Korn Ferry Announces Third Quarter Fiscal 2021 Results of Operations

Rhea-AI Summary

Korn Ferry (NYSE: KFY) reported record third quarter fee revenue of $475.4 million, a 9% sequential growth. Diluted earnings per share (EPS) reached an all-time high of $0.94, while adjusted diluted EPS was $0.95. Despite this, fee revenue was down 8% year-over-year, mainly due to declines in Digital and Executive Search segments. Operating income surged to $65.2 million with a margin of 13.7%. Korn Ferry expects Q4 FY'21 fee revenue between $475 million and $500 million, and EPS between $0.95 and $1.05.

Positive

• EPS reached $0.94, an all-time high.
• Adjusted EBITDA margin increased to 20.3%.
• Operating income rose to $65.2 million, a significant increase from prior year.

Negative

• Fee revenue decreased by 8% compared to Q3 FY'20.
• Digital segment revenue fell 24% year-over-year.

Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced third quarter fee revenue of $475.4 million. Third quarter diluted earnings per share was $0.94 and adjusted diluted earnings per share was $0.95, both are all-time highs. Adjusted diluted earnings per share for the third quarter excludes an aggregate of $0.6 million, or $0.01 per share, of restructuring charges net of tax, due to the coronavirus pandemic (“COVID-19”).

“Our performance for the fiscal third quarter demonstrates the resilience of our business and continued extension of our brand, with strong sequential fee revenue growth of 9% and our earnings and profitability reaching record highs,” said Gary D. Burnison, CEO, Korn Ferry. “I am incredibly proud of the tireless commitment that all our Korn Ferry colleagues have shown in helping our clients re-imagine their organizational structures, recruit and retain talent and develop their people in the face of extraordinary challenges.”

“In a post-pandemic world, there will continue to be heightened demand for transformational consulting skills and expertise,” Burnison continued. “The steps we have taken to evolve our business into a more efficient, profitable, growth-oriented organization have positioned Korn Ferry to provide our clients with unparalleled expertise, data, and innovation support. With people at the center of our strategy, we are achieving our growth objectives, delivering long-term value creation to shareholders and establishing Korn Ferry as the preeminent global organizational consultancy.”

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

		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Fee revenue		$	475.4			$	515.3			$	1,254.9			$	1,492.3
Total revenue		$	477.9			$	528.0			$	1,262.6			$	1,528.4
Operating income		$	65.2			$	31.6			$	69.5			$	153.8
Operating margin			13.7	%			6.1	%			5.5	%			10.3	%
Net income attributable to Korn Ferry		$	51.3			$	20.0			$	48.3			$	105.7
Basic earnings per share		$	0.95			$	0.37			$	0.89			$	1.92
Diluted earnings per share		$	0.94			$	0.36			$	0.88			$	1.90

EBITDA Results (b):		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
EBITDA		$	95.8			$	51.5			$	142.0			$	202.2
EBITDA margin			20.2	%			10.0	%			11.3	%			13.5	%

Adjusted Results (c):		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Adjusted EBITDA (b)		$	96.7			$	78.1			$	173.4			$	231.4
Adjusted EBITDA margin (b)			20.3	%			15.2	%			13.8	%			15.5	%
Adjusted net income attributable to Korn Ferry		$	51.9			$	41.0			$	71.1			$	128.7
Adjusted basic earnings per share		$	0.96			$	0.75			$	1.31			$	2.33
Adjusted diluted earnings per share		$	0.95			$	0.75			$	1.30			$	2.31

___________
(a)		Numbers may not total due to rounding.
(b)		EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude integration/acquisition costs, net restructuring charges and separation costs. EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(c)		Adjusted results are non-GAAP financial measures that adjust for the following, as applicable (see attached reconciliations):

		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Integration/acquisition costs		$	—			$	6.7			$	0.7			$	9.3
Restructuring charges, net		$	0.8			$	18.1			$	30.7			$	18.1
Separation costs		$	—			$	1.8			$	—			$	1.8
Debt refinancing costs		$	—			$	0.8			$	—			$	0.8

Fee revenue was $475.4 million in Q3 FY’21, a decrease of 8% (down 9% on a constant currency basis) compared to Q3 FY’20. While RPO and Professional Search saw a year-over-year increase of almost 4%, Digital and Executive Search declined year-over-year as those businesses continued on the path to full recovery from the impact of COVID-19 on economies around the world.

Operating margin was 13.7% in Q3 FY’21 compared to 6.1% in the year-ago quarter. Adjusted EBITDA margin was 20.3%, compared to 15.2% in the year-ago quarter. Net income attributable to Korn Ferry was $51.3 million in Q3 FY’21 compared to $20.0 million in Q3 FY’20.

The year-over-year improvement in each of the above measures of profitability was due to the cost saving actions the Company took in response to the impact of COVID-19 as well as the fact that the Company recorded $18 million in restructuring charges in Q3 FY’20 in connection with the acquisitions of Miller Heiman Group, Achieve Forum and Strategy Execution (collectively, the “acquired companies”). These positive factors were partially offset by the decline in revenues described above.

Results by Segment
Selected Consulting Data
(dollars in millions) ^(a)

		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Fee revenue		$	136.3			$	140.5			$	362.3			$	422.1
Total revenue		$	136.6			$	144.3			$	363.2			$	433.8
Operating income		$	22.2			$	2.7			$	25.9			$	24.3
Operating margin			16.3	%			1.9	%			7.1	%			5.8	%
Ending number of consultants and execution staff (b)			1,528				1,792				1,528				1,792
Hours worked in thousands (c)			372				428				1,137				1,344
Average billed rate (d)		$	367			$	328			$	319			$	314

EBITDA Results (e):		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
EBITDA		$	27.2			$	7.6			$	40.1			$	38.9
EBITDA margin			19.9	%			5.4	%			11.1	%			9.2	%

Adjusted Results (f):		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Adjusted EBITDA (e)		$	27.5			$	18.7			$	54.3			$	50.0
Adjusted EBITDA margin (e)			20.2	%			13.3	%			15.0	%			11.8	%

___________
(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)		EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(f)		Adjusted results are non-GAAP financial measures that adjust for the following (see attached reconciliations):

		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Restructuring charges, net		$	0.3			$	11.1			$	14.2			$	11.1

Fee revenue was $136.3 million in Q3 FY’21 compared to $140.5 million in Q3 FY’20, a decrease of $4.2 million or 3% (down 4% on a constant currency basis). While COVID-19 has had an impact on Consulting fee revenue when compared to the year-ago quarter, the diversity of our consulting services and our ability to adapt to delivering the services in a virtual world has led to an increase in fee revenue of 37% over the past two fiscal quarters.

Operating income was $22.2 million in Q3 FY’21 with an operating margin of 16.3% compared to operating income of $2.7 million and an operating margin of 1.9% in the year-ago quarter. This change resulted from a decrease in net restructuring charges, a decrease in compensation and benefits expense driven by a reduction in headcount and decreases in both general and administrative expenses and cost of services expense, all of which resulted from the cost saving initiatives that were put in place. These expense reductions were partially offset by the decline in fee revenue as outlined above.

Adjusted EBITDA was $27.5 million in Q3 FY’21 with an Adjusted EBITDA margin of 20.2% compared to $18.7 million and 13.3%, respectively, in the year-ago quarter. The increase in Adjusted EBITDA was due to the same factors impacting operating income outlined above except for net restructuring charges.

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

Digital is an integrated platform that gives clients direct access to people and organizational data, insights, analytics, and digital assets that when used together, give clients a common language for all talent matters.

		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Fee revenue		$	75.8			$	99.4			$	206.8			$	223.1
Total revenue		$	76.0			$	100.7			$	207.0			$	224.4
Operating income		$	19.2			$	8.5			$	32.4			$	41.0
Operating margin			25.4	%			8.5	%			15.7	%			18.4	%
Ending number of consultants			302				464				302				464
Subscription & License fee revenue		$	22.6			$	21.3			$	66.3			$	52.7

EBITDA Results (b):		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
EBITDA		$	27.1			$	14.5			$	54.7			$	54.7
EBITDA margin			35.8	%			14.6	%			26.4	%			24.5	%

Adjusted Results (c):		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Adjusted EBITDA (b)		$	27.1			$	25.9			$	58.2			$	66.1
Adjusted EBITDA margin (b)			35.8	%			26.0	%			28.1	%			29.6	%

___________
(a)		Numbers may not total due to rounding.
(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 adjust for the following (see attached reconciliations):

		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Integration/acquisition costs		$	—			$	4.3			$	0.6			$	4.3
Restructuring charges, net		$	—			$	7.0			$	2.9			$	7.0

Fee revenue was $75.8 million in Q3 FY’21 compared to $99.4 million in Q3 FY’20, a decrease of $23.6 million or 24% (down 25% on a constant currency basis). Due to COVID-19 and the related contraction in economic activity, the Company experienced a decline in demand for pay data and professional development products and services. As economies around the world recover and companies pivot from in person to virtual delivery, the Company expects demand for these products and services to return to pre-pandemic levels.

Operating income was $19.2 million in Q3 FY’21 with an operating margin of 25.4% compared to operating income of $8.5 million and an operating margin of 8.5% in the year-ago quarter. Contributing to the increase were decreases in compensation and benefits expense, general and administrative expenses, net restructuring charges, cost of services expense and integration/acquisition costs relating to the acquired companies, partially offset by a decrease in fee revenue as outlined above.

Adjusted EBITDA was $27.1 million in Q3 FY’21 with an Adjusted EBITDA margin of 35.8% compared to $25.9 million and 26.0%, respectively, in the year-ago quarter. The increase in Adjusted EBITDA was due to the same factors impacting operating income described above except for restructuring charges and integration/acquisition costs.

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

		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Fee revenue		$	168.1			$	183.6			$	436.3			$	564.6
Total revenue		$	168.5			$	188.0			$	438.0			$	578.0
Operating income		$	26.9			$	32.7			$	40.2			$	119.6
Operating margin			16.0	%			17.8	%			9.2	%			21.2	%
Ending number of consultants			522				582				522				582
Average number of consultants			517				583				539				573
Engagements billed			3,260				3,767				6,464				8,077
New engagements (b)			1,301				1,565				3,747				4,835

EBITDA Results (c):		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
EBITDA		$	41.3			$	38.9			$	67.6			$	131.8
EBITDA margin			24.6	%			21.2	%			15.5	%			23.3	%

Adjusted Results (d):		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Adjusted EBITDA (c)		$	41.7			$	40.7			$	78.0			$	133.6
Adjusted EBITDA margin (c)			24.8	%			22.1	%			17.9	%			23.7	%

________
(a)		Numbers may not total due to rounding.
(b)		Represents new engagements opened in the respective period.
(c)		EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(d)		Adjusted results are non-GAAP financial measures that adjust for the following (see attached reconciliations):

		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Restructuring charges, net		$	0.4			$	—			$	10.4			$	—
Separation costs		$	—			$	1.8			$	—			$	1.8

Fee revenue was $168.1 million and $183.6 million in Q3 FY’21 and Q3 FY’20, respectively, a year-over-year decrease of $15.5 million or 8% (down 10% on a constant currency basis). The decrease in fee revenue was attributable to a decline in fee revenue in all regions, except North America which was essentially flat, due to the decrease in demand for our products and services because of the worldwide economic downturn associated with COVID-19.

Operating income was $26.9 million in Q3 FY’21 compared to operating income of $32.7 million in Q3 FY’20. Operating margin was 16.0% in Q3 FY’21 compared to 17.8% in the year-ago quarter. The change was mainly due to a decrease in fee revenue in Q3 FY’21 as compared to the year-ago quarter, partially offset by a decrease in compensation and benefits expense driven by a reduction in headcount and a decline in general and administrative expenses, all of which resulted from the cost saving initiatives that were put in place.

Adjusted EBITDA was $41.7 million in Q3 FY’21 with an Adjusted EBITDA margin of 24.8% compared to $40.7 million and 22.1%, respectively, in the year-ago quarter. The increase in Adjusted EBITDA was due to the same factors impacting operating income described above and an increase in other income, net compared to year-ago quarter.

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

		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Fee revenue		$	95.2			$	91.9			$	249.5			$	282.4
Total revenue		$	96.8			$	95.0			$	254.3			$	292.2
Operating income		$	18.4			$	14.1			$	33.0			$	44.3
Operating margin			19.3	%			15.4	%			13.2	%			15.7	%
Engagements billed (b)			1,430				1,375				2,659				3,030
New engagements (c)			867				711				2,088				2,171

EBITDA Results (d):		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
EBITDA		$	19.5			$	15.2			$	36.3			$	47.5
EBITDA margin			20.5	%			16.6	%			14.5	%			16.8	%

Adjusted Results (e):		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Adjusted EBITDA (d)		$	19.6			$	15.2			$	39.5			$	47.5
Adjusted EBITDA margin (d)			20.6	%			16.6	%			15.8	%			16.8	%

___________
(a)		Numbers may not total due to rounding.
(b)		Represents professional search engagements billed.
(c)		Represents new professional search engagements opened in the respective period.
(d)		EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(e)		Adjusted results are non-GAAP financial measures that adjust for the following (see attached reconciliations):

		Third Quarter								Year to Date
		FY’21				FY’20				FY’21				FY’20
Restructuring charges, net		$	0.1			$	—			$	3.2			$	—

Fee revenue was $95.2 million in Q3 FY’21, an increase of $3.3 million or 4% (1% increase on a constant currency basis), compared to the year-ago quarter. The higher fee revenue was driven by an increase in recruitment process outsourcing (“RPO”) fee revenue of $4.0 million, partially offset by a small decrease in Professional Search of $0.7 million due to the worldwide economic downturn associated with COVID-19. For the quarter, RPO fee revenue was up 7% (5% at constant currency) while professional search was down 2% (4% on a constant currency), both compared to the year-ago quarter.

Operating income was $18.4 million in Q3 FY’21, an increase of $4.3 million compared to operating income of $14.1 million in Q3 FY’20. Operating margin was 19.3% in the current quarter compared to 15.4% in the year-ago quarter. Adjusted EBITDA was $19.6 million in Q3 FY’21 with an Adjusted EBITDA margin of 20.6% in Q3 FY’21 compared to $15.2 million and 16.6%, respectively, in the year-ago quarter. The increase in operating income and Adjusted EBITDA was due to the higher fee revenue discussed above and lower general and administrative expenses, partially offset by an increase in compensation and benefits expense.

Outlook

Assuming no new major pandemic lockdowns, worldwide economic conditions, financial markets and foreign exchange rates remain steady, on a consolidated basis:

• Q4 FY’21 fee revenue is expected to be in the range of $475 million and $500 million; and
• Q4 FY’21 diluted earnings per share is expected to range between $0.95 to $1.05.

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 and SVP Finance Gregg Kvochak. The conference call will be webcast and available online at ir.kornferry.com. We will also post to this section of our website earnings slides, which will accompany our webcast, and other important information, and encourage you to review the information that we make available on our website.

About Korn Ferry

Korn Ferry is 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, 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. Statements that refer to or are based on estimates, forecasts, projections, uncertain events or assumptions, including statements relating to expected demand for our products and services, the expected benefits of the acquisition of the acquired companies (as defined below), the timing and expected benefits of our restructuring plan, the magnitude and duration of the impact of the COVID-19 outbreak on our business, employees, customers and our ability to provide services in affected regions, and the potential opportunities for our business as a result of worldwide changes in how companies conduct business as a result of COVID-19. 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 the magnitude and duration of the negative impact of the COVID-19 outbreak on our business, employees, customers and our ability to provide services in affected regions, global and local political or economic developments in or affecting countries where we have operations, competition, changes in demand for our services as a result of automation, the dependence on and costs of attracting and retaining qualified and experienced consultants, our ability to maintain relationships with customers and suppliers and retain key employees, maintaining our brand name and professional reputation, potential legal liability and regulatory developments, the portability of client relationships, consolidation of the industries we serve, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, changes to data security, data privacy and data protection laws, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, the utilization and billing rates of our consultants, dependence on third parties for the execution of critical functions, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, technical guidance relating to the Tax Act, treaties, or regulations on our business and our company, impairment of goodwill and other intangible assets, deferred tax assets that we may not be able to use, our indebtedness, the phase-out of the London Interbank Offered Rate, expansion of social media platforms, seasonality, ability to effect acquisition and integrate recently acquired companies, including those of Miller Heiman Group, AchieveForum, and Strategy Execution (collectively, the “acquired companies”); the ability to recognize the anticipated benefits of the acquisition of the acquired companies; the costs related to the acquisition of the acquired companies and employment liability risk. For a detailed description of risks and uncertainties that could cause differences, please refer to Korn Ferry’s periodic filings with the Securities and Exchange Commission. Korn Ferry disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures

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

• Adjusted net income attributable to Korn Ferry, adjusted to exclude integration/acquisition costs, restructuring charges, separation costs and debt refinancing costs net of income tax effect;
• Adjusted basic and diluted earnings per share, adjusted to exclude integration/acquisition costs, restructuring charges, separation costs and debt refinancing costs net of income tax effect;
• 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;
• EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin; and
• Adjusted EBITDA, which is EBITDA further adjusted to exclude integration/acquisition costs, restructuring charges and separations 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 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 Digital business, 2) charges we incurred to restructure the Company as a result of COVID-19 and due to the acquisition of the acquired companies, 3) separation costs and 4) debt refinancing costs. 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 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 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.

[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,
		2021					2020					2021					2020
		(unaudited)
Fee revenue		$	475,360				$	515,325				$	1,254,896				$	1,492,263
Reimbursed out-of-pocket engagement expenses			2,520					12,654					7,656					36,091
Total revenue			477,880					527,979					1,262,552					1,528,354
Compensation and benefits			326,333					348,597					917,530					1,014,475
General and administrative expenses			47,271					71,355					140,836					199,171
Reimbursed expenses			2,520					12,654					7,656					36,091
Cost of services			20,028					30,822					50,198					66,371
Depreciation and amortization			15,735					14,863					46,068					40,355
Restructuring charges, net			838					18,093					30,732					18,093
Total operating expenses			412,725					496,384					1,193,020					1,374,556
Operating income			65,155					31,595					69,532					153,798
Other income, net			14,935					5,055					26,374					8,014
Interest expense, net			(7,298	)				(6,919	)				(21,686	)				(15,186	)
Income before provision for income taxes			72,792					29,731					74,220					146,626
Income tax provision			21,204					8,775					25,409					38,988
Net income			51,588					20,956					48,811					107,638
Net income attributable to noncontrolling interest			(269	)				(963	)				(547	)				(1,890	)
Net income attributable to Korn Ferry		$	51,319				$	19,993				$	48,264				$	105,748
Earnings per common share attributable to Korn Ferry:
Basic		$	0.95				$	0.37				$	0.89				$	1.92
Diluted		$	0.94				$	0.36				$	0.88				$	1.90
Weighted-average common shares outstanding:
Basic			52,596					53,999					53,030					54,611
Diluted			53,013					54,264					53,396					55,006
Cash dividends declared per share:		$	0.10				$	0.10				$	0.30				$	0.30

KORN FERRY AND SUBSIDIARIES
FINANCIAL SUMMARY BY SEGMENT
(dollars in thousands)
(unaudited)
		Three Months Ended January 31,																		Nine Months Ended January '31,
		2021									2020					% Change				2021									2020					% Change
Fee revenue:
Consulting		$	136,268								$	140,525					(3.0	%)		$	362,271								$	422,103					(14.2	%)
Digital			75,791									99,389					(23.7	%)			206,807									223,097					(7.3	%)
Executive Search:
North America			106,002									106,888					(0.8	%)			266,485									332,428					(19.8	%)
EMEA			35,991									44,301					(18.8	%)			97,701									130,652					(25.2	%)
Asia Pacific			21,643									25,089					(13.7	%)			59,702									78,395					(23.8	%)
Latin America			4,468									7,283					(38.7	%)			12,419									23,140					(46.3	%)
Total Executive Search			168,104									183,561					(8.4	%)			436,307									564,615					(22.7	%)
RPO and Professional Search			95,197									91,850					3.6	%			249,511									282,448					(11.7	%)
Total fee revenue			475,360									515,325					(7.8	%)			1,254,896									1,492,263					(15.9	%)
Reimbursed out-of-pocket engagement expenses			2,520									12,654					(80.1	%)			7,656									36,091					(78.8	%)
Total revenue		$	477,880								$	527,979					(9.5	%)		$	1,262,552								$	1,528,354					(17.4	%)
Operating income (loss):							Margin									Margin									Margin									Margin
Consulting		$	22,175					16.3	%		$	2,663					1.9	%		$	25,869					7.1	%		$	24,272					5.8	%
Digital			19,214					25.4	%			8,463					8.5	%			32,410					15.7	%			41,036					18.4	%
Executive Search:
North America			17,655					16.7	%			21,808					20.4	%			32,411					12.2	%			80,254					24.1	%
EMEA			3,114					8.7	%			4,644					10.5	%			(1,596	)				(1.6	%)			18,466					14.1	%
Asia Pacific			5,844					27.0	%			5,070					20.2	%			9,958					16.7	%			17,866					22.8	%
Latin America			264					5.9	%			1,198					16.4	%			(578	)				(4.7	%)			2,999					13.0	%
Total Executive Search			26,877					16.0	%			32,720					17.8	%			40,195					9.2	%			119,585					21.2	%
RPO and Professional Search			18,360					19.3	%			14,144					15.4	%			33,027					13.2	%			44,279					15.7	%
Corporate			(21,471	)								(26,395	)								(61,969	)								(75,374	)
Total operating income		$	65,155					13.7	%		$	31,595					6.1	%		$	69,532					5.5	%		$	153,798					10.3	%

KORN FERRY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
		January 31,					April 30,
		2021					2020
		(unaudited)
ASSETS
Cash and cash equivalents		$	694,128				$	689,244
Marketable securities			45,931					41,951
Receivables due from clients, net of allowance for doubtful accounts of $29,174 and $23,795 at January 31, 2021 and April 30, 2020, respectively			448,448					397,165
Income taxes and other receivables			45,154					38,755
Unearned compensation			53,188					43,117
Prepaid expenses and other assets			28,737					26,851
Total current assets			1,315,586					1,237,083
Marketable securities, non-current			157,023					132,134
Property and equipment, net			134,226					142,728
Operating lease right-of-use assets, net			182,675					195,077
Cash surrender value of company-owned life insurance policies, net of loans			162,549					146,408
Deferred income taxes			57,865					55,479
Goodwill			625,549					613,943
Intangible assets, net			97,696					111,926
Unearned compensation, non-current			104,650					79,510
Investments and other assets			25,648					29,540
Total assets		$	2,863,467				$	2,743,828
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable		$	37,858				$	45,684
Income taxes payable			9,664					21,158
Compensation and benefits payable			301,147					280,911
Operating lease liability, current			48,998					54,851
Other accrued liabilities			237,743					221,603
Total current liabilities			635,410					624,207
Deferred compensation and other retirement plans			333,551					289,136
Operating lease liability, non-current			164,656					180,766
Long-term debt			394,629					394,144
Deferred tax liabilities			380					1,056
Other liabilities			39,847					30,828
Total liabilities			1,568,473					1,520,137
Stockholders' equity
Common stock: $0.01 par value, 150,000 shares authorized, 74,911 and 73,205 shares issued and 53,997 and 54,450 shares outstanding at January 31, 2021 and April 30, 2020, respectively			576,798					585,560
Retained earnings			774,303					742,993
Accumulated other comprehensive loss, net			(57,914	)				(107,172	)
Total Korn Ferry stockholders' equity			1,293,187					1,221,381
Noncontrolling interest			1,807					2,310
Total stockholders' equity			1,294,994					1,223,691
Total liabilities and stockholders' equity		$	2,863,467				$	2,743,828

KORN FERRY AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(dollars in thousands, except per share amounts)
	Three Months Ended										Nine Months Ended
	January 31,										January 31,
	2021					2020					2021					2020
	(unaudited)
Net income attributable to Korn Ferry	$	51,319				$	19,993				$	48,264				$	105,748
Net income attributable to non-controlling interest		269					963					547					1,890
Net income		51,588					20,956					48,811					107,638
Income tax provision		21,204					8,775					25,409					38,988
Income before provision for income taxes		72,792					29,731					74,220					146,626
Other income, net		(14,935	)				(5,055	)				(26,374	)				(8,014	)
Interest expense, net		7,298					6,919					21,686					15,186
Operating income		65,155					31,595					69,532					153,798
Depreciation and amortization		15,735					14,863					46,068					40,355
Other income, net		14,935					5,055					26,374					8,014
EBITDA		95,825					51,513					141,974					202,167
Integration/acquisition costs (1)		-					6,704					737					9,319
Restructuring charges, net (2)		838					18,093					30,732					18,093
Separation costs (3)		-					1,783					-					1,783
Adjusted EBITDA	$	96,663				$	78,093				$	173,443				$	231,362
Operating margin		13.7	%				6.1	%				5.5	%				10.3	%
Depreciation and amortization		3.3	%				2.9	%				3.7	%				2.7	%
Other income, net		3.2	%				1.0	%				2.1	%				0.5	%
EBITDA margin		20.2	%				10.0	%				11.3	%				13.5	%
Integration/acquisition costs (1)		-					1.3	%				0.1	%				0.7	%
Restructuring charges, net (2)		0.1	%				3.5	%				2.4	%				1.2	%
Separation costs (3)		-					0.4	%				-					0.1	%
Adjusted EBITDA margin		20.3	%				15.2	%				13.8	%				15.5	%
Net income attributable to Korn Ferry	$	51,319				$	19,993				$	48,264				$	105,748
Integration/acquisition costs (1)		-					6,704					737					9,319
Restructuring charges, net (2)		838					18,093					30,732					18,093
Separation costs (3)		-					1,783					-					1,783
Debt refinancing costs (4)		-					828					-					828
Tax effect on the adjusted items (5)		(276	)				(6,451	)				(8,597	)				(7,119	)
Adjusted net income attributable to Korn Ferry	$	51,881				$	40,950				$	71,136				$	128,652
Basic earnings per common share	$	0.95				$	0.37				$	0.89				$	1.92
Integration/acquisition costs (1)		-					0.12					0.01					0.17
Restructuring charges, net (2)		0.02					0.34					0.57					0.33
Separation costs (3)		-					0.03					-					0.03
Debt refinancing costs (4)		-					0.02					-					0.02
Tax effect on the adjusted items (5)		(0.01	)				(0.13	)				(0.16	)				(0.14	)
Adjusted basic earnings per share	$	0.96				$	0.75				$	1.31				$	2.33
Diluted earnings per common share	$	0.94				$	0.36				$	0.88				$	1.90
Integration/acquisition costs (1)		-					0.12					0.01					0.17
Restructuring charges, net (2)		0.02					0.34					0.57					0.33
Separation costs (3)		-					0.03					-					0.03
Debt refinancing costs (4)		-					0.02					-					0.02
Tax effect on the adjusted items (5)		(0.01	)				(0.12	)				(0.16	)				(0.14	)
Adjusted diluted earnings per share	$	0.95				$	0.75				$	1.30				$	2.31

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)		Restructuring charges we incurred to rationalize our cost structure by eliminating redundant positions because of COVID-19 and due to the acquisition of Miller Heiman Group, AchieveForum and Strategy Execution on November 1, 2019.
(3)		Costs associated with certain senior management separation charges.
(4)		Costs to write-off debt issuance costs and interest rate swap as a result of replacing our prior Credit Agreement with a new senior secured Credit Agreement.
(5)		Tax effect on integration/acquisition costs, restructuring charges, net, separation costs and write-offs of debt issuance costs.

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, 2021
												Executive Search
		Consulting					Digital					North America					EMEA					Asia Pacific					Latin America					Subtotal					RPO and Professional Search					Corporate					Consolidated
Fee revenue		$	136,268				$	75,791				$	106,002				$	35,991				$	21,643				$	4,468				$	168,104				$	95,197				$	-				$	475,360
Total revenue		$	136,593				$	75,967				$	106,325				$	36,016				$	21,680				$	4,468				$	168,489				$	96,831				$	-				$	477,880
Net income attributable to Korn Ferry																																															$	51,319
Net income attributable to noncontrolling interest																																																269
Other income, net																																																(14,935	)
Interest expense, net																																																7,298
Income tax provision																																																21,204
Operating income (loss)		$	22,175				$	19,214				$	17,655				$	3,114				$	5,844				$	264				$	26,877				$	18,360				$	(21,471	)				65,155
Depreciation and amortization			4,051					7,403					680					345					231					193					1,449					929					1,903					15,735
Other income, net			943					494					12,611					61					323					1					12,996					242					260					14,935
EBITDA			27,169					27,111					30,946					3,520					6,398					458					41,322					19,531					(19,308	)				95,825
EBITDA margin			19.9	%				35.8	%				29.2	%				9.8	%				29.6	%				10.3	%				24.6	%				20.5	%									20.2	%
Restructuring, charges, net			346					23					(5	)				398					(23	)				-					370					99					-					838
Adjusted EBITDA		$	27,515				$	27,134				$	30,941				$	3,918				$	6,375				$	458				$	41,692				$	19,630				$	(19,308	)			$	96,663
Adjusted EBITDA margin			20.2	%				35.8	%				29.2	%				10.9	%				29.5	%				10.3	%				24.8	%				20.6	%									20.3	%
		Three Months Ended January 31, 2020
												Executive Search
		Consulting					Digital					North America					EMEA					Asia Pacific					Latin America					Subtotal					RPO and Professional Search					Corporate					Consolidated
Fee revenue		$	140,525				$	99,389				$	106,888				$	44,301				$	25,089				$	7,283				$	183,561				$	91,850				$	-				$	515,325
Total revenue		$	144,298				$	100,663				$	110,230				$	45,077				$	25,365				$	7,351				$	188,023				$	94,995				$	-				$	527,979
Net income attributable to Korn Ferry																																															$	19,993
Net income attributable to noncontrolling interest																																																963
Other income, net																																																(5,055	)
Interest expense, net																																																6,919
Income tax provision																																																8,775
Operating income (loss)		$	2,663				$	8,463				$	21,808				$	4,644				$	5,070				$	1,198				$	32,720				$	14,144				$	(26,395	)				31,595
Depreciation and amortization			4,417					5,832					847					422					329					295					1,893					979					1,742					14,863
Other income (loss), net			558					193					3,963					29					106					162					4,260					88					(44	)				5,055
EBITDA			7,638					14,488					26,618					5,095					5,505					1,655					38,873					15,211				$	(24,697	)				51,513
EBITDA margin			5.4	%				14.6	%				24.9	%				11.5	%				21.9	%				22.7	%				21.2	%				16.6	%									10.0	%
Integration/acquisition costs			-					4,332					-					-					-					-					-					-					2,372					6,704
Restructuring, charges, net			11,061					7,032					-					-					-					-					-					-					-					18,093
Separation costs			-					-					-					1,783					-					-					1,783					-					-					1,783
Adjusted EBITDA		$	18,699				$	25,852				$	26,618				$	6,878				$	5,505				$	1,655				$	40,656				$	15,211				$	(22,325	)			$	78,093
Adjusted EBITDA margin			13.3	%				26.0	%				24.9	%				15.5	%				21.9	%				22.7	%				22.1	%				16.6	%									15.2	%

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, 2021
												Executive Search
		Consulting					Digital					North America					EMEA					Asia Pacific					Latin America					Subtotal					RPO and Professional Search					Corporate					Consolidated
Fee revenue		$	362,271				$	206,807				$	266,485				$	97,701				$	59,702				$	12,419				$	436,307				$	249,511				$	-				$	1,254,896
Total revenue		$	363,234				$	207,027				$	267,790				$	97,925				$	59,840				$	12,419				$	437,974				$	254,317				$	-				$	1,262,552
Net income attributable to Korn Ferry																																															$	48,264
Net income attributable to noncontrolling interest																																																547
Other income, net																																																(26,374	)
Interest expense, net																																																21,686
Income tax provision																																																25,409
Operating income (loss)		$	25,869				$	32,410				$	32,411				$	(1,596	)			$	9,958				$	(578	)			$	40,195				$	33,027				$	(61,969	)				69,532
Depreciation and amortization			12,123					21,134					2,126					1,062					756					597					4,541					2,814					5,456					46,068
Other income (loss), net			2,067					1,114					21,944					111					715					56					22,826					462					(95	)				26,374
EBITDA			40,059					54,658					56,481					(423	)				11,429					75					67,562					36,303					(56,608	)				141,974
EBITDA margin			11.1	%				26.4	%				21.2	%				(0.4	%)				19.1	%				0.6	%				15.5	%				14.5	%									11.3	%
Integration/acquisition costs			-					556					-					-					-					-					-					-					181					737
Restructuring charges, net			14,223					2,947					958					8,868					181					405					10,412					3,150					-					30,732
Adjusted EBITDA		$	54,282				$	58,161				$	57,439				$	8,445				$	11,610				$	480				$	77,974				$	39,453				$	(56,427	)			$	173,443
Adjusted EBITDA margin			15.0	%				28.1	%				21.6	%				8.6	%				19.4	%				3.9	%				17.9	%				15.8	%									13.8	%
		Nine Months Ended January 31, 2020
												Executive Search
		Consulting					Digital					North America					EMEA					Asia Pacific					Latin America					Subtotal					RPO and Professional Search					Corporate					Consolidated
Fee revenue		$	422,103				$	223,097				$	332,428				$	130,652				$	78,395				$	23,140				$	564,615				$	282,448				$	-				$	1,492,263
Total revenue		$	433,832				$	224,371				$	342,753				$	132,830				$	79,201				$	23,211				$	577,995				$	292,156				$	-				$	1,528,354
Net income attributable to Korn Ferry																																															$	105,748
Net income attributable to noncontrolling interest																																																1,890
Other income, net																																																(8,014	)
Interest expense, net																																																15,186
Income tax provision																																																38,988
Operating income (loss)		$	24,272				$	41,036				$	80,254				$	18,466				$	17,866				$	2,999				$	119,585				$	44,279				$	(75,374	)				153,798
Depreciation and amortization			13,188					13,156					2,617					1,328					1,004					938					5,887					2,961					5,163					40,355
Other income (loss), net			1,469					528					5,740					148					193					249					6,330					216					(529	)				8,014
EBITDA			38,929					54,720					88,611					19,942					19,063					4,186					131,802					47,456					(70,740	)				202,167
EBITDA margin			9.2	%				24.5	%				26.7	%				15.3	%				24.3	%				18.1	%				23.3	%				16.8	%									13.5	%
Integration/acquisition costs			-					4,332					-					-					-					-					-					-					4,987					9,319
Restructuring charges, net			11,061					7,032					-					-					-					-					-					-					-					18,093
Separation costs			-					-					-					1,783					-					-					1,783					-					-					1,783
Adjusted EBITDA		$	49,990				$	66,084				$	88,611				$	21,725				$	19,063				$	4,186				$	133,585				$	47,456				$	(65,753	)			$	231,362
Adjusted EBITDA margin			11.8	%				29.6	%				26.7	%				16.6	%				24.3	%				18.1	%				23.7	%				16.8	%									15.5	%

 

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FAQ

What were Korn Ferry's third quarter earnings per share for FY'21?

Korn Ferry reported diluted earnings per share of $0.94 for Q3 FY'21.

How did Korn Ferry's fee revenue perform in Q3 FY'21?

Korn Ferry's fee revenue was $475.4 million in Q3 FY'21, down 8% from the previous year.

What is Korn Ferry's outlook for Q4 FY'21?

For Q4 FY'21, Korn Ferry expects fee revenue between $475 million and $500 million, and diluted EPS between $0.95 and $1.05.

What was the adjusted EBITDA margin for Korn Ferry in Q3 FY'21?

The adjusted EBITDA margin for Q3 FY'21 was 20.3%.

What challenges did Korn Ferry face in the Digital segment?

The Digital segment experienced a revenue decline of 24% year-over-year, attributed to reduced demand during the pandemic.