Korn Ferry International Announces Fourth Quarter and Fiscal 2014 Results of Operations

Highlights

-- Korn Ferry reports record quarterly fee revenue of $251.7 million in the fourth quarter of 2014, an increase of 10.4% (the effect of exchange rates was not significant), from Q4 FY'13, with increases realized across all segments:

Futurestep 20.3%

Leadership and Talent Consulting 10.1%

Executive Recruitment 8.3%

-- Adjusted EBITDA margin was 13.7% in Q4 FY'14 compared to 12.2% in Q4 FY'13.

-- Q4 FY'14 diluted earnings per share was $0.43 compared to $0.25 in Q4 FY'13. Adjusted diluted earnings per share was $0.32 in Q4 FY'13, which excludes $3.5 million of net restructuring and integration/acquisition costs. No such costs were incurred in Q4 FY'14.

-- For the full year of FY'14, Korn Ferry reports record annual fee revenue of $960.3 million, an increase of 18.1% (19.1% on a constant currency basis) over FY'13. Adjusting for the prior year acquisitions, annual fee revenue increased 9.3% over FY'13.

-- FY'14 diluted earnings per share was $1.48 compared to $0.70 in FY'13. Adjusted diluted earnings per share was $1.60 in FY'14 and $1.10 in FY'13, excluding $8.6 million and $26.5 million of net restructuring, integration/acquisition and separation costs, respectively.

News provided by

Korn Ferry

Jun 16, 2014, 04:05 ET

LOS ANGELES, June 16, 2014 /PRNewswire/ -- Korn/Ferry International (NYSE: KFY), a single source of leadership and talent consulting services, today announced record quarterly and annual fee revenues of $251.7 million and $960.3 million for the fourth quarter and FY'14, respectively.  Fourth quarter diluted earnings per share were $0.43.  Full year adjusted diluted earnings per share were $1.60, excluding restructuring, integration/acquisition, and separation costs of $8.6 million.  Including such costs, diluted earnings per share was $1.48 for the year ended April 30, 2014.

"Korn Ferry closed out the fiscal year with a strong quarter – 10.7% growth in fee revenue for the quarter and 19.1% growth for the year, at constant currency – which represents the strongest top line results in the company's history, with earnings per share of $0.43," said Gary D. Burnison, CEO, Korn Ferry. "Korn Ferry's performance is a testament to our differentiated strategy, robust intellectual property and talented people."     

Financial Results

(dollars in millions, except per share amounts)



Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Fee revenue

$       251.7

$      227.9

$     960.3

$      812.8

Total revenue

$       260.8

$      238.6

$     995.6

$      849.7

Operating income

$         24.5

$        15.4

$       91.6

$        43.9

Operating margin

9.7%

6.8%

9.5%

5.4%

Net income

$         21.2

$        12.2

$       72.7

$        33.3

Basic earnings per share

$         0.44

$        0.26

$       1.51

$        0.71

Diluted earnings per share

$         0.43

$        0.25

$       1.48

$        0.70









EBITDA Results (a):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

EBITDA

$         34.5

$        24.3

$     129.7

$        71.3

EBITDA margin

13.7%

10.7%

13.5%

8.8%





Adjusted Results (b):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Operating income

$         24.5

$        18.9

$     100.2

$        70.4

Operating margin

9.7%

8.3%

10.4%

8.7%

EBITDA (a)

$         34.5

$        27.8

$     138.3

$        97.8

EBITDA margin (a)

13.7%

12.2%

14.4%

12.0%

Net income

$         21.2

$        15.6

$       78.5

$        52.8

Basic earnings per share

$         0.44

$        0.33

$       1.63

$        1.12

Diluted earnings per share

$         0.43

$        0.32

$       1.60

$        1.10


(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):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Restructuring charges, net of recoveries

$                  —

$             2.9

$            3.7

$            22.8

Integration/acquisition costs

$                  —

$             0.6

$            0.4

$              3.1

Separation costs

$                  —

$              —

$            4.5

$              0.6

Fiscal 2014 Fourth Quarter Results 

Fee revenue was $251.7 million in Q4 FY'14, an increase of $23.8 million, or 10.4% (the effect of exchange rates was not significant), compared to the year-ago quarter, primarily driven by an $11.4 million, $6.3 million, and a  $6.1 million increase in fee revenue in Executive Recruitment, Futurestep and Leadership & Talent Consulting, respectively.  The overall fee revenue increase was driven by fee revenue growth in financial services, technology, life science/healthcare and the industrial sectors.

Compensation and benefit expenses were $170.6 million in Q4 FY'14, an increase of $16.2 million, or 10.5%, compared to the year-ago quarter.  The increase was due to an increase in performance related bonus expense resulting from the increase in fee revenue and profitability, as well as an increase in salaries and related payroll taxes.  The increase in salaries and related payroll taxes was due to a 3.5% increase in the average headcount in Q4 FY'14 compared to Q4 FY'13. 

General and administrative expenses were $39.1 million in Q4 FY'14, a decrease of $1.0 million, or 2.5%, from the year-ago quarter, primarily due to a decrease in office and premise expense of $1.6 million due to synergies obtained from the PDI Ninth House and Global Novations acquisitions (the "prior year acquisitions") and a decrease in foreign exchange loss of $0.6 million, offset by an increase in travel and business development related expenses in Q4 FY'14 compared to the year-ago quarter.

Adjusted EBITDA was $34.5 million in Q4 FY'14, an increase of $6.7 million, or 24.1%, compared to Q4 FY'13.  Adjusted EBITDA margin was 13.7% and 12.2% in Q4 FY'14 and Q4 FY'13, respectively. 

On a GAAP basis, operating income was $24.5 million in Q4 FY'14 and $15.4 million in Q4 FY'13 resulting in a margin of 9.7% in the current quarter compared to 6.8% in the year-ago quarter. 

Fiscal 2014 Results 

Fee revenue was $960.3 million in FY'14, an increase of $147.5 million, or 18.1% (19.1% on a constant currency basis), compared to FY'13.  Adjusting for the prior year acquisitions, fee revenue was $888.4 million in FY'14, an increase of $75.6 million, or 9.3%, compared to FY'13.  The increase in fee revenue was driven by a 9.2% increase in the number of engagements billed in FY'14 compared to FY'13.  The overall fee revenue increase was driven by fee revenue growth in life science/healthcare, industrial, technology and financial services sectors.

Adjusted EBITDA was $138.3 million during FY'14, an increase of $40.5 million, or 41.4%, compared to FY'13.  Adjusted EBITDA margin was 14.4% and 12.0% in FY'14 and FY'13, respectively. 

On a GAAP basis, operating income was $91.6 million in FY'14, an increase of $47.7 million, or 108.7%, compared to FY'13, resulting in an operating margin of 9.5% in the current year compared to 5.4% in the prior year.

Balance Sheet and Liquidity

Cash and marketable securities were $468.3 million at April 30, 2014, compared to $366.0 million at April 30, 2013.  Cash and marketable securities include $116.2 million held in trust for deferred compensation plans at April 30, 2014, compared to $98.0 million at April 30, 2013.  Cash and marketable securities increased by $102.3 million from April 30, 2013, primarily attributable to cash provided by operating activities, partially offset by bonuses earned in fiscal 2013 and paid during the first quarter of fiscal 2014 and $15.0 million in contingent consideration paid to selling stockholders of PDI Ninth House.

Results by Segment

Selected Executive Recruitment Data

(dollars in millions)






Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Fee revenue

$      148.2

$     136.8

$     568.9

$      522.5

Total revenue

$      153.7

$     142.8

$     591.2

$      544.8

Operating income

$        28.4

$       26.5

$     116.4

$        81.0

Operating margin

19.1%

19.4%

20.5%

15.5%









Ending number of consultants

432

399

432

399

Average number of consultants

431

395

416

400

Engagements billed

3,048

2,718

8,144

7,554

New engagements (a)

1,303

1,231

5,052

4,750

EBITDA Results (b):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

EBITDA

$        31.7

$       29.4

$    126.5

$        91.2

EBITDA margin

21.4%

21.5%

22.2%

17.5%









Adjusted Results (c):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Operating income

$        28.4

$        23.9

$    117.7

$        89.7

Operating margin

19.1%

17.5%

20.7%

17.2%

EBITDA (b)

$        31.7

$        26.8

$    127.8

$        99.9

EBITDA margin (b)

21.4%

19.6%

22.5%

19.1%


(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):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Restructuring charges, net of recoveries

$                  —

$            (2.6)

$             1.3

$              8.1

Separation costs

$                  —

$                —

$              —

$              0.6

Executive Recruitment

Fee revenue was $148.2 million in Q4 FY'14, an increase of $11.4 million, or 8.3% (the effect of exchange rates was not significant), compared to Q4 FY'13.  The increase in fee revenue was driven by increases in Europe, North America and Asia Pacific, partially offset by a decrease in Latin America.  This increase is primarily attributed to a 12.1% increase in the number of executive recruitment engagements billed, offset by a 3.4% decrease in the weighted-average fees billed per engagement in Q4 FY'14 compared to the Q4 FY'13. 

Adjusted EBITDA was $31.7 million during Q4 FY'14, an increase of $4.9 million, or 18.3%, compared to Q4 FY'13.  This increase is primarily attributed to the $11.4 million increase in fee revenue in Q4 FY'14 as compared to Q4 FY'13, partially offset by an increase of $5.9 million in compensation and benefit expenses driven primarily by an increase in performance related bonus expense and salaries and related payroll taxes.  For the full year, adjusted EBITDA increased by $27.9 million due to a $46.4 million increase in fee revenue and a decrease in general and administrative expenses offset by an increase in compensation and benefit expenses.

On a GAAP basis, operating income was $28.4 million in Q4 FY'14, an increase of $1.9 million, or 7.2%, compared to Q4 FY'13, resulting in an operating margin of 19.1% in the current quarter compared to 19.4% in the year-ago quarter.  On a GAAP basis, operating income was $116.4 million in FY'14, an increase of $35.4 million, or 43.7%, compared to FY'13, resulting in an operating margin of 20.5% in FY'14 compared to 15.5% in FY'13.

Selected Leadership & Talent Consulting Data

(dollars in millions)


Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Fee revenue

$        66.2

$       60.1

$     254.6

$      168.1

Total revenue

$        68.4

$       63.1

$     263.0

$      176.6

Operating (loss) income

$          6.8

$       (1.3)

$       23.8

$          6.4

Operating margin

10.3%

(2.1)%

9.4%

3.8%









Ending number of consultants (a)

127

133

127

133

Staff utilization (b)

70%

67%

67%

64%





EBITDA Results (c):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

EBITDA

$        10.0

$        1.2

$       36.4

$        12.4

EBITDA margin 

15.1%

2.0%

14.3%

7.4%





Adjusted Results (d):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Operating income

$          6.8

$         3.8

$       25.0

$        16.6

Operating margin

10.3%

6.3%

9.8%

9.9%

EBITDA (c)

$         10.0

$         6.3

$       37.6

$        22.6

EBITDA margin (c)

15.1%

10.4%

14.8%

13.4%


(a)

Represents number of employees originating consulting services.


(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):


Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Restructuring charges, net of recoveries

$                  —

$             5.1

$            1.2

$            10.2

Leadership & Talent Consulting

Fee revenue was $66.2 million in Q4 FY'14, an increase of $6.1 million, or 10.1% (the effect of exchange rates was not significant), from the year-ago quarter.  The increase in fee revenue was driven by increases in North America and Europe.  This increase is primarily attributed to an increase in consulting fee revenue of $3.8 million and an increase in product revenue of $2.3 million in Q4 FY'14 compared to the year-ago quarter.

Adjusted EBITDA was $10.0 million during Q4 FY'14, an increase of $3.7 million, or 58.7%, compared to Q4 FY'13.  Adjusted EBITDA margin was 15.1% in Q4 FY'14 compared to 10.4% in Q4 FY'13 due to an increase in fee revenue of $6.1 million and a decrease in general administrative expenses of $1.2 million, offset by an increase in compensation and benefit expense of $4.2 million.  The decrease in general and administrative expenses was due to a decrease in office and premise expense due to synergies obtained from the prior year acquisitions.  The increase in compensation and benefit expenses was due to an increase in performance related bonus expense, salaries and related payroll taxes, and an increase in the use of outside contractors.  For the full year, adjusted EBITDA was $37.6 million, an increase of $15.0 million, or 66.4%, compared to FY'13.  Adjusted EBITDA margin was 14.8% compared 13.4% in FY'13. 

On a GAAP basis, operating income was $6.8 million in Q4 FY'14, an increase of $8.1 million compared to the year-ago quarter, resulting in an operating margin of 10.3% in the current quarter compared to (2.1%) in the year-ago quarter.  On a GAAP basis, operating income was $23.8 million in FY'14, an increase of $17.4 million compared to FY'13 resulting in an operating margin of 9.4% in FY'14 compared to 3.8% in FY'13.

Selected Futurestep Data

(dollars in millions)


Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Fee revenue

$        37.3

$       31.0

$      136.8

$      122.2

Total revenue

$        38.7

$       32.7

$      141.4

$      128.3

Operating income

$          4.3

$         3.9

$        13.3

$        11.0

Operating margin

11.7%

12.4%

9.8%

9.0%









Engagements billed

1,205

1,032

3,246

3,074

New engagements (a)

598

524

2,427

2,308





EBITDA Results (b):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

EBITDA

$          4.8

$         4.1

$        15.7

$        12.2

EBITDA margin

13.1%

13.3%

11.5%

10.0%





Adjusted Results (c):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Operating income

$          4.3

$         4.3

$        14.5

$        14.5

Operating margin

11.7%

13.8%

10.6%

11.9%

EBITDA (b)

$          4.8

$         4.5

$        16.9

$        15.7

EBITDA margin (b)

13.1%

14.7%

12.3%

12.9%


(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):



Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Restructuring charges, net of recoveries

$                  —

$             0.4

$            1.2

$              3.5

Futurestep

Fee revenue was $37.3 million in Q4 FY'14, an increase of $6.3 million, or 20.3% (21.0% on a constant currency basis), compared to the year-ago quarter.  The increase in fee revenue was driven by a 16.8% increase in the number of engagements billed and a 3.0% increase in the weighted average fees billed per engagement in Q4 FY'14 compared to Q4 FY'13.  The increase was primarily due to large recruitment process outsourcing contracts entered into in the first six months of FY'14, which continued to be delivered in the current quarter and an increase in professional recruitment.

Adjusted EBITDA was $4.8 million during Q4 FY'14, an increase of $0.3 million, or 6.7%, compared to Q4 FY'13, due primarily to the increase in fee revenue of $6.3 million, offset by an increase in compensation and benefit expenses of $4.6 million (due to an increase in performance related bonus expense and headcount), an increase in cost of services expense of $0.7 million and an increase in general and administrative expenses of $0.5 million.  For the full year, adjusted EBITDA increased $1.2 million due to the $14.6 million increase in fee revenue, partially offset by an increase in compensation and benefit expenses of $11.0 million and $2.3 million in cost of services expenses.  The increase in compensation and benefit expenses for the full year 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 and an increase in performance related bonus expense.

On a GAAP basis, operating income was $4.3 million in Q4 FY'14, an increase of $0.4 million, compared to Q4 FY'13, resulting in an operating margin of 11.7% in the current quarter compared to 12.4% in the year-ago quarter.  On a GAAP basis, operating income was $13.3 million in FY'14, an increase of $2.3 million, compared to FY'13, resulting in an operating margin of 9.8% in FY'14 compared to 9.0% in FY'13.

Outlook                                                        

As previously disclosed, over the past year we have implemented common technology systems designed to allow us to further integrate our legacy businesses with our recent acquisitions.  Due to the efficiencies we expect to gain from these investments, other integration items from recent acquisitions and other cost savings initiatives, we plan to take additional actions to rationalize our cost structure in Q1 FY'15.  We estimate the realized savings in FY'15 associated with these actions to be in the range of $0.08 to $0.10 per diluted earnings share with the cost of these actions in Q1 FY'15 to be in the range of $0.06 to $0.08 per diluted earnings share.  Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, Q1 FY'15 fee revenue is likely to range from $240 million to $250 million and, after taking into consideration the actions discussed above, adjusted diluted earnings per share are likely to range from $0.37 to $0.43 with diluted earnings per share as measured by Generally Accepted Accounting Principles likely to range from $0.29 to $0.37

Earnings Conference Call Webcast

The earnings conference call will be held today at 5:00 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 www.kornferry.com, accessible through the Investor Relations section.  We will also post to this section of our website earnings slides, which will accompany our webcast, and other important information, and encourage you to review the information that we make available on our website.

About Korn Ferry

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.

KORN FERRY AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 (in thousands, except per share amounts) 












 Three Months Ended 

 Year Ended 


 April 30, 

 April 30, 


2014

2013

2014

2013


 (unaudited) 



 Fee revenue 

$ 251,712

$ 227,902

$ 960,301

$ 812,831

 Reimbursed out-of-pocket engagement expenses 

9,086

10,705

35,258

36,870

           Total revenue 

260,798

238,607

995,559

849,701









 Compensation and benefits 

170,595

154,487

646,889

555,346

 General and administrative expenses 

39,109

40,096

152,040

142,771

 Reimbursed expenses 

9,086

10,705

35,258

36,870

 Cost of services 

10,213

9,129

39,910

28,977

 Depreciation and amortization 

7,315

5,877

26,172

19,004

 Restructuring charges, net 

-

2,921

3,682

22,857

           Total operating expenses 

236,318

223,215

903,951

805,825









 Operating income  

24,480

15,392

91,608

43,876

 Other income, net 

2,018

2,501

9,769

6,309

 Interest expense, net 

(261)

(644)

(2,363)

(2,365)

           Income before provision for income taxes 







               and equity in earnings of unconsolidated subsidiaries 

26,237

17,249

99,014

47,820

 Equity in earnings of unconsolidated subsidiaries 

677

543

2,169

2,110

 Income tax provision  

5,703

5,595

28,492

16,637

            Net income 

$   21,211

$   12,197

$   72,691

$   33,293









 Earnings per common share: 







      Basic 

$       0.44

$       0.26

$       1.51

$       0.71

      Diluted 

$       0.43

$       0.25

$       1.48

$       0.70









 Weighted-average common shares outstanding: 







      Basic 

48,523

47,452

48,162

47,224

      Diluted 

49,458

48,345

49,145

47,883

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

 (unaudited) 
























Three Months Ended April 30,

Year Ended April 30,


2014


2013

% Change

2014


2013

% Change

















Fee Revenue:














Executive recruitment:















North America

$    80,230


$    77,511

4%

$  306,768


$  290,317

6%

EMEA 

40,175


32,242

25%

147,917


128,807

15%

Asia Pacific

21,753


19,199

13%

84,816


73,221

16%

South America

6,028


7,839

(23%)

29,374


30,134

(3%)

Total executive recruitment

148,186


136,791

8%

568,875


522,479

9%

Leadership & Talent Consulting

66,279


60,116

10%

254,636


168,115

51%

Futurestep

37,247


30,995

20%

136,790


122,237

12%

Total fee revenue

251,712


227,902

10%

960,301


812,831

18%

 Reimbursed out-of-pocket engagement expenses 

9,086


10,705

(15%)

35,258


36,870

(4%)

Total revenue

$  260,798


$  238,607

9%

$  995,559


$  849,701

17%

















Reconciliation of Operating Income (GAAP) to Adjusted Operating Income


























Operating Income:

Margin


Margin


Margin


Margin

Executive recruitment:















North America

$    18,483

23.0%

$    17,104

22.1%

$    70,256

22.9%

$    58,832

20.3%

EMEA

4,699

11.7%

4,137

12.8%

23,168

15.7%

9,173

7.1%

Asia Pacific

4,380

20.1%

3,482

18.1%

17,274

20.4%

6,973

9.5%

South America

761

12.6%

1,761

22.5%

5,654

19.2%

5,987

19.9%

Total executive recruitment

28,323

19.1%

26,484

19.4%

116,352

20.5%

80,965

15.5%

Leadership & Talent Consulting

6,855

10.3%

(1,292)

(2.1%)

23,847

9.4%

6,424

3.8%

Futurestep

4,343

11.7%

3,834

12.4%

13,352

9.8%

10,975

9.0%

Corporate

(15,041)


(13,634)


(61,943)


(54,488)


 Total operating income

$    24,480

9.7%

$    15,392

6.8%

$    91,608

9.5%

$    43,876

5.4%


































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
























Executive recruitment:















North America

$             -

-

$     (1,853)

(2.4%)

$         816

0.3%

$      3,583

1.2%

EMEA

-

-

(770)

(2.4%)

460

0.3%

4,498

3.5%

Asia Pacific

-

-

16

0.1%

60

0.0%

629

0.9%

South America

-

-

-

-

-

-

-

-

Total executive recruitment

-

-

(2,607)

(1.9%)

1,336

0.2%

8,710

1.7%

Leadership & Talent Consulting

-

-

5,080

8.4%

1,149

0.4%

10,198

6.1%

Futurestep

-

-

441

1.4%

1,134

0.8%

3,527

2.9%

Corporate



598


4,957


4,044


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

$             -

-

$      3,512

1.5%

$      8,576

0.9%

$    26,479

3.3%


































Adjusted Operating Income:













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

Margin


Margin


Margin


Margin

Executive recruitment:















North America

$    18,483

23.0%

$    15,251

19.7%

$    71,072

23.2%

$    62,415

21.5%

EMEA

4,699

11.7%

3,367

10.4%

23,628

16.0%

13,671

10.6%

Asia Pacific

4,380

20.1%

3,498

18.2%

17,334

20.4%

7,602

10.4%

South America

761

12.6%

1,761

22.5%

5,654

19.2%

5,987

19.9%

Total executive recruitment

28,323

19.1%

23,877

17.5%

117,688

20.7%

89,675

17.2%

Leadership & Talent Consulting

6,855

10.3%

3,788

6.3%

24,996

9.8%

16,622

9.9%

Futurestep

4,343

11.7%

4,275

13.8%

14,486

10.6%

14,502

11.9%

Corporate 

(15,041)


(13,036)


(56,986)


(50,444)


 Total adjusted operating income 

$    24,480

9.7%

$    18,904

8.3%

$  100,184

10.4%

$    70,355

8.7%

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (in thousands, except per share amounts) 












April 30,


2014

2013

ASSETS



Cash and cash equivalents

$    333,717

$    224,066

Marketable securities

9,566

20,347

Receivables due from clients, net of allowance for doubtful accounts 



of $9,513 and $9,097 respectively

175,986

161,508

Income taxes and other receivables

8,244

8,944

Deferred income taxes

4,486

3,511

Prepaid expenses and other assets

29,955

28,724

Total current assets

561,954

447,100





Marketable securities, non-current

124,993

121,569

Property and equipment, net

60,434

53,628

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

94,274

85,873

Deferred income taxes

55,039

63,203

Goodwill

257,582

257,293

Intangible assets, net

49,560

58,187

Investments and other assets

29,830

28,376

Total assets

$ 1,233,666

$ 1,115,229





LIABILITIES AND STOCKHOLDERS' EQUITY



Accounts payable

$      19,375

$      19,460

Income taxes payable

13,014

5,502

Compensation and benefits payable

192,035

160,298

Other accrued liabilities

62,509

83,291

Total current liabilities

286,933

268,551





Deferred compensation and other retirement plans

169,235

159,706

Other liabilities

21,962

22,504

Total liabilities

478,130

450,761





Stockholders' equity



Common stock: $0.01 par value, 150,000 shares authorized, 62,282 and 



61,022 shares issued and 49,811 and 48,734 shares outstanding, respectively

449,631

431,508

Retained earnings

308,781

236,090

Accumulated other comprehensive loss, net

(2,388)

(2,631)

Stockholders' equity

756,024

664,967

Less:  notes receivable from stockholders

(488)

(499)

Total stockholders' equity

755,536

664,468

Total liabilities and stockholders' equity

$ 1,233,666

$ 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 


April 30, 2014

April 30, 2013


As Reported

Adjustments

As Adjusted

As Reported

Adjustments

As Adjusted













 Fee revenue 

$ 251,712


$ 251,712

$ 227,902


$ 227,902

 Reimbursed out-of-pocket engagement expenses 

9,086


9,086

10,705


10,705

           Total revenue 

260,798


260,798

238,607


238,607













 Compensation and benefits 

170,595


170,595

154,487


154,487

 General and administrative expenses 

39,109


39,109

40,096

(591)

39,505

 Reimbursed expenses 

9,086


9,086

10,705


10,705

 Cost of services 

10,213


10,213

9,129


9,129

 Depreciation and amortization 

7,315


7,315

5,877


5,877

 Restructuring charges, net 

-


-

2,921

(2,921)

-

           Total operating expenses 

236,318

-

236,318

223,215

(3,512)

219,703













 Operating income 

24,480

-

24,480

15,392

3,512

18,904













 Other income, net 

2,018


2,018

2,501


2,501

 Interest expense, net 

(261)


(261)

(644)


(644)

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












26,237

-

26,237

17,249

3,512

20,761

 Equity in earnings of unconsolidated subsidiaries 

677


677

543


543

 Income tax provision (1) (2) 

5,703


5,703

5,595

119

5,714

            Net income 

$   21,211

$                 -

$   21,211

$   12,197

$          3,393

$   15,590













 Earnings per common share: 











      Basic 

$       0.44


$       0.44

$       0.26


$       0.33

      Diluted 

$       0.43


$       0.43

$       0.25


$       0.32













 Weighted-average common shares outstanding: 











      Basic 

48,523


48,523

47,452


47,452

      Diluted 

49,458


49,458

48,345


48,345













 Explanation of Non-GAAP Adjustments 











(1)

The adjustments result in an effective tax rate of 28% for the as adjusted amounts for the three months ended April 30, 2013.

(2)

The three months ended April 30, 2013, includes the tax effect on restructuring charges and integration/acquisition costs associated with the acquisition of PDI Ninth House.

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) 




























 Year Ended 

 Year Ended 


April 30, 2014

April 30, 2013


As Reported

Adjustments

As Adjusted

As Reported

Adjustments

As Adjusted













 Fee revenue 

$   960,301


$   960,301

$   812,831


$   812,831

 Reimbursed out-of-pocket engagement expenses 

35,258


35,258

36,870


36,870

           Total revenue 

995,559


995,559

849,701


849,701













 Compensation and benefits 

646,889

(4,500)

642,389

555,346

(516)

554,830

 General and administrative expenses 

152,040

(394)

151,646

142,771

(3,106)

139,665

 Reimbursed expenses 

35,258


35,258

36,870


36,870

 Cost of services 

39,910


39,910

28,977


28,977

 Depreciation and amortization 

26,172


26,172

19,004


19,004

 Restructuring charges, net 

3,682

(3,682)

-

22,857

(22,857)

-

           Total operating expenses 

903,951

(8,576)

895,375

805,825

(26,479)

779,346













 Operating income 

91,608

8,576

100,184

43,876

26,479

70,355













 Other income, net 

9,769


9,769

6,309


6,309

 Interest expense, net 

(2,363)


(2,363)

(2,365)


(2,365)

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












99,014

8,576

107,590

47,820

26,479

74,299

 Equity in earnings of unconsolidated subsidiaries 

2,169


2,169

2,110


2,110

 Income tax provision (1) (2) 

28,492

2,796

31,288

16,637

6,953

23,590

            Net income  

$     72,691

$           5,780

$     78,471

$     33,293

$         19,526

$     52,819













 Earnings per common share: 











      Basic 

$          1.51


$          1.63

$          0.71


$          1.12

      Diluted 

$          1.48


$          1.60

$          0.70


$          1.10













 Weighted-average common shares outstanding: 











      Basic 

48,162


48,162

47,224


47,224

      Diluted 

49,145


49,145

47,883


47,883













 Explanation of Non-GAAP Adjustments 

(1)

The adjustments result in an effective tax rate of 29% and 32% for the as adjusted amounts for the year ended April 30, 2014 and 2013, respectively.

(2)

The year ended April 30, 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 April 30, 2014 


 Executive Recruitment 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 











 Fee revenue 

$    148,186

$     66,279

$      37,247

$               -

$        251,712











 Net income 








$           21,211

       Other income, net 








(2,018)

       Interest expense, net 








261

       Equity in earnings of unconsolidated subsidiaries 








(677)

       Income tax provision 








5,703

 Operating income (loss) 

$      28,323

$       6,855

$        4,343

$   (15,041)

24,480

       Depreciation and amortization 

2,614

3,161

512

1,028

7,315

       Other income (loss), net 

683

(39)

7

1,367

2,018

       Equity in earnings of unconsolidated subsidiaries 

125

-

-

552

677

 EBITDA 

31,745

9,977

4,862

(12,094)

34,490

 EBITDA margin 

21.4%

15.1%

13.1%


13.7%











 Adjusted EBITDA 

$      31,745

$       9,977

$        4,862

$   (12,094)

$           34,490

 Adjusted EBITDA margin 

21.4%

15.1%

13.1%


13.7%
























 Three Months Ended April 30, 2013 


 Executive Recruitment 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 











 Fee revenue 

$    136,791

$     60,116

$      30,995

$               -

$        227,902











 Net income 








$           12,197

       Other income, net 








(2,501)

       Interest expense, net 








644

       Equity in earnings of unconsolidated subsidiaries 








(543)

       Income tax provision 








5,595

 Operating income (loss) 

$      26,484

$      (1,292)

$        3,834

$   (13,634)

15,392

       Depreciation and amortization 

2,243

2,625

240

769

5,877

       Other income (loss), net 

518

(146)

36

2,093

2,501

       Equity in earnings of unconsolidated subsidiaries 

129

-

-

414

543

 EBITDA 

29,374

1,187

4,110

(10,358)

24,313

 EBITDA margin 

21.5%

2.0%

13.3%


10.7%











       Restructuring (recoveries) charges, net 

(2,607)

5,080

441

7

2,921

       Integration/acquisition costs 

-

-

-

591

591

 Adjusted EBITDA 

$      26,767

$       6,267

$        4,551

$     (9,760)

$           27,825

 Adjusted EBITDA margin 

19.6%

10.4%

14.7%


12.2%

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)





 Year Ended April 30, 2014 


 Executive Recruitment 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 











 Fee revenue 

$    568,875

$   254,636

$   136,790

$               -

$        960,301











 Net income 








$          72,691

       Other income, net 







(9,769)

       Interest expense, net 







2,363

       Equity in earnings of unconsolidated subsidiaries 








(2,169)

       Income tax provision 







28,492

 Operating income (loss) 

$    116,352

$     23,847

$     13,352

$  (61,943)

91,608

       Depreciation and amortization 

8,012

12,491

1,797

3,872

26,172

       Other income, net 

1,769

106

583

7,311

9,769

       Equity in earnings of unconsolidated subsidiaries 

383

-

-

1,786

2,169

 EBITDA 

126,516

36,444

15,732

(48,974)

129,718

 EBITDA margin 

22.2%

14.3%

11.5%


13.5%











       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 

$    127,852

$     37,593

$     16,866

$  (44,017)

$        138,294

 Adjusted EBITDA margin 

22.5%

14.8%

12.3%


14.4%
























 Year Ended April 30, 2013 


 Executive Recruitment 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 











 Fee revenue 

$    522,479

$   168,115

$   122,237

$               -

$        812,831











 Net income 








$          33,293

       Other income, net 







(6,309)

       Interest expense, net 







2,365

       Equity in earnings of unconsolidated subsidiaries 








(2,110)

       Income tax provision 







16,637

 Operating income (loss) 

$      80,965

$       6,424

$     10,975

$  (54,488)

43,876

       Depreciation and amortization 

8,991

6,012

1,180

2,821

19,004

       Other income (loss), net 

793

(75)

51

5,540

6,309

       Equity in earnings of unconsolidated subsidiaries 

434

-

-

1,676

2,110

 EBITDA 

91,183

12,361

12,206

(44,451)

71,299

 EBITDA margin 

17.5%

7.4%

10.0%


8.8%











       Restructuring charges, net 

8,194

10,198

3,527

938

22,857

       Integration/acquisition costs 

-

-

-

3,106

3,106

       Separation costs 

516

-

-

-

516

 Adjusted EBITDA 

$      99,893

$     22,559

$     15,733

$  (40,407)

$          97,778

 Adjusted EBITDA margin 

19.1%

13.4%

12.9%


12.0%

SOURCE Korn Ferry

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