LOS ANGELES--(BUSINESS WIRE)--Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced third quarter fee revenue of $668.7 million. In addition, third quarter diluted earnings per share was $1.13 and adjusted diluted earnings per share was $1.07.
"I am pleased with our third quarter results, as we generated $669 million in fee revenue, down 2% year-over-year, with our non-search offerings providing a substantial buffer against the more cyclically sensitive recruiting offerings. Earnings and profitability increased year-over-year and sequentially as we delivered $102 million of Adjusted EBITDA, at a 15.2% margin," said Gary D. Burnison, CEO, Korn Ferry.
"Fee revenue from Consulting and Digital (up 3% and 6% over the prior year, respectively), when combined with our Interim fee revenue, now generate 50% of our top line. Our Consulting bill rate increased 12% and our Digital subscription and license fee revenue increased 11%," Burnison added. "The strategy is clearly working - I am enormously proud of our organization and the results demonstrate the resiliency and potential for Korn Ferry."
Selected Financial Results (dollars in millions, except per share amounts) (a) | |||||||||||||||
Third Quarter | Year to Date | ||||||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||||||
Fee revenue | $ | 668.7 | $ | 680.8 | $ | 2,071.9 | $ | 2,104.5 | |||||||
Total revenue | $ | 676.9 | $ | 686.8 | $ | 2,095.6 | $ | 2,125.7 | |||||||
Operating income | $ | 49.9 | $ | 12.5 | $ | 129.5 | $ | 243.8 | |||||||
Operating margin | 7.5 | % | 1.8 | % | 6.2 | % | 11.6 | % | |||||||
Net income attributable to Korn Ferry | $ | 59.1 | $ | 11.2 | $ | 104.0 | $ | 162.0 | |||||||
Basic earnings per share | $ | 1.14 | $ | 0.21 | $ | 2.00 | $ | 3.07 | |||||||
Diluted earnings per share | $ | 1.13 | $ | 0.21 | $ | 1.99 | $ | 3.05 | |||||||
Adjusted Results (b): | Third Quarter | Year to Date | |||||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||||||
Adjusted EBITDA | $ | 101.7 | $ | 96.1 | $ | 295.9 | $ | 359.4 | |||||||
Adjusted EBITDA margin | 15.2 | % | 14.1 | % | 14.3 | % | 17.1 | % | |||||||
Adjusted net income attributable to Korn Ferry (c) | $ | 55.8 | $ | 53.0 | $ | 158.3 | $ | 209.1 | |||||||
Adjusted basic earnings per share (c) | $ | 1.07 | $ | 1.01 | $ | 3.04 | $ | 3.96 | |||||||
Adjusted diluted earnings per share (c) | $ | 1.07 | $ | 1.01 | $ | 3.03 | $ | 3.93 | |||||||
______________________ | ||
(a) | Numbers may not total due to rounding. | |
(b) | Adjusted EBITDA refers to earnings before interest, taxes, depreciation and amortization, further adjusted to exclude integration/acquisition costs, impairment of fixed assets, impairment of right of use assets and restructuring charges, net when applicable. Adjusted results on a consolidated basis are non-GAAP financial measures that adjust for the following, as applicable (see attached reconciliations): | |
Third Quarter | Year to Date | ||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||
Impairment of fixed assets | $ | - | $ | 4.4 | $ | 1.6 | $ | 4.4 | |||
Impairment of right of use assets | $ | - | $ | 5.5 | $ | 1.6 | $ | 5.5 | |||
Integration/acquisition costs | $ | 3.9 | $ | 2.5 | $ | 13.1 | $ | 9.5 | |||
Restructuring charges, net | $ | 4.6 | $ | 41.2 | $ | 68.6 | $ | 41.2 | |||
(c) | Due to actions taken in connection with the worldwide minimum tax, the Company recorded a $9.7 million non-recurring tax benefit in the quarter ended January 31, 2024 that resulted in the release of a valuation allowance, which is included in the Company's US GAAP results but excluded from the Adjusted results. |
The Company reported fee revenue in Q3 FY'24 of $668.7 million, a year-over-year decrease of 2% at both actual and constant currency. Fee revenue decreased primarily due to decreases in our permanent placement talent acquisition offerings. This decrease was due to a decline in demand driven by uncertain and challenging global economic environment. This was partially offset by the increases in Consulting and Digital fee revenue, as well as in the Interim portion of Professional Search & Interim, resulting from the acquisition of Salo ('the Acquisition") which was effective February 1, 2023.
Operating margin was 7.5% in Q3 FY'24, compared to 1.8% in the year-ago quarter, an increase of 570bps. Adjusted EBITDA margin was 15.2% in Q3 FY'24, compared to 14.1% in the year-ago quarter, an increase of 110bps. Net income attributable to Korn Ferry was $59.1 million in Q3 FY'24, compared to $11.2 million in Q3 FY'23 and Adjusted EBITDA was $101.7 million in Q3 FY'24 compared to $96.1 million in Q3 FY'23.
Operating income and margin increased compared to the year-ago quarter primarily due to 1) lower restructuring charges, net recorded in Q3 FY'24 compared to the year-ago quarter, 2) a decrease in compensation and benefits expense driven by the previous quarter's cost reduction actions, and 3) a decrease in charges for impairment of fixed and right of use assets in the year-ago quarter. This increase was partially offset by the decrease in fee revenue discussed above, and higher cost of services expense associated with the acquired Interim businesses. Net income attributable to Korn Ferry increased due to the same factors discussed above.
Adjusted EBITDA and margin increased due to the previous quarter's cost reduction actions, partially offset by the decrease in fee revenue discussed above and an increase in cost of services expense associated with the acquired businesses.
Results by Line of Business Selected Consulting Data (dollars in millions) (a) | |||||||||||||||
Third Quarter | Year to Date | ||||||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||||||
Fee revenue | $ | 166.9 | $ | 162.2 | $ | 512.8 | $ | 501.7 | |||||||
Total revenue | $ | 169.9 | $ | 164.4 | $ | 521.7 | $ | 509.0 | |||||||
Ending number of consultants and execution staff (b) | 1,687 | 1,877 | 1,687 | 1,877 | |||||||||||
Hours worked in thousands (c) | 381 | 414 | 1,239 | 1,340 | |||||||||||
Average bill rate (d) | $ | 438 | $ | 392 | $ | 414 | $ | 374 | |||||||
Adjusted Results (e): | Third Quarter | Year to Date | |||||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||||||
Adjusted EBITDA | $ | 27.8 | $ | 23.3 | $ | 81.9 | $ | 83.9 | |||||||
Adjusted EBITDA margin | 16.7 | % | 14.4 | % | 16.0 | % | 16.7 | % | |||||||
______________________ | ||
(a) | Numbers may not total due to rounding. | |
(b) | Represents number of employees originating, delivering and executing consulting services. | |
(c) | The number of hours worked by consultant and execution staff during the period. | |
(d) | The amount of fee revenue divided by the number of hours worked by consultants and execution staff. | |
(e) | Adjusted results exclude the following: | |
Third Quarter | Year to Date | ||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||
Impairment of fixed assets | $ | - | $ | 2.8 | $ | - | $ | 2.8 | |||
Impairment of right of use assets | $ | - | $ | 3.1 | $ | 0.6 | $ | 3.1 | |||
Restructuring charges, net | $ | 1.1 | $ | 10.8 | $ | 18.9 | $ | 10.8 | |||
Fee revenue was $166.9 million in Q3 FY'24 compared to $162.2 million in Q3 FY'23, an increase of $4.7 million or 3% at both actual and constant currency. The increase in Consulting fee revenue was primarily driven by growth in our organizational strategy offering.
Adjusted EBITDA was $27.8 million in Q3 FY'24 compared to Adjusted EBITDA of $23.3 million, in the year-ago quarter. Adjusted EBITDA margin in the quarter increased year-over-year by 230bps from 14.4% last year to 16.7% this year. This increase in Adjusted EBITDA and Adjusted EBITDA margin resulted primarily from the increase in fee revenue discussed above, combined with the previous quarter's cost reduction actions, partially offset by an increase in cost of services expense.
Selected Digital Data (dollars in millions) (a) | |||||||||||||||
Third Quarter | Year to Date | ||||||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||||||
Fee revenue | $ | 90.3 | $ | 85.1 | $ | 275.4 | $ | 263.2 | |||||||
Total revenue | $ | 90.4 | $ | 85.1 | $ | 275.6 | $ | 263.5 | |||||||
Ending number of consultants | 275 | 365 | 275 | 365 | |||||||||||
Subscription & License fee revenue | $ | 32.8 | $ | 29.6 | $ | 97.7 | $ | 88.1 | |||||||
Adjusted Results (b): | Third Quarter | Year to Date | |||||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||||||
Adjusted EBITDA | $ | 27.4 | $ | 22.2 | $ | 80.7 | $ | 73.9 | |||||||
Adjusted EBITDA margin | 30.3 | % | 26.0 | % | 29.3 | % | 28.1 | % | |||||||
______________________ | ||
(a) | Numbers may not total due to rounding. | |
(b) | Adjusted results exclude the following: | |
Third Quarter | Year to Date | ||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||
Impairment of fixed assets | $ | - | $ | 1.5 | $ | 1.5 | $ | 1.5 | |||
Impairment of right of use assets | $ | - | $ | 1.7 | $ | - | $ | 1.7 | |||
Restructuring charges, net | $ | 0.6 | $ | 2.9 | $ | 9.5 | $ | 2.9 | |||
Fee revenue was $90.3 million in Q3 FY'24 compared to $85.1 million in Q3 FY'23, an increase of $5.2 million or 6% at both actual and constant currency. The increase was primarily driven by increases in leadership and professional development and assessment & succession solutions.
Adjusted EBITDA was $27.4 million in Q3 FY'24 compared to $22.2 million in the year-ago quarter. Adjusted EBITDA margin in the quarter increased year-over-year by 430bps from 26.0% last year to 30.3% this year. The increase in Adjusted EBITDA and margin was mainly driven by the increase in fee revenue discussed above.
Selected Executive Search Data(a) (dollars in millions) (b) | |||||||||||||||
Third Quarter | Year to Date | ||||||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||||||
Fee revenue | $ | 199.3 | $ | 212.0 | $ | 607.5 | $ | 663.2 | |||||||
Total revenue | $ | 201.2 | $ | 213.8 | $ | 613.5 | $ | 668.7 | |||||||
Ending number of consultants | 562 | 616 | 562 | 616 | |||||||||||
Average number of consultants | 574 | 619 | 582 | 601 | |||||||||||
Engagements billed | 3,469 | 4,080 | 7,269 | 8,272 | |||||||||||
New engagements (c) | 1,367 | 1,516 | 4,349 | 4,835 | |||||||||||
Adjusted Results (d): | Third Quarter | Year to Date | |||||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||||||
Adjusted EBITDA | $ | 43.4 | $ | 46.4 | $ | 125.6 | $ | 163.2 | |||||||
Adjusted EBITDA margin | 21.8 | % | 21.9 | % | 20.7 | % | 24.6 | % | |||||||
______________________ | ||
(a) | Executive Search is the sum of the individual Executive Search Reporting Segments described in our annual and quarterly reporting on Forms 10-K and 10-Q and is presented on a consolidated basis as it is consistent with the Company's discussion of its Lines of Business, and financial metrics used by the Company's investor base. | |
(b) | Numbers may not total due to rounding. | |
(c) | Represents new engagements opened in the respective period. | |
(d) | Executive Search Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures that adjust for the following: | |
Third Quarter | Year to Date | ||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||
Impairment of fixed assets | $ | - | $ | - | $ | 0.1 | $ | - | |||
Impairment of right of use assets | $ | - | $ | - | $ | 0.9 | $ | - | |||
Restructuring charges, net | $ | 2.3 | $ | 19.4 | $ | 28.2 | $ | 19.4 | |||
Fee revenue was $199.3 million and $212.0 million in Q3 FY'24 and Q3 FY'23, respectively, a year-over-year decrease of $12.7 million or 6% (down 7% on a constant currency basis). The decrease in fee revenue was primarily driven by a decline in executive search activity, resulting from the uncertain and challenging global economic environment.
Adjusted EBITDA was $43.4 million in Q3 FY'24 compared to Adjusted EBITDA of $46.4 million in the year-ago quarter. The decrease in Adjusted EBITDA was primarily due to the decrease in fee revenue discussed above, partially offset by the previous quarter's cost reduction actions. Despite the year-over-year decrease in fee revenue and Adjusted EBITDA, Adjusted EBITDA margin remained essentially flat year-over-year due to the previous quarter's cost reduction actions.
Selected Professional Search & Interim Data (dollars in millions) (a) | |||||||||||||||
Third Quarter | Year to Date | ||||||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||||||
Fee revenue | $ | 130.9 | $ | 118.0 | $ | 411.5 | $ | 351.7 | |||||||
Total revenue | $ | 131.8 | $ | 118.6 | $ | 414.3 | $ | 354.4 | |||||||
Permanent Placement: | |||||||||||||||
Fee revenue | $ | 52.4 | $ | 65.0 | $ | 167.2 | $ | 218.5 | |||||||
Engagements billed | 1,901 | 2,428 | 4,511 | 6,104 | |||||||||||
New engagements (b) | 995 | 1,460 | 3,414 | 5,122 | |||||||||||
Ending number of consultants | 344 | 448 | 344 | 448 | |||||||||||
Interim: | |||||||||||||||
Fee revenue | $ | 78.5 | $ | 53.0 | $ | 244.3 | $ | 133.1 | |||||||
Average bill rate (c) | $ | 129 | $ | 107 | $ | 126 | $ | 110 | |||||||
Average weekly billable consultants (d) | 1,283 | 1,061 | 1,352 | 878 | |||||||||||
Adjusted Results (e): | Third Quarter | Year to Date | |||||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||||||
Adjusted EBITDA | $ | 23.8 | $ | 22.0 | $ | 73.7 | $ | 83.6 | |||||||
Adjusted EBITDA margin | 18.2 | % | 18.6 | % | 17.9 | % | 23.8 | % | |||||||
_____________________ | ||
(a) | Numbers may not total due to rounding. | |
(b) | Represents new engagements opened in the respective period. | |
(c) | Fee revenue from interim divided by the number of hours worked by consultants. | |
(d) | The number of billable consultants based on a weekly average in the respective period. | |
(e) | Adjusted results exclude the following: | |
Third Quarter | Year to Date | ||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||
Impairment of fixed assets | $ | - | $ | 0.1 | $ | - | $ | 0.1 | |||
Impairment of right of use assets | $ | - | $ | 0.6 | $ | - | $ | 0.6 | |||
Integration/acquisition costs | $ | 3.8 | $ | 1.7 | $ | 12.7 | $ | 6.6 | |||
Restructuring charges, net | $ | - | $ | 4.8 | $ | 3.8 | $ | 4.8 | |||
Fee revenue was $130.9 million in Q3 FY'24, an increase of $12.9 million or 11% at both actual and constant currency. The increase in fee revenue was mainly driven by additional fee revenue from the Acquisition, partially offset by a decrease in permanent placement fee revenue.
Adjusted EBITDA was $23.8 million in Q3 FY'24 compared to $22.0 million in the year-ago quarter. The increase in Adjusted EBITDA was primarily due to the increase in fee revenue discussed above and the previous quarter's cost reduction actions, partially offset by higher cost of services expense due to the Acquisition. Adjusted EBITDA margin declined slightly (40bps) year-over-year due to the factors noted above as well as a change in the mix of fee revenue which included more Interim fee revenue, which has lower profitability but is less cyclical as compared to professional search permanent placement which comprised a greater portion of fee revenue in the year-ago quarter.
Selected Recruitment Process Outsourcing ("RPO") Data (dollars in millions) (a) | |||||||||||||||
Third Quarter | Year to Date | ||||||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||||||
Fee revenue | $ | 81.2 | $ | 103.5 | $ | 264.7 | $ | 324.8 | |||||||
Total revenue | $ | 83.6 | $ | 104.9 | $ | 270.5 | $ | 330.1 | |||||||
Remaining revenue under contract (b) | $ | 695.8 | $ | 836.9 | $ | 695.8 | $ | 836.9 | |||||||
RPO new business (c) | $ | 122.1 | $ | 44.0 | $ | 311.2 | $ | 482.7 | |||||||
Adjusted Results (d): | Third Quarter | Year to Date | |||||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||||||
Adjusted EBITDA | $ | 9.3 | $ | 9.8 | $ | 28.6 | $ | 43.6 | |||||||
Adjusted EBITDA margin | 11.4 | % | 9.5 | % | 10.8 | % | 13.4 | % | |||||||
______________________ | ||
(a) | Numbers may not total due to rounding. | |
(b) | Estimated fee revenue associated with signed contracts for which revenue has not yet been recognized. | |
(c) | Estimated total value of a contract at the point of execution of the contract. | |
(d) | Adjusted results exclude the following: | |
Third Quarter | Year to Date | ||||||||||
FY'24 | FY'23 | FY'24 | FY'23 | ||||||||
Impairment of right of use assets | $ | - | $ | 0.1 | $ | 0.1 | $ | 0.1 | |||
Restructuring charges, net | $ | 0.7 | $ | 3.1 | $ | 7.9 | $ | 3.1 | |||
Fee revenue was $81.2 million in Q3 FY'24, a decrease of $22.3 million or 22% at both actual and constant currency basis. RPO fee revenue decreased due to reduced demand for the number of placements being requested by existing clients as a result of the challenging global economic environment as well as a continuation of clients "labor hoarding".
Adjusted EBITDA was $9.3 million in Q3 FY'24 compared to $9.8 million in the year-ago quarter. The decrease resulted from the decline in fee revenue which was partially offset by cost reductions taken in the previous quarter. Despite the year-over-year decrease in fee revenue and Adjusted EBITDA, Adjusted EBITDA margin increased 190bps year-over-year from 9.5% to 11.4% due to the previous quarter's cost reduction actions.
Outlook
Assuming worldwide geopolitical conditions, economic conditions, financial markets and foreign exchange rates remain steady, on a consolidated basis:
- Q4 FY'24 fee revenue is expected to be in the range of $675 million and $695 million; and
- Q4 FY'24 diluted earnings per share is expected to range between $1.06 to $1.14.
On a consolidated adjusted basis:
- Q4 FY'24 adjusted diluted earnings per share is expected to be in the range from $1.09 to $1.17.
Q4 FY'24 Earnings Per Share Outlook | |||||||
Low | High | ||||||
Consolidated diluted earnings per share | $ | 1.06 | $ | 1.14 | |||
Integration/acquisition and restructuring charges | 0.05 | 0.05 | |||||
Tax Rate Impact | (0.02 | ) | (0.02 | ) | |||
Consolidated adjusted diluted earnings per share(1) | $ | 1.09 | $ | 1.17 | |||
______________________ | ||
(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 12:00 PM (EST) and hosted by CEO Gary Burnison, CFO Robert Rozek, SVP Business Development & Analytics Gregg Kvochak and VP Investor Relations Tiffany Louder. The conference call will be webcast and available online at ir.kornferry.com. We will also post to the investor relations 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 a global organizational consulting firm. We help clients synchronize strategy and talent to drive superior performance. We work with organizations to design their structures, roles, and responsibilities. We help them hire the right people to bring their strategy to life. And we advise them on how to reward, develop, and motivate their people. Visit kornferry.com for more information.
Forward-Looking Statements
Statements in this press release and our conference call that relate to our outlook, projections, goals, strategies, future plans and expectations, including statements relating to expected demand for and relevance of our products and services, our workforce reduction plan, and other statements of future events or conditions are forward-looking statements that involve a number of risks and uncertainties. Words such as "believes", "expects", "anticipates", "goals", "estimates", "guidance", "may", "should", "could", "will" or "likely", and variations of such words and similar expressions are intended to identify such forward-looking statements. Readers are cautioned not to place undue reliance on such statements. Such statements are based on current expectations; 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 global and local political and or economic developments in or affecting countries where we have operations, such as inflation, interest rates, global slowdowns, or recessions, competition, geopolitical tensions, shifts in global trade patterns, changes in demand for our services as a result of automation, dependence on and costs of attracting and retaining qualified and experienced consultants, impact of inflationary pressures on our profitability, our ability to maintain relationships with customers and suppliers and retaining key employees, maintaining our brand name and professional reputation, potential legal liability and regulatory developments, portability of client relationships, consolidation of or within the industries we serve, changes and developments in government laws and regulations, evolving investor and customer expectations with regard to environmental, social and governance matters, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure, including as a result of recent workforce, real estate, and other restructuring initiatives, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities or events, changes to data security, data privacy, and data protection laws, dependence on third parties for the execution of critical functions, limited protection of our intellectual property ("IP"), our ability to enhance, develop and respond to new technology, including artificial intelligence, our ability to successfully recover from a disaster or other business continuity problems, employment liability risk, an impairment in the carrying value of goodwill and other intangible assets, treaties, or regulations on our business and our Company, deferred tax assets that we may not be able to use, our ability to develop new products and services, changes in our accounting estimates and assumptions, the utilization and billing rates of our consultants, seasonality, the expansion of social media platforms, the ability to effect acquisitions and integrate acquired businesses, including Salo, resulting organizational changes, our indebtedness, those relating to the ultimate magnitude and duration of any pandemic or outbreaks. For a detailed description of risks and uncertainties that could cause differences from our expectations, please refer to Korn Ferry's periodic filings with the Securities and Exchange Commission. Korn Ferry disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Use of Non-GAAP Financial Measures
This press release contains financial information calculated other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). In particular, it includes:
- Adjusted net income attributable to Korn Ferry, adjusted to exclude integration/acquisition costs, impairment of fixed assets, impairment of right of use assets, and restructuring charges, net of income tax effect and to exclude a $9.7 million non-recurring tax benefit from actions taken in connection with the worldwide minimum tax that resulted in the release of a valuation allowance;
- Adjusted basic and diluted earnings per share, adjusted to exclude integration/acquisition costs, impairment of fixed assets, impairment of right of use assets, and restructuring charges, net of income tax effect, and to exclude a $9.7 million non-recurring tax benefit from actions taken in connection with the worldwide minimum tax that resulted in the release of a valuation allowance;
- Constant currency (calculated using a quarterly average) percentages that represent the percentage change that would have resulted had exchange rates in the prior period been the same as those in effect in the current period;
- Consolidated and Executive Search Adjusted EBITDA, which is earnings before interest, taxes, depreciation and amortization, further adjusted to exclude integration/acquisition costs, impairment of fixed assets, impairment of right of use assets and restructuring charges, net when applicable, and Consolidated and Executive Search 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 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, which are described in the footnotes in the attached reconciliations, represent 1) costs we incurred to acquire and integrate a portion of our Professional Search & Interim business, 2) impairment of fixed assets primarily due to software impairment charge in our Digital segment in FY'24 and impairment on leasehold improvements due to terminating and deciding to sublease some of our office leases in FY'23, 3) impairment of right of use assets due to the decision to terminate and sublease some of our offices, 4) Restructuring charges, net to align workforce to the challenging macroeconomic business environment arising from persistent inflationary pressures, rising interest rates and global economic and geopolitical uncertainty and 5) to exclude a $9.7 million non-recurring tax benefit from actions taken in connection with the worldwide minimum tax that resulted in the release of a valuation allowance. 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. Adjusted net income attributable to Korn Ferry, adjusted basic and diluted earnings per share and Consolidated and Executive Search Adjusted EBITDA, exclude certain charges that management does not consider on-going in nature and allows management and investors to make more meaningful period-to-period comparisons of the Company's operating results. Management further believes that Consolidated and Executive Search Adjusted 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 percentages, 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.
KORN FERRY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) | |||||||||||||||
Three Months Ended January 31, | Nine Months Ended January 31, | ||||||||||||||
2024 | 2023 | 2024 | 2023 | ||||||||||||
(unaudited) | |||||||||||||||
Fee revenue | $ | 668,679 | $ | 680,782 | $ | 2,071,871 | $ | 2,104,534 | |||||||
Reimbursed out-of-pocket engagement expenses | 8,194 | 6,063 | 23,711 | 21,178 | |||||||||||
Total revenue | 676,873 | 686,845 | 2,095,582 | 2,125,712 | |||||||||||
Compensation and benefits | 456,216 | 479,382 | 1,389,956 | 1,409,774 | |||||||||||
General and administrative expenses | 62,661 | 72,785 | 194,315 | 202,328 | |||||||||||
Reimbursed expenses | 8,194 | 6,063 | 23,711 | 21,178 | |||||||||||
Cost of services | 75,814 | 57,903 | 231,516 | 157,152 | |||||||||||
Depreciation and amortization | 19,509 | 17,037 | 58,075 | 50,359 | |||||||||||
Restructuring charges, net | 4,612 | 41,162 | 68,558 | 41,162 | |||||||||||
Total operating expenses | 627,006 | 674,332 | 1,966,131 | 1,881,953 | |||||||||||
Operating income | 49,867 | 12,513 | 129,451 | 243,759 | |||||||||||
Other income, net | 23,817 | 13,097 | 23,559 | 4,824 | |||||||||||
Interest expense, net | (4,946 | ) | (5,378 | ) | (16,282 | ) | (20,088 | ) | |||||||
Income before provision for income taxes | 68,738 | 20,232 | 136,728 | 228,495 | |||||||||||
Income tax provision | 9,018 | 8,463 | 29,779 | 63,575 | |||||||||||
Net income | 59,720 | 11,769 | 106,949 | 164,920 | |||||||||||
Net income attributable to noncontrolling interest | (649 | ) | (522 | ) | (2,984 | ) | (2,885 | ) | |||||||
Net income attributable to Korn Ferry | $ | 59,071 | $ | 11,247 | $ | 103,965 | $ | 162,035 | |||||||
Earnings per common share attributable to Korn Ferry: | |||||||||||||||
Basic | $ | 1.14 | $ | 0.21 | $ | 2.00 | $ | 3.07 | |||||||
Diluted | $ | 1.13 | $ | 0.21 | $ | 1.99 | $ | 3.05 | |||||||
Weighted-average common shares outstanding: | |||||||||||||||
Basic | 51,126 | 51,278 | 51,129 | 51,639 | |||||||||||
Diluted | 51,343 | 51,431 | 51,329 | 51,999 | |||||||||||
Cash dividends declared per share: | $ | 0.33 | $ | 0.15 | $ | 0.69 | $ | 0.45 | |||||||
KORN FERRY AND SUBSIDIARIES FINANCIAL SUMMARY BY REPORTING SEGMENT (dollars in thousands) (unaudited) | |||||||||||||||||
Three Months Ended January 31, | Nine Months Ended January 31, | ||||||||||||||||
2024 | 2023 | % Change | 2024 | 2023 | % Change | ||||||||||||
Fee revenue: | |||||||||||||||||
Consulting | $ | 166,947 | $ | 162,155 | 3.0 | % | $ | 512,830 | $ | 501,731 | 2.2 | % | |||||
Digital | 90,317 | 85,071 | 6.2 | % | 275,395 | 263,161 | 4.6 | % | |||||||||
Executive Search: | |||||||||||||||||
North America | 121,449 | 132,810 | (8.6 | %) | 381,459 | 426,839 | (10.6 | %) | |||||||||
EMEA | 48,999 | 48,960 | 0.1 | % | 138,873 | 140,661 | (1.3 | %) | |||||||||
Asia Pacific | 21,324 | 22,621 | (5.7 | %) | 65,167 | 72,410 | (10.0 | %) | |||||||||
Latin America | 7,541 | 7,654 | (1.5 | %) | 22,041 | 23,283 | (5.3 | %) | |||||||||
Total Executive Search (a) | 199,313 | 212,045 | (6.0 | %) | 607,540 | 663,193 | (8.4 | %) | |||||||||
Professional Search & Interim | 130,890 | 117,980 | 10.9 | % | 411,453 | 351,670 | 17.0 | % | |||||||||
RPO | 81,212 | 103,531 | (21.6 | %) | 264,653 | 324,779 | (18.5 | %) | |||||||||
Total fee revenue | 668,679 | 680,782 | (1.8 | %) | 2,071,871 | 2,104,534 | (1.6 | %) | |||||||||
Reimbursed out-of-pocket engagement expenses | 8,194 | 6,063 | 35.1 | % | 23,711 | 21,178 | 12.0 | % | |||||||||
Total revenue | $ | 676,873 | $ | 686,845 | (1.5 | %) | $ | 2,095,582 | $ | 2,125,712 | (1.4 | %) | |||||
(a) | Total Executive Search is the sum of the individual Executive Search Reporting Segments and is presented on a consolidated basis as it is consistent with the Company's discussion of its Lines of Business, and financial metrics used by the Company's investor base. |
KORN FERRY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) | ||||||||
January 31,
| April 30,
| |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 736,797 | $ | 844,024 | ||||
Marketable securities | 45,727 | 44,837 | ||||||
Receivables due from clients, net of allowance for doubtful accounts of $50,302 and $44,377 at January 31, 2024 and April 30, 2023, respectively | 589,717 | 569,601 | ||||||
Income taxes and other receivables | 63,020 | 67,512 | ||||||
Unearned compensation | 60,071 | 63,476 | ||||||
Prepaid expenses and other assets | 49,377 | 49,219 | ||||||
Total current assets | 1,544,709 | 1,638,669 | ||||||
Marketable securities, non-current | 204,326 | 179,040 | ||||||
Property and equipment, net | 163,600 | 161,876 | ||||||
Operating lease right-of-use assets, net | 167,441 | 142,690 | ||||||
Cash surrender value of company-owned life insurance policies, net of loans | 216,450 | 197,998 | ||||||
Deferred income taxes | 121,267 | 102,057 | ||||||
Goodwill | 909,330 | 909,491 | ||||||
Intangible assets, net | 95,151 | 114,426 | ||||||
Unearned compensation, non-current | 111,286 | 103,607 | ||||||
Investments and other assets | 22,765 | 24,590 | ||||||
Total assets | $ | 3,556,325 | $ | 3,574,444 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Accounts payable | $ | 46,368 | $ | 53,386 | ||||
Income taxes payable | 23,599 | 19,969 | ||||||
Compensation and benefits payable | 423,268 | 532,934 | ||||||
Operating lease liability, current | 36,895 | 45,821 | ||||||
Other accrued liabilities | 312,511 | 324,150 | ||||||
Total current liabilities | 842,641 | 976,260 | ||||||
Deferred compensation and other retirement plans | 427,464 | 396,534 | ||||||
Operating lease liability, non-current | 151,159 | 119,220 | ||||||
Long-term debt | 396,755 | 396,194 | ||||||
Deferred tax liabilities | 5,709 | 5,352 | ||||||
Other liabilities | 25,186 | 27,879 | ||||||
Total liabilities | 1,848,914 | 1,921,439 | ||||||
Stockholders' equity | ||||||||
Common stock: $0.01 par value, 150,000 shares authorized, 77,511 and 76,693 shares issued and 52,345 and 52,269 shares outstanding at January 31, 2024 and April 30, 2023, respectively | 428,413 | 429,754 | ||||||
Retained earnings | 1,378,140 | 1,311,081 | ||||||
Accumulated other comprehensive loss, net | (102,930 | ) | (92,764 | ) | ||||
Total Korn Ferry stockholders' equity | 1,703,623 | 1,648,071 | ||||||
Noncontrolling interest | 3,788 | 4,934 | ||||||
Total stockholders' equity | 1,707,411 | 1,653,005 | ||||||
Total liabilities and stockholders' equity | $ | 3,556,325 | $ | 3,574,444 | ||||
KORN FERRY AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (dollars in thousands) (unaudited) | ||||||||||||||||
Three Months Ended
| Nine Months Ended
| |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Net income attributable to Korn Ferry | $ | 59,071 | $ | 11,247 | $ | 103,965 | $ | 162,035 | ||||||||
Net income attributable to non-controlling interest | 649 | 522 | 2,984 | 2,885 | ||||||||||||
Net income | 59,720 | 11,769 | 106,949 | 164,920 | ||||||||||||
Income tax provision | 9,018 | 8,463 | 29,779 | 63,575 | ||||||||||||
Income before provision for income taxes | 68,738 | 20,232 | 136,728 | 228,495 | ||||||||||||
Other income, net | (23,817 | ) | (13,097 | ) | (23,559 | ) | (4,824 | ) | ||||||||
Interest expense, net | 4,946 | 5,378 | 16,282 | 20,088 | ||||||||||||
Operating income | 49,867 | 12,513 | 129,451 | 243,759 | ||||||||||||
Depreciation and amortization | 19,509 | 17,037 | 58,075 | 50,359 | ||||||||||||
Other income, net | 23,817 | 13,097 | 23,559 | 4,824 | ||||||||||||
Integration/acquisition costs (1) | 3,899 | 2,456 | 13,057 | 9,472 | ||||||||||||
Impairment of fixed assets (2) | - | 4,375 | 1,575 | 4,375 | ||||||||||||
Impairment of right of use assets (3) | - | 5,471 | 1,629 | 5,471 | ||||||||||||
Restructuring charges, net (4) | 4,612 | 41,162 | 68,558 | 41,162 | ||||||||||||
Adjusted EBITDA | $ | 101,704 | $ | 96,111 | $ | 295,904 | $ | 359,422 | ||||||||
Operating margin | 7.5 | % | 1.8 | % | 6.2 | % | 11.6 | % | ||||||||
Depreciation and amortization | 2.9 | % | 2.5 | % | 2.8 | % | 2.4 | % | ||||||||
Other income, net | 3.5 | % | 1.9 | % | 1.2 | % | 0.2 | % | ||||||||
Integration/acquisition costs (1) | 0.6 | % | 0.4 | % | 0.6 | % | 0.4 | % | ||||||||
Impairment of fixed assets (2) | - | % | 0.7 | % | 0.1 | % | 0.2 | % | ||||||||
Impairment of right of use assets (3) | - | % | 0.8 | % | 0.1 | % | 0.3 | % | ||||||||
Restructuring charges, net (4) | 0.7 | % | 6.0 | % | 3.3 | % | 2.0 | % | ||||||||
Adjusted EBITDA margin | 15.2 | % | 14.1 | % | 14.3 | % | 17.1 | % | ||||||||
Net income attributable to Korn Ferry | $ | 59,071 | $ | 11,247 | $ | 103,965 | $ | 162,035 | ||||||||
Integration/acquisition costs (1) | 3,899 | 2,456 | 13,057 | 9,472 | ||||||||||||
Impairment of fixed assets (2) | - | 4,375 | 1,575 | 4,375 | ||||||||||||
Impairment of right of use assets (3) | - | 5,471 | 1,629 | 5,471 | ||||||||||||
Restructuring charges, net (4) | 4,612 | 41,162 | 68,558 | 41,162 | ||||||||||||
Tax effect on the adjusted items (5) | (2,092 | ) | (11,705 | ) | (20,763 | ) | (13,410 | ) | ||||||||
Tax adjustment (6) | (9,714 | ) | - | (9,714 | ) | - | ||||||||||
Adjusted net income attributable to Korn Ferry | $ | 55,776 | $ | 53,006 | $ | 158,307 | $ | 209,105 | ||||||||
Explanation of Non-GAAP Adjustments | ||
(1) | Costs associated with previous acquisitions, such as legal and professional fees, retention awards and the on-going integration expenses to combine the companies. | |
(2) | Costs associated with impairment of fixed assets primarily due to software impairment charge in our Digital segment in FY'24 and impairment on leasehold improvements due to terminating and deciding to sublease some of our office leases in FY'23. | |
(3) | Costs associated with impairment of right-of-use assets due to terminating and deciding to sublease some of our office leases. | |
(4) | Restructuring charges incurred to align our workforce to the challenging macroeconomic business environment arising from persistent inflationary pressures, rising interest rates and global economic geopolitical uncertainty. | |
(5) | Tax effect on integration/acquisition costs, impairment of fixed assets and right of use assets, and restructuring charges, net. | |
(6) | Due to actions taken in connection with the worldwide minimum tax, the Company recorded a $9.7 million non-recurring tax benefit in the quarter ended January 31, 2024 that resulted in the release of a valuation allowance, which is included in the Company's US GAAP results but excluded from the Adjusted results. | |
KORN FERRY AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - CONTINUED (unaudited) | ||||||||||||||||
Three Months Ended
| Nine Months Ended
| |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Basic earnings per common share | $ | 1.14 | $ | 0.21 | $ | 2.00 | $ | 3.07 | ||||||||
Integration/acquisition costs (1) | 0.07 | 0.05 | 0.25 | 0.18 | ||||||||||||
Impairment of fixed assets (2) | - | 0.08 | 0.03 | 0.08 | ||||||||||||
Impairment of right of use assets (3) | - | 0.10 | 0.03 | 0.10 | ||||||||||||
Restructuring charges, net (4) | 0.09 | 0.80 | 1.32 | 0.79 | ||||||||||||
Tax effect on the adjusted items (5) | (0.04 | ) | (0.23 | ) | (0.40 | ) | (0.26 | ) | ||||||||
Tax adjustment (6) | (0.19 | ) | - | (0.19 | ) | - | ||||||||||
Adjusted basic earnings per share | $ | 1.07 | $ | 1.01 | $ | 3.04 | $ | 3.96 | ||||||||
Diluted earnings per common share | $ | 1.13 | $ | 0.21 | $ | 1.99 | $ | 3.05 | ||||||||
Integration/acquisition costs (1) | 0.07 | 0.05 | 0.25 | 0.18 | ||||||||||||
Impairment of fixed assets (2) | - | 0.08 | 0.03 | 0.08 | ||||||||||||
Impairment of right of use assets (3) | - | 0.10 | 0.03 | 0.10 | ||||||||||||
Restructuring charges, net (4) | 0.09 | 0.80 | 1.32 | 0.78 | ||||||||||||
Tax effect on the adjusted items (5) | (0.04 | ) | (0.23 | ) | (0.40 | ) | (0.26 | ) | ||||||||
Tax adjustment (6) | (0.18 | ) | - | (0.19 | ) | - | ||||||||||
Adjusted diluted earnings per share | $ | 1.07 | $ | 1.01 | $ | 3.03 | $ |
3.93 | ||||||||
Explanation of Non-GAAP Adjustments | ||
(1) | Costs associated with previous acquisitions, such as legal and professional fees, retention awards and the on-going integration expenses to combine the companies. | |
(2) | Costs associated with impairment of fixed assets primarily due to software impairment charge in our Digital segment in FY'24 and impairment on leasehold improvements due to terminating and deciding to sublease some of our office leases in FY'23. | |
(3) | Costs associated with impairment of right-of-use assets due to terminating and deciding to sublease some of our office leases. | |
(4) | Restructuring charges incurred to align our workforce to the challenging macroeconomic business environment arising from persistent inflationary pressures, rising interest rates and global economic geopolitical uncertainty. | |
(5) | Tax effect on integration/acquisition costs, impairment of fixed assets and right of use assets, and restructuring charges, net. | |
(6) | Due to actions taken in connection with the worldwide minimum tax, the Company recorded a $9.7 million non-recurring tax benefit in the quarter ended January 31, 2024 that resulted in the release of a valuation allowance, which is included in the Company's US GAAP results but excluded from the Adjusted results. | |
KORN FERRY AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - CONTINUED (unaudited) | |||||||||||||||||||||||||
Three Months Ended January 31, | |||||||||||||||||||||||||
2024 | 2023 | ||||||||||||||||||||||||
Fee revenue | Total revenue | Adjusted EBITDA | Adjusted EBITDA margin | Fee revenue | Total revenue | Adjusted EBITDA | Adjusted EBITDA margin | ||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||
Consulting | $ | 166,947 | $ | 169,929 | $ | 27,812 | 16.7 | % | $ | 162,155 | $ | 164,414 | $ | 23,305 | 14.4 | % | |||||||||
Digital | 90,317 | 90,394 | 27,370 | 30.3 | % | 85,071 | 85,087 | 22,153 | 26.0 | % | |||||||||||||||
Executive Search: | |||||||||||||||||||||||||
North America | 121,449 | 123,059 | 29,382 | 24.2 | % | 132,810 | 134,255 | 30,446 | 22.9 | % | |||||||||||||||
EMEA | 48,999 | 49,171 | 7,799 | 15.9 | % | 48,960 | 49,195 | 7,981 | 16.3 | % | |||||||||||||||
Asia Pacific | 21,324 | 21,384 | 4,500 | 21.1 | % | 22,621 | 22,694 | 5,538 | 24.5 | % | |||||||||||||||
Latin America | 7,541 | 7,543 | 1,750 | 23.2 | % | 7,654 | 7,658 | 2,462 | 32.2 | % | |||||||||||||||
Total Executive Search | 199,313 | 201,157 | 43,431 | 21.8 | % | 212,045 | 213,802 | 46,427 | 21.9 | % | |||||||||||||||
Professional Search & Interim | 130,890 | 131,824 | 23,795 | 18.2 | % | 117,980 | 118,616 | 21,969 | 18.6 | % | |||||||||||||||
RPO | 81,212 | 83,569 | 9,291 | 11.4 | % | 103,531 | 104,926 | 9,849 | 9.5 | % | |||||||||||||||
Corporate | - | - | (29,995 | ) | - | - | (27,592 | ) | |||||||||||||||||
Consolidated | $ | 668,679 | $ | 676,873 | $ | 101,704 | 15.2 | % | $ | 680,782 | $ | 686,845 | $ | 96,111 | 14.1 | % | |||||||||
Nine Months Ended January 31, | |||||||||||||||||||||||||
2024 | 2023 | ||||||||||||||||||||||||
Fee revenue | Total revenue | Adjusted EBITDA | Adjusted EBITDA margin | Fee revenue | Total revenue | Adjusted EBITDA | Adjusted EBITDA margin | ||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||
Consulting | $ | 512,830 | $ | 521,675 | $ | 81,920 | 16.0 | % | $ | 501,731 | $ | 508,994 | $ | 83,944 | 16.7 | % | |||||||||
Digital | 275,395 | 275,563 | 80,678 | 29.3 | % | 263,161 | 263,479 | 73,855 | 28.1 | % | |||||||||||||||
Executive Search: | |||||||||||||||||||||||||
North America | 381,459 | 386,405 | 87,574 | 23.0 | % | 426,839 | 431,286 | 112,164 | 26.3 | % | |||||||||||||||
EMEA | 138,873 | 139,621 | 19,056 | 13.7 | % | 140,661 | 141,443 | 24,577 | 17.5 | % | |||||||||||||||
Asia Pacific | 65,167 | 65,454 | 14,690 | 22.5 | % | 72,410 | 72,669 | 18,723 | 25.9 | % | |||||||||||||||
Latin America | 22,041 | 22,050 | 4,296 | 19.5 | % | 23,283 | 23,289 | 7,686 | 33.0 | % | |||||||||||||||
Total Executive Search | 607,540 | 613,530 | 125,616 | 20.7 | % | 663,193 | 668,687 | 163,150 | 24.6 | % | |||||||||||||||
Professional Search & Interim | 411,453 | 414,348 | 73,746 | 17.9 | % | 351,670 | 354,430 | 83,587 | 23.8 | % | |||||||||||||||
RPO | 264,653 | 270,466 | 28,617 | 10.8 | % | 324,779 | 330,122 | 43,562 | 13.4 | % | |||||||||||||||
Corporate | - | - | (94,673 | ) | - | - | (88,676 | ) | |||||||||||||||||
Consolidated | $ | 2,071,871 | $ | 2,095,582 | $ | 295,904 | 14.3 | % | $ | 2,104,534 | $ | 2,125,712 | $ | 359,422 | 17.1 | % | |||||||||
Contacts
Investor Relations: Tiffany Louder, (214) 310-8407
Media: Dan Gugler, (310) 226-2645
