Korn/Ferry International Announces Fourth Quarter and Fiscal 2013 Results of Operations

Highlights

- Korn/Ferry reports record quarterly fee revenue of $227.9 million in the fourth quarter of 2013, an increase of 17% compared to Q4 FY'12, on a constant currency basis. Excluding current year acquisitions, quarterly fee revenues increased 2% on a constant currency basis.

- Fee revenue in Leadership & Talent Consulting services grew 92% from Q4 FY'12 to Q4 FY'13 on a constant currency basis. Excluding current year acquisitions, fourth quarter revenues were essentially flat year-over-year, on a constant currency basis.

- Fee revenue in Futurestep grew 7 %, from Q4 FY'12 to Q4 FY'13, on a constant currency basis.

- For the full year of FY'13, Korn/Ferry reports record annual fee revenue of $812.8 million, an increase of 5% over FY'12, on a constant currency basis. Excluding current year acquisitions, annual fee revenues were down 1% on a constant currency basis.

17 Jun, 2013, 16:49 ET from Korn/Ferry International

LOS ANGELES, June 17, 2013 /PRNewswire/ -- Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced record quarterly and annual fee revenues of $227.9 million and $812.8 million for the fourth quarter and full year of FY'13, respectively.  Fourth quarter adjusted diluted earnings per share were $0.32, excluding restructuring and transaction and integration costs of $3.5 million.  Full year adjusted diluted earnings per share were $1.10, excluding restructuring, transaction and integration, and separation costs of $26.5 million.  Including such costs, diluted earnings per share was $0.25 and $0.70 in the three months and year ended April 30, 2013, respectively.

"I am pleased with our strategic progress and operating results for the fourth quarter, which includes accelerating the integration of our recent acquisitions as well as further diversifying and differentiating our Company.  In the fourth quarter, Korn/Ferry's broader talent management offerings accounted for 40% of fee revenue which reflects the Company's transformation as a talent management consultancy," said Gary D. Burnison, CEO of Korn/Ferry International.  "As global companies fight for growth and relevancy in this decade, talent will be the differentiator - Korn/Ferry is the bridge between a client's business and talent strategy - delivering solutions that help our clients with the design, building and attraction of that talent."

 

Financial Results

(dollars in millions, except per share amounts)

 

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Fee revenue

$         227.9

$        198.1

$       812.8

$         790.5

Total revenue

$         238.6

$        207.6

$       849.7

$         826.8

Operating income

$           15.4

$          15.4

$         43.9

$           82.9

Operating margin

6.8%

7.8%

5.4%

10.5%

Net income

$           12.2

$          12.0

$         33.3

$           54.3

Basic earnings per share

$           0.26

$          0.26

$         0.71

$           1.17

Diluted earnings per share

$           0.25

$          0.25

$         0.70

$           1.15

EBITDA Results (a):

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

EBITDA

$            24.3

$          22.4

$         71.3

$           98.5

EBITDA margin

10.7%

11.3%

8.8%

12.5%

Adjusted Results (b):

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Operating income

$            18.9

$          17.3

$         70.4

$           85.7

Operating margin

8.3%

8.7%

8.7%

10.8%

EBITDA (a)

$            27.8

$          24.3

$         97.8

$         101.3

EBITDA margin (a)

12.2%

12.2%

12.0%

12.8%

Net income

$            15.6

$          13.3

$         52.8

$           56.2

Basic earnings per share

$            0.33

$          0.28

$         1.12

$           1.21

Diluted earnings per share

$            0.32

$          0.28

$         1.10

$           1.19

____________

(a)

EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude restructuring charges, transaction and integration costs and separation costs.  EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliation). 

(b)

Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Restructuring charges, net of recoveries

$         2.9

$           -

$     22.8

$       0.9

Transaction and integration costs

$         0.6

$           -

$       3.1

$           -

Separation costs

$             -

$       1.9

$       0.6

$       1.9

Fiscal 2013 Fourth Quarter Results  

Fee revenue was $227.9 million in Q4 FY'13, an increase of $29.8 million, or 15%, compared to the year-ago quarter (foreign exchange rates negatively impacted fee revenue by $2.9 million), primarily driven by a $28.5 million and a $1.7 million increase in fee revenue in Leadership & Talent Consulting and Futurestep.  Excluding the PDI Ninth House and Global Novations acquisitions (the "current year acquisitions"), fee revenue was $199.1 million in Q4 FY'13, an increase of 1% compared to the year-ago quarter (2% on a constant currency basis) driven by all market sectors with the largest increases in life science/healthcare, technology and the industrial sector.

Compensation and benefit expenses were $154.4 million in Q4 FY'13, an increase of $14.8 million, or 11%, compared to the year-ago quarter.  The current year acquisitions contributed $18.6 million to the increase in compensation and benefit expenses, offset by a reduction of $3.8 million primarily in salaries and related payroll taxes due to lower average headcount in Executive Recruitment. 

General and administrative expenses were $40.1 million in Q4 FY'13, an increase of $5.4 million, or 16%, from the year-ago quarter, resulting primarily from the current year acquisitions. 

As previously disclosed, during Q4 FY'13, the Company took steps to integrate PDI Ninth House by consolidating and eliminating redundant office space around the world. As a result, the Company recorded net restructuring charges of $2.9 million in Q4 FY'13 and incurred transaction and integration costs of $0.6 million in Q4 FY'13.  Excluding these costs, adjusted EBITDA was $27.8 million during Q4 FY'13, an increase of $3.5 million, or 14%, compared to Q4 FY'12.  Adjusted EBITDA margin was 12.2% in both periods.

On a GAAP basis, operating income was $15.4 million in both Q4 FY'13 and Q4 FY'12 resulting in a margin of 6.8% in the current quarter compared to 7.8% in the year-ago quarter. 

Fiscal 2013 Results  

Fee revenue was $812.8 million in FY'13, an increase of $22.3 million, or 3%, compared to FY'12 (foreign exchange rates negatively impacted fee revenue by $15.1 million).  Excluding current year acquisitions, fee revenue was $767.2 million in FY'13, a decrease of 3% (1% on a constant currency basis) compared to FY'12. 

As previously disclosed, during FY'13, the Company took steps to rationalize its cost structure and to integrate the current year acquisitions.  As a result, the Company recorded restructuring charges of $22.8 million to reduce its workforce and consolidate premises and incurred acquisition-related transaction and integration costs of $3.1 million in FY'13.

Adjusted EBITDA was $97.8 million during FY'13, a decrease of $3.5 million, or 3%, compared to FY'12.  Adjusted EBITDA margin was 12.0%, down 80 basis points from the prior year.  This decrease was primarily associated with the change in business mix and costs associated with incremental infrastructure and support services relating to the newly acquired businesses.

On a GAAP basis, operating income was $43.9 million in FY'13, a decrease of $39.0 million, or 47%, compared to FY'12 resulting in an operating margin of 5.4% in the current year compared to 10.5% in the prior year.

Balance Sheet and Liquidity

Cash and marketable securities were $366.0 million at April 30, 2013, compared to $417.7 million at April 30, 2012.  Cash and marketable securities include $98.0 million held in trust for deferred compensation plans at April 30, 2013, compared to $82.2 million at April 30, 2012.  Cash and marketable securities decreased by $51.7 million from April 30, 2012, mainly due to the payment of FY'12 annual bonuses in Q1 FY'13 and the payment for the current year acquisitions, partially offset by cash provided by operating activities.

Results by Segment

In Q1 FY'13, the Company began reporting its Leadership & Talent Consulting business as a separate segment.  The Company reports its results in three global business segments: Executive Recruitment, Leadership & Talent Consulting and Futurestep.  This change has no impact on previously reported consolidated net income or earnings per share.

 

 

Selected Executive Recruitment Data

(dollars in millions)

 

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Fee revenue

$         136.8

$       137.2

$       522.5

$         561.2

Total revenue

$         142.8

$       143.4

$       544.8

$         586.5

Operating income

$           26.5

$         22.4

$         81.0

$         109.9

Operating margin

19.4%

16.3%

15.5%

19.6%

Ending number of consultants

399

400

399

400

Average number of consultants

395

399

400

420

Engagements billed

2,718

2,692

7,554

7,879

New engagements (a)

1,231

1,175

4,750

4,963

 

EBITDA Results (b):

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

EBITDA

$        29.4

$      24.9

$       91.2

$      118.1

EBITDA margin

21.5%

18.2%

17.5%

21.0%

Adjusted Results (c):

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Operating income

$         23.9

$        22.4

$      89.7

$      110.7

Operating margin

17.5%

16.3%

17.2%

19.7%

EBITDA (a)

$         26.8

$        24.9

$      99.9

$      118.9

EBITDA margin (a)

19.6%

18.2%

19.1%

21.2%

____________

(a)   

Represents new engagements opened in the respective period.

(b)  

EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).

(c)   

Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Restructuring charges, net of recoveries

$        (2.6)

$        -

$     8.1

$       0.8

Separation costs

$             -

$        -

$     0.6

$           -

Executive Recruitment

Fee revenue was $136.8 million in Q4 FY'13, essentially flat with the year-ago quarter (foreign exchange rates negatively impacted fee revenue by $1.9 million).  Fee revenue increases in North America were offset by decreases in Europe, Asia and Latin America.  Fee revenues were impacted by a 1% decrease in the weighted-average fee billed per engagement, offset by a 1% increase in the number of executive recruitment engagements billed compared to the year-ago quarter. 

On a GAAP basis, operating income was $26.5 million in Q4 FY'13, an increase of $4.1 million, or 18%, compared to Q4 FY'12 resulting in an operating margin of 19.4% in the current quarter compared to 16.3% in the year-ago quarter.

Adjusted EBITDA was $26.8 million during Q4 FY'13, an increase of $1.9 million, or 8%, compared to Q4 FY'12.   This increase is primarily attributable to a decrease in the average headcount and associated compensation and benefits costs during the quarter compared to the year-ago quarter.  For the full year, adjusted EBITDA declined by $19.0 million due to a 5% decrease in fee revenue on a constant currency basis offset by reduced compensation and benefits and general and administrative expenses.

 

Selected Leadership & Talent Consulting Data

(dollars in millions)

 

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Fee revenue

$      60.1

$    31.6

$    168.1

$      115.4

Total revenue

$      63.1

$    33.2

$    176.6

$      120.3

Operating (loss) income

$       (1.3)

$      5.0

$        6.4

$        16.4

Operating margin

(2.1)%

15.7%

3.8%

14.2%

Ending number of consultants (a)

133

51

133

51

Staff utilization (b)

67%

67%

64%

62%

 

EBITDA Results (c):

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

EBITDA

$         1.2

$      5.6

$       12.4

$        19.1

EBITDA margin

2.0%

17.9%

7.4%

16.6%

 

Adjusted Results (d):

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Operating income

$         3.8

$        5.0

$      16.6

$        16.4

Operating margin

6.3%

15.7%

9.9%

14.2%

EBITDA (c)

$         6.3

$        5.6

$      22.6

$        19.1

EBITDA margin (c)

10.4%

17.9%

13.4%

16.6%

____________

(a)

Represents number of employees originating consulting services. FY'13 includes approximately 81 consultants from the current year acquisitions.

(b)

Calculated by dividing the number of hours of our full-time LTC professional staff, who recorded time to an engagement during the period, by the total available working hours during the same period.  Excluding the current year acquisitions, staff utilization was 64% and 63% for the three months and year ended April 30, 2013, respectively.

(c)

EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).

(d)

Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):

 

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Restructuring charges, net of recoveries

$           5.1

$         —

$     10.2

$           —

Leadership & Talent Consulting

Fee revenue was $60.1 million in Q4 FY'13, an increase of $28.5 million, or 90%, from the year-ago quarter.   Excluding the current year acquisitions, fee revenue in Q4 FY'13 was essentially flat compared to Q4 FY'12.  

On a GAAP basis, operating loss was $1.3 million, a decrease of $6.3 million compared to the year-ago quarter resulting in an operating margin of (2.1%) in the current quarter compared to 15.7% in the year-ago quarter. 

Adjusted EBITDA was $6.3 million during Q4 FY'13, an increase of $0.7 million, or 13%, compared to Q4 FY'12, primarily due to the current year acquisitions.  Adjusted EBITDA margin was 10.4% compared to 17.9% in Q4 FY'12 and was negatively impacted, in part, by the incremental infrastructure and support services costs related to the current year acquisitions.  For the full year, adjusted EBITDA increased from $19.1 million in FY'12 to $22.6 million in FY'13 due to the current year acquisitions, offset by the incremental infrastructure costs described above.

 

 

Selected Futurestep Data

(dollars in millions)

 

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Fee revenue

$       31.0

$     29.3

$    122.2

$   113.9

Total revenue

$       32.7

$     31.0

$    128.3

$   120.0

Operating income

$         3.9

$       1.4

$      11.0

$       8.5

Operating margin

12.4%

4.6%

9.0%

7.4%

Engagements billed

1,703

1,611

5,605

4,916

New engagements (a)

863

998

4,434

3,924

 

EBITDA Results (b):

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

EBITDA

$         4.1

$        1.7

$      12.2

$          9.6

EBITDA margin

13.3%

5.6%

10.0%

8.4%

 

Adjusted Results (c):

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Operating income

$          4.3

$          2.3

$      14.5

$          9.5

Operating margin

13.8%

7.7%

11.9%

8.4%

EBITDA (b)

$          4.5

$          2.6

$      15.7

$        10.6

EBITDA margin (b)

14.7%

8.7%

12.9%

9.3%

____________

(a)  

Represents new engagements opened in the respective period.

(b)

EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).

(c)

Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):

 

Fourth Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Restructuring charges, net of recoveries

$        0.4

$          -

$     3.5

$       0.1

Separation costs

$            -

$      0.9

$         -

$       0.9

Futurestep

Fee revenue was $31.0 million in Q4 FY'13, an increase of $1.7 million, or 6%, compared to the year-ago quarter (foreign exchange rates negatively impacted fee revenue by $0.4 million).  The increase in fee revenue was due to an increase in recruitment process outsourcing and recruitment.

On a GAAP basis, operating income was $3.9 million in Q4 FY'13, an increase of $2.5 million, compared to Q4 FY'12 resulting in an operating margin of 12.4% in the current quarter compared to 4.6% in the year-ago quarter.

Adjusted EBITDA was $4.5 million during Q4 FY'13, an increase of $1.9 million, or 73%, compared to Q4 FY'12, due primarily to the increase in fee revenue and a decrease in performance related bonus expenses.  For the full year, adjusted EBITDA increased $5.1 million due to the $8.3 million increase in fee revenue.

Outlook                                                         

Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, fee revenue is expected to be in the range of $215 million to $227 million in Q1 FY'14.  Also during FY'14, we are continuing with our efforts to integrate the newly acquired businesses and to reduce the incremental infrastructure and support services costs in an effective and thoughtful manner, which will be enabled through investments to align and enhance our technology platform.  In line with this, in Q1 FY'14, we expect to incur charges associated with these cost reduction efforts in the range of $3.8 million to $5.0 million which will yield $4.7 million to $5.5 million in annual savings starting late in the fiscal first quarter.  Excluding these charges, adjusted diluted earnings per share in the first quarter are likely to be in the range of $0.26 to $0.32 with diluted earnings per share as measured by generally accepted accounting principles likely to be in the range of $0.19 to $0.27.

Earnings Conference Call Webcast

The earnings conference call will be held today at 5:00 PM (EDT) and hosted by CEO Gary Burnison, CFO Robert Rozek 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, our ability to successfully integrate acquired businesses, including current year acquisitions, 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, cyber security vulnerabilities, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, consolidation of industries we serve, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, 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:

  • adjusted operating income and operating margin, adjusted to exclude restructuring, transaction and integration and separation costs;
  • adjusted net income, adjusted to exclude restructuring, transaction and integration and separation costs, net of income tax effect;
  • adjusted basic and diluted earnings per share, adjusted to exclude restructuring, transaction and integration and separation costs, net of income tax effect;
  • 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;
  • EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin; and
  • adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring, transaction and integration and separation costs, and adjusted EBITDA margin.

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 non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn/Ferry's performance by excluding certain charges and other items that may not be indicative of Korn/Ferry's ongoing operating results.  The use of these non-GAAP financial measures facilitate comparisons to Korn/Ferry's historical performance.  Korn/Ferry includes these non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn/Ferry's ongoing operations and financial and operational decision-making.  In the case of constant currency amounts, management believes the presentation of such information 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, 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 

 Year Ended 

 April 30, 

 April 30, 

2013

2012

2013

2012

 (unaudited) 

 Fee revenue 

$ 227,902

$ 198,087

$ 812,831

$ 790,505

 Reimbursed out-of-pocket engagement expenses 

10,705

9,471

36,870

36,254

           Total revenue 

238,607

207,558

849,701

826,759

 Compensation and benefits 

154,487

139,593

555,346

534,186

 General and administrative expenses 

40,096

34,668

142,771

138,872

 Engagement expenses 

19,834

14,295

65,847

55,889

 Depreciation and amortization 

5,877

3,650

19,004

14,017

 Restructuring charges, net 

2,921

-

22,857

929

           Total operating expenses 

223,215

192,206

805,825

743,893

 Operating income  

15,392

15,352

43,876

82,866

 Other income (loss), net 

2,501

2,761

6,309

(271)

 Interest expense, net 

(644)

(511)

(2,365)

(1,791)

           Income before provision for income taxes 

               and equity in earnings of unconsolidated subsidiaries 

17,249

17,602

47,820

80,804

 Income tax provision  

5,595

6,152

16,637

28,351

 Equity in earnings of unconsolidated subsidiaries, net 

543

578

2,110

1,850

            Net income 

$   12,197

$   12,028

$   33,293

$   54,303

 Earnings per common share: 

      Basic 

$       0.26

$       0.26

$       0.71

$       1.17

      Diluted 

$       0.25

$       0.25

$       0.70

$       1.15

 Weighted-average common shares outstanding: 

      Basic 

47,452

46,591

47,224

46,397

      Diluted 

48,345

47,524

47,883

47,261

 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

 (unaudited) 

Three Months Ended April 30,

Year Ended April 30,

2013

2012

% Change

2013

2012

% Change

Fee Revenue:

Executive recruitment:

North America

$   77,511

$   76,268

2%

$ 290,317

$ 305,717

(5%)

EMEA 

32,242

32,728

(1%)

128,807

141,409

(9%)

Asia Pacific

19,199

19,524

(2%)

73,221

82,230

(11%)

South America

7,839

8,642

(9%)

30,134

31,846

(5%)

Total executive recruitment

136,791

137,162

(0%)

522,479

561,202

(7%)

Leadership & Talent Consulting

60,116

31,650

90%

168,115

115,407

46%

Futurestep

30,995

29,275

6%

122,237

113,896

7%

Total fee revenue

227,902

198,087

15%

812,831

790,505

3%

 Reimbursed out-of-pocket engagement expenses 

10,705

9,471

13%

36,870

36,254

2%

Total revenue

$ 238,607

$ 207,558

15%

$ 849,701

$ 826,759

3%

Reconciliation of Operating Income (GAAP) to Adjusted Operating Income

Operating Income:

Margin

Margin

Margin

Margin

Executive recruitment:

North America

$   17,104

22.1%

$   17,148

22.5%

$   58,832

20.3%

$   75,580

24.7%

EMEA

4,137

12.8%

(266)

(0.8%)

9,173

7.1%

13,288

9.4%

Asia Pacific

3,482

18.1%

3,001

15.4%

6,973

9.5%

11,859

14.4%

South America

1,761

22.5%

2,536

29.3%

5,987

19.9%

9,207

28.9%

Total executive recruitment

26,484

19.4%

22,419

16.3%

80,965

15.5%

109,934

19.6%

Leadership & Talent Consulting

(1,292)

(2.1%)

4,971

15.7%

6,424

3.8%

16,360

14.2%

Futurestep

3,834

12.4%

1,333

4.6%

10,975

9.0%

8,445

7.4%

Corporate

(13,634)

(13,371)

(54,488)

(51,873)

 Total operating income

$   15,392

6.8%

$   15,352

7.8%

$   43,876

5.4%

$   82,866

10.5%

Restructuring, Transaction and Integration, and Separation Costs, net:

Executive recruitment:

North America

$   (1,853)

(2.4%)

$          -

-

$     3,583

1.2%

$        (15)

(0.0%)

EMEA

(770)

(2.4%)

-

-

4,498

3.5%

897

0.6%

Asia Pacific

16

0.1%

-

-

629

0.9%

-

-

South America

-

-

-

-

-

-

(99)

(0.3%)

Total executive recruitment

(2,607)

(1.9%)

-

-

8,710

1.7%

783

0.1%

Leadership & Talent Consulting

5,080

8.4%

-

-

10,198

6.1%

-

-

Futurestep

441

1.4%

920

3.1%

3,527

2.9%

1,066

1.0%

Corporate

598

999

4,044

999

 Total restructuring, transaction and integration, and separation charges, net

$     3,512

1.5%

$     1,919

0.9%

$   26,479

3.3%

$     2,848

0.3%

Adjusted Operating Income:

  (Excluding Restructuring, Transaction and Integration, and Separation Costs, net)

Margin

Margin

Margin

Margin

Executive recruitment:

North America

$   15,251

19.7%

$   17,148

22.5%

$   62,415

21.5%

$   75,565

24.7%

EMEA

3,367

10.4%

(266)

(0.8%)

13,671

10.6%

14,185

10.0%

Asia Pacific

3,498

18.2%

3,001

15.4%

7,602

10.4%

11,859

14.4%

South America

1,761

22.5%

2,536

29.3%

5,987

19.9%

9,108

28.6%

Total executive recruitment (1)

23,877

17.5%

22,419

16.3%

89,675

17.2%

110,717

19.7%

Leadership & Talent Consulting

3,788

6.3%

4,971

15.7%

16,622

9.9%

16,360

14.2%

Futurestep (1)

4,275

13.8%

2,253

7.7%

14,502

11.9%

9,511

8.4%

Corporate 

(13,036)

(12,372)

(50,444)

(50,874)

 Total adjusted operating income 

$   18,904

8.3%

$   17,271

8.7%

$   70,355

8.7%

$   85,714

10.8%

 

(1)

The Company revised the presentation for expenses that are not directly associated with Futurestep, resulting in an increase in Futurestep's operating income of $0.6 million and $2.2 million offset by a decrease in Executive Recruitment operating income in the three months and year ended April 30, 2012, respectively. 

 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (in thousands, except per share amounts) 

April 30,

2013

2012

ASSETS

Cash and cash equivalents

$    224,066

$    282,005

Marketable securities

20,347

40,936

Receivables due from clients, net of allowance for doubtful accounts 

of $9,097 and $9,437 respectively

161,508

126,579

Income taxes and other receivables

8,944

11,902

Deferred income taxes

3,511

10,830

Prepaid expenses and other assets

28,724

27,815

Total current assets

447,100

500,067

Marketable securities, non-current

121,569

94,798

Property and equipment, net

53,628

49,808

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

85,873

77,848

Deferred income taxes

63,203

57,290

Goodwill

257,293

176,338

Intangible assets, net

58,187

20,413

Investments and other assets

28,376

38,127

Total assets

$ 1,115,229

$ 1,014,689

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable

$      19,460

$      14,667

Income taxes payable

5,502

8,720

Compensation and benefits payable

160,298

160,810

Other accrued liabilities

83,291

37,527

Total current liabilities

268,551

221,724

Deferred compensation and other retirement plans

159,706

142,577

Other liabilities

22,504

20,912

Total liabilities

450,761

385,213

Stockholders' equity

Common stock: $0.01 par value, 150,000 shares authorized, 61,022 and 

59,975 shares issued and 48,734 and 47,913 shares outstanding, respectively

431,508

419,998

Retained earnings

236,090

202,797

Accumulated other comprehensive (loss) income, net

(2,631)

7,191

Stockholders' equity

664,967

629,986

Less:  notes receivable from stockholders

(499)

(510)

Total stockholders' equity

664,468

629,476

Total liabilities and stockholders' equity

$ 1,115,229

$ 1,014,689

 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP) 

 (in thousands, except per share amounts) 

 (unaudited) 

 Three Months Ended 

 Three Months Ended 

April 30, 2013

April 30, 2012

As Reported

Adjustments

As Adjusted

As Reported

Adjustments

As Adjusted

 Fee revenue 

$ 227,902

$ 227,902

$ 198,087

$ 198,087

 Reimbursed out-of-pocket engagement expenses 

10,705

10,705

9,471

9,471

           Total revenue 

238,607

238,607

207,558

207,558

 Compensation and benefits 

154,487

154,487

139,593

(1,919)

137,674

 General and administrative expenses 

40,096

(591)

39,505

34,668

34,668

 Engagement expenses 

19,834

19,834

14,295

14,295

 Depreciation and amortization 

5,877

5,877

3,650

3,650

 Restructuring charges, net 

2,921

(2,921)

-

-

-

-

           Total operating expenses 

223,215

(3,512)

219,703

192,206

(1,919)

190,287

 Operating income 

15,392

3,512

18,904

15,352

1,919

17,271

 Other income, net 

2,501

2,501

2,761

2,761

 Interest expense, net 

(644)

(644)

(511)

(511)

           Income before provision for income taxes 

                  and equity in earnings of unconsolidated subsidiaries 

17,249

3,512

20,761

17,602

1,919

19,521

 Income tax provision (1) (2) 

5,595

119

5,714

6,152

671

6,823

 Equity in earnings of unconsolidated subsidiaries, net 

543

543

578

578

            Net income 

$   12,197

$           3,393

$   15,590

$   12,028

$           1,248

$   13,276

 Earnings per common share: 

      Basic 

$       0.26

$       0.33

$       0.26

$       0.28

      Diluted 

$       0.25

$       0.32

$       0.25

$       0.28

 Weighted-average common shares outstanding: 

      Basic 

47,452

47,452

46,591

46,591

      Diluted 

48,345

48,345

47,524

47,524

 

Explanation of Non-GAAP Adjustments 

(1)

The adjustments result in an effective tax rate of 28% and 35% for the as adjusted amounts for the three months ended April 30, 2013 and 2012, respectively. 

(2)

The three months ended April 30, 2013 includes the tax effect on restructuring charges and transaction & integration costs associated with the acquisition of PDI Ninth House, while the three months ended April 30, 2012 includes the tax effect on the separation costs related to changes in certain leadership positions.

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP) 

 (in thousands, except per share amounts) 

 (unaudited) 

 Year Ended 

 Year Ended 

April 30, 2013

April 30, 2012

As Reported

Adjustments

As Adjusted

As Reported

Adjustments

As Adjusted

 Fee revenue 

$        812,831

$        812,831

$        790,505

$        790,505

 Reimbursed out-of-pocket engagement expenses 

36,870

36,870

36,254

36,254

           Total revenue 

849,701

849,701

826,759

826,759

 Compensation and benefits 

555,346

(516)

554,830

534,186

(1,919)

532,267

 General and administrative expenses 

142,771

(3,106)

139,665

138,872

138,872

 Engagement expenses 

65,847

65,847

55,889

55,889

 Depreciation and amortization 

19,004

19,004

14,017

14,017

 Restructuring charges, net 

22,857

(22,857)

-

929

(929)

-

           Total operating expenses 

805,825

(26,479)

779,346

743,893

(2,848)

741,045

 Operating income 

43,876

26,479

70,355

82,866

2,848

85,714

 Other income (loss), net 

6,309

6,309

(271)

(271)

 Interest expense, net 

(2,365)

(2,365)

(1,791)

(1,791)

         Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries 

47,820

26,479

74,299

80,804

2,848

83,652

 Income tax provision (1) (2) 

16,637

6,953

23,590

28,351

999

29,350

 Equity in earnings of unconsolidated subsidiaries, net 

2,110

2,110

1,850

1,850

            Net income  

$          33,293

$          19,526

$          52,819

$          54,303

$            1,849

$          56,152

 Earnings per common share: 

      Basic 

$              0.71

$              1.12

$              1.17

$              1.21

      Diluted 

$              0.70

$              1.10

$              1.15

$              1.19

 Weighted-average common shares outstanding: 

      Basic 

47,224

47,224

46,397

46,397

      Diluted 

47,883

47,883

47,261

47,261

 Explanation of Non-GAAP Adjustments 

 (1) The adjustments result in an annual effective tax rate of 32% and 35% for the as adjusted amounts for the year ended April 30, 2013 and 2012, respectively. 

 (2) The year ended April 30, 2013 includes the tax effect on restructuring charges, transaction and integration costs associated with the acquisition of PDI Ninth House,  and separation costs, while the year ended April 30, 2012 includes the tax effect on the separation costs related to changes in certain leadership positions and restructuring charges. 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 Three Months Ended April 30, 2013 

 Executive Recruitment 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 

 Fee revenue 

$      136,791

$       60,116

$       30,995

$                -

$          227,902

 Net income 

$            12,197

       Other income, net 

2,501

       Interest expense, net 

(644)

       Income tax provision 

5,595

       Equity in earnings of unconsolidated subsidiaries, net 

543

 Operating income (loss) 

$        26,484

$       (1,292)

$         3,834

$    (13,634)

15,392

       Depreciation and amortization 

2,243

2,625

240

769

5,877

        Other income (loss), net 

518

(146)

36

2,093

2,501

       Equity in earnings of unconsolidated subsidiaries, net 

129

-

-

414

543

 EBITDA 

29,374

1,187

4,110

(10,358)

24,313

 EBITDA margin 

21.5%

2.0%

13.3%

10.7%

       Restructuring (recoveries) charges, net 

(2,607)

5,080

441

7

2,921

       Transaction and integration costs 

-

-

-

591

591

 Adjusted EBITDA 

$        26,767

$         6,267

$         4,551

$      (9,760)

$            27,825

 Adjusted EBITDA margin 

19.6%

10.4%

14.7%

12.2%

 Three Months Ended April 30, 2012 

 Executive Recruitment 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 

 Fee revenue 

$      137,162

$       31,650

$       29,275

$                -

$          198,087

 Net income 

$            12,028

       Other income, net 

2,761

       Interest expense, net 

(511)

       Income tax provision 

6,152

       Equity in earnings of unconsolidated subsidiaries, net 

578

 Operating income (loss) 

$        22,419

$         4,971

$         1,333

$    (13,371)

15,352

       Depreciation and amortization 

2,103

671

285

591

3,650

       Other income, net 

218

18

9

2,516

2,761

       Equity in earnings of unconsolidated subsidiaries, net 

159

-

-

419

578

 EBITDA 

24,899

5,660

1,627

(9,845)

22,341

 EBITDA margin 

18.2%

17.9%

5.6%

11.3%

       Separation costs 

-

-

920

999

1,919

 Adjusted EBITDA 

$        24,899

$         5,660

$         2,547

$      (8,846)

$            24,260

 Adjusted EBITDA margin 

18.2%

17.9%

8.7%

12.2%

 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 Year Ended April 30, 2013 

 Executive Recruitment 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 

 Fee revenue 

$      522,479

$     168,115

$     122,237

$                -

$          812,831

 Net income 

$            33,293

       Other income, net 

6,309

       Interest expense, net 

(2,365)

       Income tax provision 

16,637

       Equity in earnings of unconsolidated subsidiaries, net 

2,110

 Operating income (loss) 

$        80,965

$         6,424

$       10,975

$    (54,488)

43,876

       Depreciation and amortization 

8,991

6,012

1,180

2,821

19,004

       Other income (loss), net 

793

(75)

51

5,540

6,309

       Equity in earnings of unconsolidated subsidiaries, net 

434

-

-

1,676

2,110

 EBITDA 

91,183

12,361

12,206

(44,451)

71,299

 EBITDA margin 

17.5%

7.4%

10.0%

8.8%

       Restructuring charges, net 

8,194

10,198

3,527

938

22,857

       Transaction and integration costs 

-

-

-

3,106

3,106

       Separation costs 

516

-

-

-

516

 Adjusted EBITDA 

$        99,893

$       22,559

$       15,733

$    (40,407)

$            97,778

 Adjusted EBITDA margin 

19.1%

13.4%

12.9%

12.0%

 Year Ended April 30, 2012 

 Executive Recruitment 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 

 Fee revenue 

$      561,202

$     115,407

$     113,896

$                -

$          790,505

 Net income 

$            54,303

       Other loss, net 

(271)

       Interest expense, net 

(1,791)

       Income tax provision 

28,351

       Equity in earnings of unconsolidated subsidiaries, net 

1,850

 Operating income (loss) 

$      109,934

$       16,360

$         8,445

$    (51,873)

82,866

       Depreciation and amortization 

8,140

2,613

1,070

2,194

14,017

       Other (loss) income, net 

(145)

146

41

(313)

(271)

       Equity in earnings of unconsolidated subsidiaries, net 

159

-

-

1,691

1,850

 EBITDA 

118,088

19,119

9,556

(48,301)

98,462

 EBITDA margin 

21.0%

16.6%

8.4%

12.5%

       Restructuring charges, net 

783

-

146

-

929

       Separation costs 

-

-

920

999

1,919

 Adjusted EBITDA 

$      118,871

$       19,119

$       10,622

$    (47,302)

$          101,310

 Adjusted EBITDA margin 

21.2%

16.6%

9.3%

12.8%

 

SOURCE Korn/Ferry International



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