executive Recruitment
Fee revenue was $156.5 million in Q2 FY'16, an increase of $7.5 million, or 5.0% ($16.6 million, or 11.1% on a constant currency basis), compared to Q2 FY'15. The overall increase in fee revenue was primarily attributable to a 3.2% increase in the number of engagements billed and a 1.6% increase in the weighted-average fees billed per engagement in Q2 FY'16 compared to Q2 FY'15. On a regional basis, the fee revenue increase was driven by a $10.1 million increase in North America, partially offset by a $2.3 million decrease in South America. On a constant currency basis, all regions, with the exception of South America, experienced year-over-year growth with North America at 13.3%, EMEA at 11.2% and Asia Pacific at 9.9%.
Adjusted EBITDA was $40.6 million and $32.0 million during Q2 FY'16 and Q2 FY'15, respectively. The increase in Adjusted EBITDA was driven by higher fee revenue and decreases in compensation and benefit expenses of $1.2 million and general and administrative expenses of $1.0 million.
Operating income was $39.2 million in Q2 FY'16, an increase of $9.3 million, or 31.1%, compared to Q2 FY'15, resulting in operating margin of 25.1% in Q2 FY'16 compared to 20.1% in Q2 FY'15. Operating income was impacted by all of the above items.
Selected Leadership & Talent Consulting Data
(dollars in millions)
Second Quarter Year to Date
-------------- ------------
FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
Fee revenue $73.6 $66.3 $142.8 $129.9
Total revenue $76.0 $68.5 $147.4 $133.9
Operating
income $7.8 $7.8 $15.3 $11.2
Operating
margin 10.6% 11.7% 10.7% 8.6%
Ending number
of consultants
(a) 184 131 184 131
Staff
utilization
(b) 71% 71% 70% 70%
Second Quarter Year to Date
EBITDA Results
(c):
FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
EBITDA $11.3 $10.9 $21.7 $17.8
EBITDA margin 15.4% 16.4% 15.2% 13.7%
Second Quarter Year to Date
Adjusted
Results (d):
FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
EBITDA (c) $14.7 $10.9 $25.4 $20.6
EBITDA margin
(c) 19.9% 16.4% 17.8% 15.8%
____________
(a) Represents number of employees
originating consulting services.
(b) Calculated by dividing the number of
hours our full-time LTC professional
staff record to engagements during
the period, by the total available
working hours during the same period.
(c) EBITDA, EBITDA margin, adjusted EBITDA
and adjusted EBITDA margin are non-
GAAP financial measures (see attached
reconciliations).
(d) Adjusted results are non-GAAP
financial measures that exclude the
following (see attached
reconciliations):
Second Quarter Year to Date
-------------- ------------
FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
Integration
costs $3.3 $ - $3.6 $ -
Restructuring
charges, net $ - $ - $ - $2.8
Leadership & Talent Consulting
Fee revenue was $73.6 million in Q2 FY'16, an increase of $7.3 million, or 11.0% ($10.4 million, or 15.7% on a constant currency basis), from the year-ago quarter. This increase is primarily attributed to higher consulting fee revenue of $7.3 million in Q2 FY'16 compared to Q2 FY'15. The increase in consulting fee revenue includes $6.5 million of fee revenue from Pivot Leadership which was acquired on March 1, 2015.
Adjusted EBITDA was $14.7 million during Q2 FY'16, an increase of $3.8 million (excluding integration costs of $3.3 million), or 34.9%, compared to Q2 FY'15 due to higher fee revenue, partially offset by an increase in compensation and benefit expenses of $3.5 million due to an increase in salaries and related payroll taxes primarily as a result of higher average consultant headcount in Q2 FY'16 compared to the year-ago quarter.
Operating income was $7.8 million in both Q2 FY'16 and Q2 FY'15, resulting in an operating margin of 10.6% in the current quarter compared to 11.7% in the year-ago quarter. Operating income was impacted by all of the above items as well as integration costs of $3.3 million incurred in Q2 FY'16.
Selected Futurestep Data
(dollars in millions)
Second Quarter Year to Date
-------------- ------------
FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
Fee revenue $50.5 $40.4 $96.6 $79.6
Total
revenue $53.9 $41.8 $103.8 $82.5
Operating
income $6.9 $5.1 $13.1 $8.6
Operating
margin 13.6% 12.8% 13.5% 10.8%
Engagements
billed (a) 893 711 1,363 1,104
New
engagements
(b) 462 411 933 777
EBITDA
Results
(c): Second Quarter Year to Date
-------------- ------------
FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
EBITDA $7.5 $5.6 $14.3 $9.5
EBITDA
margin 14.8% 14.0% 14.8% 12.0%
Second Quarter Year to Date
Adjusted Results (d):
FY'16 FY'15 FY'16 FY'15
----- ----- ----- -----
EBITDA (c) $7.5 $5.6 $14.3 $10.9
EBITDA
margin (c) 14.8% 14.0% 14.8% 13.8%
____________
(a) Represents search engagements billed.
(b) Represents new search 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'16 FY'15 FY'16 FY'15
----- ----- ----- -----
Restructuring charges,
net $ - $ - $ - $1.4
Futurestep
Fee revenue was $50.5 million in Q2 FY'16, an increase of $10.1 million, or 25.0% ($14.3 million, or 35.4% on a constant currency basis), compared to the year-ago quarter. The higher fee revenue was driven by an increase in professional search of $5.6 million due to a 25.6% increase in engagements billed in Q2 FY'16 compared to Q2 FY'15 and a 5.4% increase in the weighted average fees billed per engagements. The rest of the increase was due to $4.5 million in higher fee revenue in recruitment process outsourcing in Q2 FY'16 compared to Q2 FY'15.
Adjusted EBITDA was $7.5 million during Q2 FY'16, an increase of $1.9 million, or 33.9%, compared to Q2 FY'15, due primarily to the increase in fee revenue, partially offset by higher compensation and benefit expenses of $7.0 million and an increase in general and administrative expenses of $1.0 million. The increase in compensation and benefit expenses was the result of a 33.5% increase in average headcount and an increase in the use of outside contractors, both related to the higher levels of fee revenue.
Operating income was $6.9 million in Q2 FY'16, an increase of $1.8 million, compared to Q2 FY'15, resulting in an operating margin of 13.6% in the current quarter compared to 12.8% in the year-ago quarter. Operating income was impacted by the items discussed above.
Outlook
Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, and excluding the impact of the Hay Group acquisition on Korn Ferry consolidated results:
-- Q3 FY'16 stand-alone fee revenue is expected to range from $268 million
to $278 million; and
-- Q3 FY'16 stand-alone adjusted diluted earnings per share is likely to
range from $0.50 to $0.56.
With respect to the legacy Hay Group, for the months of December and January, which are generally seasonal low points, we expect operating results to be as follows:
-- Adjusted fee revenue between $75 million and $81 million ($68 million to
$74 million including deferred revenue purchase accounting adjustments);
and
-- Adjusted EBITDA between $6 million and $8 million (negative EBITDA
between $38 million to $49 million including deferred revenue purchase
accounting adjustments, integration/acquisition costs, restructuring
charges and retention bonuses).((1))
On a combined adjusted basis:
-- Q3 FY'16 adjusted combined fee revenue is expected to be in the range of
$343 million and $359 million; and
-- Q3 FY'16 adjusted combined diluted earnings per share is likely to range
from $0.48 to $0.56.
On a combined basis, measured by U.S. GAAP:
-- Q3 FY'16 combined fee revenue is expected to be in the range of $336
million and $352 million; and
-- Q3 FY'16 combined diluted loss per share is likely to range between
($0.16) to breakeven.
Q3 FY'16 Q3 FY'16
Fee Revenue Earnings Per Share
Outlook(2) Outlook(3)
--------- ---------
Low High Low High
--- ---- --- ----
(in millions)
Korn Ferry Korn Ferry stand-alone adjusted diluted earnings per
stand-alone share
fee revenue $268 $278 $0.50 $0.56
Hay Group
adjusted fee
revenue 75 81 Hay Group earnings per share contribution 0.04 0.06
--- ---
Adjusted
combined fee
revenue 343 359 Increase in intangible asset amortization (0.02) (0.02)
Hay Group
deferred
revenue write-
off (7) (7) Increase in common stock share count (0.04) (0.04)
Combined US
GAAP fee
revenue $336 $352 Adjusted combined diluted earnings per share 0.48 0.56
==== ==== ---- ----
Hay Group deferred revenue write-off (0.08) (0.08)
Integration/acquisition costs (0.22) (0.18)
Restructuring charges (0.26) (0.22)
Retention bonuses (0.03) (0.03)
Impact from change in tax rate (0.05) (0.05)
Combined US GAAP diluted earnings (loss) per share $(0.16) $0.00
====== =====
____________
(1)
Q3 FY'16
Hay Group Adjusted
EBITDA and EBITDA
-----------------
Low High
--- ----
(in millions)
Hay Group Adjusted EBITDA $8 $6
Hay Group deferred revenue write-off (7) (7)
Integration/acquisition costs (17) (21)
Restructuring costs (20) (25)
Retention bonuses (2) (2)
Hay Group EBITDA $(38) $(49)
==== ====
(2) Korn Ferry stand-alone
fee revenue is a non-
GAAP financial measure
that excludes Hay Group
fee revenue and the
deferred revenue write-
off relating to Hay
Group. Hay Group
adjusted fee revenue and
adjusted combined fee
revenue are non-GAAP
financial measures that
exclude the deferred
revenue write-off
relating to Hay Group.
(3) Korn Ferry stand-alone
adjusted diluted earnings
per share is a non-GAAP
financial measure that
excludes the items listed
below in the table above.
Adjusted combined
diluted earnings per
share is a non-GAAP
financial measure that
excludes the items listed
below in the table above.
As previously disclosed, the integration of Hay Group will involve workforce alignment, consolidation of office space and the elimination of redundant general and administrative expenses. In order to achieve these cost synergies, we expect to incur restructuring charges in Q3 FY'16 of approximately $20 million to $25 million and expect savings of $25 million to $30 million on a run-rate basis. We believe that at the conclusion of this restructuring plan early in our next fiscal year, the combined Hay Group and legacy LTC Adjusted EBITDA margins will range between 14% to 18%.
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 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
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 Korn Ferry and our Hay Group and Futurestep divisions. Visit www.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 and the acquisition of Hay Group. 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, adjusted to exclude restructuring charges and
integration/acquisition costs, net of income tax effect;
-- adjusted basic and diluted earnings per share, adjusted to exclude
restructuring charges and integration/acquisition 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;
-- adjusted EBITDA, which is EBITDA further adjusted to exclude
restructuring charges, and integration/acquisition costs, and adjusted
EBITDA margin;
-- Hay Group EBITDA, which is EBITDA (as described above) for Hay Group,
and Hay Group adjusted EBITDA, which is adjusted EBITDA (as described
above) for Hay Group, further adjusted to exclude the deferred revenue
write-off relating to Hay Group;
-- Korn Ferry stand-alone fee revenue, which excludes Hay Group fee revenue
and the deferred revenue write-off relating to Hay Group, and Hay Group
adjusted fee revenue and adjusted combined fee revenue, which exclude
the deferred revenue write-off relating to Hay Group;
-- Korn Ferry stand-alone adjusted diluted earnings per share, which
excludes Hay Group contribution to earnings per share, increase in
amortization expense relating to the additional intangible assets
acquired on the acquisition date, increase in common stock issued as
part of the acquisition purchase price, incremental charges relating to
Hay Group purchase accounting (deferred revenue write-off), and
incremental charges associated with the acquisition (the "incremental
acquisition charges"), including integration/acquisition costs,
restructuring charges, retention bonuses and impact from the change in
tax rate; and
-- adjusted combined diluted earnings per share, adjusted to exclude the
incremental acquisition charges.
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. In the case of adjusted stand-alone results, management believes the presentation of such information provides investors with the ability to make period-to-period comparisons of Korn Ferry's operating results, net of the acquisition of Hay Group. Management believes the presentation of adjusted consolidated combined diluted earnings per share provides investors with greater visibility into the impact of the Hay Group acquisition without regard to incremental charges and transaction costs.
[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,
----------- -----------
2015 2014 2015 2014
---- ---- ---- ----
(unaudited)
Fee revenue $280,600 $255,702 $547,994 $506,890
Reimbursed out-of-pocket
engagement expenses 10,739 9,015 22,680 18,152
Total revenue 291,339 264,717 570,674 525,042
------- ------- ------- -------
Compensation and benefits 188,608 174,656 368,064 343,762
General and administrative
expenses 44,563 30,145 82,054 67,513
Reimbursed expenses 10,739 9,015 22,680 18,152
Cost of services 11,236 9,706 21,356 19,171
Depreciation and amortization 7,180 6,779 14,603 13,549
Restructuring charges, net - - - 9,886
Total operating expenses 262,326 230,301 508,757 472,033
------- ------- ------- -------
Operating income 29,013 34,416 61,917 53,009
Other (loss) income, net (2,646) 2,362 (2,720) 4,539
Interest expense, net (544) (920) (843) (1,714)
---- ---- ---- ------
Income before provision for
income taxes and equity in
earnings of unconsolidated
subsidiaries
25,823 35,858 58,354 55,834
Equity in earnings of
unconsolidated subsidiaries 540 452 1,265 918
Income tax provision 8,392 10,907 18,566 16,816
Net income $17,971 $25,403 $41,053 $39,936
======= ======= ======= =======
Earnings per common share:
Basic $0.36 $0.52 $0.82 $0.82
===== ===== ===== =====
Diluted $0.35 $0.51 $0.81 $0.80
===== ===== ===== =====
Weighted-average common
shares outstanding:
Basic 49,981 49,082 49,737 48,893
====== ====== ====== ======
Diluted 50,362 49,740 50,233 49,720
====== ====== ====== ======
Cash dividends declared per
share: $0.10 $ - $0.20 $ -
===== ============== ===== ==============
KORN FERRY AND SUBSIDIARIES
FINANCIAL SUMMARY BY SEGMENT
(in thousands)
(unaudited)
Three Months Ended October 31, Six Months Ended October 31,
------------------------------ ----------------------------
2015 2014 % Change 2015 2014 % Change
---- ---- -------- ---- ---- --------
Fee Revenue:
Executive recruitment:
North America $92,788 $82,729 12% $183,147 $165,029 11%
EMEA 36,570 36,675 (0%) 72,660 76,972 (6%)
Asia Pacific 20,998 21,157 (1%) 40,213 40,691 (1%)
South America 6,116 8,369 (27%) 12,542 14,653 (14%)
-----
Total executive
recruitment 156,472 148,930 5% 308,562 297,345 4%
Leadership & Talent
Consulting 73,602 66,408 11% 142,842 129,956 10%
Futurestep 50,526 40,364 25% 96,590 79,589 21%
Total fee revenue 280,600 255,702 10% 547,994 506,890 8%
Reimbursed out-of-
pocket engagement
expenses 10,739 9,015 19% 22,680 18,152 25%
------ ----- ------ ------
Total revenue $291,339 $264,717 10% $570,674 $525,042 9%
========
Operating Income: Margin Margin Margin Margin
------ ------ ------ ------
Executive recruitment:
North America $27,422 29.6% $19,117 23.1% $51,567 28.2% $38,115 23.1%
EMEA 6,929 18.9% 5,621 15.3% 13,205 18.2% 8,264 10.7%
Asia Pacific 3,907 18.6% 3,424 16.2% 6,893 17.1% 5,946 14.6%
South America 970 15.9% 1,699 20.3% 2,478 19.8% 1,772 12.1%
---
Total executive
recruitment 39,228 25.1% 29,861 20.1% 74,143 24.0% 54,097 18.2%
Leadership & Talent
Consulting 7,778 10.6% 7,762 11.7% 15,273 10.7% 11,222 8.6%
Futurestep 6,896 13.6% 5,150 12.8% 13,085 13.5% 8,607 10.8%
Corporate (24,889) (8,357) (40,584) (20,917)
------- ------ ------- -------
Total operating income $29,013 10.3% $34,416 13.5% $61,917 11.3% $53,009 10.5%
=======
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
October 31, April 30,
2015 2015
---- ----
ASSETS (unaudited)
------
Cash and cash equivalents $270,743 $380,838
Marketable securities 12,109 25,757
Receivables due from clients, net of
allowance for doubtful accounts of
$11,291 and $9,958 respectively 230,442 188,543
Income taxes and other receivables 20,956 10,966
Deferred income taxes 1,497 3,827
Prepaid expenses and other assets 38,504 31,054
------ ------
Total current assets 574,251 640,985
------- -------
Marketable securities, non-current 134,799 118,819
Property and equipment, net 61,665 62,088
Cash surrender value of company owned life
insurance policies, net of loans 105,472 102,691
Deferred income taxes 51,528 56,014
Goodwill 250,981 254,440
Intangible assets, net 43,547 47,901
Investments and other assets 49,945 34,863
------ ------
Total assets $1,272,188 $1,317,801
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable $17,235 $19,238
Income taxes payable 5,082 3,813
Compensation and benefits payable 142,531 219,364
Other accrued liabilities 69,692 63,595
------
Total current liabilities 234,540 306,010
------- -------
Deferred compensation and other retirement
plans 174,345 173,432
Other liabilities 23,851 23,110
------ ------
Total liabilities 432,736 502,552
------- -------
Stockholders' equity
Common stock: $0.01 par value, 150,000
shares authorized, 63,586 and 62,863
shares issued and 51,287 and 50,573
shares outstanding, respectively
473,370 463,839
Retained earnings 422,797 392,033
Accumulated other comprehensive loss, net (56,715) (40,623)
------- -------
Total stockholders' equity 839,452 815,249
Total liabilities and stockholders' equity $1,272,188 $1,317,801
========== ==========
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP)
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Three Months Ended
October 31, 2015 October 31, 2014
---------------- ----------------
As Reported Adjustments As Adjusted As Reported Adjustments As Adjusted
----------- ----------- ----------- ----------- ----------- -----------
Fee revenue $280,600 $280,600 $255,702 $255,702
Reimbursed out-of-pocket
engagement expenses 10,739 10,739 9,015 9,015
------ ------ ----- -----
Total revenue 291,339 291,339 264,717 264,717
------- ------- ------- -------
Compensation and benefits 188,608 (3,310) 185,298 174,656 174,656
General and administrative
expenses 44,563 (8,684) 35,879 30,145 30,145
Reimbursed expenses 10,739 10,739 9,015 9,015
Cost of services 11,236 11,236 9,706 9,706
Depreciation and amortization 7,180 7,180 6,779 6,779
Restructuring charges, net - - - - - -
--- ---
Total operating expenses 262,326 (11,994) 250,332 230,301 - 230,301
------- ------- ------- ------- --- -------
Operating income 29,013 11,994 41,007 34,416 - 34,416
Other (loss) income, net (2,646) (2,646) 2,362 2,362
Interest expense, net (544) (544) (920) (920)
---- ---- ---- ----
Income before provision for
income taxes and equity in
earnings of unconsolidated
subsidiaries
25,823 11,994 37,817 35,858 - 35,858
Equity in earnings of
unconsolidated subsidiaries 540 540 452 452
Income tax provision (1) (2) 8,392 4,168 12,560 10,907 10,907
Net income $17,971 $7,826 $25,797 $25,403 $ - $25,403
======= ====== ======= ======= =================== =======
Earnings per common share:
Basic $0.36 $0.51 $0.52 $0.52
===== ===== ===== =====
Diluted $0.35 $0.51 $0.51 $0.51
===== ===== ===== =====
Weighted-average common
shares outstanding:
Basic 49,981 49,981 49,082 49,082
====== ====== ====== ======
Diluted 50,362 50,362 49,740 49,740
====== ====== ====== ======
Explanation of Non-GAAP Adjustments
-----------------------------------
(1) The adjustments
result in an
effective tax rate
of 33% for the as
adjusted amounts
for the three
months ended
October 31, 2015.
(2) The three months
ended October 31,
2015 includes the
tax effect on
integration/
acquisition costs.
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP)
(in thousands, except per share amounts)
(unaudited)
Six Months Ended Six Months Ended
October 31, 2015 October 31, 2014
---------------- ----------------
As Reported Adjustments As Adjusted As Reported Adjustments As Adjusted
----------- ----------- ----------- ----------- ----------- -----------
Fee revenue $547,994 $547,994 $506,890 $506,890
Reimbursed out-of-pocket
engagement expenses 22,680 22,680 18,152 18,152
------ ------ ------ ------
Total revenue 570,674 570,674 525,042 525,042
------- ------- ------- -------
Compensation and benefits 368,064 (3,639) 364,425 343,762 343,762
General and administrative
expenses 82,054 (9,029) 73,025 67,513 67,513
Reimbursed expenses 22,680 22,680 18,152 18,152
Cost of services 21,356 21,356 19,171 19,171
Depreciation and amortization 14,603 14,603 13,549 13,549
Restructuring charges, net - - - 9,886 (9,886) -
--- ----- ------
Total operating expenses 508,757 (12,668) 496,089 472,033 (9,886) 462,147
------- ------- ------- ------- ------ -------
Operating income 61,917 12,668 74,585 53,009 9,886 62,895
Other (loss) income, net (2,720) (2,720) 4,539 4,539
Interest expense, net (843) (843) (1,714) (1,714)
---- ---- ------ ------
Income before provision for
income taxes and equity in
earnings of unconsolidated
subsidiaries
58,354 12,668 71,022 55,834 9,886 65,720
Equity in earnings of
unconsolidated subsidiaries 1,265 1,265 918 918
Income tax provision (1) (2) 18,566 4,383 22,949 16,816 2,942 19,758
Net income $41,053 $8,285 $49,338 $39,936 $6,944 $46,880
======= ====== ======= ======= ====== =======
Earnings per common share:
Basic $0.82 $0.98 $0.82 $0.96
===== ===== ===== =====
Diluted $0.81 $0.97 $0.80 $0.94
===== ===== ===== =====
Weighted-average common
shares outstanding:
Basic 49,737 49,737 48,893 48,893
====== ====== ====== ======
Diluted 50,233 50,233 49,720 49,720
====== ====== ====== ======
Explanation of Non-GAAP Adjustments
-----------------------------------
(1) The adjustments
result in an
effective tax rate
of 32% and 30% for
the as adjusted
amounts for the six
months ended
October 31, 2015
and 2014,
respectively.
(2) The six months ended
October 31, 2015
includes the tax
effect on
integration/
acquisition costs,
while the six month
ended October 31,
2014 includes the
tax effect on
restructuring
charges.
KORN FERRY AND SUBSIDIARIES
RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO
EBITDA AND ADJUSTED EBITDA (NON-GAAP)
(in thousands)
(unaudited)
Three Months Ended October 31, 2015
-----------------------------------
Executive Recruitment
---------------------
North America EMEA Asia Pacific South America Subtotal Leadership & Talent Consulting Futurestep Corporate Consolidated
------------- ---- ------------ ------------- -------- ------------------------------ ---------- --------- ------------
Fee revenue $92,788 $36,570 $20,998 $6,116 $156,472 $73,602 $50,526 $ - $280,600
======= ======= ======= ====== ======== ======= ======= =================== ========
Net income $17,971
Other loss, net 2,646
Interest expense, net 544
Equity in earnings of unconsolidated (540)
subsidiaries, net
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 140 - - - 140 - - 400 540
subsidiaries, net
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%
Three Months Ended October 31, 2014
-----------------------------------
Executive Recruitment
---------------------
North America EMEA Asia Pacific South America Subtotal Leadership & Talent Consulting Futurestep Corporate Consolidated
------------- ---- ------------ ------------- -------- ------------------------------ ---------- --------- ------------
Fee revenue $82,729 $36,675 $21,157 $8,369 $148,930 $66,408 $40,364 $ - $255,702
======= ======= ======= ====== ======== ======= ======= =================== ========
Net income $25,403
Other income, net (2,362)
Interest expense, net 920
Equity in earnings of unconsolidated (452)
subsidiaries, net
Income tax provision 10,907
Operating income (loss) $19,117 $5,621 $3,424 $1,699 $29,861 $7,762 $5,150 $(8,357) 34,416
Depreciation and amortization 891 446 261 85 1,683 3,279 459 1,358 6,779
Other income (loss), net 194 (1) 149 13 355 (172) 25 2,154 2,362
Equity in earnings of unconsolidated 110 - - - 110 - - 342 452
subsidiaries, net
EBITDA 20,312 6,066 3,834 1,797 32,009 10,869 5,634 (4,503) 44,009
------ ----- ----- ----- ------ ------ ----- ------ ------
EBITDA margin 24.6% 16.5% 18.1% 21.5% 21.5% 16.4% 14.0% 17.2%
Adjusted EBITDA $20,312 $6,066 $3,834 $1,797 $32,009 $10,869 $5,634 $(4,503) $44,009
======= ====== ====== ====== ======= ======= ====== ======= =======
Adjusted EBITDA margin 24.6% 16.5% 18.1% 21.5% 21.5% 16.4% 14.0% 17.2%
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, 2015
---------------------------------
Executive Recruitment
---------------------
North America EMEA Asia Pacific South America Subtotal Leadership & Talent Consulting Futurestep Corporate Consolidated
------------- ---- ------------ ------------- -------- ------------------------------ ---------- --------- ------------
Fee revenue $183,147 $72,660 $40,213 $12,542 $308,562 $142,842 $96,590 $ - $547,994
======== ======= ======= ======= ======== ======== ======= =================== ========
Net income $41,053
Other loss, net 2,720
Interest expense, net 843
Equity in earnings of unconsolidated (1,265)
subsidiaries, net
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 226 - - - 226 - - 1,039 1,265
subsidiaries, net
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%
Six Months Ended October 31, 2014
---------------------------------
Executive Recruitment
---------------------
North America EMEA Asia Pacific South America Subtotal Leadership & Talent Consulting Futurestep Corporate Consolidated
------------- ---- ------------ ------------- -------- ------------------------------ ---------- --------- ------------
Fee revenue $165,029 $76,972 $40,691 $14,653 $297,345 $129,956 $79,589 $ - $506,890
======== ======= ======= ======= ======== ======== ======= =================== ========
Net income $39,936
Other income, net (4,539)
Interest expense, net 1,714
Equity in earnings of unconsolidated (918)
subsidiaries, net
Income tax provision 16,816
Operating income (loss) $38,115 $8,264 $5,946 $1,772 $54,097 $11,222 $8,607 $(20,917) 53,009
Depreciation and amortization 1,795 935 555 170 3,455 6,531 905 2,658 13,549
Other income, net 323 45 258 46 672 45 23 3,799 4,539
Equity in earnings of unconsolidated 178 - - - 178 - - 740 918
subsidiaries, net
EBITDA 40,411 9,244 6,759 1,988 58,402 17,798 9,535 (13,720) 72,015
------ ----- ----- ----- ------ ------ ----- ------- ------
EBITDA margin 24.5% 12.0% 16.6% 13.6% 19.6% 13.7% 12.0% 14.2%
Restructuring charges, net 1,151 3,987 17 377 5,532 2,758 1,424 172 9,886
Adjusted EBITDA $41,562 $13,231 $6,776 $2,365 $63,934 $20,556 $10,959 $(13,548) $81,901
======= ======= ====== ====== ======= ======= ======= ======== =======
Adjusted EBITDA margin 25.2% 17.2% 16.7% 16.1% 21.5% 15.8% 13.8% 16.2%
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SOURCE Korn Ferry
