PRESS RELEASE
Published on September 9, 2004
EXHIBIT 99.1
For Immediate Release
Contacts: For investors:
Gary Burnison (310) 226-2613
For media:
Anneli S. Ballard (212) 984-9350
Korn/Ferry International Announces a 42% increase in
First Quarter Fiscal 2005 Fee Revenue
Highlights:
| | Fee revenue was $102.8 million, an increase of 42% from $72.6 million in the prior year first quarter. |
| | Operating income of $14.6 million improved $21.5 million compared to prior year first quarter. |
| | Diluted earnings per share of $0.20, which includes an effective tax rate of 36%, improved $0.45 compared to prior year first quarter loss per share. |
Los Angeles, CA, September 8, 2004 - Korn/Ferry International (NYSE:KFY), a leading provider of recruitment and leadership development services, announced first quarter fiscal 2005 diluted earnings per share of $0.20 compared to a loss per share of $0.25 in Q104 which included restructuring charges of $8.5 million.
Were seeing a continuing and broad recovery in the executive-level job market across all of our major regions, said Paul C. Reilly, Chairman and CEO of Korn/Ferry. Companies have wrung out enormous productivity gains in the past three years, and they now must resume hiring in order to grow and expand with the recovering global economy. The increased demand for senior talent along with our strategic decisions in recruiting, multi-product strategy and out-sourced solution business are reflected in the substantial increase in revenue and profitability that we have achieved year over year.
Financial Results
Actual and Adjusted Results
(dollars in millions, except per share amounts)
|
Actual |
Adjusted (a) |
|||||||||||
|
Q105 |
Q104 |
Q104 |
||||||||||
| Fee Revenue |
$ | 102.8 | $ | 72.6 | $ | 72.6 | ||||||
| Revenue |
$ | 108.2 | $ | 78.3 | $ | 78.3 | ||||||
| Operating Income (Loss) |
$ | 14.6 | $ | (6.9 | ) | $ | 1.6 | |||||
| Operating Margin |
14.2 | % | (9.5 | )% | 2.2 | % | ||||||
| Net Income (Loss) |
$ | 8.4 | $ | (9.4 | ) | $ | (0.9 | ) | ||||
| Basic Earnings (Loss) Per Share |
$ | 0.22 | $ | (0.25 | ) | $ | (0.02 | ) | ||||
| Diluted Earnings (Loss) Per Share |
$ | 0.20 | $ | (0.25 | ) | $ | (0.02 | ) | ||||
| a) | Adjusted amounts are non-GAAP financial measures and exclude restructuring charges of $8.5 million for the three months ended July 31, 2003. These charges primarily related to severance and facility charges and did not affect fee revenue or revenue. Korn/Ferry presents adjusted amounts as alternative measures to the actual amounts for comparison purposes. Korn/Ferry uses the adjusted amounts to analyze its operating results since it believes that the restructuring charges do not reflect, and make it difficult to compare, Korn/Ferrys ongoing operations over various quarters. |
Fiscal first quarter fee revenue of $102.8 million increased $30.2 million or 42% from Q104 of $72.6 million. The increase in fee revenue, reflected across all regions, is attributable to an increase in the number of new engagements opened across all regions. Exchange rates impacted fee revenues favorably by $2.5 million.
Compensation and benefits expense of $64.9 million increased $13.6 million compared to $51.3 million in Q104. The increase reflects an increase in bonus expense as a result of increased profitability coupled by an unfavorable impact of exchange rates of $1.5 million.
General and administrative expense was $20.8 million compared to $16.8 million in Q104. The increase of $4.0 million is due to facilities costs, professional fees and an increase in the provision for bad debts as accounts receivable increased 29% in the period.
Operating income of $14.6 million improved $21.5 million compared to Q104. Prior year first quarter operating loss of $6.9 million included $8.5 million of restructuring charges.
Balance Sheet and Liquidity
Cash and cash equivalents and marketable securities was $93.6 million at July 31, 2004 compared to $108.1 million at April 30, 2004.
Interest expense, primarily related to the borrowings under Company Owned Life Insurance (COLI) policies and Korn/Ferrys convertible securities, was $2.6 million in the current quarter, a slight decrease from prior year. At July 31, 2004, Korn/Ferry had no outstanding borrowings under its credit facility.
Results by Segment
Selected Executive Recruitment Data - Actual and Adjusted
(dollars in millions)
|
Actual |
Adjusted (a) |
|||||||||||
|
Q105 |
Q104 |
Q104 |
||||||||||
| Fee revenue |
$ | 91.1 | $ | 64.5 | $ | 64.5 | ||||||
| Revenue |
$ | 95.6 | $ | 69.4 | $ | 69.4 | ||||||
| Operating Income |
$ | 19.1 | $ | 1.5 | $ | 6.9 | ||||||
| Operating Margin |
21.0 | % | 2.4 | % | 10.7 | % | ||||||
| Average number of consultants |
385 | 385 | 385 | |||||||||
| Engagements (b) |
1,544 | 1,153 | 1,153 | |||||||||
| a) | Adjusted amounts are non-GAAP financial measures and exclude restructuring charges of $5.4 million for the three months ended July 31, 2003. These charges primarily related to severance and facility charges and did not affect fee revenue or revenue. Korn/Ferry presents adjusted amounts as alternative measures to the actual amounts for comparison purposes. Korn/Ferry uses the adjusted amounts to analyze its operating results since it believes that the restructuring charges do not reflect, and make it difficult to compare, Korn/Ferrys ongoing operations over various quarters. |
| b) | Represents new engagements opened in the respective period. |
First quarter fee revenue was $91.1 million, an increase of $26.6 million or 41% from $64.5 million in Q104. The increase in fee revenue is due to an increase in the number of new engagements opened across all regions. Exchange rates impacted fee revenue favorably by $2.1 million.
Executive recruitment operating income was $19.1 million in the current quarter, an increase of $17.6 million compared to Q104 operating income of $1.5 million, which included restructuring charges of $5.4 million. The increase in operating income reflects the increase of revenue offset by increases in bonus expense, bad debt expenses and professional fees.
The total number of consultants at July 31, 2004 was 392, an increase of approximately 14 consultants compared to July 31, 2003.
Selected Futurestep Data - Actual and Adjusted
(dollars in millions)
|
Actual |
Adjusted (a) |
|||||||||||
|
Q105 |
Q104 |
Q104 |
||||||||||
| Fee revenue |
$ | 11.7 | $ | 8.1 | $ | 8.1 | ||||||
| Revenue |
$ | 12.6 | $ | 9.0 | $ | 9.0 | ||||||
| Operating Income (loss) |
$ | 1.9 | $ | (3.5 | ) | $ | (0.5 | ) | ||||
| Operating Margin |
16.3 | % | (43.6 | )% | (6.8 | )% | ||||||
| a) | Adjusted amounts are non-GAAP financial measures and exclude restructuring charges of $3.0 million for the three months ended July 31, 2003. These charges related to severance and write-off of assets and facility charges and did not affect fee revenue or revenue. Korn/Ferry presents adjusted amounts as alternative measures to the actual amounts for comparison purposes. Korn/Ferry uses the adjusted amounts to analyze its operating results since it believes that the restructuring charges do not reflect, and make it difficult to compare, Korn/Ferrys ongoing operations over various quarters. |
First quarter fee revenue was $11.7 million, an increase of $3.6 million or 45% from Q104. The increase in fee revenue, primarily attributable to North America, continues to be driven by our strategic movement toward outsourced recruiting solutions.
Futurestep operating income was $1.9 million compared to an operating loss of $3.5 million in Q104, including restructuring charges of $3.0 million.
Outlook
Korn/Ferry estimates that second quarter fiscal 2005 fee revenue is likely to be in the range of $96 million to $103 million, assuming constant foreign exchange rates, and earnings per share is likely to be in the range of $0.14 to $0.20.
Earnings Conference Call Webcast
The earnings conference call will be held today at 9:00 AM (EST) and hosted by Paul Reilly, Chairman and CEO, and Gary Burnison, Chief Operating Officer. 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 70 offices in 35 countries, is a leading provider of executive search and leadership development solutions. Based in Los Angeles, the firm partners with clients worldwide to deliver unparalleled senior-level search, management assessment, coaching and development and middle management recruitment services through its Futurestep subsidiary. For more information, visit the Korn/Ferry International Web site at www.kornferry.com or the Futurestep Web site at www.futurestep.com.
Statements in this press release and our conference call that relate to future results and events (forward-looking statements) are based on Korn/Ferrys current expectations. 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 which are beyond the control of Korn/Ferry. The potential risks and uncertainties relate to competition, the dependence on attracting and retaining qualified and experienced consultants, the portability of client relationships, local political or economic developments in or affecting countries where we have operations, risks related to the growth and results of Futurestep, restrictions imposed by off-limits agreements, reliance on information systems and employment liability risk. For a detailed description of risks and uncertainties that could cause differences, please refer to Korn/Ferrys 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.
[Tables attached]
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| Three Months Ended July 31, |
||||||||
|
2004 |
2003 |
|||||||
| Fee revenue |
$ | 102,807 | $ | 72,587 | ||||
| Reimbursed out-of-pocket engagement expense |
5,376 | 5,746 | ||||||
| Total revenue |
108,183 | 78,333 | ||||||
| Compensation and benefits |
64,876 | 51,318 | ||||||
| General and administrative expense |
20,844 | 16,810 | ||||||
| Out-of-pocket engagement expense |
5,638 | 5,796 | ||||||
| Depreciation and amortization |
2,242 | 2,787 | ||||||
| Restructuring charges |
| 8,526 | ||||||
| Total operating expense |
93,600 | 85,237 | ||||||
| Operating income (loss) |
14,583 | (6,904 | ) | |||||
| Interest and other (expense) income, net |
(2,149 | ) | (2,248 | ) | ||||
| Income (Loss) before provision for income taxes and equity in earnings of unconsolidated subsidiaries |
12,434 | (9,152 | ) | |||||
| Provision for income taxes |
4,486 | 456 | ||||||
| Equity in earnings of unconsolidated subsidiaries |
423 | 171 | ||||||
| Net income (loss) |
$ | 8,371 | $ | (9,437 | ) | |||
| Interest expense on convertible securities, net of taxes |
775 | $ | | |||||
| Net income (loss) adjusted for computation of diluted EPS |
$ | 9,146 | $ | (9,437 | ) | |||
| Basic net income (loss) per common share |
$ | 0.22 | $ | (0.25 | ) | |||
| Basic weighted average common shares outstanding |
37,801 | 37,437 | ||||||
| Diluted net income (loss) per common share |
$ | 0.20 | $ | (0.25 | ) | |||
| Diluted weighted average common shares outstanding |
45,861 | 37,437 | ||||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
FINANCIAL SUMMARY BY SEGMENT
(in thousands)
| Three Months Ended July 31, |
||||||||||
|
2004 |
2003 |
|||||||||
| Fee Revenue: |
||||||||||
| Executive recruitment: |
||||||||||
| North America |
$ | 51,656 | $ | 36,407 | ||||||
| Europe |
24,818 | 18,155 | ||||||||
| Asia/Pacific |
12,502 | 8,007 | ||||||||
| South America |
2,106 | 1,921 | ||||||||
| Total executive recruitment |
91,082 | 64,490 | ||||||||
| Futurestep |
11,725 | 8,097 | ||||||||
| Total fee revenue |
102,807 | 72,587 | ||||||||
| Reimbursed out-of-pocket engagement expenses |
5,376 | 5,746 | ||||||||
| Total revenue |
$ | 108,183 | $ | 78,333 | ||||||
|
Margin |
Margin |
|||||||||||||
| Operating Income (Loss): | ||||||||||||||
| Executive recruitment: |
||||||||||||||
| North America |
$ | 12,100 | 23 | % | $ | 5,814 | 16 | % | ||||||
| Europe |
4,561 | 18 | % | (4,887 | ) | (27 | )% | |||||||
| Asia/Pacific |
2,198 | 18 | % | 599 | 7 | % | ||||||||
| South America |
280 | 13 | % | (8 | ) | (0 | )% | |||||||
| Total executive recruitment |
19,139 | 21 | % | 1,518 | 2 | % | ||||||||
| Futurestep |
1,910 | 16 | % | (3,531 | ) | (44 | )% | |||||||
| Corporate |
(6,466 | ) | (4,891 | ) | ||||||||||
| Total operating income (loss) |
$ | 14,583 | 14 | % | $ | (6,904 | ) | (10 | )% | |||||
|
Margin |
Margin |
|||||||||||||
| *Adjusted Operating Income (Loss): | ||||||||||||||
| Executive recruitment: |
||||||||||||||
| North America |
$ | 12,100 | 23 | % | $ | 6,078 | 17 | % | ||||||
| Europe |
4,561 | 18 | % | 23 | 0 | % | ||||||||
| Asia/Pacific |
2,198 | 18 | % | 759 | 9 | % | ||||||||
| South America |
280 | 13 | % | 50 | 3 | % | ||||||||
| Total executive recruitment |
19,139 | 21 | % | 6,910 | 11 | % | ||||||||
| Futurestep |
1,910 | 16 | % | (549 | ) | (7 | )% | |||||||
| Corporate |
(6,466 | ) | (4,739 | ) | ||||||||||
| Total adjusted operating income |
$ | 14,583 | 14 | % | $ | 1,622 | 2 | % | ||||||
| * | Adjusted operating income (loss) on this page and adjusted operating EBITDA on the following page excludes restructuring charges related to severance and facilities of $8.5 million for the three months ended July 31, 2003. Executive recruitment, Futurestep and Corporate restructuring charges were $5.4 million, $3.0 million and $0.1 million, respectively, for the three months ended July 31, 2003. |
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
| As of July 31, 2004 |
As of April 30, 2004 |
|||||||
| ASSETS | ||||||||
| Cash and cash equivalents |
$ | 86,287 | $ | 108,102 | ||||
| Marketable Securities |
7,266 | | ||||||
| Receivables due from clients, net of allowance for doubtful accounts of $7,414 and $6,159 |
67,413 | 52,306 | ||||||
| Income taxes and other receivables |
4,714 | 5,812 | ||||||
| Deferred income taxes |
9,320 | 9,320 | ||||||
| Prepaid expenses |
11,182 | 10,128 | ||||||
| Total current assets |
186,182 | 185,668 | ||||||
| Property and equipment, net |
18,769 | 19,603 | ||||||
| Cash surrender value of company owned life insurance policies, net of loans |
59,324 | 58,868 | ||||||
| Deferred income taxes |
28,375 | 27,352 | ||||||
| Goodwill |
98,574 | 98,481 | ||||||
| Deferred financing costs, investments and other |
7,514 | 7,670 | ||||||
| Total assets |
$ | 398,738 | $ | 397,642 | ||||
| LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
| Accounts payable |
$ | 9,032 | $ | 8,676 | ||||
| Income taxes payable |
3,855 | 2,956 | ||||||
| Compensation and benefits payable |
42,180 | 60,957 | ||||||
| Other accrued liabilities |
23,860 | 24,785 | ||||||
| Total current liabilities |
78,927 | 97,374 | ||||||
| Deferred compensation and other retirement plans |
54,168 | 53,018 | ||||||
| Long-term debt |
45,195 | 44,400 | ||||||
| Other liabilities |
10,577 | 11,456 | ||||||
| 7.5% Convertible mandatorily redeemable preferred stock, net of unamortized discount and issuance costs, redemption value $11,485 |
10,747 | 10,512 | ||||||
| Total liabilities |
199,614 | 216,760 | ||||||
| Shareholders equity |
||||||||
| Common stock: $0.01 par value, 150,000 shares authorized, 40,061 and 39,363 shares issued and 39,012 and 38,170 shares outstanding |
318,287 | 307,003 | ||||||
| Retained deficit |
(112,833 | ) | (121,204 | ) | ||||
| Unearned restricted stock compensation |
(4,568 | ) | (2,341 | ) | ||||
| Accumulated other comprehensive loss |
(949 | ) | (1,596 | ) | ||||
| Shareholders equity |
199,937 | 181,862 | ||||||
| Less: Notes receivable from shareholders |
(813 | ) | (980 | ) | ||||
| Total shareholders equity |
199,124 | 180,882 | ||||||
| Total liabilities and shareholders equity |
$ | 398,738 | $ | 397,642 | ||||