Korn Ferry Announces Fourth Quarter and Fiscal 2021 Results of Operations

Highlights

• Korn Ferry reports record fee revenue of $555.2 million in Q4 FY’21, an increase of 26% from Q4 FY’20 and a sequential increase of 17% from Q3 FY’21.
• Record net income attributable to Korn Ferry and adjusted diluted earnings per share of $66.2 million and $1.21 in Q4 FY’21, respectively.
• Operating income and Adjusted EBITDA were both all-time highs in Q4 FY’21 at $86.3 million (operating margin of 15.5%) and $112.8 million (Adjusted EBITDA margin of 20.3%), respectively.
• Declared a quarterly dividend of $0.12 per share on June 21, 2021, a 20% increase in the quarterly dividend, which is payable on July 30, 2021 to stockholders of record on July 6, 2021.

Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced fourth quarter and annual fee revenue of $555.2 million and $1,810.0 million, respectively. In addition, fourth quarter diluted earnings per share and adjusted diluted earnings per share were $1.21; both are all-time highs.

“During the fiscal fourth quarter we generated $555 million in fee revenue, an all-time record, up 26% year-over-year. Our profitably was very strong, with earnings per share of $1.21, an all-time high and Adjusted EBITDA margin at 20.3%,” said Gary D. Burnison, CEO, Korn Ferry.

“I am extremely proud of our company and our accomplishments as we navigate through COVID-19. The diversity and relevance of our offerings and our ability to adapt to delivering our consulting services in a virtual world have helped companies achieve their organizational opportunities. Our Korn Ferry colleagues have truly shown their resilience, pivoting to the transformation and new ways of working that will emerge in a post-pandemic world, and I look forward to what the new fiscal year will bring to our firm and our clients.”

Fiscal 2021 Fourth Quarter Results

The Company reported fee revenue in Q4 FY’21 of $555.2 million, an increase of 26% (up 22% on a constant currency basis) compared to Q4 FY’20. Fee revenue increased in all lines of business. The increase in fee revenue when compared to Q4 FY’20 was primarily due to the Company’s recovery from the coronavirus pandemic (“COVID-19”) which began to impact the Company on a worldwide basis in Q4 FY’20, as well as the increasing relevance of the Company’s solutions in helping businesses solve their organizational and human capital issues in today’s business environment.

Operating margin was 15.5% in Q4 FY’21 compared to 5.0% in the year-ago quarter. Adjusted EBITDA margin was 20.3%, compared to Adjusted EBITDA margin of 15.8% in the year-ago quarter. Net income attributable to Korn Ferry was $66.2 million in Q4 FY’21 compared to net loss attributable to Korn Ferry of $0.8 million in Q4 FY’20.

The year-over-year improvement in each of the above measures of profitability was due to the increase in fee revenue discussed above and cost saving actions the Company took in response to the impact of COVID-19 in both Q4 FY’20 and Q1 FY’21, partially offset by an increase in compensation and benefits expense due to the Company recording an accrual to fully reimburse colleagues for pay cuts taken in FY’21 that were not previously reimbursed and an increase in performance related bonus expense due to the revenue growth through the recovery combined with an increase in overall profitability.

Fiscal 2021 Results

The Company reported fee revenue in FY’21 of $1,810.0 million, a decrease of 6% (down 7% on a constant currency basis) compared to FY’20.

Operating income was $155.8 million in FY’21 with an operating margin of 8.6% compared to $176.0 million and 9.1% in FY’20. The decrease in operating income was primarily due to a decline in fee revenue, associated with the impact of COVID-19, partially offset by decreases in net restructuring charges, integration/acquisition costs and general administrative expenses, the latter of which resulted from the cost saving initiatives that were put in place.

Net income attributable to Korn Ferry was $114.5 million in FY’21 as compared to $104.9 million in FY’20.

Adjusted EBITDA was $286.3 million in FY’21 with Adjusted EBITDA margin of 15.8%, compared to $301.0 million and 15.6%, respectively, in the year-ago period.

Results by Line of Business

Fee revenue was $153.6 million in Q4 FY’21 compared to $121.0 million in Q4 FY’20, an increase of $32.6 million or 27% (up 23% on a constant currency basis). The increase in fee revenue was due to the Company recovering from COVID-19, which began to negatively impact the Company on a worldwide basis in Q4 FY’20. The diversity and increasing relevance 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 in Q4 FY’21 compared to the year-ago quarter.

Adjusted EBITDA was $27.2 million in Q4 FY’21 with an Adjusted EBITDA margin of 17.7% compared to Adjusted EBITDA of $11.1 million with an associated margin of 9.2%, respectively, in the year-ago quarter. This change resulted from an increase in fee revenue and a decline in general and administrative expenses, which resulted from the cost saving initiatives that were put in place. These changes were offset by an increase in compensation and benefits expense due to the Company recording an accrual to fully reimburse colleagues for pay cuts taken in FY’21 that were not previously reimbursed and an increase in performance related bonus expense due to the revenue growth through the recovery combined with an increase in overall profitability.

Digital leverages an artificial intelligence powered, machine-learning platform to identify the best structures, roles, capabilities, and behaviors needed to drive business forward. This end-to-end platform combines Korn Ferry proprietary data, client data, and external market data to help make better, faster decisions about organizations, leadership, and people.

Fee revenue was $80.5 million in Q4 FY’21 compared to $69.3 million in Q4 FY’20, an increase of $11.2 million or 16% (up 12% on a constant currency basis). The increase in fee revenue was due to the Company recovering from COVID-19, which began to negatively impact the Company on a worldwide basis in Q4 FY’20. As economies around the world recover and companies pivot from in person training to virtual delivery of training courses, the demand for our products and services has now exceeded pre-pandemic levels.

Adjusted EBITDA was $27.9 million in Q4 FY’21 with an Adjusted EBITDA margin of 34.7% compared to $17.0 million and 24.5%, respectively, in the year-ago quarter. Contributing to the increase were higher fee revenues and decreases in general and administrative expenses, partially offset by an increase in compensation and benefits expense due to the Company recording an accrual to fully reimburse colleagues for pay cuts taken in FY’21 that were not previously reimbursed and an increase in performance related bonus expense due to the revenue growth through the recovery combined with an increase in overall profitability.

Fee revenue was $200.7 million and $167.9 million in Q4 FY’21 and Q4 FY’20, respectively, a year-over-year increase of $32.8 million or 20% (up 16% on a constant currency basis). The increase in fee revenue was primarily attributable to higher fee revenue in North America where demand for our products and services has now exceeded pre-pandemic levels in conjunction with the worldwide economic recovery.

Adjusted EBITDA was $49.8 million in Q4 FY’21 with an Adjusted EBITDA margin of 24.8% compared to Adjusted EBITDA of $47.5 million and Adjusted EBITDA margin of 28.3%, respectively, in the year-ago quarter. While Adjusted EBITDA was up slightly, Adjusted EBITDA margin was down 350bps due to the Company recording an accrual to fully reimburse colleagues for pay cuts taken in FY’21 that were not previously reimbursed and an increase in performance related bonus expense due to the revenue growth through the recovery combined with an increase in overall profitability.

Fee revenue was $120.4 million in Q4 FY’21, an increase of $38.0 million or 46% (up 40% 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 $28.9 million or 58% (51% at constant currency) and an increase in Professional Search of $9.1 million or 28% (23% at constant currency) due to the Company recovering from COVID-19, which began to negatively impact the Company on a worldwide basis in Q4 FY’20.

Adjusted EBITDA was $30.0 million in Q4 FY’21 with an Adjusted EBITDA margin of 24.9% in Q4 FY’21 compared to $12.7 million and 15.4%, respectively, in the year-ago quarter. The increase in Adjusted EBITDA was due to the higher fee revenue discussed above, partially offset by an increase in compensation and benefits expense due to the Company recording an accrual to fully reimburse colleagues for pay cuts taken in FY’21 that were not previously reimbursed and an increase in performance related bonus expense due to the revenue growth through the recovery combined with an increase in overall profitability.

Outlook

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

• Q1 FY’22 fee revenue is expected to be in the range of $535 million and $555 million; and
• Q1 FY’22 diluted earnings per share is expected to range between $1.04 to $1.14.

Earnings Conference Call Webcast

The earnings conference call will be held today at 12:00 PM (EDT) and hosted by CEO Gary Burnison, CFO Robert Rozek and SVP Finance Gregg Kvochak. The conference call will be webcast and available online at 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 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 ultimate magnitude and duration of COVID-19 and any future pandemic or similar 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, 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, changes and developments in government laws and regulations, evolving investor and customer expectations with regard to environmental 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, 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, the withdrawal of the United Kingdom from the European Union, expansion of social media platforms, seasonality, ability to effect acquisition and integrate acquired businesses 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;
• Consolidated and Executive Search Adjusted EBITDA, which is earnings before interest, taxes, depreciation and amortization, further adjusted to exclude integration/acquisition costs, restructuring charges and separations costs, 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 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 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.

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