Korn Ferry(KFY) - 2021 Q3 - Quarterly Report

Part I. Financial Information Consolidated Financial Statements Presents Korn Ferry's unaudited consolidated financial statements for Q3 FY2021, detailing balance sheets, income, and cash flows Consolidated Balance Sheets Total assets increased to $2.86 billion, driven by cash and marketable securities, while liabilities and equity also grew Consolidated Balance Sheet Highlights (in thousands) | Account | Jan 31, 2021 (unaudited) | Apr 30, 2020 | | :--- | :--- | :--- | | Total Assets | $2,863,467 | $2,743,828 | | Cash and cash equivalents | $694,128 | $689,244 | | Goodwill | $625,549 | $613,943 | | Total Liabilities | $1,568,473 | $1,520,137 | | Long-term debt | $394,629 | $394,144 | | Total Stockholders' Equity | $1,294,994 | $1,223,691 | Consolidated Statements of Income Q3 FY2021 fee revenue decreased to $475.4 million, but operating and net income significantly increased, leading to higher EPS Q3 FY2021 vs Q3 FY2020 Performance (in thousands, except per share data) | Metric | Q3 FY2021 | Q3 FY2020 | | :--- | :--- | :--- | | Fee Revenue | $475,360 | $515,325 | | Operating Income | $65,155 | $31,595 | | Net Income Attributable to Korn Ferry | $51,319 | $19,993 | | Diluted EPS | $0.94 | $0.36 | Nine Months FY2021 vs FY2020 Performance (in thousands, except per share data) | Metric | Nine Months Ended Jan 31, 2021 | Nine Months Ended Jan 31, 2020 | | :--- | :--- | :--- | | Fee Revenue | $1,254,896 | $1,492,263 | | Operating Income | $69,532 | $153,798 | | Net Income Attributable to Korn Ferry | $48,264 | $105,748 | | Diluted EPS | $0.88 | $1.90 | Consolidated Statements of Cash Flows Operating cash flow slightly decreased, while investing cash outflow significantly reduced, and financing cash shifted to usage Cash Flow Summary for Nine Months Ended Jan 31 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $54,305 | $57,137 | | Net cash used in investing activities | ($30,301) | ($191,073) | | Net cash (used in) provided by financing activities | ($55,806) | $74,116 | | Net increase (decrease) in cash | $4,884 | ($62,652) | Notes to Consolidated Unaudited Financial Statements Notes detail accounting policies, business lines, COVID-19 restructuring charges, segment performance, and long-term debt terms - The company operates through four lines of business: Consulting, Digital, Executive Search, and Recruitment Process Outsourcing (RPO) & Professional Search[24] - In response to COVID-19, the company adopted a restructuring plan in April 2020. For the three and nine months ended Jan 31, 2021, this resulted in net restructuring charges of $0.8 million and $30.7 million, respectively, mainly for severance[101] - The company has $400 million in 4.625% Senior Unsecured Notes due 2027 and a $650 million senior secured revolving credit facility, which had no outstanding balance as of January 31, 2021[110][112] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 FY21 results, highlighting COVID-19 impact, strategic responses, cost reductions, and strong liquidity - The company's strategy focuses on client collaboration across its diversified business lines, evolving from a mono-line firm to a broader organizational consulting firm[128] - In response to COVID-19's economic impact, the company initiated a restructuring plan on April 20, 2020, which included workforce reductions, temporary furloughs, and salary reductions to adjust its cost base[133] - Business conditions improved substantially in Q3 FY21, with fee revenue increasing 9% sequentially from Q2. This improvement, combined with a restructured cost base, led to notably better profitability[134] Q3 FY2021 vs Q3 FY2020 Key Metrics | Metric | Q3 FY2021 | Q3 FY2020 | Change | | :--- | :--- | :--- | :--- | | Fee Revenue | $475.4M | $515.3M | -8% | | Operating Income | $65.2M | $31.6M | +106% | | Net Income (to Korn Ferry) | $51.3M | $20.0M | +157% | | Adjusted EBITDA | $96.7M | $78.1M | +24% | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations and interest rate changes, with foreign currency being the primary exposure - The company is exposed to foreign currency risk from its global operations. A hypothetical 10% adverse change in exchange rates could result in a foreign exchange loss of $11.2 million[262] - The company utilizes foreign currency forward contracts to offset risks from foreign currency exposures, but these are not designated as hedging instruments[262] - Interest rate risk is primarily related to the $650M revolving credit facility and borrowings against COLI policies. As of January 31, 2021, there were no amounts outstanding under the revolver, limiting this exposure[263] Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of January 31, 2021[265] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[265] Part II. Other Information Legal Proceedings The company is involved in routine litigation, but no current proceedings are expected to materially affect its business - As of the report date, the company is not involved in any legal proceedings expected to have a material adverse effect on its business or financials[268] Risk Factors No material changes occurred to the risk factors previously disclosed in the company's FY2020 Form 10-K - No material changes have occurred to the risk factors disclosed in the company's Form 10-K for the fiscal year ended April 30, 2020[269] Issuer Purchases of Equity Securities The company repurchased 223,695 shares in Q3 FY2021, with $127.9 million remaining for future repurchases Share Repurchases for Q3 FY2021 | Period | Total Shares Purchased | Average Price Paid | Shares Purchased Under Program | Value Remaining Under Program | | :--- | :--- | :--- | :--- | :--- | | Nov 2020 | 205,000 | $34.14 | 205,000 | $128.5M | | Dec 2020 | 17,426 | $41.23 | 15,000 | $127.9M | | Jan 2021 | 1,269 | $48.25 | 0 | $127.9M | | Total | 223,695 | $34.77 | 220,000 | $127.9M | - As of January 31, 2021, approximately $127.9 million remained available for stock repurchases under the company's share repurchase program[270][271] Other Information Compensation for executives and directors was restored in Q3 FY2021 due to strong performance, reversing COVID-19 reductions - In light of strong Q3 FY2021 financial performance, the Compensation Committee approved payments to restore the reduced base salaries of named executive officers and cash retainers of non-employee directors for the third quarter[274] - This decision follows a similar restoration for the second quarter and reverses the temporary 50% compensation reductions initially put in place due to the COVID-19 pandemic[273][274] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and Inline XBRL documents - Key exhibits filed include CEO and CFO certifications and Inline XBRL data files[275]