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Korn Ferry Announces Third Quarter Fiscal 2023 Results of Operations

Highlights

  • Korn Ferry reports fee revenue of $680.8 million in Q3 FY’23, essentially flat (increase of 4% at constant currency) from Q3 FY’22.
  • Net income and adjusted net income attributable to Korn Ferry were $11.2 million and $53.0 million in Q3 FY’23, while diluted and adjusted diluted earnings per share were $0.21 and $1.01 in Q3 FY’23, respectively.
  • Operating income and Adjusted EBITDA were $12.5 million (operating margin of 1.8%) and $96.1 million (Adjusted EBITDA margin of 14.1%), respectively, in Q3 FY’23.
  • The Company repurchased 462,500 shares of stock during the quarter for $25.0 million.
  • Declared a quarterly dividend of $0.15 per share on March 7, 2023, which is payable on April 14, 2023 to stockholders of record on March 28, 2023.
  • On February 1, 2023, Korn Ferry completed the acquisition of Salo, a leading provider of finance, accounting and HR interim talent, which will be included in the Professional Search & Interim segment in Q4 FY'23.

Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced third quarter fee revenue of $680.8 million. In addition, third quarter diluted earnings per share was $0.21 and adjusted diluted earnings per share was $1.01. Adjusted diluted earnings per share for the third quarter excludes $41.8 million, net of tax or $0.80 per share, of restructuring charges, net, due to the realignment of our workforce, impairment of certain real estate assets and integration/acquisition costs.

“During the fiscal third quarter we generated $681 million in fee revenue, flat year-over-year and up 4% at constant currency. Our fully diluted earnings per share and Adjusted fully diluted earnings per share were $0.21 and $1.01, respectively, and our Adjusted EBITDA was $96 million, a 14.1% margin,” said Gary D. Burnison, CEO, Korn Ferry.

“Korn Ferry is incredibly well-positioned as clients continue to navigate an economy in transition. We will continue to prioritize faster growing, larger addressable, less cyclical markets that set up our firm and our clients for success. As an example, the recent addition of Salo now brings our interim services to be more than 10% of our firm’s revenue on a pro forma basis.”

Selected Financial Results

(dollars in millions, except per share amounts) (a)

 

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Fee revenue

$

680.8

 

 

$

680.7

 

 

$

2,104.5

 

 

$

1,905.6

 

Total revenue

$

686.8

 

 

$

685.0

 

 

$

2,125.7

 

 

$

1,916.5

 

Operating income

$

12.5

 

 

$

126.3

 

 

$

243.8

 

 

$

331.3

 

Operating margin

 

1.8

%

 

 

18.6

%

 

 

11.6

%

 

 

17.4

%

Net income attributable to Korn Ferry

$

11.2

 

 

$

84.1

 

 

$

162.0

 

 

$

234.7

 

Basic earnings per share

$

0.21

 

 

$

1.55

 

 

$

3.07

 

 

$

4.33

 

Diluted earnings per share

$

0.21

 

 

$

1.54

 

 

$

3.05

 

 

$

4.28

 

Adjusted Results (b):

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Adjusted EBITDA

$

96.1

 

 

$

138.3

 

 

$

359.4

 

 

$

394.5

 

Adjusted EBITDA margin

 

14.1

%

 

 

20.3

%

 

 

17.1

%

 

 

20.7

%

Adjusted net income attributable to Korn Ferry

$

53.0

 

 

$

86.9

 

 

$

209.1

 

 

$

245.7

 

Adjusted basic earnings per share

$

1.01

 

 

$

1.60

 

 

$

3.96

 

 

$

4.53

 

Adjusted diluted earnings per share

$

1.01

 

 

$

1.59

 

 

$

3.93

 

 

$

4.48

 

______________________

(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 net restructuring charges 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’23

 

FY’22

 

FY’23

 

FY’22

Integration/acquisition costs

$

2.5

 

$

3.2

 

$

9.5

 

$

4.3

Impairment of fixed assets

$

4.4

 

$

 

$

4.4

 

$

1.9

Impairment of right of use assets

$

5.5

 

$

 

$

5.5

 

$

7.4

Restructuring charges, net

$

41.2

 

$

 

$

41.2

 

$

The Company reported fee revenue in Q3 FY’23 of $680.8 million, essentially flat (up 4% on a constant currency basis) compared to Q3 FY’22. Fee revenue decreased in Executive Search and Professional Search mainly due to a decline in demand for our products and services driven by the global economic factors. This decline in fee revenue was fully offset by increases in RPO and Interim fee revenue resulting from the acquisitions of Patina and Infinity Consulting Solutions (collectively, the “acquisitions”).

Operating margin was 1.8% in Q3 FY’23, compared to 18.6% in the year-ago quarter. Adjusted EBITDA margin was 14.1% in Q3 FY’23, compared to 20.3%, in the year-ago quarter. Net income attributable to Korn Ferry was $11.2 million in Q3 FY’23, compared to $84.1 million in Q3 FY’22 and Adjusted EBITDA was $96.1 million in Q3 FY’23 compared to $138.3 million in Q3 FY’22.

Operating margin decreased primarily due to 1) restructuring charges, net recorded in Q3 FY'23, 2) impairment of fixed assets and right of use assets due to the Company deciding to abandon and/or sublease office space that it was no longer using, 3) change in fee revenue mix discussed above and 4) an increase in compensation and benefits expense due to increased headcount and wage inflation.

Adjusted EBITDA margin decreased due to a change in the fee revenue mix and the increase in compensation and benefits expense discussed above.

Results by Line of Business

Selected Consulting Data

(dollars in millions) (a)

 

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Fee revenue

$

162.2

 

 

$

162.9

 

 

$

501.7

 

 

$

476.3

 

Total revenue

$

164.4

 

 

$

163.8

 

 

$

509.0

 

 

$

478.6

 

 

 

 

 

 

 

 

 

Ending number of consultants and execution staff (b)

 

1,877

 

 

 

1,787

 

 

 

1,877

 

 

 

1,787

 

Hours worked in thousands (c)

 

414

 

 

 

424

 

 

 

1,340

 

 

 

1,295

 

Average bill rate (d)

$

392

 

 

$

384

 

 

$

374

 

 

$

368

 

 

 

 

 

 

 

 

 

Adjusted Results (e):

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Adjusted EBITDA

$

23.3

 

 

$

28.6

 

 

$

83.9

 

 

$

85.5

 

Adjusted EBITDA margin

 

14.4

%

 

 

17.5

%

 

 

16.7

%

 

 

17.9

%

______________________

(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’23

 

FY’22

 

FY’23

 

FY’22

Impairment of fixed assets

$

2.8

 

$

 

$

2.8

 

$

0.3

Impairment of right of use assets

$

3.1

 

$

 

$

3.1

 

$

2.5

Restructuring charges, net

$

10.8

 

$

 

$

10.8

 

$

Fee revenue was $162.2 million in Q3 FY’23 compared to $162.9 million in Q3 FY’22, essentially flat (up 4% on a constant currency basis). Consulting saw growth in Performance Management, Leadership Development Programs, Organizational Effectiveness, ESG and Reward Implementation, offset by declines in LD Strategy, and Competency Modeling.

Adjusted EBITDA was $23.3 million in Q3 FY’23 with an Adjusted EBITDA margin of 14.4% compared to Adjusted EBITDA of $28.6 million with an associated margin of 17.5%, respectively, in the year-ago quarter. This decrease in Adjusted EBITDA resulted primarily from an increase in compensation and benefits expense due to increased headcount and wage inflation.

Selected Digital Data

(dollars in millions) (a)

 

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Fee revenue

$

85.1

 

 

$

90.2

 

 

$

263.2

 

 

$

259.5

 

Total revenue

$

85.1

 

 

$

90.5

 

 

$

263.5

 

 

$

259.9

 

 

 

 

 

 

 

 

 

Ending number of consultants

 

365

 

 

 

284

 

 

 

365

 

 

 

284

 

Subscription & License fee revenue

$

29.6

 

 

$

29.0

 

 

$

88.1

 

 

$

79.7

 

 

 

 

 

 

 

 

 

Adjusted Results (b):

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Adjusted EBITDA

$

22.2

 

 

$

28.1

 

 

$

73.9

 

 

$

82.3

 

Adjusted EBITDA margin

 

26.0

%

 

 

31.2

%

 

 

28.1

%

 

 

31.7

%

______________________

(a)

Numbers may not total due to rounding.

(b)

Adjusted results exclude the following:

 

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Impairment of fixed assets

$

1.5

 

$

 

$

1.5

 

$

0.2

Impairment of right of use assets

$

1.7

 

$

 

$

1.7

 

$

1.3

Restructuring charges, net

$

2.9

 

$

 

$

2.9

 

$

Fee revenue was $85.1 million in Q3 FY’23 compared to $90.2 million in Q3 FY’22, a decrease of $5.1 million or 6% (down 1% on a constant currency basis). Subscription based revenue remained steady with growth in sales effectiveness tools, however, there was a decline in service delivery supporting content and usage of assessment tools, especially in the tech industry aligned with the industry's recent scaling back of employees.

Adjusted EBITDA was $22.2 million in Q3 FY’23 with an Adjusted EBITDA margin of 26.0% compared to $28.1 million and 31.2%, respectively, in the year-ago quarter. The decrease in Adjusted EBITDA and Adjusted EBITDA margin resulted from the decrease in fee revenue outlined above along with an increase in general and administrative expenses.

Selected Executive Search Data(a)

(dollars in millions) (b)

 

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Fee revenue

$

212.0

 

 

$

239.0

 

 

$

663.2

 

 

$

691.4

 

Total revenue

$

213.8

 

 

$

240.0

 

 

$

668.7

 

 

$

694.2

 

 

 

 

 

 

 

 

 

Ending number of consultants

 

616

 

 

 

581

 

 

 

616

 

 

 

581

 

Average number of consultants

 

619

 

 

 

576

 

 

 

601

 

 

 

553

 

Engagements billed

 

4,080

 

 

 

4,335

 

 

 

8,272

 

 

 

8,862

 

New engagements (c)

 

1,516

 

 

 

1,787

 

 

 

4,835

 

 

 

5,362

 

 

 

 

 

 

 

 

 

Adjusted Results (d):

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Adjusted EBITDA

$

46.4

 

 

$

65.7

 

 

$

163.2

 

 

$

193.4

 

Adjusted EBITDA margin

 

21.9

%

 

 

27.5

%

 

 

24.6

%

 

 

28.0

%

______________________

(a)

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.

(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’23

 

FY’22

 

FY’23

 

FY’22

Impairment of fixed assets

$

 

$

 

$

 

$

0.1

Impairment of right of use assets

$

 

$

 

$

 

$

0.9

Restructuring charges, net

$

19.4

 

$

 

$

19.4

 

$

Fee revenue was $212.0 million and $239.0 million in Q3 FY’23 and Q3 FY’22, respectively, a year-over-year decrease of 11% (down 9% on a constant currency basis). The decrease in fee revenue was driven by a 6% decrease in the number of the engagements billed and a 3% decrease in weighted-average fee billed per engagement (calculated using local currency). Fee revenue decreased in North America and Asia, partially offset by higher fee revenue in EMEA.

Adjusted EBITDA was $46.4 million in Q3 FY’23 with an Adjusted EBITDA margin of 21.9% compared to Adjusted EBITDA of $65.7 million and Adjusted EBITDA margin of 27.5%, respectively, in the year-ago quarter. The decrease in Adjusted EBITDA was primarily due to the decrease in fee revenue discussed above.

Selected Professional Search & Interim Data(a)

(dollars in millions) (b)

 

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Fee revenue

$

118.0

 

 

$

90.0

 

 

$

351.7

 

 

$

196.4

 

Total revenue

$

118.6

 

 

$

90.2

 

 

$

354.4

 

 

$

196.8

 

 

 

 

 

 

 

 

 

Permanent Placement:

 

 

 

 

 

 

 

Fee revenue

$

65.0

 

 

$

75.0

 

 

$

218.5

 

 

$

181.4

 

Engagements billed (c)

 

2,428

 

 

 

2,716

 

 

 

6,104

 

 

 

4,770

 

New engagements (d)

 

1,460

 

 

 

1,693

 

 

 

5,122

 

 

 

3,729

 

Ending number of consultants (e)

 

448

 

 

 

455

 

 

 

448

 

 

 

455

 

Interim (started in Q3 FY'22):

 

 

 

 

 

 

 

Fee revenue

$

53.0

 

 

$

15.0

 

 

$

133.1

 

 

$

15.0

 

Average bill rate (f)

$

107

 

 

$

91

 

 

$

110

 

 

$

91

 

Average weekly billable consultants (g)

 

1,061

 

 

 

370

 

 

 

878

 

 

 

370

 

 

 

 

 

 

 

 

 

Adjusted Results (h):

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Adjusted EBITDA

$

22.0

 

 

$

31.3

 

 

$

83.6

 

 

$

72.6

 

Adjusted EBITDA margin

 

18.6

%

 

 

34.8

%

 

 

23.8

%

 

 

37.0

%

_____________________

(a)

In the first quarter of fiscal 2023, the Company changed the composition of its global segments. Professional Search & Interim segment represents the single hire to multi hire permanent placement and interim business that was previously included in the RPO & Professional Search segment. Segment data for Q3 FY’22 and year to date FY'22 has been recast to reflect the division of the RPO & Professional Search segment into the RPO segment and Professional Search & Interim segment.

(b)

Numbers may not total due to rounding.

(c)

Represents engagements billed for professional search.

(d)

Represents new engagements opened for professional search in the respective period.

(e)

Represents number of employees originating professional search.

(f)

Fee revenue from interim divided by the number of hours worked by consultants.

(g)

The number of billable consultants based on a weekly average in the respective period.

(h)

Adjusted results exclude the following:

 

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Impairment of fixed assets

$

0.1

 

$

 

$

0.1

 

$

0.9

Impairment of right of use assets

$

0.6

 

$

 

$

0.6

 

$

1.4

Integration/acquisition costs

$

1.7

 

$

1.4

 

$

6.6

 

$

1.4

Restructuring charges, net

$

4.8

 

$

 

$

4.8

 

$

Fee revenue was $118.0 million in Q3 FY’23, an increase of $28.0 million or 31% (up 33% on a constant currency basis), compared to the year-ago quarter. The increase in fee revenue was driven by the growth in Interim fee revenue of $38.0 million primarily due to the acquisitions, partially offset by a decrease in permanent placement fee revenue of $10.0 million.

Adjusted EBITDA was $22.0 million in Q3 FY’23 with an Adjusted EBITDA margin of 18.6% compared to $31.3 million and 34.8%, respectively, in the year-ago quarter. The decrease in Adjusted EBITDA margin was primarily due to the change in fee revenue mix discussed above along with an increase in compensation and benefits expense due to increased headcount and wage inflation.

Selected RPO Data(a)

(dollars in millions) (b)

 

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Fee revenue

$

103.5

 

 

$

98.6

 

 

$

324.8

 

 

$

282.0

 

Total revenue

$

104.9

 

 

$

100.4

 

 

$

330.1

 

 

$

287.0

 

 

 

 

 

 

 

 

 

Remaining revenue under contract(c)

$

836.9

 

 

$

698.1

 

 

$

836.9

 

 

$

698.1

 

RPO new business(d)

$

44.0

 

 

$

135.2

 

 

$

482.7

 

 

$

384.4

 

 

 

 

 

 

 

 

 

Adjusted Results (e):

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Adjusted EBITDA

$

9.8

 

 

$

12.8

 

 

$

43.6

 

 

$

41.7

 

Adjusted EBITDA margin

 

9.5

%

 

 

12.9

%

 

 

13.4

%

 

 

14.8

%

______________________

(a)

In the first quarter of fiscal 2023, the Company changed the composition of its global segments. RPO segment represents the recruitment outsourcing business that was previously included in the RPO & Professional Search segment. Segment data for Q3 FY’22 and year to date FY'22 has been recast to reflect the division of the RPO & Professional Search segment into a RPO segment and Professional Search & Interim segment.

(b)

Numbers may not total due to rounding.

(c)

Estimated fee revenue associated with signed contracts for which revenue has not yet been recognized.

(d)

Estimated total value of a contract at the point of execution of the contract.

(e)

Adjusted results exclude the following:

 

Third Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Impairment of fixed assets

$

 

$

 

$

 

$

0.4

Impairment of right of use assets

$

0.1

 

$

 

$

0.1

 

$

1.2

Restructuring charges, net

$

3.1

 

$

 

$

3.1

 

$

Fee revenue was $103.5 million in Q3 FY’23, an increase of $4.9 million or 5% (up 9% on a constant currency basis), compared to the year-ago quarter. RPO fee revenue increased due to the wider adoption of RPO services in the market in combination with our differentiated solutions.

Adjusted EBITDA was $9.8 million in Q3 FY’23 with an Adjusted EBITDA margin of 9.5% compared to $12.8 million and 12.9%, respectively, in the year-ago quarter. The decrease in Adjusted EBITDA was due to increases in compensation and benefits expense driven by an increase in headcount associated with recent new business wins and wage inflation, and higher general and administrative expenses, partially offset by an increase in fee revenue.

Outlook

Assuming no new major pandemic related lockdowns or further changes in worldwide geopolitical conditions, economic conditions, financial markets or foreign exchange rates, on a consolidated basis:

  • Q4 FY’23 fee revenue is expected to be in the range of $690 million and $710 million; and
  • Q4 FY’23 diluted earnings per share is expected to range between $0.89 to $0.98.

On a consolidated adjusted basis:

  • Q4 FY’23 adjusted diluted earnings per share is expected to be in the range from $0.97 to $1.05.

 

 

Q4 FY’23

Earnings Per Share

Outlook

 

 

Low

 

High

 

 

 

 

 

Consolidated diluted earnings per share

 

$

           0.89

 

 

$

           0.98

 

Integration/acquisition

 

 

             0.11

 

 

 

             0.10

 

Tax Rate Impact

 

 

            (0.03

)

 

 

            (0.03

)

Consolidated adjusted diluted earnings per share(1)

 

$

           0.97

 

 

$

           1.05

 

______________________

(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 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. 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 ultimate magnitude and duration of any pandemic or outbreaks, and related restrictions and operational requirements that apply to our business and the businesses of our clients, and any related negative impacts 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, dislocation in the labor markets and increasing competition for highly skilled workers, our ability to maintain relationships with customers and suppliers and retain key employees, maintaining our brand name and professional reputation, impact of inflationary pressures on our profitability, potential legal liability and regulatory developments, the portability of client relationships, consolidation of the industries we serve, changes and developments in government laws and regulations, evolving investor and customer expectations with regard to environmental, social and governmental matters, 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, 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, expansion of social media platforms, seasonality, ability to effect acquisition and integrate acquired businesses, including Infinity Consulting Solutions and Salo 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, impairment of fixed assets, impairment of right of use assets and restructuring charges net of income tax effect;
  • 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;
  • 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 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 associated with the decision to terminate and sublease some of our offices, 3) impairment of right of use assets due to the decision to terminate and sublease some of our offices and 4) Restructuring charges, net to realign workforce with the Company's business needs and objectives. 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 Ferrys performance as excluding the impact of exchange rate changes on Korn Ferrys 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 Ferrys 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

January 31,

 

Nine Months Ended

January 31,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

(unaudited)

Fee revenue

$

680,782

 

 

$

680,741

 

 

$

2,104,534

 

 

$

1,905,579

 

Reimbursed out-of-pocket engagement expenses

 

6,063

 

 

 

4,215

 

 

 

21,178

 

 

 

10,873

 

Total revenue

 

686,845

 

 

 

684,956

 

 

 

2,125,712

 

 

 

1,916,452

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

479,382

 

 

 

445,870

 

 

 

1,409,774

 

 

 

1,273,746

 

General and administrative expenses

 

72,785

 

 

 

60,811

 

 

 

202,328

 

 

 

175,143

 

Reimbursed expenses

 

6,063

 

 

 

4,215

 

 

 

21,178

 

 

 

10,873

 

Cost of services

 

57,903

 

 

 

31,666

 

 

 

157,152

 

 

 

77,988

 

Depreciation and amortization

 

17,037

 

 

 

16,104

 

 

 

50,359

 

 

 

47,381

 

Restructuring charges, net

 

41,162

 

 

 

 

 

 

41,162

 

 

 

 

Total operating expenses

 

674,332

 

 

 

558,666

 

 

 

1,881,953

 

 

 

1,585,131

 

 

 

 

 

 

 

 

 

Operating income

 

12,513

 

 

 

126,290

 

 

 

243,759

 

 

 

331,321

 

Other income (loss), net

 

13,097

 

 

 

(7,277

)

 

 

4,824

 

 

 

2,236

 

Interest expense, net

 

(5,378

)

 

 

(7,029

)

 

 

(20,088

)

 

 

(18,820

)

Income before provision for income taxes

 

20,232

 

 

 

111,984

 

 

 

228,495

 

 

 

314,737

 

Income tax provision

 

8,463

 

 

 

26,927

 

 

 

63,575

 

 

 

76,951

 

Net income

 

11,769

 

 

 

85,057

 

 

 

164,920

 

 

 

237,786

 

Net income attributable to noncontrolling interest

 

(522

)

 

 

(956

)

 

 

(2,885

)

 

 

(3,090

)

Net income attributable to Korn Ferry

$

11,247

 

 

$

84,101

 

 

$

162,035

 

 

$

234,696

 

 

 

 

 

 

 

 

 

Earnings per common share attributable to Korn Ferry:

 

 

 

 

 

 

 

Basic

$

0.21

 

 

$

1.55

 

 

$

3.07

 

 

$

4.33

 

Diluted

$

0.21

 

 

$

1.54

 

 

$

3.05

 

 

$

4.28

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

51,278

 

 

 

52,999

 

 

 

51,639

 

 

 

52,958

 

Diluted

 

51,431

 

 

 

53,495

 

 

 

51,999

 

 

 

53,538

 

 

 

 

 

 

 

 

 

Cash dividends declared per share:

$

0.15

 

 

$

0.12

 

 

$

0.45

 

 

$

0.36

 

 

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY REPORTING SEGMENT

(dollars in thousands)

(unaudited)

 

 

Three Months Ended January 31,

 

Nine Months Ended January 31,

 

2023

 

2022

 

% Change

 

2023

 

2022

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

Consulting

$

162,155

 

$

162,889

 

(0.5

)%

 

$

501,731

 

$

476,260

 

5.3

%

Digital

 

85,071

 

 

90,194

 

(5.7

)%

 

 

263,161

 

 

259,504

 

1.4

%

Executive Search:

 

 

 

 

 

 

 

 

 

 

 

North America

 

132,810

 

 

152,597

 

(13.0

)%

 

 

426,839

 

 

449,472

 

(5.0

%)

EMEA

 

48,960

 

 

47,509

 

3.1

%

 

 

140,661

 

 

132,690

 

6.0

%

Asia Pacific

 

22,621

 

 

31,425

 

(28.0

)%

 

 

72,410

 

 

88,385

 

(18.1

%)

Latin America

 

7,654

 

 

7,468

 

2.5

%

 

 

23,283

 

 

20,815

 

11.9

%

Total Executive Search (a)

 

212,045

 

 

238,999

 

(11.3

)%

 

 

663,193

 

 

691,362

 

(4.1

%)

Professional Search & Interim

 

117,980

 

 

90,015

 

31.1

%

 

 

351,670

 

 

196,411

 

79.0

%

RPO

 

103,531

 

 

98,644

 

5.0

%

 

 

324,779

 

 

282,042

 

15.2

%

Total fee revenue

 

680,782

 

 

680,741

 

0.0

%

 

 

2,104,534

 

 

1,905,579

 

10.4

%

Reimbursed out-of-pocket engagement expenses

 

6,063

 

 

4,215

 

43.8

%

 

 

21,178

 

 

10,873

 

94.8

%

Total revenue

$

686,845

 

$

684,956

 

0.3

%

 

$

2,125,712

 

$

1,916,452

 

10.9

%

(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

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

 

January 31,

2023

 

April 30,

2022

 

(unaudited)

 

 

ASSETS

 

 

 

Cash and cash equivalents

$

771,898

 

 

$

978,070

 

Marketable securities

 

48,253

 

 

 

57,244

 

Receivables due from clients, net of allowance for doubtful accounts of $43,606 and $36,384 at January 31, 2023 and April 30, 2022, respectively

 

628,693

 

 

 

590,260

 

Income taxes and other receivables

 

65,079

 

 

 

31,884

 

Unearned compensation

 

59,899

 

 

 

60,749

 

Prepaid expenses and other assets

 

39,605

 

 

 

41,763

 

Total current assets

 

1,613,427

 

 

 

1,759,970

 

 

 

 

 

Marketable securities, non-current

 

187,646

 

 

 

175,783

 

Property and equipment, net

 

154,983

 

 

 

138,172

 

Operating lease right-of-use assets, net

 

140,777

 

 

 

167,734

 

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

 

198,634

 

 

 

183,308

 

Deferred income taxes

 

93,403

 

 

 

84,712

 

Goodwill

 

793,285

 

 

 

725,592

 

Intangible assets, net

 

88,895

 

 

 

89,770

 

Unearned compensation, non-current

 

110,958

 

 

 

118,238

 

Investments and other assets

 

24,180

 

 

 

21,267

 

Total assets

$

3,406,188

 

 

$

3,464,546

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

Accounts payable

$

42,035

 

 

$

50,932

 

Income taxes payable

 

17,005

 

 

 

34,450

 

Compensation and benefits payable

 

405,584

 

 

 

547,826

 

Operating lease liability, current

 

45,234

 

 

 

48,609

 

Other accrued liabilities

 

346,489

 

 

 

302,408

 

Total current liabilities

 

856,347

 

 

 

984,225

 

 

 

 

 

Deferred compensation and other retirement plans

 

393,155

 

 

 

357,175

 

Operating lease liability, non-current

 

118,438

 

 

 

151,212

 

Long-term debt

 

396,011

 

 

 

395,477

 

Deferred tax liabilities

 

2,336

 

 

 

2,715

 

Other liabilities

 

26,887

 

 

 

24,153

 

Total liabilities

 

1,793,174

 

 

 

1,914,957

 

 

 

 

 

Stockholders' equity

 

 

 

Common stock: $0.01 par value, 150,000 shares authorized, 76,691 and 75,409 shares issued and 52,522 and 53,190 shares outstanding at January 31, 2023 and April 30, 2022, respectively

 

434,163

 

 

 

502,008

 

Retained earnings

 

1,271,618

 

 

 

1,134,523

 

Accumulated other comprehensive loss, net

 

(96,802

)

 

 

(92,185

)

Total Korn Ferry stockholders' equity

 

1,608,979

 

 

 

1,544,346

 

Noncontrolling interest

 

4,035

 

 

 

5,243

 

Total stockholders' equity

 

1,613,014

 

 

 

1,549,589

 

Total liabilities and stockholders' equity

$

3,406,188

 

 

$

3,464,546

 

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(dollars in thousands, except per share amounts)

(unaudited)

 

 

Three Months Ended

January 31,

 

Nine Months Ended

January 31,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

 

 

 

 

 

 

Net income attributable to Korn Ferry

$

11,247

 

 

$

84,101

 

 

$

162,035

 

 

$

234,696

 

Net income attributable to non-controlling interest

 

522

 

 

 

956

 

 

 

2,885

 

 

 

3,090

 

Net income

 

11,769

 

 

 

85,057

 

 

 

164,920

 

 

 

237,786

 

Income tax provision

 

8,463

 

 

 

26,927

 

 

 

63,575

 

 

 

76,951

 

Income before provision for income taxes

 

20,232

 

 

 

111,984

 

 

 

228,495

 

 

 

314,737

 

Other (income) loss, net

 

(13,097

)

 

 

7,277

 

 

 

(4,824

)

 

 

(2,236

)

Interest expense, net

 

5,378

 

 

 

7,029

 

 

 

20,088

 

 

 

18,820

 

Operating income

 

12,513

 

 

 

126,290

 

 

 

243,759

 

 

 

331,321

 

Depreciation and amortization

 

17,037

 

 

 

16,104

 

 

 

50,359

 

 

 

47,381

 

Other income (loss), net

 

13,097

 

 

 

(7,277

)

 

 

4,824

 

 

 

2,236

 

Integration/acquisition costs (1)

 

2,456

 

 

 

3,214

 

 

 

9,472

 

 

 

4,298

 

Impairment of fixed assets (2)

 

4,375

 

 

 

 

 

 

4,375

 

 

 

1,915

 

Impairment of right of use assets (3)

 

5,471

 

 

 

 

 

 

5,471

 

 

 

7,392

 

Restructuring charges, net (4)

 

41,162

 

 

 

 

 

 

41,162

 

 

 

 

Adjusted EBITDA

$

96,111

 

 

$

138,331

 

 

$

359,422

 

 

$

394,543

 

 

 

 

 

 

 

 

 

Operating margin

 

1.8

%

 

 

18.6

%

 

 

11.6

%

 

 

17.4

%

Depreciation and amortization

 

2.5

%

 

 

2.4

%

 

 

2.4

%

 

 

2.5

%

Other income (loss), net

 

1.9

%

 

 

(1.1

)%

 

 

0.2

%

 

 

0.1

%

Integration/acquisition costs (1)

 

0.4

%

 

 

0.4

%

 

 

0.4

%

 

 

0.2

%

Impairment of fixed assets (2)

 

0.7

%

 

 

 

 

 

0.2

%

 

 

0.1

%

Impairment of right of use assets (3)

 

0.8

%

 

 

 

 

 

0.3

%

 

 

0.4

%

Restructuring charges, net (4)

 

6.0

%

 

 

 

 

 

2.0

%

 

 

 

Adjusted EBITDA margin

 

14.1

%

 

 

20.3

%

 

 

17.1

%

 

 

20.7

%

 

 

 

 

 

 

 

 

Net income attributable to Korn Ferry

$

11,247

 

 

$

84,101

 

 

$

162,035

 

 

$

234,696

 

Integration/acquisition costs (1)

 

2,456

 

 

 

3,214

 

 

 

9,472

 

 

 

4,298

 

Impairment of fixed assets (2)

 

4,375

 

 

 

 

 

 

4,375

 

 

 

1,915

 

Impairment of right of use assets (3)

 

5,471

 

 

 

 

 

 

5,471

 

 

 

7,392

 

Restructuring charges, net (4)

 

41,162

 

 

 

 

 

 

41,162

 

 

 

 

Tax effect on the adjusted items (5)

 

(11,705

)

 

 

(404

)

 

 

(13,410

)

 

 

(2,632

)

Adjusted net income attributable to Korn Ferry

$

53,006

 

 

$

86,911

 

 

$

209,105

 

 

$

245,669

 

 

 

 

 

 

 

 

 

Basic earnings per common share

$

0.21

 

 

$

1.55

 

 

$

3.07

 

 

$

4.33

 

Integration/acquisition costs (1)

 

0.05

 

 

 

0.06

 

 

 

0.18

 

 

 

0.08

 

Impairment of fixed assets (2)

 

0.08

 

 

 

 

 

 

0.08

 

 

 

0.03

 

Impairment of right of use assets (3)

 

0.10

 

 

 

 

 

 

0.10

 

 

 

0.14

 

Restructuring charges, net (4)

 

0.80

 

 

 

 

 

 

0.79

 

 

 

 

Tax effect on the adjusted items (5)

 

(0.23

)

 

 

(0.01

)

 

 

(0.26

)

 

 

(0.05

)

Adjusted basic earnings per share

$

1.01

 

 

$

1.60

 

 

$

3.96

 

 

$

4.53

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

$

0.21

 

 

$

1.54

 

 

$

3.05

 

 

$

4.28

 

Integration/acquisition costs (1)

 

0.05

 

 

 

0.06

 

 

 

0.18

 

 

 

0.08

 

Impairment of fixed assets (2)

 

0.08

 

 

 

 

 

 

0.08

 

 

 

0.03

 

Impairment of right of use assets (3)

 

0.10

 

 

 

 

 

 

0.10

 

 

 

0.14

 

Restructuring charges, net (4)

 

0.80

 

 

 

 

 

 

0.78

 

 

 

 

Tax effect on the adjusted items (5)

 

(0.23

)

 

 

(0.01

)

 

 

(0.26

)

 

 

(0.05

)

Adjusted diluted earnings per share

$

1.01

 

 

$

1.59

 

 

$

3.93

 

 

$

4.48

 

Explanation of Non-GAAP Adjustments

(1)

Costs associated with current and 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 (i.e. leasehold improvements) due to terminating and deciding to sublease some of our office leases.

(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 we incurred to realign workforce with business needs and objectives due to shifts in global trade lanes and persistent inflationary pressures.

(5)

Tax effect on integration/acquisition costs, impairment of fixed assets and right of use assets, and restructuring charges, net.

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - CONTINUED

(unaudited)

 

 

Three Months Ended January 31,

 

2023

 

2022

 

Fee

revenue

 

Total

revenue

 

Adjusted

EBITDA

 

Adjusted

EBITDA

margin

 

Fee

revenue

 

Total

revenue

 

Adjusted

EBITDA

 

Adjusted

EBITDA

margin

 

(dollars in thousands)

Consulting

$

162,155

 

$

164,414

 

$

23,305

 

 

14.4

%

 

$

162,889

 

$

163,824

 

$

28,556

 

 

17.5

%

Digital

 

85,071

 

 

85,087

 

 

22,153

 

 

26.0

%

 

 

90,194

 

 

90,501

 

 

28,142

 

 

31.2

%

Executive Search:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

132,810

 

 

134,255

 

 

30,446

 

 

22.9

%

 

 

152,597

 

 

153,454

 

 

45,702

 

 

29.9

%

EMEA

 

48,960

 

 

49,195

 

 

7,981

 

 

16.3

%

 

 

47,509

 

 

47,666

 

 

8,080

 

 

17.0

%

Asia Pacific

 

22,621

 

 

22,694

 

 

5,538

 

 

24.5

%

 

 

31,425

 

 

31,448

 

 

9,451

 

 

30.1

%

Latin America

 

7,654

 

 

7,658

 

 

2,462

 

 

32.2

%

 

 

7,468

 

 

7,470

 

 

2,484

 

 

33.3

%

Total Executive Search

 

212,045

 

 

213,802

 

 

46,427

 

 

21.9

%

 

 

238,999

 

 

240,038

 

 

65,717

 

 

27.5

%

Professional Search & Interim

 

117,980

 

 

118,616

 

 

21,969

 

 

18.6

%

 

 

90,015

 

 

90,198

 

 

31,344

 

 

34.8

%

RPO

 

103,531

 

 

104,926

 

 

9,849

 

 

9.5

%

 

 

98,644

 

 

100,395

 

 

12,765

 

 

12.9

%

Corporate

 

 

 

 

 

(27,592

)

 

 

 

 

 

 

 

 

(28,193

)

 

 

Consolidated

$

680,782

 

$

686,845

 

$

96,111

 

 

14.1

%

 

$

680,741

 

$

684,956

 

$

138,331

 

 

20.3

%

 

Nine Months Ended January 31,

 

2023

 

2022

 

Fee

revenue

 

Total

revenue

 

Adjusted

EBITDA

 

Adjusted

EBITDA

margin

 

Fee

revenue

 

Total

revenue

 

Adjusted

EBITDA

 

Adjusted

EBITDA

margin

 

(dollars in thousands)

Consulting

$

501,731

 

$

508,994

 

$

83,944

 

 

16.7

%

 

$

476,260

 

$

478,563

 

$

85,458

 

 

17.9

%

Digital

 

263,161

 

 

263,479

 

 

73,855

 

 

28.1

%

 

 

259,504

 

 

259,894

 

 

82,330

 

 

31.7

%

Executive Search:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

426,839

 

 

431,286

 

 

112,164

 

 

26.3

%

 

 

449,472

 

 

451,836

 

 

137,939

 

 

30.7

%

EMEA

 

140,661

 

 

141,443

 

 

24,577

 

 

17.5

%

 

 

132,690

 

 

133,080

 

 

23,328

 

 

17.6

%

Asia Pacific

 

72,410

 

 

72,669

 

 

18,723

 

 

25.9

%

 

 

88,385

 

 

88,447

 

 

25,972

 

 

29.4

%

Latin America

 

23,283

 

 

23,289

 

 

7,686

 

 

33.0

%

 

 

20,815

 

 

20,821

 

 

6,204

 

 

29.8

%

Total Executive Search

 

663,193

 

 

668,687

 

 

163,150

 

 

24.6

%

 

 

691,362

 

 

694,184

 

 

193,443

 

 

28.0

%

Professional Search & Interim

 

351,670

 

 

354,430

 

 

83,587

 

 

23.8

%

 

 

196,411

 

 

196,832

 

 

72,608

 

 

37.0

%

RPO

 

324,779

 

 

330,122

 

 

43,562

 

 

13.4

%

 

 

282,042

 

 

286,979

 

 

41,726

 

 

14.8

%

Corporate

 

 

 

 

 

(88,676

)

 

 

 

 

 

 

 

 

(81,022

)

 

 

Consolidated

$

2,104,534

 

$

2,125,712

 

$

359,422

 

 

17.1

%

 

$

1,905,579

 

$

1,916,452

 

$

394,543

 

 

20.7

%

 

Contacts

Investor Relations: Tiffany Louder, (214) 310-8407

Media: Dan Gugler, (310) 226-2645

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