Korn Ferry International Announces Fourth Quarter and Fiscal 2017 Results of Operations

PR Newswire 20-Jun-2017 4:05 PM

LOS ANGELES, June 20, 2017 /PRNewswire/ --

Highlights

  • Korn Ferry reports record fee revenue of $406.1 million in Q4 FY'17, driven by organic growth in Futurestep and the North America region of Executive Search.
  • Korn Ferry reports record annual fee revenue of $1,565.5 million, driven by the Legacy Hay acquisition and organic growth in Futurestep.
  • Operating income was $32.8 million in Q4 FY'17 with an operating margin of 8.1%. Adjusted EBITDA was $60.1 million with Adjusted EBITDA margin of $14.8%.
  • Q4 FY'17 diluted earnings per share was $0.47 and Adjusted diluted earnings per share was $0.62.
  • The Company continued to repurchase shares in the open market with cumulative share repurchases of 1.1 million since the Company began repurchasing in October 2016, representing a reduction of approximately 2% of outstanding shares of common stock.
  • The Company declared a quarterly dividend of $0.10 per share on June 20, 2017 payable on July 14, 2017 to stockholders of record on June 30, 2017.

Korn/Ferry International (NYSE: KFY), the preeminent global people and organizational advisory firm, today announced fourth quarter and annual fee revenue of $406.1 million and $1,565.5 million, respectively. Fourth quarter diluted earnings per share and adjusted diluted earnings per share were $0.47 and $0.62, respectively. Adjusted diluted earnings per share for the fourth quarter excluded $8.2 million, or $0.15 per share, of restructuring charges, net, integration/acquisition costs and separation costs.

"I am pleased to report record fee revenue of $406 million and strong profitability, with diluted earnings per share and adjusted diluted earnings per share of $0.47 and $0.62 and adjusted EBITDA of approximately $60 million during our recently completed fourth quarter. With continued momentum in all business lines, we achieved the highest fiscal year fee revenue in our firm's history up 20% year over year," said Gary D. Burnison, CEO of Korn Ferry. "There is notable runway in this market for broader talent offerings. We continue to benefit from strong demand for our holistic approach from our anchor executive search offering to organizational advisory services, leadership development, compensation and rewards and more. As we increasingly extend our brand, broaden our solutions and attract top talent to our firm, Korn Ferry is well-positioned for the future."

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

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

Fee revenue

$ 406.1

$ 399.9

$ 1,565.5

$ 1,292.1

Total revenue

$ 419.6

$ 417.1

$ 1,621.7

$ 1,346.7

Operating income

$ 32.8

$ 4.9

$ 114.4

$ 52.7

Operating margin

8.1%

1.2%

7.3%

4.1%

Net income attributable to Korn Ferry

$ 26.9

$ 5.8

$ 84.2

$ 30.9

Basic earnings per share

$ 0.48

$ 0.10

$ 1.48

$ 0.58

Diluted earnings per share

$ 0.47

$ 0.10

$ 1.47

$ 0.58

EBITDA Results (b):

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

EBITDA

$ 49.5

$ 21.9

$ 173.9

$ 86.3

EBITDA margin

12.2%

5.5%

11.1%

6.7%

Adjusted Results (c):

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

Adjusted fee revenue

$ 406.1

$ 405.0

$1,569.1

$ 1,303.1

Adjusted EBITDA (b)

$ 60.1

$ 54.8

$ 235.0

$ 190.2

Adjusted EBITDA margin (b)

14.8%

13.5%

15.0%

14.6%

Adjusted net income attributable to Korn Ferry

$ 35.2

$ 32.8

$ 128.8

$ 110.9

Adjusted basic earnings per share

$ 0.62

$ 0.58

$ 2.27

$ 2.10

Adjusted diluted earnings per share

$ 0.62

$ 0.58

$ 2.24

$ 2.08

_______________

(a)

Numbers may not total due to rounding.

(b)

EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude restructuring charges, net, integration/acquisition costs, separation costs and Venezuelan foreign currency loss and includes the deferred revenue adjustment related to the acquisition of HG (Luxembourg) S..r.l ("Legacy Hay")). EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).

(c)

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

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

Restructuring charges, net

$ 6.3

$ 2.4

$ 34.6

$ 33.0

Integration/acquisition costs

$ 3.7

$ 11.7

$ 22.4

$ 45.5

Deferred revenue adjustment related to the Legacy Hay acquisition

$

$ 5.1

$ 3.5

$ 11.0

Separation costs

$ 0.6

$

$ 0.6

$ 0.7

Write-off of debt issuance costs

$

$

$ 1.0

$

Venezuelan foreign currency loss

$

$ 13.7

$

$ 13.7

Fiscal 2017 Fourth Quarter Results

Fee revenue was $406.1 million in Q4 FY'17, an increase of 1.6% (3.2% increase on a constant currency basis) compared to Q4 FY'16. Adjusted fee revenue was $406.1 million in Q4 FY'17, an increase of 0.3% (1.9% increase on a constant currency basis) compared to Q4 FY'16. The increase in fee revenue was due to organic growth in Futurestep and the North America region of Executive Search.

Operating margin was 8.1% in Q4 FY'17 compared to 1.2% in the year-ago quarter. In Q4 FY'17, the increase in operating margin was primarily due to decreases in integration/acquisition costs, lower foreign currency loss relating to the devaluation of the Venezuelan currency in Q4 FY'16 and a decrease in compensation expense.

Adjusted EBITDA margin was 14.8%, compared to 13.5% in the year-ago quarter. The increase in Adjusted EBITDA margin was primarily due to the improvement in margins in Executive Search due to higher fee revenue while operating expenses were relatively flat and higher margins in the Hay Group segment due to the synergies achieved in connection with the Legacy Hay acquisition.

Fiscal 2017 Results

Fee revenue was $1,565.5 million in FY'17, an increase of 21.2% (23.3% increase on a constant currency basis) compared to FY'16. Adjusted fee revenue was $1,569.1 million in FY'17, an increase of 20.4% (22.6% increase on a constant currency basis) compared to FY'17. The growth was primarily due to an increase in fee revenue associated with the acquisition of Legacy Hay that was completed on December 1, 2015, and organic growth in Futurestep fee revenue.

Operating margin was 7.3% in FY'17 compared to 4.1% in FY'16. In FY'17, the increase in operating margin was primarily due to higher fee revenue of $273.4 million and decreases in integration/acquisition costs due to the Legacy Hay acquisition and the foreign currency loss relating to the devaluation of the Venezuelan currency in FY'16.

Adjusted EBITDA margin was 15.0%, compared to 14.6% in FY'16. The increase in Adjusted EBITDA margin was primarily due to the improvement in margins in the Hay Group segment due to the synergies achieved in connection with the Legacy Hay acquisition.

Results by Segment

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

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

Fee revenue

$ 162.3

$ 159.7

$ 617.7

$ 622.9

Total revenue

$ 167.0

$ 165.4

$ 636.2

$ 644.5

Operating income

$ 30.6

$ 23.0

$ 124.3

$ 131.7

Operating margin

18.8%

14.4%

20.1%

21.1%

Ending number of consultants

517

488

517

488

Average number of consultants

512

490

503

470

Engagements billed

3,530

3,395

9,008

8,375

New engagements (b)

1,525

1,463

5,933

5,517

EBITDA Results (c):

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

EBITDA

$ 33.6

$ 25.1

$ 132.8

$ 138.3

EBITDA margin

20.7%

15.7%

21.5%

22.2%

Adjusted Results (d):

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

Adjusted EBITDA (c)

$ 34.2

$ 31.7

$ 137.4

$ 152.2

Adjusted EBITDA margin (c)

21.1%

19.9%

22.2%

24.4%

_____________

(a)

Numbers may not total due to rounding.

(b)

Represents new engagements opened in the respective period.

(c)

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

(d)

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

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

Restructuring charges, net

$ 0.6

$

$ 4.6

$ 7.3

Venezuelan foreign currency loss

$

$ 6.6

$

$ 6.6

Fee revenue was $162.3 million in Q4 FY'17, an increase of $2.6 million or 1.6% (an increase of $5.0 million or 3.1% on a constant currency basis) compared to Q4 FY'16. The overall increase in fee revenue was primarily attributable to higher fee revenue in our North America region.

Operating income was $30.6 million in Q4 FY'17 compared to $23.0 million in Q4 FY'16. Operating margin was 18.8% in Q4 FY'17 compared to 14.4% in the year-ago quarter. The increase in operating income was due to a decrease in general and administrative expenses as a result of lower foreign currency losses relating to the devaluation of the Venezuelan currency in FY'16 and higher fee revenue in Q4 FY'17 compared to Q4 FY'16.

Adjusted EBITDA was $34.2 million in Q4 FY'17 with an Adjusted EBITDA margin of 21.1% compared to $31.7 million and 19.9%, respectively, in Q4 FY'16.The increase in Adjusted EBITDA and Adjusted EBITDA margin was due to anincrease in fee revenue while operating expenses remained relatively flat in Q4 FY'17 compared to Q4 FY'16.

Selected Hay Group Data (dollars in millions) (a)

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

Fee revenue

$ 185.1

$ 187.7

$ 724.2

$ 471.1

Total revenue

$ 188.7

$ 194.7

$ 741.5

$ 488.2

Operating income (loss)

$ 16.1

$ 2.9

$ 47.3

$ (3.4)

Operating margin

8.7%

1.5%

6.5%

(0.7)%

Ending number of consultants (b)

557

562

557

562

Staff utilization (c)

69%

70%

67%

67%

EBITDA Results (d):

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

EBITDA

$ 24.3

$ 10.5

$ 79.9

$ 17.5

EBITDA margin

13.1%

5.6%

11.0%

3.7%

Adjusted Results (e):

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

Adjusted fee revenue

$ 185.1

$ 192.8

$ 727.7

$ 482.1

Adjusted EBITDA (d)

$ 33.0

$ 30.7

$ 128.2

$ 78.9

Adjusted EBITDA margin (d)

17.8%

15.9%

17.6%

16.4%

___________

(a)

Numbers may not total due to rounding.

(b)

Represents number of employees originating consulting services.

(c)

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

(d)

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

(e)

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

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

Restructuring charges, net

$ 5.7

$ 2.5

$ 29.7

$ 25.7

Integration/acquisition costs

$ 2.4

$ 5.5

$ 14.4

$ 17.6

Deferred revenue adjustment related to the Legacy Hay acquisition

$

$ 5.1

$ 3.5

$ 11.0

Venezuelan foreign currency loss

$

$ 7.1

$

$ 7.1

Separation costs

$ 0.6

$

$ 0.6

$

Fee revenue was $185.1 million in Q4 FY'17 compared to $187.7 million in Q4 FY'16, a decrease of $2.6 million or 1.4% (an increase of $0.5 million or 0.3% on a constant currency basis) compared to the year-ago quarter. Adjusted fee revenue was $185.1 million in Q4 FY'17 compared to $192.8 million in Q4 FY'16, a decrease of $7.7 million or 4.0% (a decrease of $4.6 million or 2.4% on a constant currency basis) compared to the year-ago quarter.

Operating income was $16.1 million in Q4 FY'17, resulting in an operating margin of 8.7% in the current quarter compared to 1.5% in the year-ago quarter. Operating income increased by $13.2 million from operating income of $2.9 million in Q4 FY'16. The change in operating income was primarily due to a decrease in compensation and benefit expense and lower foreign currency losses relating to the devaluation of the Venezuelan currency in FY'16.

Adjusted EBITDA was $33.0 million in Q4 FY'17, an increase of $2.3 million compared to Q4 FY'16, resulting in Adjusted EBITDA margin of 17.8% in the current quarter.

Selected Futurestep Data (dollars in millions) (a)

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

Fee revenue

$ 58.7

$ 52.5

$ 223.7

$ 198.1

Total revenue

$ 63.9

$ 57.0

$ 243.9

$ 214.0

Operating income

$ 8.1

$ 7.0

$ 30.0

$ 26.7

Operating margin

13.9%

13.3%

13.4%

13.5%

Engagements billed (b)

1,095

978

2,800

2,149

New engagements (c)

576

547

2,193

1,913

EBITDA Results (d):

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

EBITDA

$ 8.8

$ 7.9

$ 32.7

$ 29.5

EBITDA margin

15.0%

15.0%

14.6%

14.9%

Adjusted Results (e):

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

Adjusted EBITDA (d)

$ 8.8

$ 7.9

$ 32.8

$ 29.5

Adjusted EBITDA margin (d)

15.0%

15.0%

14.7%

14.9%

_____________

(a)

Numbers may not total due to rounding.

(b)

Represents search engagements billed.

(c)

Represents new search engagements opened in the respective period.

(d)

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

(e)

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

Fourth Quarter

Year to Date

FY'17

FY'16

FY'17

FY'16

Restructuring charges, net

$

$

$ 0.1

$

Fee revenue was $58.7 million in Q4 FY'17, an increase of $6.2 million or 11.8% (a $7.2 million or 13.7% increase on a constant currency basis), compared to the year-ago quarter. The higher fee revenue was driven by an increase in recruitment process outsourcing and professional search of $3.5 million and $2.7 million, respectively, in Q4 FY'17 compared to Q4 FY'16.

Operating income was $8.1 million in Q4 FY'17, an increase of $1.1 million compared to Q4 FY'16 operating income of $7.0 million. Operating margin was 13.9% in the current quarter compared to 13.3% in the year-ago quarter.

Adjusted EBITDA was $8.8 million during Q4 FY'17, an increase of $0.9 million compared to Q4 FY'16. Adjusted EBITDA margins were 15.0% in Q4 FY'17 and Q4 FY'16.

Outlook

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

  • Q1 FY'18 fee revenue is expected to be in the range of $382 million and $400 million; and
  • Q1 FY'18 diluted earnings per share is likely to range between $0.43 to $0.51.

On a consolidated adjusted basis:

  • Q1 FY'18 adjusted diluted earnings per share is expected to be in the range from $0.48 to $0.56.

Q1 FY'18 Earnings Per Share Outlook (1)

Low

High

Consolidated diluted earnings per share

$0.43

$0.51

Restructuring charges, net

0.01

0.02

Retention bonuses

0.05

0.05

Tax rate impact

(0.01)

(0.02)

Consolidated adjusted diluted earnings per share

$0.48

$0.56

______________

(1)

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

Earnings Conference Call Webcast

The earnings conference call will be held today at 4:30 PM (EDT) and hosted by CEO Gary Burnison, CFO Robert Rozek and SVP Finance Gregg Kvochak. The conference call will be webcast and available online at ir.kornferry.com. We will also post to this section of our website earnings slides, which will accompany our webcast, and other important information, and encourage you to review the information that we make available on our website.

About Korn Ferry

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

Forward-Looking Statements

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

Use of Non-GAAP Financial Measures

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

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

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

Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn Ferry's performance by excluding certain charges and other items that may not be indicative of Korn Ferry's ongoing operating results. These non-GAAP financial measures are performance measures and are not indicative of the liquidity of Korn Ferry. These charges represent 1) costs we incurred to acquire and integrate the Legacy Hay acquisition, 2) charges we incurred to restructure the combined company due to the acquisition of Legacy Hay, 3) separation costs, 4) debt issuance costs written-off upon replacement of our credit facility and 5) revenue that Hay Group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue. As such, reported fee revenue can make fee revenue and operating results appear to fluctuate more than they would if business combination accounting did not require deferred revenue to be written off.Adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of GAAP, rather, it is an adjustment for a short period of time that will provide better comparability in the current and future periods. Management believes the presentation of adjusted fee revenue assists management in its evaluation of ongoing operations and provides useful information to investors because it allows investors to make more meaningful period-to-period comparisons of the Company's operating results, to better identify operating trends that may otherwise be distorted by write-offs required under business combination accounting and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making. Management no longer has adjusted fee revenue after Q1 FY'17. The use of non-GAAP financial measures facilitates comparisons to Korn Ferry's historical performance. Korn Ferry includes non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making. Management further believes that EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company. In the case of constant currency amounts, management believes the presentation of such information provides useful supplemental information regarding Korn Ferry's performance as excluding the impact of exchange rate changes on Korn Ferry's financial performance allows investors to make more meaningful period-to-period comparisons of the Company's operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.

[Tables attached]

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

Three Months Ended

Year Ended Ended

April 30

April 30

2017

2016

2017

2016

(unaudited)

Fee revenue

$ 406,065

$ 399,960

$ 1,565,521

$ 1,292,112

Reimbursed out-of-pocket engagement expenses

13,522

17,201

56,148

54,602

Total revenue

419,587

417,161

1,621,669

1,346,714

Compensation and benefits

275,493

286,852

1,071,507

897,345

General and administrative expenses

59,938

73,569

226,232

213,018

Reimbursed expenses

13,522

17,201

56,148

54,602

Cost of services

19,231

20,974

71,482

59,824

Depreciation and amortization

12,290

11,287

47,260

36,220

Restructuring charges, net

6,279

2,436

34,600

33,013

Total operating expenses

386,753

412,319

1,507,229

1,294,022

Operating income

32,834

4,842

114,440

52,692

Other income (loss), net

4,240

5,645

11,820

(4,167)

Interest (expense) income, net

(2,052)

1,452

(10,251)

237

Income before provision for income taxes

and equity in earnings of unconsolidated subsidiaries

35,022

11,939

116,009

48,762

Equity in earnings of unconsolidated subsidiaries

112

185

333

1,631

Income tax provision

7,398

5,749

29,104

18,960

Net income

27,736

6,375

87,238

31,433

Net income attributable to noncontrolling interest

(812)

(520)

(3,057)

(520)

Net income attributable to Korn/Ferry International

$ 26,924

$ 5,855

$ 84,181

$ 30,913

Earnings per common share attributable to Korn/Ferry International:

Basic

$ 0.48

$ 0.10

$ 1.48

$ 0.58

Diluted

$ 0.47

$ 0.10

$ 1.47

$ 0.58

Weighted-average common shares outstanding:

Basic

55,845

56,012

56,205

52,372

Diluted

56,571

56,574

56,900

52,929

Cash dividends declared per share:

$ 0.10

$ 0.10

$ 0.40

$ 0.40

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

Three Months Ended April 30,

Year Ended Ended April 30,

2017

2016

% Change

2017

2016

% Change

Fee Revenue:

Executive search:

North America

$ 97,264

$ 94,678

2.7%

$ 356,625

$ 371,345

(4.0%)

EMEA

37,210

36,161

2.9%

146,506

144,319

1.5%

Asia Pacific

20,061

21,199

(5.4%)

80,169

80,506

(0.4%)

Latin America

7,731

7,661

0.9%

34,376

26,744

28.5%

Total executive search

162,266

159,699

1.6%

617,676

622,914

(0.8%)

Hay Group

185,100

187,795

(1.4%)

724,186

471,145

53.7%

Futurestep

58,699

52,466

11.9%

223,659

198,053

12.9%

Total fee revenue

406,065

399,960

1.5%

1,565,521

1,292,112

21.2%

Reimbursed out-of-pocket engagement expenses

13,522

17,201

(21.4%)

56,148

54,602

2.8%

Total revenue

$ 419,587

$ 417,161

0.6%

$ 1,621,669

$ 1,346,714

20.4%

Operating Income (Loss):

Margin

Margin

Margin

Margin

Executive search:

North America

$ 21,092

21.7%

$ 19,857

21.0%

$ 81,550

22.9%

$ 100,381

27.0%

EMEA

6,805

18.3%

5,695

15.7%

27,854

19.0%

20,607

14.3%

Asia Pacific

2,364

11.8%

2,904

13.7%

8,580

10.7%

12,572

15.6%

Latin America

302

3.9%

(5,498)

(71.8%)

6,268

18.2%

(1,854)

(6.9%)

Total executive search

30,563

18.8%

22,958

14.4%

124,252

20.1%

131,706

21.1%

Hay Group

16,114

8.7%

2,871

1.5%

47,302

6.5%

(3,415)

(0.7%)

Futurestep

8,137

13.9%

6,987

13.3%

29,986

13.4%

26,702

13.5%

Corporate

(21,980)

(27,974)

(87,100)

(102,301)

Total operating income

$ 32,834

8.1%

$ 4,842

1.2%

$ 114,440

7.3%

$ 52,692

4.1%

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

April 30,

2017

2016

ASSETS

Cash and cash equivalents

$ 410,882

$ 273,252

Marketable securities

4,363

11,338

Receivables due from clients, net of allowance for doubtful accounts

of $15,455 and $11,292, respectively

345,314

315,975

Income taxes and other receivables

31,573

20,579

Prepaid expenses and other assets

51,542

43,130

Total current assets

843,674

664,274

Marketable securities, non-current

115,574

130,092

Property and equipment, net

109,567

95,436

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

113,067

107,296

Deferred income taxes

20,175

27,163

Goodwill

576,865

590,072

Intangible assets, net

217,319

233,027

Investments and other assets

66,657

51,240

Total assets

$ 2,062,898

$ 1,898,600

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable

$ 37,481

$ 26,634

Income taxes payable

4,526

8,396

Compensation and benefits payable

248,354

266,211

Term loan

19,754

30,000

Other accrued liabilities

148,464

145,023

Total current liabilities

458,579

476,264

Deferred compensation and other retirement plans

219,905

216,113

Term loan, non-current

236,222

110,000

Deferred tax liabilities

7,014

5,088

Other liabilities

54,130

43,834

Total liabilities

975,850

851,299

Stockholders' equity

Common stock: $0.01 par value, 150,000 shares authorized, 70,811 and 69,273 shares issued and 56,938 and 57,272 shares outstanding, respectively

692,527

702,098

Retained earnings

461,976

401,113

Accumulated other comprehensive loss, net

(71,064)

(57,911)

Total Korn/Ferry International stockholders' equity

1,083,439

1,045,300

Noncontrolling interest

3,609

2,001

Total stockholders' equity

1,087,048

1,047,301

Total liabilities and stockholders' equity

$ 2,062,898

$ 1,898,600

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

Three Months Ended

Year Ended Ended

April 30,

April 30,

2017

2016

2017

2016

(unaudited)

Fee revenue

$ 406,065

$ 399,960

$ 1,565,521

$ 1,292,112

Deferred revenue adjustment due to acquisition (1)

-

5,096

3,535

10,967

Adjusted fee revenue

$ 406,065

$ 405,056

$ 1,569,056

$ 1,303,079

Operating income

$ 32,834

$ 4,842

$ 114,440

$ 52,692

Depreciation and amortization

12,290

11,287

47,260

36,220

Other income (loss), net

4,240

5,645

11,820

(4,167)

Equity in earnings of unconsolidated subsidiaries, net

112

185

333

1,631

EBITDA

49,476

21,959

173,853

86,376

Deferred revenue adjustment due to acquisition (1)

-

5,096

3,535

10,967

Restructuring charges, net (2)

6,279

2,436

34,600

33,013

Integration/acquisition costs (3)

3,702

11,594

22,379

45,409

Separation costs (4)

609

-

609

744

Venezuelan foreign currency loss (6)

-

13,720

-

13,720

Adjusted EBITDA

$ 60,066

$ 54,805

$ 234,976

$ 190,229

Operating margin

8.1%

1.2%

7.3%

4.1%

Depreciation and amortization

3.0%

2.8%

3.0%

2.8%

Other income (loss), net

1.1%

1.4%

0.8%

(0.3%)

Equity in earnings of unconsolidated subsidiaries, net

-

0.1%

-

0.1%

EBITDA margin

12.2%

5.5%

11.1%

6.7%

Deferred revenue adjustment due to acquisition (1)

-

1.2%

0.2%

0.8%

Restructuring charges, net (2)

1.5%

0.6%

2.2%

2.5%

Integration/acquisition costs (3)

0.9%

2.8%

1.4%

3.5%

Separation costs (4)

0.2%

-

0.1%

0.1%

Venezuelan foreign currency loss (6)

-

3.4%

-

1.0%

Adjusted EBITDA margin

14.8%

13.5%

15.0%

14.6%

Net income attributable to Korn/Ferry International

$ 26,924

$ 5,855

$ 84,181

$ 30,913

Deferred revenue adjustment due to acquisition (1)

-

5,096

3,535

10,967

Restructuring charges, net (2)

6,279

2,436

34,600

33,013

Integration/acquisition costs (3)

3,702

11,594

22,379

45,409

Separation costs (4)

609

-

609

744

Write-off of debt issuance costs (5)

-

-

954

-

Venezuelan foreign currency loss (6)

-

13,720

-

13,720

Tax effect on the above items (7)

(2,364)

(5,846)

(17,438)

(23,819)

Adjusted net income attributable to Korn/Ferry International

$ 35,150

$ 32,855

$ 128,820

$ 110,947

Basic earnings per common share

$ 0.48

$ 0.10

$ 1.48

$ 0.58

Deferred revenue adjustment due to acquisition (1)

-

0.09

0.06

0.20

Restructuring charges, net (2)

0.10

0.04

0.61

0.63

Integration/acquisition costs (3)

0.07

0.21

0.40

0.87

Separation costs (4)

0.01

-

0.01

0.01

Write-off of debt issuance costs (5)

-

-

0.02

-

Venezuelan foreign currency loss (6)

-

0.24

-

0.26

Tax effect on the above items (7)

(0.04)

(0.10)

(0.31)

(0.45)

Adjusted basic earnings per share

$ 0.62

$ 0.58

$ 2.27

$ 2.10

Diluted earnings per common share

$ 0.47

$ 0.10

$ 1.47

$ 0.58

Deferred revenue adjustment due to acquisition (1)

-

0.09

0.06

0.20

Restructuring charges, net (2)

0.10

0.04

0.60

0.62

Integration/acquisition costs (3)

0.07

0.21

0.39

0.86

Separation costs (4)

0.01

-

0.01

0.01

Write-off of debt issuance costs (5)

-

-

0.02

-

Venezuelan foreign currency loss (6)

-

0.24

-

0.26

Tax effect on the above items (7)

(0.03)

(0.10)

(0.31)

(0.45)

Adjusted diluted earnings per share

$ 0.62

$ 0.58

$ 2.24

$ 2.08

Explanation of Non-GAAP Adjustments

(1)

Increase in fee revenue relating to the deferred revenue recorded on the opening balance sheet of Hay Group, required by fair valueaccounting. The adjustment is included in the Hay Group segment. On a GAAP basis, Hay Group fee revenue was $185.1 million and$724.2 million during the three months and the year ended April 31, 2017 and $187.7 million and $471.1 million during the three monthsand year ended April 31, 2016, respectively. On an adjusted basis, Hay Group fee revenue was $185.1 million and $727.7 million during the three months and the year ended April 30, 2017 and $192.8 million and $482.1 million during the three months and year ended April31, 2016, respectively.

(2)

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

(3)

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

(4)

Certain senior management separation charges.

(5)

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

(6)

Foreign currency loss associated with the devaluation of the Venezuelan currency.

(7)

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

KORN FERRY AND SUBSIDIARIES

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

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

Three Months Ended April 30, 2017

Executive Search

NorthAmerica

EMEA

Asia Pacific

LatinAmerica

Subtotal

Hay Group

Futurestep

Corporate

Consolidated

Fee revenue

$ 97,264

$ 37,210

$ 20,061

$ 7,731

$ 162,266

$ 185,100

$ 58,699

$ -

$ 406,065

Total revenue

$ 100,501

$ 38,392

$ 20,299

$ 7,767

$ 166,959

$ 188,711

$ 63,917

$ -

$ 419,587

Net income attributable to Korn/Ferry International

$ 26,924

Net income attributable to noncontrolling interest

812

Other income, net

(4,240)

Interest expense, net

2,052

Equity in earnings of unconsolidated subsidiaries, net

(112)

Income tax provision

7,398

Operating income (loss)

$ 21,092

$ 6,805

$ 2,364

$ 302

$ 30,563

$ 16,114

$ 8,137

$ (21,980)

32,834

Depreciation and amortization

996

364

303

216

1,879

8,160

737

1,514

12,290

Other income (loss), net

332

22

129

526

1,009

(5)

(87)

3,323

4,240

Equity in earnings of unconsolidated subsidiaries, net

112

-

-

-

112

-

-

-

112

EBITDA

22,532

7,191

2,796

1,044

33,563

24,269

8,787

(17,143)

49,476

EBITDA margin

23.2%

19.3%

13.9%

13.5%

20.7%

13.1%

15.0%

12.2%

Restructuring charges, net

13

501

(20)

104

598

5,656

21

4

6,279

Integration/acquisition costs

-

-

-

-

-

2,447

-

1,255

3,702

Separation costs

-

-

-

-

-

609

-

-

609

Adjusted EBITDA

$ 22,545

$ 7,692

$ 2,776

$ 1,148

$ 34,161

$ 32,981

$ 8,808

$ (15,884)

$ 60,066

Adjusted EBITDA margin

23.2%

20.7%

13.8%

14.8%

21.1%

17.8%

15.0%

14.8%

Three Months Ended April 30, 2016

Executive Search

North America

EMEA

Asia Pacific

Latin America

Subtotal

Hay Group

Futurestep

Corporate

Consolidated

Fee revenue

$ 94,678

$ 36,161

$ 21,199

$ 7,661

$ 159,699

$ 187,795

$ 52,466

$ -

$ 399,960

Deferred revenue adjustment due to acquisition

-

-

-

-

-

5,096

-

-

5,096

Adjusted fee revenue

$ 94,678

$ 36,161

$ 21,199

$ 7,661

$ 159,699

$ 192,891

$ 52,466

$ -

$ 405,056

Total revenue

$ 98,562

$ 37,188

$ 21,996

$ 7,686

$ 165,432

$ 194,706

$ 57,023

$ -

$ 417,161

Net loss attributable to Korn/Ferry International

$ 5,855

Net income attributable to noncontrolling interest

520

Other income, net

(5,645)

Interest income, net

(1,452)

Equity in earnings of unconsolidated subsidiaries, net

(185)

Income tax provision

5,749

Operating income (loss)

$ 19,857

$ 5,695

$ 2,904

$ (5,498)

$ 22,958

$ 2,871

$ 6,987

$ (27,974)

4,842

Depreciation and amortization

796

219

237

88

1,340

7,796

614

1,537

11,287

Other income (loss), net

278

206

123

31

638

(131)

277

4,861

5,645

Equity in earnings of unconsolidated subsidiaries, net

185

-

-

-

185

-

-

-

185

EBITDA

21,116

6,120

3,264

(5,379)

25,121

10,536

7,878

(21,576)

21,959

EBITDA margin

22.3%

16.9%

15.4%

(70.2%)

15.7%

5.6%

15.0%

5.5%

Restructuring charges, net

15

(59)

-

(6)

(50)

2,441

49

(4)

2,436

Integration/acquisition costs

-

-

-

-

-

5,555

-

6,039

11,594

Deferred revenue adjustmentdue to acquisition

-

-

-

-

-

5,096

-

-

5,096

Venezuelan foreign currency loss

-

-

-

6,635

6,635

7,085

-

-

13,720

Adjusted EBITDA

$ 21,131

$ 6,061

$ 3,264

$ 1,250

$ 31,706

$ 30,713

$ 7,927

$ (15,541)

$ 54,805

Adjusted EBITDA margin

22.3%

16.8%

15.4%

16.3%

19.9%

15.9%

15.0%

13.5%

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

Year Ended April 30, 2017

Executive Search

North America

EMEA

Asia Pacific

Latin America

Subtotal

Hay Group

Futurestep

Corporate

Consolidated

Fee revenue

$ 356,625

$ 146,506

$ 80,169

$ 34,376

$ 617,676

$ 724,186

$ 223,659

$ -

$ 1,565,521

Deferred revenue adjustment due to acquisition

-

-

-

-

-

3,535

-

-

3,535

Adjusted fee revenue

$ 356,625

$ 146,506

$ 80,169

$ 34,376

$ 617,676

$ 727,721

$ 223,659

$ -

$ 1,569,056

Total revenue

$ 369,803

$ 150,113

$ 81,744

$ 34,533

$ 636,193

$ 741,533

$ 243,943

$ -

$ 1,621,669

Net income attributable to Korn/Ferry International

$ 84,181

Net income attributable to noncontrolling interest

3,057

Other income, net

(11,820)

Interest expense, net

10,251

Equity in earnings of unconsolidated subsidiaries, net

(333)

Income tax provision

29,104

Operating income (loss)

$ 81,550

$ 27,854

$ 8,580

$ 6,268

$ 124,252

$ 47,302

$ 29,986

$ (87,100)

114,440

Depreciation and amortization

3,812

1,030

1,060

483

6,385

32,262

2,818

5,795

47,260

Other income (loss), net

844

(15)

300

684

1,813

341

(91)

9,757

11,820

Equity in earnings of unconsolidated subsidiaries, net

333

-

-

-

333

-

-

-

333

EBITDA

86,539

28,869

9,940

7,435

132,783

79,905

32,713

(71,548)

173,853

EBITDA margin

24.3%

19.7%

12.4%

21.6%

21.5%

11.0%

14.6%

11.1%

Restructuring charges, net

1,719

629

1,495

773

4,616

29,663

101

220

34,600

Integration/acquisition costs

-

-

-

-

-

14,440

-

7,939

22,379

Deferred revenue adjustment due to acquisition

-

-

-

-

-

3,535

-

-

3,535

Separation costs

-

-

-

-

-

609

-

-

609

Adjusted EBITDA

$ 88,258

$ 29,498

$ 11,435

$ 8,208

$ 137,399

$ 128,152

$ 32,814

$ (63,389)

$ 234,976

Adjusted EBITDA margin

24.7%

20.1%

14.3%

23.9%

22.2%

17.6%

14.7%

15.0%

Year Ended April 30, 2016

Executive Search

North America

EMEA

Asia Pacific

Latin America

Subtotal

Hay Group

Futurestep

Corporate

Consolidated

Fee revenue

$ 371,345

$ 144,319

$ 80,506

$ 26,744

$ 622,914

$ 471,145

$ 198,053

$ -

$ 1,292,112

Deferred revenue adjustment due to acquisition

-

-

-

-

-

10,967

-

-

10,967

Adjusted fee revenue

$ 371,345

$ 144,319

$ 80,506

$ 26,744

$ 622,914

$ 482,112

$ 198,053

$ -

$ 1,303,079

Total revenue

$ 386,256

$ 148,285

$ 83,206

$ 26,781

$ 644,528

$ 488,217

$ 213,969

$ -

$ 1,346,714

Net income attributable to Korn/Ferry International

$ 30,913

Net income attributable to noncontrolling interest

520

Other loss, net

4,167

Interest income, net

(237)

Equity in earnings of unconsolidated subsidiaries, net

(1,631)

Income tax provision

18,960

Operating income (loss)

$ 100,381

$ 20,607

$ 12,572

$ (1,854)

$ 131,706

$ (3,415)

$ 26,702

$ (102,301)

52,692

Depreciation and amortization

3,267

1,029

941

312

5,549

21,854

2,386

6,431

36,220

Other (loss) income, net

(147)

433

21

312

619

(868)

364

(4,282)

(4,167)

Equity in earnings of unconsolidated subsidiaries, net

437

-

-

-

437

-

-

1,194

1,631

EBITDA

103,938

22,069

13,534

(1,230)

138,311

17,571

29,452

(98,958)

86,376

EBITDA margin

28.0%

15.3%

16.8%

(4.6%)

22.2%

3.7%

14.9%

6.7%

Restructuring charges, net

499

5,807

577

322

7,205

25,682

49

77

33,013

Integration/acquisition costs

-

-

-

-

-

17,607

-

27,802

45,409

Venezuelan foreign currency loss

-

-

-

6,635

6,635

7,085

-

-

13,720

Deferred revenue adjustment due to acquisition

-

-

-

-

-

10,967

-

-

10,967

Separation costs

-

-

-

-

-

-

-

744

744

Adjusted EBITDA

$ 104,437

$ 27,876

$ 14,111

$ 5,727

$ 152,151

$ 78,912

$ 29,501

$ (70,335)

$ 190,229

Adjusted EBITDA margin

28.1%

19.3%

17.5%

21.4%

24.4%

16.4%

14.9%

14.6%

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/korn-ferry-international-announces-fourth-quarter-and-fiscal-2017-results-of-operations-300476937.html

SOURCE Korn Ferry

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