Korn Ferry Announces Third Quarter Fiscal 2014 Results of Operations

Key highlights for the third quarter of fiscal 2014 are as follows:

- Korn Ferry reports record quarterly fee revenue of $242.2 million in Q3 FY'14, an increase of 21% on a constant currency basis compared to Q3 FY'13 (20% at actual exchange rates). Adjusting for the PDI Ninth House acquisition, quarterly fee revenue increased 14% on a constant currency basis (12% at actual exchange rates) from Q3 FY'13.

- Fee revenue increased in all segments on a constant currency basis compared to Q3 FY'13.

Leadership and Talent Consulting 52% (15% organically)

Futurestep 20%

Executive Recruitment 12%

- Q3 FY'14 adjusted EBITDA margin was 14.5% compared to adjusted EBITDA margin of 12.5% in Q3 FY'13.

- Q3 FY'14 diluted earnings per share was $0.43 compared to $0.20 in Q3 FY'13. Adjusted diluted earnings per share was $0.31 in Q3 FY'13, which excludes $7.5 million of net restructuring, integration/acquisition, and separation costs. No such costs were incurred in Q3 FY'14.

News provided by

Korn Ferry

Mar 06, 2014, 04:05 ET

LOS ANGELES, March 6, 2014 /PRNewswire/ -- Korn Ferry (NYSE: KFY), a single source of leadership and talent acquisition and consulting services, today announced third quarter results with record fee revenue of $242.2 million and adjusted diluted earnings per share of $0.43.

"Korn Ferry had a strong third quarter, with year-over-year growth across all lines of business and within every region. We generated the strongest topline results in the company's history, representing a 21% year-over-year increase in fee revenue, or 14% adjusting for the PDI Ninth House acquisition, on a constant currency basis, generating higher earnings per share," said Gary D. Burnison, CEO, Korn Ferry. "In today's environment, global organizations must create growth opportunities that far outstrip the potential of the global economy - ultimately through people. Validated by our results, Korn Ferry's capabilities are being increasingly embraced by clients to unlock growth through innovative talent strategies."

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

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Fee revenue

$       242.2

$     202.0

$     708.6

$      584.9

Total revenue

$       251.0

$     210.3

$     734.8

$      611.1

Operating income

$         27.3

$         8.7

$       67.1

$        28.5

Operating margin

11.3%

4.3%

9.5%

4.9%

Net income

$         21.3

$         9.5

$       51.5

$        21.1

Basic earnings per share

$         0.44

$       0.20

$       1.07

$        0.45

Diluted earnings per share

$         0.43

$       0.20

$       1.05

$        0.44








EBITDA Results (a):

 

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

EBITDA

$         35.2

$        17.7

$       95.2

$        47.0

EBITDA margin

14.5%

8.8%

13.4%

8.0%




Adjusted Results (b):

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Operating income

$         27.3

$        16.2

$       75.7

$        51.5

Operating margin

11.3%

8.0%

10.7%

8.8%

EBITDA (a)

$         35.2

$        25.2

$     103.8

$        70.0

EBITDA margin (a)

14.5%

12.5%

14.6%

12.0%

Net income

$         21.3

$        15.0

$       57.3

$        37.2

Basic earnings per share

$         0.44

$        0.32

$       1.19

$        0.79

Diluted earnings per share

$         0.43

$        0.31

$       1.17

$        0.78

____________

(a) 

EBITDA refers to earnings before interest, taxes, depreciation and amortization.  Adjusted EBITDA further adjusts EBITDA to exclude restructuring charges (net of recoveries), integration/acquisition and separation costs.  EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliation). 



(b)

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

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Restructuring charges, net of recoveries

$             —

$          4.4

$         3.7

$         19.9

Integration/acquisition costs

$             —

$          2.5

$         0.4

$           2.5

Separation costs

$             —

$          0.6

$         4.5

$           0.6

Fee revenue was $242.2 million in Q3 FY'14, an increase of $40.2 million, or 21% on a constant currency basis (20% at actual exchange rates), compared to Q3 FY'13, primarily due to increases of $21.1 million, $13.5 million and $5.6 million in fee revenue in Leadership & Talent Consulting, Executive Recruitment and Futurestep, respectively.  The overall fee revenue increase was driven by fee revenue growth in the technology, financial services and life science/healthcare sectors.  Adjusting for the PDI Ninth House acquisition which was completed on December 31, 2012, fee revenue increased 14% on a constant currency basis (12% at actual exchange rates) in Q3 FY'14 compared to the year-ago quarter to $227.0 million in Q3 FY'14 from $202.0 million in Q3 FY'13.

Compensation and benefit expenses were $162.2 million in Q3 FY'14, an increase of $22.4 million, or 16%, compared to Q3 FY'13.  Adjusting for the PDI Ninth House acquisition, compensation and benefit expenses increased 9% in Q3 FY'14 compared to the year-ago quarter to $152.8 million in Q3 FY'14 from $139.8 million in Q3 FY'13.  The increase was due to an increase in performance related bonus expense and salaries and related payroll taxes.  The increase in the performance related bonus expense resulted from an increase in fee revenue and profitability.  The increase in salaries and related payroll taxes was due to an 11% increase in the average headcount in Q3 FY'14 compared to Q3 FY'13.

General and administrative expenses were $37.2 million in Q3 FY'14, an increase of $1.3 million, or 4%, compared to Q3 FY'13.  Adjusted for the PDI Ninth House acquisition, general and administrative expenses decreased 3% in Q3 FY'14 compared to the year-ago quarter to $35.0 million in Q3 FY'14 from $35.9 million in Q3 FY'13.  The decrease was primarily due to a decrease in integration/acquisition costs incurred in Q3 FY'13 as a result of the acquisition of PDI Ninth House, partially offset by an increase in legal and other professional service fees and bad debt expense.

Adjusted EBITDA was $35.2 million in Q3 FY'14, an increase of $10.0 million, or 40%, compared to Q3 FY'13.  Adjusted EBITDA margin was 14.5% and 12.5% in Q3 FY'14 and Q3 FY'13, respectively. 

On a GAAP basis, operating income was $27.3 million in Q3 FY'14, an increase of $18.6 million, or 214%, compared to Q3 FY'13 resulting in a margin of 11.3% in the current quarter compared to 4.3% in the year-ago quarter. 

Balance Sheet and Liquidity

Cash and marketable securities were $377.2 million at January 31, 2014, compared to $366.0 million at April 30, 2013.  Cash and marketable securities include $115.1 million held in trust for deferred compensation plans at January 31, 2014, compared to $98.0 million at April 30, 2013.  Cash and marketable securities increased by $11.2 million from April 30, 2013, primarily attributable to cash provided by operating activities, partially offset by Q1 FY'14 payments of FY'13 annual bonuses and contingent consideration paid to selling shareholders of PDI Ninth House.

Results by Segment

Selected Executive Recruitment Data
(dollars in millions)

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Fee revenue

$ 144.0

$ 130.5

$ 420.7

$ 385.7

Total revenue

$ 149.7

$ 135.7

$ 437.5

$ 402.0

Operating income

$   31.6

$   21.6

$   88.0

$   54.5

Operating margin

22.0%

16.6%

20.9%

14.1%








Ending number of consultants

429

390

429

390

Average number of consultants

421

396

414

395

Engagements billed

2,975

2,670

6,384

5,944

New engagements (a)

1,233

1,138

3,749

3,519








EBITDA Results (b):

 

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

EBITDA

$  33.6

$  24.4

$  94.8

$  61.8

EBITDA margin

23.3%

18.7%

22.5%

16.0%




Adjusted Results (c):

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Operating income

$  31.6

$  22.2

$  89.3

$  65.8

Operating margin

22.0%

17.0%

21.2%

17.1%

EBITDA (b)

$  33.6

$  25.0

$  96.1

$  73.1

EBITDA margin (b)

23.3%

19.1%

22.8%

19.0%

____________

(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):

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Restructuring charges, net of recoveries

$          —

$           —

$         1.3

$         10.7

Separation costs

$          —

$          0.6

$          —

$           0.6

Executive Recruitment

Fee revenue was $144.0 million in Q3 FY'14, an increase of $13.5 million, or 12% on a constant currency basis (10% at actual exchange rates), compared to Q3 FY'13.  The increase in fee revenue was driven by increases in all regions with the largest increases in North America and Europe.  This increase is primarily attributed to an 11% increase in the number of executive recruitment engagements billed. 

Adjusted EBITDA was $33.6 million during Q3 FY'14, an increase of $8.6 million, or 34%, compared to Q3 FY'13.  Adjusted EBITDA margin was 23.3% in Q3 FY'14 compared to 19.1% in Q3 FY'13.  This increase is primarily attributed to the $13.5 million increase in fee revenue in Q3 FY'14 as compared to Q3 FY'13, partially offset by an increase of $4.7 million in compensation and benefit expenses driven primarily by an increase in performance related bonus expense and salaries and related payroll taxes partially offset by a decline in employee insurance costs.  

On a GAAP basis, operating income was $31.6 million in Q3 FY'14, an increase of $10.0 million, or 46% ($9.4 million, or 42% on an adjusted basis), compared to Q3 FY'13, resulting in an operating margin of 22.0% in the current quarter compared to 16.6% in the year-ago quarter. 

Selected Leadership & Talent Consulting Data
(dollars in millions)

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Fee revenue

$        62.3

$       41.2

$     188.4

$      108.0

Total revenue

$        64.3

$       43.1

$     194.6

$      113.5

Operating income

$          5.7

$       (2.8)

$       17.0

$          7.7

Operating margin

9.1%

(6.8)%

9.0%

7.1%








Ending number of consultants (a)

125

149

125

149

Staff utilization (b)

61%

58%

66%

63%








 

EBITDA Results (c):

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

EBITDA

$          8.9

$       (1.0)

$       26.4

$        11.2

EBITDA margin

14.5%

(2.4)%

14.1%

10.3%




 

Adjusted Results (d):

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Operating income

$          5.7

$         1.6

$       18.2

$        12.8

Operating margin

9.1%

4.0%

9.6%

11.9%

EBITDA (c)

$          8.9

$         3.4

$       27.6

$        16.3

EBITDA margin (c)

14.5%

8.4%

14.7%

15.1%








____________

(a)  

Represents number of employees originating consulting services.  FY'14 and FY'13 include approximately 69 consultants and 92 consultants, respectively, from the prior year acquisitions.


(b)

Calculated by dividing the number of hours of our full-time LTC professional staff, who recorded time to an engagement 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):

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Restructuring charges, net of recoveries

$          —

$         4.4

$        1.2

$          5.1

Leadership & Talent Consulting

Fee revenue was $62.3 million in Q3 FY'14, an increase of $21.1 million, or 52% on a constant currency basis (51% at actual exchange rates), from the year-ago quarter.  Adjusting for the PDI Ninth House acquisition, fee revenue increased 15% on a constant currency basis (14% at actual exchange rates) in Q3 FY'14 compared to the year-ago quarter to $47.1 million in Q3 FY'14 from $41.2 million in Q3 FY'13. 

Adjusted EBITDA was $8.9 million during Q3 FY'14, an increase of $5.5 million, or 162%, compared to Q3 FY'13.  Adjusted EBITDA margin was 14.5% compared to 8.4% in Q3 FY'13.  The increase in adjusted EBITDA was due to an increase in fee revenue, partially offset by an increase in compensation and benefit expense and general and administrative expenses, all primarily related to the acquisition of PDI Ninth House.

On a GAAP basis, operating income was $5.7 million in Q3 FY'14, an increase of $8.5 million, compared to Q3 FY'13.  Operating margin was 9.1% in the current quarter, a significant improvement from negative operating margin of 6.8% in the year-ago quarter.  The increase in operating income was driven by an increase in fee revenue and a decrease in restructuring expense of $4.4 million that took place in Q3 FY'13 as a result of the PDI Ninth House acquisition, offset by an increase in compensation and benefit expense.

Selected Futurestep Data
(dollars in millions)


Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Fee revenue

$ 35.9

$ 30.3

$   99.5

$  91.2

Total revenue

$ 37.0

$ 31.5

$ 102.7

$  95.6

Operating income

$   3.9

$   3.7

$     9.0

$    7.1

Operating margin

10.9%

12.3%

9.1%

7.8%








Engagements billed

1,242

1,062

2,592

2,487

New engagements (a)

584

513

1,829

1,784








EBITDA Results (b):

 

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

EBITDA

$   4.4

$  4.1

$  10.9

$    8.1

EBITDA margin

12.2%

13.3%

10.9%

8.9%








Adjusted Results (c):

 

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Operating income

$   3.9

$   3.7

$   10.2

$   10.2

Operating margin

10.9%

12.3%

10.2%

11.2%

EBITDA (b)

$   4.4

$   4.1

$   12.1

$   11.2

EBITDA margin (b)

12.2%

13.3%

12.1%

12.3%

____________

(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):

Third Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Restructuring charges, net of recoveries

$         —

$         —

$       1.2

$       3.1

Futurestep

Fee revenue was $35.9 million in Q3 FY'14, an increase of $5.6 million, or 20% on a constant currency basis (18% at actual exchange rates), compared to the year-ago quarter.  The increase in fee revenue was driven by a 17% increase in the number of engagements billed in Q3 FY'14 compared to Q3 FY'13 driven by large recruitment process outsourcing contracts entered into in the prior quarter which began to be delivered in the current quarter and non-executive and other professional recruitment.

Adjusted EBITDA was $4.4 million during Q3 FY'14, an increase of $0.3 million, or 7%, compared to Q3 FY'13.  Adjusted EBITDA margin decreased to 12.2% in Q3 FY'14 compared to 13.3% in Q3 FY'13.  The increase in adjusted EBITDA was primarily due to an increase in fee revenue of $5.6 million, a decrease of $0.2 million in general and administrative expenses, partially offset by an increase in compensation and benefit expenses of $4.7 million and an increase in cost of services expense of $0.9 million.  The increase in compensation and benefits expenses is primarily driven by an increase in staffing to accommodate a number of larger recruitment process outsourcing contracts won by the Company in the current fiscal year.

On a GAAP basis, operating income was $3.9 million in Q3 FY'14, an increase of $0.2 million, compared to Q3 FY'13 resulting in an operating margin of 10.9% in the current quarter compared to 12.3% in the year-ago quarter. 

Outlook         

Looking ahead to Q4 FY'14, assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, fee revenue is expected to be in the range of $240 million to $250 million in Q4 FY'14 and diluted earnings per share are likely to be in the range of $0.35 to $0.41.

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 www.kornferry.com, accessible through the Investor Relations section.

About Korn Ferry

At Korn Ferry, we design, build, attract and ignite talent.  Since our inception, clients have trusted us to help recruit world-class leadership.  Today, we are a single source for leadership and talent consulting services to empower businesses and leaders to reach their goals.  Our solutions range from executive recruitment and leadership development programs, to enterprise learning, succession planning and recruitment process outsourcing (RPO).  Visit www.kornferry.com for more information on Korn Ferry, and www.kornferryinstitute.com for thought leadership, intellectual property and research.

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, 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 the 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 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 operating income and operating margin, adjusted to exclude restructuring (net of recoveries), integration/acquisition and separation costs;
  • adjusted net income, adjusted to exclude restructuring (net of recoveries), integration/acquisition and separation costs, net of income tax effect;
  • adjusted basic and diluted earnings per share, adjusted to exclude restructuring (net of recoveries), integration/acquisition and separation 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; and
  • adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring (net of recoveries), integration/acquisition and separation costs, 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.  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.

[Tables attached]







KORN FERRY AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 (in thousands, except per share amounts) 












 Three Months Ended 

 Nine Months Ended 


 January 31, 

 January 31, 


2014

2013

2014

2013


 (unaudited) 

 Fee revenue 

$ 242,184

$ 202,004

$ 708,589

$ 584,929

 Reimbursed out-of-pocket engagement expenses 

8,753

8,268

26,172

26,165

           Total revenue 

250,937

210,272

734,761

611,094









 Compensation and benefits 

162,228

139,788

476,294

400,859

 General and administrative expenses 

37,265

35,915

112,931

102,675

 Reimbursed expenses 

8,753

8,268

26,172

26,165

 Cost of services 

9,056

8,066

29,697

19,848

 Depreciation and amortization 

6,333

5,088

18,857

13,127

 Restructuring charges, net 

-

4,441

3,682

19,936

           Total operating expenses 

223,635

201,566

667,633

582,610









 Operating income  

27,302

8,706

67,128

28,484

 Other income, net 

1,132

3,296

7,751

3,808

 Interest expense, net 

(873)

(360)

(2,102)

(1,721)

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

27,561

11,642

72,777

30,571

 Equity in earnings of unconsolidated subsidiaries 

470

593

1,492

1,567

 Income tax provision  

6,727

2,753

22,789

11,042

            Net income 

$   21,304

$     9,482

$   51,480

$   21,096









 Earnings per common share: 







      Basic 

$       0.44

$       0.20

$       1.07

$       0.45

      Diluted 

$       0.43

$       0.20

$       1.05

$       0.44









 Weighted-average common shares outstanding: 







      Basic 

48,341

47,367

48,041

47,149

      Diluted 

49,181

48,015

48,977

47,742

















KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

 (unaudited) 
























Three Months Ended January 31,

Nine Months Ended January 31,


2014


2013

% Change

2014


2013

% Change

















Fee Revenue:














Executive recruitment:















North America

$   77,208


$   71,259

8%

$ 226,538


$ 212,806

6%

EMEA 

39,144


33,600

17%

107,742


96,565

12%

Asia Pacific

20,213


18,301

10%

63,063


54,022

17%

South America

7,477


7,334

2%

23,346


22,295

5%

Total executive recruitment

144,042


130,494

10%

420,689


385,688

9%

Leadership & Talent Consulting

62,217


41,155

51%

188,357


107,999

74%

Futurestep

35,925


30,355

18%

99,543


91,242

9%

Total fee revenue

242,184


202,004

20%

708,589


584,929

21%

 Reimbursed out-of-pocket engagement expenses 

8,753


8,268

6%

26,172


26,165

0%

Total revenue

$ 250,937


$ 210,272

19%

$ 734,761


$ 611,094

20%

















Reconciliation of Operating Income (GAAP) to Adjusted Operating Income

















Operating Income:

Margin


Margin


Margin


Margin

Executive recruitment:















North America

$   19,919

25.8%

$   14,637

20.5%

$   51,773

22.9%

$   41,728

19.6%

EMEA

6,649

17.0%

4,177

12.4%

18,469

17.1%

5,036

5.2%

Asia Pacific

3,922

19.4%

1,913

10.5%

12,894

20.4%

3,491

6.5%

South America

1,132

15.1%

920

12.5%

4,893

21.0%

4,226

19.0%

Total executive recruitment

31,622

22.0%

21,647

16.6%

88,029

20.9%

54,481

14.1%

Leadership & Talent Consulting

5,651

9.1%

(2,798)

(6.8%)

16,992

9.0%

7,716

7.1%

Futurestep

3,925

10.9%

3,722

12.3%

9,009

9.1%

7,141

7.8%

Corporate

(13,896)


(13,865)


(46,902)


(40,854)


 Total operating income

$   27,302

11.3%

$     8,706

4.3%

$   67,128

9.5%

$   28,484

4.9%


































Restructuring, Separation, and Integration/Acquisition Costs, net:

Executive recruitment:















North America

$            -

-

$            -

-

$        816

0.3%

$     5,436

2.6%

EMEA

-

-

516

1.6%

460

0.5%

5,268

5.5%

Asia Pacific

-

-

-

-

60

0.1%

613

1.1%

South America

-

-

-

-

-

-

-

-

Total executive recruitment

-

-

516

0.4%

1,336

0.3%

11,317

3.0%

Leadership & Talent Consulting

-

-

4,441

10.8%

1,149

0.6%

5,118

4.8%

Futurestep

-

-

-

-

1,134

1.1%

3,086

3.4%

Corporate



2,515


4,957


3,446


 Total restructuring, separation, and integration/acquisition costs, net

$            -

-

$     7,472

3.7%

$     8,576

1.2%

$   22,967

3.9%


































Adjusted Operating Income:













  (Excluding Restructuring, Separation, and Integration/Acquisition Costs, net)

Margin


Margin


Margin


Margin

Executive recruitment:















North America

$   19,919

25.8%

$   14,637

20.5%

$   52,589

23.2%

$   47,164

22.2%

EMEA

6,649

17.0%

4,693

14.0%

18,929

17.6%

10,304

10.7%

Asia Pacific

3,922

19.4%

1,913

10.5%

12,954

20.5%

4,104

7.6%

South America

1,132

15.1%

920

12.5%

4,893

21.0%

4,226

19.0%

Total executive recruitment

31,622

22.0%

22,163

17.0%

89,365

21.2%

65,798

17.1%

Leadership & Talent Consulting

5,651

9.1%

1,643

4.0%

18,141

9.6%

12,834

11.9%

Futurestep

3,925

10.9%

3,722

12.3%

10,143

10.2%

10,227

11.2%

Corporate 

(13,896)


(11,350)


(41,945)


(37,408)


 Total adjusted operating income 

$   27,302

11.3%

$   16,178

8.0%

$   75,704

10.7%

$   51,451

8.8%





KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (in thousands, except per share amounts) 












January 31,

April 30,


2014

2013

ASSETS

 (unaudited) 

Cash and cash equivalents

$    247,784

$    224,066

Marketable securities

6,337

20,347

Receivables due from clients, net of allowance for doubtful accounts of $10,125 and $9,097 respectively

190,982

161,508

Income taxes and other receivables

8,979

8,944

Deferred income taxes

1,857

3,511

Prepaid expenses and other assets

29,834

28,724

Total current assets

485,773

447,100





Marketable securities, non-current

123,083

121,569

Property and equipment, net

55,009

53,628

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

93,748

85,873

Deferred income taxes

60,347

63,203

Goodwill

255,792

257,293

Intangible assets, net

51,722

58,187

Investments and other assets

27,359

28,376

Total assets

$ 1,152,833

$ 1,115,229





LIABILITIES AND STOCKHOLDERS' EQUITY



Accounts payable

$      17,187

$      19,460

Income taxes payable

12,879

5,502

Compensation and benefits payable

148,457

160,298

Other accrued liabilities

62,512

83,291

Total current liabilities

241,035

268,551





Deferred compensation and other retirement plans

168,629

159,706

Other liabilities

20,590

22,504

Total liabilities

430,254

450,761





Stockholders' equity



Common stock: $0.01 par value, 150,000 shares authorized, 62,196 and 61,022 shares issued and 49,707 and 48,734 shares outstanding, respectively




446,542

431,508

Retained earnings

287,570

236,090

Accumulated other comprehensive loss, net

(11,042)

(2,631)

Stockholders' equity

723,070

664,967

Less:  notes receivable from stockholders

(491)

(499)

Total stockholders' equity

722,579

664,468

Total liabilities and stockholders' equity

$ 1,152,833

$ 1,115,229












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 

January 31, 2014

January 31, 2013

As Reported

Adjustments

As Adjusted

As Reported

Adjustments

As Adjusted












 Fee revenue 

$ 242,184


$ 242,184

$ 202,004


$ 202,004

 Reimbursed out-of-pocket engagement expenses 

8,753


8,753

8,268


8,268

           Total revenue 

250,937


250,937

210,272


210,272












 Compensation and benefits 

162,228


162,228

139,788

(516)

139,272

 General and administrative expenses 

37,265


37,265

35,915

(2,515)

33,400

 Reimbursed expenses 

8,753


8,753

8,268


8,268

 Cost of services 

9,056


9,056

8,066


8,066

 Depreciation and amortization 

6,333


6,333

5,088


5,088

 Restructuring charges, net 

-


-

4,441

(4,441)

-

           Total operating expenses 

223,635

-

223,635

201,566

(7,472)

194,094












 Operating income 

27,302

-

27,302

8,706

7,472

16,178












 Other income, net 

1,132


1,132

3,296


3,296

 Interest expense, net 

(873)


(873)

(360)


(360)

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










27,561

-

27,561

11,642

7,472

19,114

 Equity in earnings of unconsolidated subsidiaries 

470


470

593


593

 Income tax provision (1) (2) 

6,727


6,727

2,753

1,945

4,698

            Net income 

$   21,304

$                 -

$   21,304

$     9,482

$          5,527

$   15,009












 Earnings per common share: 










      Basic 

$       0.44


$       0.44

$       0.20


$       0.32

      Diluted 

$       0.43


$       0.43

$       0.20


$       0.31












 Weighted-average common shares outstanding: 










      Basic 

48,341


48,341

47,367


47,367

      Diluted 

49,181


49,181

48,015


48,015

 Explanation of Non-GAAP Adjustments 

(1)

The adjustments result in an effective tax rate of 25% for the as adjusted amounts for the three months ended January 31, 2013.

(2)

The three months ended January 31, 2013, includes the tax effect on restructuring charges, integration/acquisition costs associated with the acquisition of PDI Ninth House, and separation charges.













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) 

























 Nine Months Ended 

 Nine Months Ended 

January 31, 2014

January 31, 2013

As Reported

Adjustments

As Adjusted

As Reported

Adjustments

As Adjusted












 Fee revenue 

$ 708,589


$ 708,589

$ 584,929


$ 584,929

 Reimbursed out-of-pocket engagement expenses 

26,172


26,172

26,165


26,165

           Total revenue 

734,761


734,761

611,094


611,094












 Compensation and benefits 

476,294

(4,500)

471,794

400,859

(516)

400,343

 General and administrative expenses 

112,931

(394)

112,537

102,675

(2,515)

100,160

 Reimbursed expenses 

26,172


26,172

26,165


26,165

 Cost of services 

29,697


29,697

19,848


19,848

 Depreciation and amortization 

18,857


18,857

13,127


13,127

 Restructuring charges, net 

3,682

(3,682)

-

19,936

(19,936)

-

           Total operating expenses 

667,633

(8,576)

659,057

582,610

(22,967)

559,643












 Operating income 

67,128

8,576

75,704

28,484

22,967

51,451












 Other income, net 

7,751


7,751

3,808


3,808

 Interest expense, net 

(2,102)


(2,102)

(1,721)


(1,721)

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










72,777

8,576

81,353

30,571

22,967

53,538

 Equity in earnings of unconsolidated subsidiaries 

1,492


1,492

1,567


1,567

 Income tax provision (1) (2) 

22,789

2,796

25,585

11,042

6,834

17,876

            Net income  

$   51,480

$          5,780

$   57,260

$   21,096

$        16,133

$   37,229












 Earnings per common share: 










      Basic 

$       1.07


$       1.19

$       0.45


$       0.79

      Diluted 

$       1.05


$       1.17

$       0.44


$       0.78












 Weighted-average common shares outstanding: 










      Basic 

48,041


48,041

47,149


47,149

      Diluted 

48,977


48,977

47,742


47,742

 Explanation of Non-GAAP Adjustments 

(1)

The adjustments result in an effective tax rate of 31% and 33% for the as adjusted amounts for the nine months ended January 31, 2014 and 2013, respectively.

(2)

The nine months ended January 31, 2014 and 2013 include the tax effect on restructuring charges, separation costs, and integration/acquisition costs associated with the acquisition of PDI Ninth House.











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 January 31, 2014 

 Executive Recruitment 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 










 Fee revenue 

$    144,042

$      62,217

$       35,925

$                 -

$          242,184










 Net income 







$            21,304

       Other income, net 







(1,132)

       Interest expense, net 







873

       Equity in earnings of unconsolidated subsidiaries 







(470)

       Income tax provision 







6,727

 Operating income (loss) 

$      31,622

$         5,651

$         3,925

$    (13,896)

27,302

       Depreciation and amortization 

1,620

3,272

437

1,004

6,333

        Other income, net 

254

92

28

758

1,132

       Equity in earnings of unconsolidated subsidiaries 

36

-

-

434

470

 EBITDA 

33,532

9,015

4,390

(11,700)

35,237

 EBITDA margin 

23.3%

14.5%

12.2%


14.5%










 Adjusted EBITDA 

$      33,532

$         9,015

$         4,390

$    (11,700)

$            35,237

 Adjusted EBITDA margin 

23.3%

14.5%

12.2%


14.5%





















 Three Months Ended January 31, 2013 

 Executive Recruitment 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 










 Fee revenue 

$    130,494

$      41,155

$       30,355

$                 -

$          202,004










 Net income 







$              9,482

       Other income, net 







(3,296)

       Interest expense, net 







360

       Equity in earnings of unconsolidated subsidiaries 







(593)

       Income tax provision 







2,753

 Operating income (loss) 

$      21,647

$       (2,798)

$         3,722

$    (13,865)

8,706

       Depreciation and amortization 

2,247

1,764

324

753

5,088

       Other income, net 

325

37

5

2,929

3,296

       Equity in earnings of unconsolidated subsidiaries 

148

-

-

445

593

 EBITDA 

24,367

(997)

4,051

(9,738)

17,683

 EBITDA margin 

18.7%

(2.4%)

13.3%


8.8%










       Restructuring charges, net 

-

4,441

-

-

4,441

       Integration/acquisition costs 

-

-

-

2,515

2,515

       Separation costs 

516

-

-

-

516

 Adjusted EBITDA 

$      24,883

$         3,444

$         4,051

$      (7,223)

$            25,155

 Adjusted EBITDA margin 

19.1%

8.4%

13.3%


12.5%










KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)




 Nine Months Ended January 31, 2014 

 Executive Recruitment 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 










 Fee revenue 

$    420,689

$    188,357

$       99,543

$               -

$          708,589










 Net income 







$            51,480

       Other income, net 







(7,751)

       Interest expense, net 







2,102

       Equity in earnings of unconsolidated subsidiaries 







(1,492)

       Income tax provision 







22,789

 Operating income (loss) 

$      88,029

$      16,992

$         9,009

$    (46,902)

67,128

       Depreciation and amortization 

5,398

9,330

1,285

2,844

18,857

       Other income, net 

1,086

145

576

5,944

7,751

       Equity in earnings of unconsolidated subsidiaries 

258

-

-

1,234

1,492

 EBITDA 

94,771

26,467

10,870

(36,880)

95,228

 EBITDA margin 

22.5%

14.1%

10.9%


13.4%










       Restructuring charges, net 

1,336

1,149

1,134

63

3,682

       Separation costs 

-

-

-

4,500

4,500

       Integration/acquisition costs 

-

-

-

394

394

 Adjusted EBITDA 

$      96,107

$      27,616

$       12,004

$    (31,923)

$          103,804

 Adjusted EBITDA margin 

22.8%

14.7%

12.1%


14.6%





















 Nine Months Ended January 31, 2013 

 Executive Recruitment 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 










 Fee revenue 

$    385,688

$    107,999

$       91,242

$               -

$          584,929










 Net income 







$            21,096

       Other income, net 







(3,808)

       Interest expense, net 







1,721

       Equity in earnings of unconsolidated subsidiaries 







(1,567)

       Income tax provision 







11,042

 Operating income (loss) 

$      54,481

$         7,716

$         7,141

$    (40,854)

28,484

       Depreciation and amortization 

6,748

3,387

940

2,052

13,127

       Other income, net 

275

71

15

3,447

3,808

       Equity in earnings of unconsolidated subsidiaries 

305

-

-

1,262

1,567

 EBITDA 

61,809

11,174

8,096

(34,093)

46,986

 EBITDA margin 

16.0%

10.3%

8.9%


8.0%










       Restructuring charges, net 

10,801

5,118

3,086

931

19,936

       Integration/acquisition costs 

-

-

-

2,515

2,515

       Separation costs 

516

-

-

-

516

 Adjusted EBITDA 

$      73,126

$      16,292

$       11,182

$    (30,647)

$            69,953

 Adjusted EBITDA margin 

19.0%

15.1%

12.3%


12.0%

SOURCE Korn Ferry

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