Korn Ferry Announces Third Quarter Fiscal 2019 Results of Operations

LOS ANGELES, March 7, 2019 /PRNewswire/ --

Highlights

• Korn Ferry reports fee revenue of $474.5 million in Q3 FY'19, an increase of 6% (10% on a constant currency basis) from Q3 FY'18, driven by organic growth in all segments.
• Operating income was $62.7 million in Q3 FY'19 with an operating margin of 13.2%.  Adjusted EBITDA was $77.7 million with Adjusted EBITDA margin of 16.4%.
• Q3 FY'19 diluted earnings per share was $0.80 compared to diluted earnings per share of $0.48 in Q3 FY'18.  Adjusted diluted earnings per share was $0.81 in Q3 FY'19 compared to Adjusted diluted earnings per share of $0.70 in Q3 FY'18.
• The Company continued with its balanced approach to capital allocation, buying back $14.7 million of stock during the quarter and declaring a quarterly dividend of $0.10 per share on March 6, 2019 payable on April 15, 2019 to stockholders of record on March 26, 2019.  In addition, on March 6, 2019, the Board of Directors approved an increase in our capacity to repurchase shares to a total remaining availability of $250 million.  The shares may be repurchased from time to time in the open market or privately negotiated transactions, subject to market conditions and other factors.

Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced third quarter fee revenue of $474.5 million.  Third quarter diluted earnings per share was $0.80 and Adjusted diluted earnings per share was $0.81.  Adjusted diluted earnings per share for the third quarter excludes $0.8 million related to retention awards from a prior acquisition, or $0.01 per share.

"I am pleased with the results of our recently completed third quarter.  We generated $475 million in fee revenue, up approximately 6% year-over-year, 10% at constant currency, with strong growth across all of our geographies and solutions.  Adjusted EBITDA was $78 million, with an Adjusted EBITDA margin of 16.4 percent – an all-time high.  We also continue to execute our balanced approach to capital deployment, repurchasing $14.7 million of our shares in the quarter, bringing our total recent share repurchases to nearly $100 million.  We have increased our capacity to repurchase shares to a total remaining availability of $250 million.  This move, in conjunction with our regular dividend, further drives our capital allocation strategy," said Gary D. Burnison, CEO, Korn Ferry.

"We are redefining an industry.  We are building a firm that has the scale and offerings that synchronize our clients' strategy with their organization and people to help them drive superior performance," added Burnison.

Selected Financial Results
(dollars in millions, except per share amounts) ^(a)

Fee revenue was $474.5 million in Q3 FY'19, an increase of 6% (10% increase on a constant currency basis) compared to Q3 FY'18.  The increase in fee revenue was due to organic growth in all segments.

Operating income was $62.7 million in Q3 FY'19 compared to $49.8 million in the year-ago quarter.  Operating margin was 13.2% in Q3 FY'19 compared to 11.1% in the year-ago quarter.  The increase in operating income was primarily due to the increase in fee revenue, partially offset by an increase in compensation and benefits expense driven by an increase in average headcount and performance related bonus expense.

Adjusted EBITDA margin was 16.4%, compared to 15.9% in the year-ago quarter.  The increase in Adjusted EBITDA margin was impacted by the same factors as operating income offset by lower gains in other income, net due to market movements associated with marketable securities.

Results by Segment

Selected Executive Search Data
(dollars in millions) ^(a)

Fee revenue was $193.4 million in Q3 FY'19, an increase of $13.0 million or 7% (10% on a constant currency basis) compared to Q3 FY'18.  The increase in fee revenue was attributable to higher fee revenue in the North American, Asia Pacific and Latin American regions.

Operating income was $44.7 million in Q3 FY'19 compared to $34.4 million in Q3 FY'18.  Operating margin was 23.1% in Q3 FY'19 compared to 19.1% in the year-ago quarter.  The increase in operating income was due to higher fee revenue in Q3 FY'19 compared to Q3 FY'18, partially offset by an increase in general and administrative expenses driven by higher premise and office expense and adversely impacted by foreign exchange losses in Q3 FY'19 compared to gains in the year-ago quarter.

Adjusted EBITDA was $48.2 million in Q3 FY'19 with an Adjusted EBITDA margin of 24.9% compared to $37.3 million and 20.7%, respectively, in the year-ago quarter.

Selected Advisory Data
(dollars in millions) ^(a)

Fee revenue was $201.5 million in Q3 FY'19 compared to $198.1 million in Q3 FY'18, an increase of $3.4 million or 2% (6% on a constant currency basis) compared to Q3 FY'18.  The increase in fee revenue was primarily driven by an increase in Consulting Solutions fee revenue across each of our Advisory businesses.

Operating income was $29.3 million in Q3 FY'19 with an operating margin of 14.5% compared to operating income of $27.1 million and an operating margin of 13.7% in the year-ago quarter.  The increase in operating income was primarily due to higher fee revenue compared to the year-ago quarter, partially offset by an increase in compensation and benefits expense driven by the use of outside contractors and higher commission expense.

Adjusted EBITDA was $38.1 million in Q3 FY'19 with an Adjusted EBITDA margin of 18.9% compared to $37.3 million and 18.8%, respectively, in the year-ago quarter.  The increase in Adjusted EBITDA margin was impacted by the same factors as operating income offset by decrease in integration/acquisition costs in Q3 FY'19 compared to the year-ago quarter.

Selected RPO and Professional Search Data
(dollars in millions) ^(a)

Fee revenue was $79.6 million in Q3 FY'19, an increase of $10.5 million or 15% (19% increase on a constant currency basis), compared to the year-ago quarter.  The higher fee revenue was driven by an increase in fee revenue in recruitment process outsourcing and professional search of $6.7 million and $3.8 million, respectively, in Q3 FY'19 compared to Q3 FY'18.

Operating income was $12.2 million in Q3 FY'19, an increase of $2.1 million compared to Q3 FY'18 operating income of $10.1 million.  Operating margin was 15.3% in the current quarter compared to 14.6% in the year-ago quarter. 

EBITDA was $13.1 million during Q3 FY'19, an increase of $2.3 million compared to Q3 FY'18.  EBITDA margin was 16.4% in Q3 FY'19 and 15.6% in Q3 FY'18.

Outlook

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

• Q4 FY'19 fee revenue is expected to be in the range of $485 million and $505 million; and
• Q4 FY'19 diluted earnings per share is likely to range between $0.85 to $0.93.

Earnings Conference Call Webcast

The earnings conference call will be held today at 4:30 PM (EST) and hosted by CEO Gary Burnison, CFO Robert Rozek and SVP Finance Gregg Kvochak.  The conference call will be webcast and available online at ir.kornferry.com.  We will also post to this section of our website 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 a global organizational consulting firm.  We help clients synchronize strategy and talent to drive superior performance.  We work with organizations to design their structures, roles, and responsibilities.  We help them hire the right people to bring their strategy to life.  And we advise them on how to reward, develop, and motivate their people.  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, changes in demand for our services as a result of automation, the dependence on attracting and retaining qualified and experienced consultants, our ability to maintain relationships with customers and suppliers and retain key employees, maintaining our brand name and professional reputation, potential legal liability and regulatory developments, 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, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, changes to data security, data privacy and data protection laws, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, the utilization and billing rates of our consultants, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, tax accounting effects of the Tax Act, impairment of goodwill and other intangible assets, deferred tax assets that we may not be able to use, seasonality, risks related to the integration of recently acquired businesses, employment liability risk, the impact of rebranding on the Company's products and services; the expected timing of the Company's rebranding and entity rationalization plan, and the costs of the Company's rebranding and entity rationalization plan.  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, adjusted to exclude the tax impact associated with the Tax Act, restructuring (recoveries) charges, net, integration/acquisition costs and tradename write-offs, net of income tax effect;
• Adjusted basic and diluted earnings per share, adjusted to exclude the tax impact associated with the Tax Act, restructuring (recoveries) charges, net, integration/acquisition costs and tradename write-offs, net of income tax effect; and in the case of the outlook section, also adjusted for tax rate impact;
• Constant currency (calculated using a quarterly average) amounts that represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period;
• EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin; and
• Adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring (recoveries) charges, net, integration/acquisition costs and tradename write-offs, and Adjusted EBITDA margin.

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

Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn Ferry's performance by excluding certain charges and other items that may not be indicative of Korn Ferry's ongoing operating results.  These non-GAAP financial measures are performance measures and are not indicative of the liquidity of Korn Ferry.  These charges and other items represent 1) the tax impact associated with the Tax Act, 2) costs we incurred to acquire and integrate a portion of our Advisory business, 3) charges we incurred or recoveries we received to restructure the combined company due to the acquisition of a portion of our Advisory business, and 4) tradename write-offs associated with the rebranding plan initiated by Korn Ferry.  The use of non-GAAP financial measures facilitates comparisons to Korn Ferry's historical performance.  Korn Ferry includes non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.  Management further believes that EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company.  In the case of constant currency amounts, management believes the presentation of such information provides useful supplemental information regarding Korn Ferry's performance as excluding the impact of exchange rate changes on Korn Ferry's financial performance allows investors to make more meaningful period-to-period comparisons of the Company's operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making. 

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