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

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.

Sep 08, 2011, 16:30 ET from Korn/Ferry International

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