Korn Ferry International Announces Second Quarter Fiscal 2016 Results of Operations

Highlights

- Korn Ferry reports record fee revenue of $280.6 million in the second quarter of fiscal 2016, an increase of $24.9 million, or 9.7% ($41.3 million, or 16.2% on a constant currency basis), from Q2 FY'15, with increases across all segments on a constant currency basis:

Futurestep 35.4%

Leadership and Talent Consulting 15.7%

Executive Recruitment 11.1%

- Adjusted EBITDA margin was 16.4% in Q2 FY'16.

- Adjusted diluted earnings per share was $0.51 in Q2 FY'16, excluding $12.0 million of integration/acquisition costs, compared to diluted earnings per share of $0.51 in Q2 FY'15. Q2 FY'16 diluted earnings per share was $0.35.

- 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.

09 Dec, 2015, 07:05 ET from 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%

EBITDA Results (c):

Second Quarter

Year to Date

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%

Adjusted Results (d):

Second Quarter

Year to Date

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%

 

Adjusted Results (d):

Second Quarter

Year to Date

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

Fee Revenue Outlook(2)

Q3 FY'16

Earnings Per Share Outlook(3)

Low

High

Low

High

(in millions)

Korn Ferry stand-alone fee revenue

$     268

$       278

Korn Ferry stand-alone adjusted diluted earnings per share

$         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 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%

 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 subsidiaries, net 

(452)

       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 subsidiaries, net 

110

-

-

-

110

-

-

342

452

 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 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%

 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 subsidiaries, net 

(918)

       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  subsidiaries, net 

178

-

-

-

178

-

-

740

918

 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%

 

SOURCE Korn Ferry



RELATED LINKS

http://www.kornferry.com