Korn Ferry(US:KFY)2019-09-06 19:26Part I. Financial Information Consolidated Financial Statements This section presents Korn Ferry's unaudited consolidated financial statements, highlighting a turnaround from a prior-year net loss to net income and modest revenue growth Consolidated Balance Sheets Korn Ferry's total assets increased to $2.41 billion due to new operating lease right-of-use assets, while cash and cash equivalents significantly decreased Consolidated Balance Sheet Highlights (in thousands) | Account | July 31, 2019 (unaudited) | April 30, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $424,637 | $626,360 | | Total current assets | $975,123 | $1,136,810 | | Operating lease right-of-use assets, net | $219,412 | $— | | Goodwill | $578,567 | $578,298 | | Total assets | $2,406,558 | $2,334,852 | | Liabilities & Equity | | | | Total current liabilities | $411,653 | $550,958 | | Operating lease liability, non-current | $207,603 | $— | | Long-term debt | $223,094 | $222,878 | | Total liabilities | $1,142,164 | $1,091,465 | | Total stockholders' equity | $1,264,394 | $1,243,387 | Consolidated Statements of Operations Total revenue increased 4% to $496.2 million, with operating income swinging to $60.3 million from a prior-year loss, primarily due to the absence of a tradename write-off Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended July 31, 2019 | Three Months Ended July 31, 2018 | | :--- | :--- | :--- | | Fee revenue | $484,549 | $465,568 | | Total revenue | $496,198 | $478,362 | | Operating income (loss) | $60,334 | $(55,119) | | Net income (loss) attributable to Korn Ferry | $42,951 | $(38,611) | | Diluted earnings (loss) per share | $0.76 | $(0.70) | | Cash dividends declared per share | $0.10 | $0.10 | - The significant swing from a net loss to net income year-over-year was primarily caused by a one-time, non-cash tradename write-off of $106.6 million in the quarter ended July 31, 2018, which was recorded in general and administrative expenses46120 Consolidated Statements of Cash Flows Net cash used by operating activities increased to $161.9 million, primarily due to working capital changes and bonus payments, leading to a $201.7 million decrease in cash and cash equivalents Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended July 31, 2019 | Three Months Ended July 31, 2018 | | :--- | :--- | :--- | | Net cash used by operating activities | $(161,919) | $(117,492) | | Net cash used in investing activities | $(9,209) | $(6,632) | | Net cash used in financing activities | $(24,927) | $(20,587) | | Net decrease in cash and cash equivalents | $(201,723) | $(155,119) | | Cash and cash equivalents at end of period | $424,637 | $365,729 | Notes to Consolidated Unaudited Financial Statements These notes detail accounting policies, the impact of ASC 842 on the balance sheet, segment operations, fee revenue disaggregation by industry, debt structure, and dividend declarations - The company operates through three global segments: Advisory, Executive Search, and RPO & Professional Search20105 - Effective May 1, 2019, the company adopted the new lease accounting standard (ASC 842), resulting in the recognition of $236.1 million in Right-of-Use (ROU) assets and a corresponding liability of $272.3 million5455 Fee Revenue by Industry (Three Months Ended July 31, 2019) | Industry | Dollars (in thousands) | % of Total | | :--- | :--- | :--- | | Industrial | $139,907 | 28.9% | | Financial Services | $86,876 | 17.9% | | Life Sciences/Healthcare | $82,114 | 16.9% | | Consumer Goods | $71,833 | 14.8% | | Technology | $69,095 | 14.3% | | Education/Non-Profit | $30,761 | 6.4% | | Total Fee Revenue | $484,549 | 100.0% | - On September 4, 2019, the Board of Directors declared a quarterly cash dividend of $0.10 per share115 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 FY2020 financial results, highlighting 4% fee revenue growth, increased Adjusted EBITDA, the impact of a prior-year tradename write-off, and the company's liquidity and capital allocation strategy Q1 FY2020 Financial Highlights vs. Q1 FY2019 | Metric | Q1 FY2020 (ended Jul 31, 2019) | Q1 FY2019 (ended Jul 31, 2018) | Change | | :--- | :--- | :--- | :--- | | Fee Revenue | $484.5M | $465.6M | +4% | | Operating Income (Loss) | $60.3M | $(55.1)M | +$115.4M | | Net Income (Loss) Attributable to Korn Ferry | $43.0M | $(38.6)M | +$81.6M | | Adjusted EBITDA | $74.9M | $70.8M | +$4.1M | - The RPO & Professional Search segment was the primary driver of growth, with fee revenue increasing by $18.5 million, or 24%, year-over-year138 - The significant improvement in operating and net income is primarily due to a one-time, non-cash write-off of tradenames of $106.6 million in the prior-year quarter related to the 'One Korn Ferry' rebranding plan120145153 Results of Operations Fee revenue grew 4% to $484.5 million, driven by 24% growth in RPO & Professional Search, while operating income swung to $60.3 million due to the absence of a prior-year tradename write-off Fee Revenue by Segment (in thousands) | Segment | Q1 FY2020 | Q1 FY2019 | % Change | | :--- | :--- | :--- | :--- | | Advisory | $195,526 | $195,375 | 0.1% | | Executive Search | $193,199 | $192,924 | 0.1% | | RPO & Professional Search | $95,824 | $77,269 | 24.0% | | Total Fee Revenue | $484,549 | $465,568 | 4.1% | Adjusted EBITDA by Segment (in thousands) | Segment | Q1 FY2020 | Q1 FY2019 | % Change | | :--- | :--- | :--- | :--- | | Advisory | $34,570 | $34,504 | 0.2% | | Executive Search | $48,891 | $46,757 | 4.6% | | RPO & Professional Search | $16,107 | $12,511 | 28.7% | | Corporate | $(24,631) | $(22,978) | (7.2%) | | Total Adjusted EBITDA | $74,937 | $70,794 | 5.8% | Liquidity and Capital Resources The company maintains a strong liquidity position with $567.3 million in cash and equivalents, a $650 million credit facility, and continues its capital allocation strategy through share repurchases and dividends - Cash, cash equivalents, and marketable securities stood at $567.3 million as of July 31, 2019173 - The company has a $650 million revolving credit facility, with $226.9 million outstanding and $419.9 million available as of July 31, 2019168184 - During the quarter, the company repurchased $12.7 million of its common stock, leaving $238.0 million remaining under its share repurchase program170 - The Board of Directors maintains a quarterly cash dividend policy of $0.10 per share169 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations and interest rate changes, mitigated by foreign currency forward contracts and an interest rate swap on its variable-rate debt - The company's primary market risks are foreign currency exchange fluctuations and interest rate changes189 - To mitigate interest rate risk on its variable-rate debt, the company uses an interest rate swap with a notional amount of $103.1 million, maturing June 15, 2021, which locks the interest rate at 1.919% plus a credit spread194 - The company utilizes foreign currency forward contracts to offset risks from intercompany balances and other foreign currency exposures, but these are not designated as hedging instruments192 Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of July 31, 2019196 - No material changes were identified in the company's internal control over financial reporting during the quarter196 Part II. Other Information Legal Proceedings The company is not engaged in any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not engaged in any legal proceedings that are expected to have a material adverse effect on its business or financial condition199 Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes to the risk factors described in the Form 10-K for the year ended April 30, 2019 have occurred200 Issuer Purchases of Equity Securities During the quarter, the company repurchased 545,754 shares for approximately $12.7 million, with $238.0 million remaining under the share repurchase program Issuer Purchases of Equity Securities (Quarter Ended July 31, 2019) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | :--- | | May 2019 | 891 | $46.34 | — | $250.7 million | | June 2019 | 720 | $45.73 | — | $250.7 million | | July 2019 | 544,143 | $39.06 | 324,100 | $238.0 million | | Total | 545,754 | $39.08 | 324,100 | | - The Board of Directors approved an increase to the share repurchase program to an aggregate of $250 million on March 6, 2019. The program has no expiration date201 Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents