Korn Ferry(KFY) - 2021 Q1 - Quarterly Report

Part I. Financial Information Consolidated Financial Statements Korn Ferry experienced a significant downturn in Q1 FY2021 due to COVID-19, reporting decreased revenue, a net loss, and negative operating cash flow Consolidated Balance Sheets | Balance Sheet Items | July 31, 2020 (in thousands) | April 30, 2020 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $1,093,282 | $1,237,083 | | Total Assets | $2,618,103 | $2,743,828 | | Total Current Liabilities | $491,331 | $624,207 | | Total Liabilities | $1,400,082 | $1,520,137 | | Total Stockholders' Equity | $1,218,021 | $1,223,691 | - Cash and cash equivalents decreased from $689.2 million at April 30, 2020, to $542.8 million at July 31, 2020[7] Consolidated Statements of Operations | Income Statement Items | Three Months Ended July 31, 2020 (in thousands) | Three Months Ended July 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $346,883 | $496,198 | | Total Operating Expenses | $390,678 | $435,864 | | Operating (Loss) Income | $(43,795) | $60,334 | | Net (Loss) Income Attributable to Korn Ferry | $(30,833) | $42,951 | | Diluted (Loss) Earnings Per Share | $(0.58) | $0.76 | - The company incurred restructuring charges of $27.5 million in the quarter ended July 31, 2020, with no similar charges in the prior-year period[9] Consolidated Statements of Cash Flows | Cash Flow Items | Three Months Ended July 31, 2020 (in thousands) | Three Months Ended July 31, 2019 (in thousands) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(144,262) | $(161,919) | | Net Cash Used in Investing Activities | $(13,210) | $(9,209) | | Net Cash Used in Financing Activities | $(7,805) | $(24,927) | | Net Decrease in Cash and Cash Equivalents | $(146,458) | $(201,723) | Notes to Consolidated Unaudited Financial Statements - The company operates through four global segments: Consulting, Digital, Executive Search, and Recruitment Process Outsourcing (RPO) & Professional Search[24] - In response to the COVID-19 pandemic, the company adopted a restructuring plan, resulting in charges of $27.5 million for the quarter, primarily for severance costs[93] | Industry | Fee Revenue Q1'21 (in thousands) | % of Total | Fee Revenue Q1'20 (in thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Industrial | $95,311 | 27.7% | $138,312 | 28.5% | | Financial Services | $65,727 | 19.1% | $86,212 | 17.8% | | Life Sciences/Healthcare | $65,450 | 19.0% | $82,265 | 17.0% | | Consumer Goods | $44,778 | 13.0% | $71,698 | 14.8% | | Technology | $49,324 | 14.4% | $70,803 | 14.6% | | Education/Non-Profit/General | $23,507 | 6.8% | $35,259 | 7.3% | - As of July 31, 2020, the company had $400 million in 4.625% Senior Unsecured Notes due 2027 and no outstanding balance on its $650 million revolving credit facility[100][102][106] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the revenue decline to COVID-19, initiated a restructuring plan to reduce costs, and affirms sufficient liquidity despite operating losses and negative cash flow The Impact of COVID-19 - The COVID-19 pandemic severely restricted economic activity, leading to a significant decrease in demand for the company's products and services across all business segments and geographies in Q1 FY2021[121] - On April 20, 2020, the company initiated a restructuring plan to adjust its cost base, which included workforce reductions, temporary furloughs, salary reductions, and other G&A cost-saving measures[123] Results of Operations | Segment | Fee Revenue Q1'21 (in millions) | Fee Revenue Q1'20 (in millions) | YoY Change | | :--- | :--- | :--- | :--- | | Consulting | $99.3 | $137.5 | -28% | | Digital | $56.0 | $58.0 | -3% | | Executive Search | $120.1 | $193.2 | -38% | | RPO & Professional Search | $68.7 | $95.8 | -28% | | Total | $344.1 | $484.5 | -29% | - Compensation and benefits expense decreased by 14% to $284.0 million, primarily due to an 11% decrease in average headcount and other cost-saving actions[148] - General and administrative expenses fell 28% to $47.1 million, driven by lower marketing, premises, legal, and travel-related expenses[155] - The company recorded an operating loss of $43.8 million, a $104.1 million decrease from the $60.3 million operating income in the prior-year quarter, driven by lower revenue and restructuring charges[165] Liquidity and Capital Resources - The company's capital allocation priorities are investing in growth, returning capital to stockholders via a regular quarterly dividend of $0.10 per share, and opportunistic share repurchases[182][187] - As of July 31, 2020, the company had cash, cash equivalents, and marketable securities of $733.0 million and $646.0 million available for borrowing under its revolving credit facility[190][186] - Net cash used by operating activities was $144.3 million for the quarter, primarily due to the payment of annual bonuses earned in fiscal 2020[192] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency fluctuations and interest rate changes, managed through forward contracts and limited by fixed-rate debt - The company is exposed to foreign currency risk, primarily from the Pound Sterling, Canadian Dollar, Euro, and other major currencies. A hypothetical 10% change in these exchange rates could result in a gain or loss of $12.3 million[208] - Interest rate risk is limited to the company's revolving credit facility, which had no outstanding balance as of July 31, 2020, and borrowings against company-owned life insurance (COLI) policies[209] Controls and Procedures The CEO and CFO concluded disclosure controls were effective as of July 31, 2020, with no material changes in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of July 31, 2020[211] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[212] Part II. Other Information Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business - As of the report date, the company is not engaged in any legal proceedings expected to have a material adverse effect on its business[214] 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 have been made to the risk factors described in the company's Form 10-K for the year ended April 30, 2020[215] Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities The company did not repurchase shares during the quarter, withheld 161,027 shares for taxes, and has $158.3 million remaining for repurchases - The company did not repurchase any shares as part of its publicly announced program during the three months ended July 31, 2020[216] - A total of 161,027 restricted shares were withheld to cover taxes on vested awards[216] - As of July 31, 2020, $158.3 million remained available for future repurchases under the existing program[216][217] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents and CEO/CFO certifications - The report includes standard exhibits such as CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1) and Inline XBRL data files[219]