PRESS RELEASE
Published on September 6, 2007
Exhibit 99.1
For Immediate Release
Contacts: For investors:
Gregg Kvochak (310) 556-8550
For media:
Anneli Ballard (212) 984-9350
Korn/Ferry International Announces a 21% Increase in Fee Revenue in the First Quarter
Highlights
| | First quarter fiscal 2008 fee revenue was $185.4 million, an increase of $32.6 million, or 21%, from $152.8 million in the same quarter last year. |
| | First quarter fiscal 2008 diluted earnings per share was $0.36, an increase of 16% over Q107 diluted earnings per share of $0.31. |
Los Angeles, CA, September 6, 2007 - Korn/Ferry International (NYSE:KFY), a premier global provider of talent management solutions, announced first quarter fiscal 2008 diluted earnings per share of $0.36 compared to $0.31 in Q107.
Despite the recent volatility in the global financial markets, worldwide demand remained steady across all of our lines of business during the first quarter, said Gary D. Burnison, CEO, Korn/Ferry. While we are monitoring the economic climate with some caution, we remain committed to the strategic transformation of Korn/Ferry into a diversified human capital solutions firm. We will prudently invest in our businesses and people to strengthen relationships with clients and drive long-term shareholder value.
Financial Results
(dollars in millions, except per share amounts)
| First Quarter | ||||||||
| Q108 | Q107 | |||||||
| Fee Revenue |
$ | 185.4 | $ | 152.8 | ||||
| Revenue |
$ | 196.3 | $ | 161.1 | ||||
| Operating Income |
$ | 25.1 | $ | 20.3 | ||||
| Operating Margin |
13.5 | % | 13.3 | % | ||||
| Net Income |
$ | 17.1 | $ | 13.7 | ||||
| Basic Earnings Per Share |
$ | 0.38 | $ | 0.35 | ||||
| Diluted Earnings Per Share |
$ | 0.36 | $ | 0.31 | ||||
Fee revenue of $185.4 million in Q108 increased $32.6 million, or 21% (17.3% on a constant currency basis), from $152.8 million in Q107. 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 an 11% increase in the average fee billed per executive search engagement compared to the prior year. Exchange rates impacted fee revenue in Q108 favorably by $6.2 million compared to Q107.
Excluding the $3.4 million unfavorable impact of exchanges rates, compensation and benefits were $119.6 million in Q108, an increase of $15.2 million, or 14.6%, compared to $104.4 million in Q107. The increase is attributable to profitability based compensation and higher headcount in all segments of the Company. Actual compensation and benefits for Q108 was $123.0 million in Q108 compared to $104.4 million in Q107, an increase of 18%.
General and administrative expenses of $31.7 million in Q108 increased by $7.3 million, or 30.0%, from $24.4 million in Q107 as a result of an increase in business volume across all regions and segments and an unfavorable impact of exchange rates of $0.1 million.
Operating income was $25.1 million in Q108, an increase of $4.8 million or 23.6%, over Q107.
Balance Sheet and Liquidity
Cash, cash equivalents and marketable securities were $245.3 million at July 31, 2007 compared to $210.8 million at July 31, 2006. The increase was due primarily to improved operating cash flows.
Through July 31, 2007, the Company has used approximately $88.4 million of the $125 million of share repurchase funds authorized by the Board of Directors to buy back approximately 4.1 million shares.
Interest expense was $1.2 million in Q108 compared to $2.5 million in the same period last year. Interest expense in the prior year related primarily to borrowings under Korn/Ferrys convertible securities and COLI policies. The decrease in interest expense is primarily due to the conversion of all of the Companys convertible securities to common shares during Q407. At July 31, 2007, Korn/Ferry had no outstanding borrowings under its credit facility.
Results by Segment
Selected Executive Recruitment Data
(dollars in millions)
| First Quarter | ||||||||
| Q108 | Q107 | |||||||
| Fee Revenue |
$ | 159.8 | $ | 132.5 | ||||
| Revenue |
$ | 166.7 | $ | 139.3 | ||||
| Operating Income |
$ | 32.7 | $ | 26.7 | ||||
| Operating Margin |
20.5 | % | 20.2 | % | ||||
| Average number of consultants |
512 | 453 | ||||||
| Engagements (a) |
1,774 | 1,719 | ||||||
| (a) | Represents new engagements opened in the respective period. |
Fee revenue was $159.8 million in Q108, an increase of $27.3 million, or 20.6%, from $132.5 million in Q107. Fee revenue improved in all regions due to an increase in the overall number of engagements and average fee per engagement. Exchange rates impacted fee revenue in Q108 favorably by $4.8 million compared to Q107.
Operating income improved $6.0 million in Q108, or 22.5%, to $32.7 million compared to $26.7 million in Q107.
The total number of consultants at July 31, 2007 was 516, an increase of 50 from July 31, 2006.
Selected Futurestep Data
(dollars in millions)
| First Quarter | ||||||||
| Q108 | Q107 | |||||||
| Fee Revenue |
$ | 25.6 | $ | 20.3 | ||||
| Revenue |
$ | 29.6 | $ | 21.8 | ||||
| Operating Income |
$ | 2.1 | $ | 1.0 | ||||
| Operating Margin |
8.2 | % | 5.1 | % | ||||
Fee revenue was $25.6 million in Q108, an increase of $5.3 million, or 26.1%, from $20.3 million in Q107. Improvements in fee revenue were driven by an increase in
the average fee per engagement. Exchange rates impacted fee revenue in Q108 favorably by $1.4 million compared to Q107.
Operating income improved $1.1 million to $2.1 million compared to $1.0 million in Q108. Operating margin for the quarter increased to 8.2% from 5.1% in Q107.
Outlook
Assuming constant foreign exchange rates, Korn/Ferry estimates that second quarter fiscal 2008 fee revenue is likely to be in the range of $174 million to $185 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 10:00 AM (EDT) and hosted by Gary Burnison, Chief Executive Officer, and Gregg Kvochak, Vice President, Finance. 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
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
| Quarter Ended July 31, | |||||||
| 2007 | 2006 | ||||||
| Fee revenue |
$ | 185,353 | $ | 152,763 | |||
| Reimbursed out-of-pocket engagement expenses |
10,924 | 8,383 | |||||
| Total revenue |
196,277 | 161,146 | |||||
| Compensation and benefits |
122,986 | 104,437 | |||||
| General and administrative expense |
31,701 | 24,365 | |||||
| Out-of-pocket engagement expense |
14,127 | 9,707 | |||||
| Depreciation and amortization |
2,350 | 2,289 | |||||
| Total operating expense |
171,164 | 140,798 | |||||
| Operating income |
25,113 | 20,348 | |||||
| Interest and other income (expense), net |
1,498 | (81 | ) | ||||
| Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries |
26,611 | 20,267 | |||||
| Provision for income taxes |
10,434 | 7,600 | |||||
| Equity in earnings of unconsolidated subsidiaries |
923 | 996 | |||||
| Net income |
$ | 17,100 | $ | 13,663 | |||
| Interest expense on convertible securities, net of taxes |
38 | 784 | |||||
| Net income adjusted for computation of diluted EPS |
$ | 17,138 | $ | 14,447 | |||
| Basic earnings per common share |
$ | 0.38 | $ | 0.35 | |||
| Basic weighted average common shares outstanding |
45,041 | 39,021 | |||||
| Diluted earnings per common share |
$ | 0.36 | $ | 0.31 | |||
| Diluted weighted average common shares outstanding |
47,063 | 46,768 | |||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
FINANCIAL SUMMARY BY SEGMENT
(in thousands)
(unaudited)
| Quarter Ended July 31, |
||||||||||||||
| 2007 | 2006 | |||||||||||||
| Fee Revenue: |
||||||||||||||
| Executive recruitment: |
||||||||||||||
| North America |
$ | 87,314 | $ | 75,484 | ||||||||||
| Europe |
44,722 | 34,187 | ||||||||||||
| Asia/Pacific |
22,661 | 18,264 | ||||||||||||
| South America |
5,070 | 4,479 | ||||||||||||
| Total executive recruitment |
159,767 | 132,414 | ||||||||||||
| Futurestep |
25,586 | 20,349 | ||||||||||||
| Total fee revenue |
185,353 | 152,763 | ||||||||||||
| Reimbursed out-of-pocket engagement expenses |
10,924 | 8,383 | ||||||||||||
| Total revenue |
$ | 196,277 | $ | 161,146 | ||||||||||
| Margin | Margin | |||||||||||||
| Operating Income (Loss): |
||||||||||||||
| Executive recruitment: |
||||||||||||||
| North America |
$ | 19,791 | 23 | % | $ | 17,080 | 23 | % | ||||||
| Europe |
7,691 | 17 | % | 5,204 | 15 | % | ||||||||
| Asia/Pacific |
4,537 | 20 | % | 3,690 | 20 | % | ||||||||
| South America |
661 | 13 | % | 738 | 16 | % | ||||||||
| Total executive recruitment |
32,680 | 20 | % | 26,712 | 20 | % | ||||||||
| Futurestep |
2,084 | 8 | % | 1,044 | 5 | % | ||||||||
| Corporate |
(9,651 | ) | (7,408 | ) | ||||||||||
| Total operating income |
$ | 25,113 | 14 | % | $ | 20,348 | 13 | % | ||||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
| As of July 31, 2007 |
As of April 30, 2007 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Cash and cash equivalents |
$ | 199,576 | $ | 289,106 | ||||
| Marketable securities |
45,752 | 35,161 | ||||||
| Receivables due from clients, net of allowance for doubtful accounts of $11,644 and $9,822, respectively |
130,931 | 107,751 | ||||||
| Income taxes and other receivables |
5,889 | 6,357 | ||||||
| Deferred income taxes |
10,377 | 9,524 | ||||||
| Prepaid expenses |
17,441 | 16,861 | ||||||
| Total current assets |
409,966 | 464,760 | ||||||
| Property and equipment, net |
26,875 | 25,999 | ||||||
| Cash surrender value of company owned life insurance policies, net of loans |
77,356 | 76,478 | ||||||
| Deferred income taxes |
41,863 | 42,013 | ||||||
| Goodwill |
128,879 | 124,268 | ||||||
| Intangible assets, net |
17,934 | 18,040 | ||||||
| Investments and other |
10,263 | 9,933 | ||||||
| Total assets |
$ | 713,136 | $ | 761,491 | ||||
| LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
| Accounts payable |
$ | 11,665 | $ | 10,383 | ||||
| Income taxes payable |
24,875 | 22,432 | ||||||
| Compensation and benefits payable |
83,989 | 158,145 | ||||||
| Other accrued liabilities |
32,084 | 38,529 | ||||||
| Total current liabilities |
152,613 | 229,489 | ||||||
| Deferred compensation and other retirement plans |
99,703 | 91,360 | ||||||
| Other liabilities |
7,368 | 7,687 | ||||||
| Total liabilities |
259,684 | 328,536 | ||||||
| Shareholders equity |
||||||||
| Common stock: $0.01 par value, 150,000 shares authorized, 54,183 and 52,323 shares issued and 48,336 and 47,174 shares outstanding, respectively |
423,917 | 400,126 | ||||||
| Retained earnings |
45,903 | 32,344 | ||||||
| Unearned restricted stock compensation |
(39,230 | ) | (19,567 | ) | ||||
| Accumulated other comprehensive income |
23,413 | 20,605 | ||||||
| Shareholders equity |
454,003 | 433,508 | ||||||
| Less: Notes receivable from shareholders |
(551 | ) | (553 | ) | ||||
| Total shareholders equity |
453,452 | 432,955 | ||||||
| Total liabilities and shareholders equity |
$ | 713,136 | $ | 761,491 | ||||