PRESS RELEASE
Published on March 8, 2007
Exhibit 99.1
For Immediate Release
Contacts: For investors:
Gary Burnison (310) 226-2613
For media:
Anneli Ballard (212) 984-9350
Korn/Ferry International Achieves Record Fee Revenue in the Third Quarter
Highlights
| | Third quarter fiscal 2007 fee revenue was a record $165.2 million, an increase of $35.6 million, or 27%, from $129.6 million in the same quarter last year. |
| | Adjusted third quarter fiscal 2007 diluted earnings per share, which excludes the impact of SFAS 123(R), was $0.34, an increase of 26% over Q306 adjusted diluted earnings per share of $0.27. |
| | The Company also announced that its Board of Directors, at its March 6, 2007 meeting, approved the repurchase of up to an additional $50 million of Korn/Ferry common stock in a common stock repurchase program. |
Los Angeles, CA, March 8, 2007 - Korn/Ferry International (NYSE:KFY), a premier global provider of talent management solutions, announced third quarter fiscal 2007 diluted earnings per share of $0.33 compared to $0.37 in Q306 (excluding a loss recovery on an investment sold in the third quarter of last year, Q306 diluted earnings per share was $0.27).
The strength of our strategy is clear with another quarter of record revenues and profit, Korn/Ferrys unique approach to talent management is redefining the industry, said Paul C. Reilly, Chairman and CEO, Korn/Ferry. As we move forward, our unique array of offerings will provide our consultants with a differentiated platform, our clients with solutions to complicated talent needs and significant rewards to our shareholders. The future of Korn/Ferry looks very promising.
Financial Results
(dollars in millions, except per share amounts)
| Third Quarter | Year to Date | |||||||||||||||
| Q307 | Q306 | Q307 | Q306 | |||||||||||||
| Fee Revenue |
$ | 165.2 | $ | 129.6 | $ | 473.7 | $ | 377.6 | ||||||||
| Revenue |
$ | 173.5 | $ | 136.8 | $ | 499.4 | $ | 398.8 | ||||||||
| Operating Income |
$ | 21.4 | $ | 18.7 | $ | 62.9 | $ | 55.5 | ||||||||
| Operating Margin |
13.0 | % | 14.4 | % | 13.3 | % | 14.7 | % | ||||||||
| Net Income |
$ | 14.7 | $ | 16.6 | $ | 42.0 | $ | 39.1 | ||||||||
| Basic Earnings Per Share |
$ | 0.37 | $ | 0.41 | $ | 1.07 | $ | 0.98 | ||||||||
| Diluted Earnings Per Share |
$ | 0.33 | $ | 0.37 | $ | 0.95 | $ | 0.88 | ||||||||
| Adjusted Results* |
||||||||||||||||
| Net Income |
$ | 15.5 | $ | 12.1 | $ | 44.8 | $ | 34.6 | ||||||||
| Operating Margin |
13.7 | % | 14.4 | % | 14.2 | % | 14.7 | % | ||||||||
| Basic Earnings Per Share |
$ | 0.39 | $ | 0.30 | $ | 1.14 | $ | 0.87 | ||||||||
| Diluted Earnings Per Share |
$ | 0.34 | $ | 0.27 | $ | 1.01 | $ | 0.78 | ||||||||
* Adjusted results exclude the effect of SFAS 123(R), which was implemented in Q107 and a $4.5 million loss recovery on an investment sold by the Company in Q306. These are non-GAAP measures that the Companys management believes provides useful information regarding results of operations because they have been prepared on a basis comparable to that used in prior periods. It is not intended to replace Net Income or EPS measured in accordance with U.S. Generally Accepted Accounting Principles (see attached reconciliation).
Fee revenue of $165.2 million in Q307 increased $35.6 million, or 27%, from $129.6 million in Q306. Fee revenue improved globally due to an increase in revenues from all segments of the business with an increase in the number of search engagements opened as well as a 14% increase in the average fee billed per executive search engagement compared to the prior year. Exchange rates impacted fee revenue in Q307 favorably by $5.6 million compared to Q306.
Compensation and benefits of $112.3 million in Q307 increased $25.4 million, or 29%, compared to $86.9 million in Q306. The increase is a reflection of higher headcount in all segments of the Company as the business continues to grow and the Company continues to invest in its operations. Exchange rates impacted compensation and benefits unfavorably by $3.5 million in the current quarter.
General and administrative expense of $26.8 million in Q307 increased by $5.5 million, or 26%, from $21.3 million in Q306 as a result of an increase in business volume across all regions and segments and an unfavorable impact of exchange rates of $1.0 million.
Operating income was $21.4 million in Q307, an improvement of $2.7 million or 14%, over Q306. Adjusted for the effect of SFAS 123(R) operating margin for the quarter was 13.7%.
Balance Sheet and Liquidity
Cash, cash equivalents and marketable securities were $282.6 million at January 31, 2007 compared to $232.1 million at January 31, 2006. The increase was due primarily to improved operating cash flows.
Through March 6, 2007, the Company has used $54.2 million of the $75 million of share repurchase funds, authorized in December 2005 and June 2006, to buy back approximately 2.66 million shares. Additionally, at the March 6, 2007 meeting, the Board of Directors authorized an additional $50 million for share repurchases bringing the total authorized and unused share repurchase funds to approximately $71 million. Under this program, shares may be repurchased from time to time in open market transactions or privately negotiated transactions at the Companys discretion, subject to market conditions and other factors.
Interest expense was $2.5 million in both Q307 and Q306. Interest expense in both years related primarily to borrowings under Korn/Ferrys convertible securities and COLI policies. At January 31, 2007, Korn/Ferry had no outstanding borrowings under its credit facility.
Results by Segment
Selected Executive Recruitment Data
(dollars in millions)
| Third Quarter | Year to Date | |||||||||||||||
| Q307 | Q306 | Q307 | Q306 | |||||||||||||
| Fee revenue |
$ | 142.9 | $ | 111.7 | $ | 410.5 | $ | 326.0 | ||||||||
| Revenue |
$ | 149.2 | $ | 117.1 | $ | 430.7 | $ | 342.3 | ||||||||
| Operating Income |
$ | 27.3 | $ | 24.4 | $ | 80.6 | $ | 71.3 | ||||||||
| Operating Margin |
19.1 | % | 21.9 | % | 19.6 | % | 21.9 | % | ||||||||
| Average number of consultants |
482 | 434 | 469 | 429 | ||||||||||||
| Engagements (a) |
1,722 | 1,590 | 5,097 | 4,541 | ||||||||||||
| (a) | Represents new engagements opened in the respective period. |
Fee revenue was $142.9 million in Q307, an increase of $31.2 million, or 28%, from $111.7 million in Q306. Fee revenue improved in all regions due to an increase in the overall number of engagements and average fee per engagement.
Operating income improved $2.9 million in Q307, or 12%, to $27.3 million compared to $24.4 million in Q306. Excluding the $1.1 million effect of SFAS 123(R), operating income was $28.4 million, or a 16% increase over the prior year.
The total number of consultants at January 31, 2007 was 485, an increase of 49 from January 31, 2006.
Selected Futurestep Data
(dollars in millions)
| Third Quarter | Year to Date | |||||||||||||||
| Q307 | Q306 | Q307 | Q306 | |||||||||||||
| Fee revenue |
$ | 22.3 | $ | 18.0 | $ | 63.2 | $ | 51.6 | ||||||||
| Revenue |
$ | 24.3 | $ | 19.7 | $ | 68.7 | $ | 56.6 | ||||||||
| Operating Income |
$ | 2.3 | $ | 1.4 | $ | 5.1 | $ | 4.8 | ||||||||
| Operating Margin |
10.3 | % | 7.8 | % | 8.1 | % | 9.3 | % | ||||||||
Fee revenue was $22.3 million in Q307, an increase of $4.3 million, or 24%, from $18.0 million in Q306. Improvements in fee revenue were driven by an increase in the average fee for engagements.
Operating income was $2.3 million in Q307, an increase of $0.9 million from operating income of $1.4 million in Q306. Operating margin for the quarter increased to 10.3% from 7.8% in the prior year.
Outlook
Assuming constant foreign exchange rates, Korn/Ferry estimates that fourth quarter fiscal 2007 fee revenue is likely to be in the range of $165 million to $175 million and diluted earnings per share is likely to be in the range of $0.33 to $0.35.
Earnings Conference Call Webcast
The earnings conference call will be held today at 8:00 AM (EST) and hosted by Paul C. 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 more than 70 offices in 40 countries, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that help clients to identify, deploy, develop, retain and reward their talent. For more information on the Korn/Ferry International family of companies, visit www.kornferry.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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||
| January 31, | January 31, | ||||||||||||
| 2007 | 2006 | 2007 | 2006 | ||||||||||
| Fee revenue |
$ | 165,239 | $ | 129,626 | $ | 473,720 | $ | 377,616 | |||||
| Reimbursed out-of-pocket engagement expenses |
8,269 | 7,191 | 25,721 | 21,229 | |||||||||
| Total revenue |
173,508 | 136,817 | 499,441 | 398,845 | |||||||||
| Compensation and benefits |
112,343 | 86,936 | 318,852 | 246,100 | |||||||||
| General and administrative expense |
26,806 | 21,305 | 79,431 | 68,034 | |||||||||
| Out-of-pocket engagement expense |
10,394 | 7,684 | 31,040 | 22,569 | |||||||||
| Depreciation and amortization |
2,557 | 2,177 | 7,214 | 6,597 | |||||||||
| Total operating expense |
152,100 | 118,102 | 436,537 | 343,300 | |||||||||
| Operating income |
21,408 | 18,715 | 62,904 | 55,545 | |||||||||
| Interest and other income (expense), net |
664 | 3,822 | (289 | ) | 1,276 | ||||||||
| Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries |
22,072 | 22,537 | 62,615 | 56,821 | |||||||||
| Provision for income taxes |
8,100 | 6,375 | 23,184 | 19,164 | |||||||||
| Equity in earnings of unconsolidated subsidiaries, net |
758 | 451 | 2,528 | 1,473 | |||||||||
| Net income |
$ | 14,730 | $ | 16,613 | $ | 41,959 | $ | 39,130 | |||||
| Interest expense on convertible securities, net of taxes |
785 | 785 | 2,354 | 2,353 | |||||||||
| Net income adjusted for computation of diluted EPS |
$ | 15,515 | $ | 17,398 | $ | 44,313 | $ | 41,483 | |||||
| Basic earnings per common share |
$ | 0.37 | $ | 0.41 | $ | 1.07 | $ | 0.98 | |||||
| Basic weighted average common shares outstanding |
39,650 | 40,248 | 39,229 | 39,895 | |||||||||
| Diluted earnings per common share |
$ | 0.33 | $ | 0.37 | $ | 0.95 | $ | 0.88 | |||||
| Diluted weighted average common shares outstanding |
47,449 | 47,484 | 46,860 | 47,226 | |||||||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
FINANCIAL SUMMARY BY SEGMENT
(in thousands)
(unaudited)
| Three Months Ended January 31, |
Nine Months Ended January 31, |
|||||||||||||||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||||||
| Fee Revenue: |
||||||||||||||||||||||||||||
| Executive recruitment: |
||||||||||||||||||||||||||||
| North America |
$ | 82,177 | $ | 64,371 | $ | 237,667 | $ | 188,852 | ||||||||||||||||||||
| Europe |
37,872 | 28,934 | 104,878 | 83,801 | ||||||||||||||||||||||||
| Asia/Pacific |
18,608 | 13,930 | 55,169 | 41,941 | ||||||||||||||||||||||||
| South America |
4,311 | 4,417 | 12,777 | 11,450 | ||||||||||||||||||||||||
| Total executive recruitment |
142,968 | 111,652 | 410,491 | 326,044 | ||||||||||||||||||||||||
| Futurestep |
22,271 | 17,974 | 63,229 | 51,572 | ||||||||||||||||||||||||
| Total fee revenue |
165,239 | 129,626 | 473,720 | 377,616 | ||||||||||||||||||||||||
| Reimbursed out-of-pocket engagement expenses |
8,269 | 7,191 | 25,721 | 21,229 | ||||||||||||||||||||||||
| Total revenue |
$ | 173,508 | $ | 136,817 | $ | 499,441 | $ | 398,845 | ||||||||||||||||||||
| Operating Income (Loss): | Margin | Margin | Margin | Margin | ||||||||||||||||||||||||
| Executive recruitment: |
||||||||||||||||||||||||||||
| North America |
$ | 17,428 | 21 | % | $ | 15,260 | 24 | % | $ | 51,286 | 22 | % | $ | 44,666 | 24 | % | ||||||||||||
| Europe |
5,996 | 16 | % | 5,470 | 19 | % | 17,391 | 17 | % | 16,065 | 19 | % | ||||||||||||||||
| Asia/Pacific |
3,622 | 19 | % | 2,745 | 20 | % | 10,609 | 19 | % | 8,632 | 21 | % | ||||||||||||||||
| South America |
231 | 5 | % | 941 | 21 | % | 1,329 | 10 | % | 1,888 | 16 | % | ||||||||||||||||
| Total executive recruitment |
27,277 | 19 | % | 24,416 | 22 | % | 80,615 | 20 | % | 71,251 | 22 | % | ||||||||||||||||
| Futurestep |
2,252 | 10 | % | 1,396 | 8 | % | 5,141 | 8 | % | 4,793 | 9 | % | ||||||||||||||||
| Corporate |
(8,121 | ) | (7,098 | ) | (22,852 | ) | (20,499 | ) | ||||||||||||||||||||
| Total operating income |
$ | 21,408 | 13 | % | $ | 18,714 | 14 | % | $ | 62,904 | 13 | % | $ | 55,545 | 15 | % | ||||||||||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
| As of January 31, 2007 |
As of April 30, 2006 |
|||||||
| ASSETS |
||||||||
| Cash and cash equivalents |
$ | 248,795 | $ | 257,543 | ||||
| Marketable securities |
33,826 | 20,654 | ||||||
| Receivables due from clients, net of allowance for doubtful accounts of $11,880 and $8,818, respectively |
121,374 | 87,287 | ||||||
| Income taxes and other receivables |
5,912 | 5,328 | ||||||
| Deferred income taxes |
9,853 | 9,669 | ||||||
| Prepaid expenses |
15,411 | 14,019 | ||||||
| Total current assets |
435,171 | 394,500 | ||||||
| Property and equipment, net |
23,155 | 20,533 | ||||||
| Cash surrender value of company owned life insurance policies, net of loans |
74,475 | 70,592 | ||||||
| Deferred income taxes |
35,400 | 32,267 | ||||||
| Goodwill and intangible assets, net |
137,666 | 109,484 | ||||||
| Deferred financing costs, investments and other |
10,294 | 8,115 | ||||||
| Total assets |
$ | 716,161 | $ | 635,491 | ||||
| LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
| Accounts payable |
$ | 9,796 | $ | 9,731 | ||||
| Income taxes payable |
28,335 | 17,138 | ||||||
| Compensation and benefits payable |
113,114 | 121,885 | ||||||
| Other accrued liabilities |
36,443 | 27,537 | ||||||
| Total current liabilities |
187,688 | 176,291 | ||||||
| Deferred compensation and other retirement plans |
85,200 | 71,790 | ||||||
| Long-term debt |
47,325 | 45,147 | ||||||
| Other liabilities |
6,417 | 7,523 | ||||||
| 7.5% Convertible mandatorily redeemable preferred stock, net of unamortized discount and issuance costs, redemption value $11,387 |
11,137 | 10,989 | ||||||
| Total liabilities |
337,767 | 311,740 | ||||||
| Shareholders equity |
||||||||
| Common stock: $0.01 par value, 150,000 shares authorized, 46,376 and 43,628 shares issued and 42,604 and 41,201 shares outstanding, respectively |
369,910 | 344,285 | ||||||
| Retained earnings (deficit) |
18,805 | (23,154 | ) | |||||
| Unearned restricted stock compensation |
(23,354 | ) | (7,731 | ) | ||||
| Accumulated other comprehensive income |
13,587 | 10,910 | ||||||
| Shareholders equity |
378,948 | 324,310 | ||||||
| Less: Notes receivable from shareholders |
(554 | ) | (559 | ) | ||||
| Total shareholders equity |
378,394 | 323,751 | ||||||
| Total liabilities and shareholders equity |
$ | 716,161 | $ | 635,491 | ||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
EXCLUDING NON-GAAP ADJUSTMENTS
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended January 31, |
||||||||||||||||||
| 2007 - As Reported |
123(R) Expense |
2007 - As Adjusted |
2006 - As Reported |
Loss Recovery |
2006 - As Adjusted |
|||||||||||||
| Fee revenue |
$ | 165,239 | $ | 165,239 | $ | 129,626 | $ | 129,626 | ||||||||||
| Reimbursed out-of-pocket engagement expenses |
8,269 | 8,269 | 7,191 | 7,191 | ||||||||||||||
| Total revenue |
173,508 | 173,508 | 136,817 | 136,817 | ||||||||||||||
| Compensation and benefits |
112,343 | 1,250 | 111,093 | 86,936 | 86,936 | |||||||||||||
| General and administrative expense |
26,806 | 26,806 | 21,305 | 21,305 | ||||||||||||||
| Out-of-pocket engagement expense |
10,394 | 10,394 | 7,684 | 7,684 | ||||||||||||||
| Depreciation and amortization |
2,557 | 2,557 | 2,177 | 2,177 | ||||||||||||||
| Total operating expense |
152,100 | 1,250 | 150,850 | 118,102 | 118,102 | |||||||||||||
| Operating income |
21,408 | 22,658 | 18,715 | 18,715 | ||||||||||||||
| Interest and other income (expense), net |
664 | 664 | 3,822 | (4,535 | ) | (713 | ) | |||||||||||
| Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries |
22,072 | 23,322 | 22,537 | 18,002 | ||||||||||||||
| Provision for income taxes |
8,100 | 470 | 8,570 | 6,375 | 6,375 | |||||||||||||
| Equity in earnings of unconsolidated subsidiaries, net |
758 | 758 | 451 | 451 | ||||||||||||||
| Net income |
$ | 14,730 | $ | 15,510 | $ | 16,613 | $ | 12,078 | ||||||||||
| Interest expense on convertible securities, net of taxes |
785 | 785 | 785 | 785 | ||||||||||||||
| Net income adjusted for computation of diluted EPS |
$ | 15,515 | $ | 16,295 | $ | 17,398 | $ | 12,863 | ||||||||||
| Basic earnings per common share |
$ | 0.37 | $ | 0.39 | $ | 0.41 | $ | 0.30 | ||||||||||
| Basic weighted average common shares outstanding |
39,650 | 39,650 | 40,248 | 40,248 | ||||||||||||||
| Diluted earnings per common share |
$ | 0.33 | $ | 0.34 | $ | 0.37 | $ | 0.27 | ||||||||||
| Diluted weighted average common shares outstanding |
47,449 | 47,449 | 47,484 | 47,484 | ||||||||||||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
EXCLUDING NON-GAAP ADJUSTMENTS
(in thousands, except per share amounts)
(unaudited)
| Nine Months Ended January 31, |
||||||||||||||||||||
| 2007 - As Reported |
123(R) Expense |
2007 - As Adjusted |
2006 - As Reported |
Loss Recovery |
2006 - As Adjusted |
|||||||||||||||
| Fee revenue |
$ | 473,720 | $ | 473,720 | $ | 377,616 | $ | 377,616 | ||||||||||||
| Reimbursed out-of-pocket engagement expenses |
25,721 | 25,721 | 21,229 | 21,229 | ||||||||||||||||
| Total revenue |
499,441 | 499,441 | 398,845 | 398,845 | ||||||||||||||||
| Compensation and benefits |
318,852 | 4,542 | 314,310 | 246,100 | 246,100 | |||||||||||||||
| General and administrative expense |
79,431 | 79,431 | 68,034 | 68,034 | ||||||||||||||||
| Out-of-pocket engagement expense |
31,040 | 31,040 | 22,569 | 22,569 | ||||||||||||||||
| Depreciation and amortization |
7,214 | 7,214 | 6,597 | 6,597 | ||||||||||||||||
| Total operating expense |
436,537 | 4,542 | 431,995 | 343,300 | 343,300 | |||||||||||||||
| Operating income |
62,904 | 67,446 | 55,545 | 55,545 | ||||||||||||||||
| Interest and other income (expense), net |
(289 | ) | (289 | ) | 1,276 | (4,535 | ) | (3,259 | ) | |||||||||||
| Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries |
62,615 | 67,157 | 56,821 | 52,286 | ||||||||||||||||
| Provision for income taxes |
23,184 | 1,708 | 24,892 | 19,164 | 19,164 | |||||||||||||||
| Equity in earnings of unconsolidated subsidiaries, net |
2,528 | 2,528 | 1,473 | 1,473 | ||||||||||||||||
| Net income |
$ | 41,959 | $ | 44,793 | $ | 39,130 | $ | 34,595 | ||||||||||||
| Interest expense on convertible securities, net of taxes |
2,354 | 2,354 | 2,353 | 2,353 | ||||||||||||||||
| Net income adjusted for computation of diluted EPS |
$ | 44,313 | $ | 47,147 | $ | 41,483 | $ | 36,948 | ||||||||||||
| Basic earnings per common share |
$ | 1.07 | $ | 1.14 | $ | 0.98 | $ | 0.87 | ||||||||||||
| Basic weighted average common shares outstanding |
39,229 | 39,229 | 39,895 | 39,895 | ||||||||||||||||
| Diluted earnings per common share |
$ | 0.95 | $ | 1.01 | $ | 0.88 | $ | 0.78 | ||||||||||||
| Diluted weighted average common shares outstanding |
46,860 | 46,860 | 47,226 | 47,226 | ||||||||||||||||