Investor Relations

Press Release

Korn/Ferry International Announces First Quarter Fiscal 2012 Results of Operations

September 8, 2011

Highlights
-- Q1 FY'12 fee revenue increased 18% to $206.3 million, compared to $175.1 million in the same quarter last year.
-- Q1 FY'12 diluted earnings per share was $0.33, compared to diluted earnings per share of $0.24 in Q1 FY'11.

LOS ANGELES, Sept. 8, 2011 /PRNewswire via COMTEX/ --

Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced Q1 FY'12 diluted earnings per share of $0.33 compared to diluted earnings per share of $0.24 in Q1 FY'11.

"Korn/Ferry performed well, as evidenced by the firm's ninth consecutive quarter of fee revenue growth and 18% growth year over year," said Gary Burnison, CEO, Korn/Ferry International. "I am encouraged by our results, particularly in this tumultuous economic environment as the global economy struggles to rationalize the new normal. Irrespective of the macro conditions, leading organizations recognize that attracting and developing the best people is a continual priority. Korn/Ferry will continue to seek out opportunity from the volatility which has enveloped the world."

Financial Results

(dollars in millions, except per share amounts)



First Quarter


FY'12


FY'11

Fee revenue

$ 206.3


$ 175.1

Total revenue

$ 214.6


$ 183.2

Operating income

$ 25.9


$ 19.3

Operating margin

12.6%


11.0%

Net income

$ 15.4


$ 10.9

Basic earnings per share

$ 0.34


$ 0.24

Diluted earnings per share

$ 0.33


$ 0.24


Fee revenue was $206.3 million in Q1 FY'12 compared to $175.1 million in Q1 FY'11, an increase of $31.2 million, or 18%, which reflects increases in fee revenue from all segments of the business driven primarily by a 12% increase in the overall number of engagements billed as well as a 5% increase in the weighted-average fee billed per engagement compared to the year-ago fiscal quarter. Weighted-average fee billed is impacted by the mix of engagements by segment and fluctuating foreign currencies. On a constant currency basis, fee revenue increased $17.8 million, or 10%.

Compensation and benefits were $137.4 million in Q1 FY'12, an increase of $17.2 million, or 14%, compared to $120.2 million in Q1 FY'11. This increase is attributable mainly to an increase in worldwide headcount compared to the year-ago fiscal quarter. On a constant currency basis, compensation and benefits increased $7.6 million, or 6%.

General and administrative expenses were $34.8 million in Q1 FY'12, an increase of $6.2 million, or 22% from $28.6 million in Q1 FY'11. This increase is attributable to an increase in premise and office expenses, professional fees, business development expenses and an increase in unrealized foreign exchange losses. Premise and office expenses increased due to the timing of lease renewals in existing cities. Travel and business development expenses, including costs associated with social media initiatives, increased primarily due to the increase in our overall business activities reflected in the 18% increase in fee revenues. On a constant currency basis, general and administrative expenses increased $3.4 million, or 12%.

Operating income was $25.9 million in Q1 FY'12 compared to operating income of $19.3 million in Q1 FY'11, an increase of $6.6 million, or an increase of 34%.

Balance Sheet and Liquidity

Cash and marketable securities were $281.2 million at July 31, 2011 compared to $369.1 million at April 30, 2011. Cash and marketable securities include $79.2 million and $71.4 million held in trust for deferred compensation plans at July 31, 2011 and April 30, 2011, respectively. Cash and marketable securities decreased by $87.9 million from April 30, 2011, mainly due to payment of FY'11 annual bonuses paid in Q1 FY'12, partially offset by cash provided by operating activities.

Results by Segment


Selected Executive Recruitment Data

(dollars in millions)



First Quarter



FY'12


FY'11


Fee revenue

$ 176.1


$ 154.9


Total revenue

$ 182.9


$ 161.4


Operating income

$ 35.6


$ 27.7


Operating margin

20.2%


17.9%







Ending number of consultants

474


478


Average number of consultants

472


476


Engagements billed

4,092


3,723


New engagements (a)

1,965


1,890







(a) Represents new engagements opened in the respective period.

Fee revenue was $176.1 million in Q1 FY'12, an increase of $21.2 million, or 14%, when compared to fee revenue of $154.9 million in Q1 FY'11. Fee revenue increased in all regions due to a 10% increase in the number of executive recruitment engagements billed and a 3% increase in the weighted-average fee per engagement billed when compared to Q1 FY'11. Weighted-average fee billed is impacted by the mix of engagements by region and fluctuating foreign currencies. On a constant currency basis, fee revenue increased $11.6 million, or 7%.

Operating income was $35.6 million in Q1 FY'12 compared to operating income of $27.7 million in Q1 FY'11, an increase of $7.9 million. This increase is primarily attributed to the $21.2 million increase in fee revenue in Q1 FY'12 as compared to Q1 FY'11, which was partially offset by a $10.1 million and $2.3 million increase in compensation and benefits expense and general and administrative expenses, respectively. The increase in compensation and benefits expense primarily resulted from an increase in headcount, and the increase in general and administrative expense, which was primarily driven by an increase in premise and office expense and business development expenses, both of which were due to an increase in overall business activities.

The total number of consultants at July 31, 2011 and 2010 was 474 and 478, respectively.

Selected Futurestep Data

(dollars in millions)



First Quarter



FY'12


FY'11


Fee revenue

$ 30.2


$ 20.2


Total revenue

$ 31.7


$ 21.8


Operating income

$ 2.3


$ 1.0


Operating margin

7.6%


4.9%








Fee revenue was $30.2 million in Q1 FY'12, an increase of $10.0 million, or 50%, from $20.2 million in Q1 FY'11. The improvement in fee revenue was driven by a 28% increase in the weighted-average fee billed per engagement, as well as a 17% increase in the number of engagements billed. The increase in fee revenue was also positively impacted by an increase in engagement activity for existing clients in Q1 FY'12 compared to Q1 FY'11. On a constant currency basis, fee revenue increased $6.2 million, or 31%.

Operating income was $2.3 million in Q1 FY'12 compared to operating income of $1.0 million in Q1 FY'11, an increase of $1.3 million, or 130%. This increase is primarily attributed to the $10.0 million increase in fee revenue in Q1 FY'12 as compared to Q1 FY'11, which was partially offset by a $7.2 million and $1.3 million increase in compensation and benefits expense and general and administrative expenses, respectively. The increase in compensation and benefits expense was attributable mainly to an increase in headcount and to a lesser degree an increase in the variable component of compensation when compared to the year-ago fiscal quarter. The increase in general and administrative expense was primarily driven by an increase in overall business activities.

Outlook

Given the uncertainty caused by the global economy and financial markets, it is more challenging to accurately forecast business results. However, assuming economic conditions, financial markets and foreign exchange rates do remain steady, Q2 FY'12 fee revenue is likely to be in the range of $192 million to $210 million and diluted earnings per share is likely to be in the range of $0.30 to $0.36.

Earnings Conference Call Webcast

The earnings conference call will be held today at 5:30 PM (EDT) and hosted by CEO Gary Burnison, CFO Mike DiGregorio and SVP Finance Gregg Kvochak. The conference call will be webcast and available online at www.kornferry.com, accessible through the Investor Relations section.

Korn/Ferry International (NYSE: KFY), with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that help clients to attract, deploy, develop and reward their talent. Visit www.kornferry.com for more information on the Korn/Ferry International family of companies, and www.kornferryinstitute.com for thought leadership, intellectual property and research.

Forward-Looking Statements

Statements in this press release and our conference call that relate to future results and events ("forward-looking statements") are based on Korn/Ferry's current expectations. These statements, which include words such as "believes", "expects" or "likely" include references to our outlook. Readers are cautioned not to place undue reliance on such statements. 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 competition, the dependence on attracting and retaining qualified and experienced consultants,maintaining our brand name and professional reputation, potential legal liability, the portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to the growth, alignment of our cost structure with our growth, restrictions imposed by off-limits agreements, reliance on information processing systems, our ability to enhance and develop new technology, the successful integration of acquired businesses, our ability to develop new products and services, impairment of goodwill and other intangible assets, deferred tax assets 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:

  • constant currency amounts that represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period.

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 this non-GAAP financial measure in this press release provides meaningful 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, the ability 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.

[Tables attached]

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)









Three Months Ended



July 31,



2011


2010



(unaudited)

Fee revenue


$ 206,331


$ 175,112

Reimbursed out-of-pocket engagement expenses


8,259


8,050

Total revenue


214,590


183,162






Compensation and benefits


137,371


120,208

General and administrative expenses


34,773


28,615

Out-of-pocket engagement expenses


13,135


12,099

Depreciation and amortization


3,369


2,968

Total operating expenses


188,648


163,890






Operating income


25,942


19,272

Other loss, net


(2,022)


(1,501)

Interest expense, net


(581)


(808)

Income before provision for income taxes





and equity in earnings of unconsolidated subsidiaries


23,339


16,963

Income tax provision


8,435


6,521

Equity in earnings of unconsolidated subsidiaries, net


507


462

Net income


$ 15,411


$ 10,904






Earnings per common share:





Basic


$ 0.34


$ 0.24

Diluted


$ 0.33


$ 0.24






Weighted-average common shares outstanding:





Basic


45,969


44,642

Diluted


47,299


45,755

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)















Three Months Ended July 31,



2011




2010


% Change










Fee Revenue:








Executive recruitment:









North America

$ 98,425




$ 89,975


9%


EMEA

43,242




36,268


19%


Asia Pacific

25,675




21,142


21%


South America

8,791




7,486


17%

Total executive recruitment

176,133




154,871


14%

Futurestep

30,198




20,241


49%


Total fee revenue

206,331




175,112


18%

Reimbursed out-of-pocket engagement expenses

8,259




8,050


3%


Total revenue

$ 214,590




$ 183,162


17%





































Operating Income:



Margin




Margin

Executive recruitment:









North America

$ 24,026


24.4%


$ 19,675


21.9%


EMEA

5,344


12.4%


3,053


8.4%


Asia Pacific

3,934


15.3%


3,069


14.5%


South America

2,283


26.0%


1,879


25.1%

Total executive recruitment

35,587


20.2%


27,676


17.9%

Futurestep

2,306


7.6%


989


4.9%

Corporate

(11,951)




(9,393)




Total operating income

$ 25,942


12.6%


$ 19,272


11.0%

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)




July 31,


April 30,



2011


2011

ASSETS


(unaudited)



Cash and cash equivalents


$ 156,937


$ 246,856

Marketable securities


21,232


20,868

Receivables due from clients, net of allowance for doubtful accounts





of $10,853 and $9,977 respectively


152,250


128,859

Income taxes and other receivables


4,747


5,138

Deferred income taxes


11,124


10,214

Prepaid expenses and other assets


32,359


29,662

Total current assets


378,649


441,597






Marketable securities, non-current


103,043


101,363

Property and equipment, net


46,010


43,142

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


72,080


70,987

Deferred income taxes


62,134


64,418

Goodwill


182,095


183,952

Intangible assets, net


21,728


22,289

Investments and other assets


47,029


43,932

Total assets


$ 912,768


$ 971,680






LIABILITIES AND STOCKHOLDERS' EQUITY





Accounts payable


$ 13,435


$ 12,504

Income taxes payable


4,369


4,674

Compensation and benefits payable


92,995


173,097

Other accrued liabilities


47,289


43,591

Total current liabilities


158,088


233,866






Deferred compensation and other retirement plans


137,643


139,558

Other liabilities


20,158


19,919

Total liabilities


315,889


393,343






Stockholders' equity





Common stock: $0.01 par value, 150,000 shares authorized, 59,789 and





59,101 shares issued and 47,720 and 47,003 shares outstanding, respectively


408,606


404,703

Retained earnings


163,905


148,494

Accumulated other comprehensive income, net


24,886


25,660

Stockholders' equity


597,397


578,857

Less: notes receivable from stockholders


(518)


(520)

Total stockholders' equity


596,879


578,337

Total liabilities and stockholders' equity


$ 912,768


$ 971,680

SOURCE Korn/Ferry International

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