Korn/Ferry International Announces Second Quarter Fiscal 2011 Results of Operations

Highlights

- Second quarter fiscal 2011 fee revenue increased 32% to $185.4 million, compared to $140.1 million in the same quarter last year.

- Q2 FY'11 diluted earnings per share, excluding net adjustments to previously recorded restructuring charges was $0.33, compared to diluted earnings per share of $0.09 in Q2 FY'10. Including net restructuring charges, Q2 FY'11 diluted earnings per share was $0.30 compared to $0.06 in Q2 FY'10.

Dec 08, 2010, 04:45 ET from Korn/Ferry International

LOS ANGELES, Dec. 8, 2010 /PRNewswire-FirstCall/ -- Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced Q2 FY'11 diluted earnings per share of $0.33 compared to $0.09 in Q2 FY'10 (excluding net adjustments to previously recorded restructuring charges of $2.1 million and $2.8 million, respectively).  Diluted earnings per share was $0.30 and $0.06 in Q2 FY'11 and Q2 FY'10, respectively.

"As evidenced by our sixth consecutive sequential fee revenue increase, our clients are increasingly turning to Korn/Ferry for a variety of their most important human capital needs," said Gary D. Burnison, CEO of Korn/Ferry International.  "After meeting with many of our clients' CEOs over the last several months, it's evident that we are experiencing a two-speed labor recovery – global vs. local.  Global enterprises are investing, hiring and expanding, while organizations more reliant on Western economies for growth have remained more cautious.  Overall, I'm very pleased with our organization's results this quarter, which validate our strategy of helping clients achieve extraordinary performance through people."

Financial Results

(dollars in millions, except per share amounts)

Second Quarter

Year to Date

FY'11

FY'10

FY'11

FY'10

Fee revenue

$  185.4

$  140.1

$  360.5

$  256.9

Total revenue

$  193.2

$  146.5

$  376.4

$  269.8

Operating income (loss)

$  19.8

$  2.3

$  39.1

$  (22.7)

Operating margin

10.7

%

1.6

%

10.8

%

(8.8)

%

Net income (loss)

$  13.7

$  2.8

$  24.6

$  (11.5)

Basic earnings (loss) per share

$  0.30

$  0.06

$  0.55

$  (0.26)

Diluted earnings (loss) per share

$  0.30

$  0.06

$  0.53

$  (0.26)

Adjusted Results (a):

Second Quarter

Year to Date

FY'11

FY'10

FY'11

FY'10

Operating income (loss)

$  21.9

$  5.0

$  41.2

$  (1.8)

Operating margin

11.8

%

3.6

%

11.4

%

(0.7)

%

Net income

$  15.0

$  4.3

$  25.9

$  2.0

Basic earnings per share

$  0.33

$  0.10

$  0.58

$  0.05

Diluted earnings per share

$  0.33

$  0.09

$  0.56

$  0.04

(a) Adjusted results are non-GAAP financial measures that exclude restructuring charges, net of recoveries, of $2.1 million during the three and six months ended October 31, 2010.  Comparative results exclude restructuring charges, net of recoveries, of $2.8 million and $21.0 million during the three and six months ended October 31, 2009, respectively (see attached reconciliations).

Fee revenue was $185.4 million in Q2 FY'11 compared to $140.1 million in Q2 FY'10, an increase of 32% (or an increase of 33%, or $45.7 million, on a constant currency basis), which reflects increases in revenue from all segments of the business driven primarily by a 28% increase in the number of executive recruitment engagements billed as well as a 4% (5% excluding the impact of exchange rates) increase in the weighted-average fee billed per executive recruitment engagement compared to the year-ago fiscal quarter.  Furthermore, the Company experienced a 6% increase in fee revenue compared to Q1 FY'11.

Compensation and benefits were $127.6 million in Q2 FY'11, an increase of $25.5 million, or 25%, compared to $102.1 million in Q2 FY'10.  This increase is attributable mainly to an increase in the variable component of compensation when compared to the year-ago fiscal quarter.  Compensation and benefits were lower in Q2 FY'10 compared to Q2 FY'11 due to the challenging economic conditions in Q2 FY'10.

General and administrative expenses were $27.4 million in Q2 FY'11, an increase of $0.2 million, or 1% from $27.2 million in Q2 FY'10.  This increase is due primarily to an increase in bad debt provisions as a result of higher revenues and accounts receivable, a decrease in unrealized net foreign exchange gains, partially offset by a fair value contingent consideration adjustment from a prior acquisition. Changes in exchange rates impacted general and administrative expenses in Q2 FY'11 favorably by $0.4 million compared to Q2 FY'10.

Operating income was $19.8 million in Q2 FY'11 compared to $2.3 million in Q2 FY'10, an increase of $17.5 million.  Excluding restructuring charges of $2.1 million in Q2 FY'11 and $2.8 million in Q2 FY'10, operating income was $21.9 million in Q2 FY'11 and $5.0 million in Q2 FY'10, an increase of $16.9 million.

Balance Sheet and Liquidity

Cash and marketable securities were $264.7 million at October 31, 2010 compared to $296.5 million at April 30, 2010.  Cash and marketable securities include $67.0 million and $69.0 million, held in trust for deferred compensation plans, at October 31, 2010 and April 30, 2010, respectively.  Cash and marketable securities decreased by $31.8 million from April 30, 2010, mainly due to the payment of FY'10 annual bonuses in Q1 FY'11, partially offset by cash provided by operating activities in Q2 FY'11.

Results by Segment

Selected Executive Recruitment Data

(dollars in millions)

Second Quarter

Year to Date

FY'11

FY'10

FY'11

FY'10

Fee revenue

$  164.1

$  123.3

$  319.0

$  224.6

Total revenue

$  170.5

$  128.3

$  331.9

$  234.9

Operating income (loss)

$  23.9

$  9.7

$  51.6

$  (3.4)

Operating margin

14.6

%

7.8

%

16.2

%

(1.5)

%

Ending number of consultants

475

497

475

497

Average number of consultants

477

499

475

486

Engagements billed

3,795

2,981

6,324

4,643

New engagements (a)

1,970

1,578

3,860

2,896

Adjusted Results (b):

Second Quarter

Year to Date

FY'11

FY'10

FY'11

FY'10

Operating income

$  26.1

$  14.9

$  53.8

$  20.0

Operating margin

15.9

%

12.1

%

16.9

%

8.9

%

(a)  Represents new engagements opened in the respective period.

(b) Adjusted results are non-GAAP financial measures that exclude restructuring charges, net of recoveries, of $2.2 million during the three and six months ended October 31, 2010.  Comparative results exclude restructuring charges, net of recoveries, of $5.3 million and $23.4 million during the three and six months ended October 31, 2009, respectively (see attached reconciliations).

Fee revenue was $164.1 million in Q2 FY'11, an increase of $40.8 million ($41.2 million on a constant currency basis), or 33%, when compared to fee revenue of $123.3 million in Q2 FY'10.    Fee revenue increased in all regions due to a 28% increase in the overall number of engagements billed and a 4% (5% excluding the impact of exchange rates) increase in the weighted-average fee per engagement billed when compared to Q2 FY'10.

Operating income was $23.9 million in Q2 FY'11 compared to $9.7 million in Q2 FY'10.  Excluding restructuring charges of $2.2 million in Q2 FY'11 and $5.3 million in Q2 FY'10, operating income was $26.1 million and $14.9 million, respectively, an increase of $11.2 million compared to Q2 FY'10.

The total number of consultants at October 31, 2010 was 475, a decrease of 22 from October 31, 2009.

Selected Futurestep Data

(dollars in millions)

Second Quarter

Year to Date

FY'11

FY'10

FY'11

FY'10

Fee revenue

$  21.3

$  16.8

$  41.5

$  32.3

Total revenue

$  22.7

$  18.2

$  44.5

$  34.9

Operating income

$  1.2

$  2.6

$  2.2

$  1.8

Operating margin

5.6

%

15.5

%

5.2

%

5.6

%

Adjusted Results (a):

Second Quarter

Year to Date

FY'11

FY'10

FY'11

FY'10

Operating income (loss)

$  1.1

$  0.1

$  2.1

$  (0.7)

Operating margin

5.1

%

0.8

%

5.0

%

(2.1)

%

(a) Adjusted results are non-GAAP financial measures that exclude recoveries of restructuring charges of $0.1 million during each of the three and six months ended October 31, 2010.  Comparative results exclude restructuring charges, net of recoveries, of $2.5 million during each of the three and six months ended October 31, 2009, respectively (see attached reconciliations).

Fee revenue was $21.3 million in Q2 FY'11, an increase of $4.5 million (also $4.5 million on a constant currency basis), or 27%, from $16.8 million in Q2 FY'10.  The improvement in fee revenue was driven by a 30% increase in the overall number of engagements billed, partially offset by a 3% decrease in the weighted-average fee billed per engagement.

Operating income was $1.2 million in Q2 FY'11 compared to $2.6 million in Q2 FY'10.  Operating income includes recovery of restructuring costs of $0.1 million and $2.5 million, during Q2 FY'11 and Q2 FY'10, respectively, which in Q2 FY'10 primarily relates to lower facility lease costs than originally recorded; without which operating income would have been $1.1 million and $0.1 million, respectively.

Outlook

Assuming constant foreign exchange rates, stable economic conditions and steady financial markets, Q3 FY'11 fee revenue is likely to be in the range of $175 million to $190 million and diluted earnings per share is likely to be in the range of $0.25 to $0.32.

Earnings Conference Call Webcast

The earnings conference call will be held today at 9:00 AM (EST) 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, develop, retain and sustain 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.  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, the portability of client relationships, local political or economic developments in or affecting countries where we have operations, including fluctuations in exchange rates, risks related to the growth and results of Futurestep, global economic developments, restrictions imposed by off-limits agreements, reliance on information systems, the successful integration of acquired businesses 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").  These non-GAAP financial measures include the following (each of which has been adjusted to exclude restructuring charges):

  • adjusted operating income (loss) and operating margin;
  • adjusted net income (loss);
  • adjusted basic and diluted earnings (loss) per share; and
  • 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 non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn/Ferry's performance by excluding certain charges 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 it is 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.

(Tables attached)

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

Three Months Ended

Six Months Ended

October 31,

October 31,

2010

2009

2010

2009

(unaudited)

Fee revenue

$           185,350

$           140,145

$           360,462

$           256,948

Reimbursed out-of-pocket engagement expenses

7,854

6,411

15,904

12,896

          Total revenue

193,204

146,556

376,366

269,844

Compensation and benefits

127,555

102,076

247,763

192,461

General and administrative expenses

27,363

27,164

55,978

55,218

Out-of-pocket engagement expenses

13,237

9,464

25,336

18,253

Depreciation and amortization

3,144

2,860

6,112

5,689

Restructuring charges, net

2,130

2,774

2,130

20,957

          Total operating expenses

173,429

144,338

337,319

292,578

Operating income (loss)

19,775

2,218

39,047

(22,734)

Interest and other income (loss), net

1,657

1,180

(652)

4,471

          Income (loss) before provision (benefit) for income taxes

                 and equity in earnings of unconsolidated subsidiaries

21,432

3,398

38,395

(18,263)

Income tax provision (benefit)

8,288

879

14,809

(6,486)

Equity in earnings of unconsolidated subsidiaries, net

512

226

974

249

           Net income (loss)

$             13,656

$               2,745

$             24,560

$           (11,528)

Earnings (loss) per common share:

     Basic

$                 0.30

$                 0.06

$                 0.55

$               (0.26)

     Diluted

$                 0.30

$                 0.06

$                 0.53

$               (0.26)

Weighted-average common shares outstanding:

     Basic

45,130

44,470

44,886

44,123

     Diluted

45,918

45,291

46,061

44,123

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

October 31,

October 31,

2010

2009

% Change

2010

2009

% Change

Fee Revenue:

Executive recruitment:

North America

$                94,066

$               68,230

38%

$             184,041

$             123,522

49%

EMEA

37,424

35,376

6%

73,692

64,597

14%

Asia Pacific

24,098

13,563

78%

45,240

25,934

74%

South America

8,478

6,122

38%

15,964

10,567

51%

Total executive recruitment

164,066

123,291

33%

318,937

224,620

42%

Futurestep

21,284

16,854

26%

41,525

32,328

28%

Total fee revenue

185,350

140,145

32%

360,462

256,948

40%

Reimbursed out-of-pocket engagement expenses

7,854

6,411

23%

15,904

12,896

23%

Total revenue

$              193,204

$             146,556

32%

$             376,366

$             269,844

39%

Adjusted Operating Income (Loss):

 (Excluding Restructuring Charges)

Margin

Margin

Margin

Margin

Executive recruitment:

North America

$                19,255

20.5%

$               11,250

16.5%

$               38,930

21.2%

$               15,457

12.5%

EMEA

2,653

7.1%

2,411

6.8%

5,706

7.7%

2,974

4.6%

Asia Pacific

1,561

6.5%

61

0.4%

4,630

10.2%

1,036

4.0%

South America

2,698

31.8%

1,202

19.6%

4,577

28.7%

516

4.9%

Total executive recruitment

26,167

15.9%

14,924

12.1%

53,843

16.9%

19,983

8.9%

Futurestep

1,084

5.1%

141

0.8%

2,073

5.0%

(674)

(2.1%)

Corporate (1)

(5,346)

(10,073)

(14,739)

(21,086)

Total adjusted operating income (loss)

$                21,905

11.8%

$                 4,992

3.6%

$               41,177

11.4%

$               (1,777)

(0.7%)

Restructuring Charges (Reductions), net:

Executive recruitment:

North America

$                   (340)

(0.3%)

$               (1,279)

(1.9%)

$                  (340)

(0.1%)

$               (1,279)

(1.0%)

EMEA

2,569

6.9%

6,615

18.7%

2,569

3.4%

24,798

38.4%

Asia Pacific

-

0.0%

87

0.6%

-

0.0%

87

0.3%

South America

-

0.0%

(173)

(2.9%)

-

0.0%

(173)

(1.6%)

Total executive recruitment

2,229

1.3%

5,250

4.3%

2,229

0.7%

23,433

10.4%

Futurestep

(99)

(0.5%)

(2,476)

(14.7%)

(99)

(0.2%)

(2,476)

(7.7%)

Corporate

-

-

-

-

Total restructuring charges (reductions), net

$                  2,130

1.1%

$                 2,774

2.0%

$                 2,130

0.6%

$               20,957

8.1%

Operating Income (Loss):

Margin

Margin

Margin

Margin

Executive recruitment:

North America

$                19,595

20.8%

$               12,529

18.4%

$               39,270

21.3%

$               16,736

13.5%

EMEA

84

0.2%

(4,204)

(11.9%)

3,137

4.3%

(21,824)

(33.8%)

Asia Pacific

1,561

6.5%

(26)

(0.2%)

4,630

10.2%

949

3.7%

South America

2,698

31.8%

1,375

22.5%

4,577

28.7%

689

6.5%

Total executive recruitment

23,938

14.6%

9,674

7.8%

51,614

16.2%

(3,450)

(1.5%)

Futurestep

1,183

5.6%

2,617

15.5%

2,172

5.2%

1,802

5.6%

Corporate (1)

(5,346)

(10,073)

(14,739)

(21,086)

Total operating income (loss)

$                19,775

10.7%

$                 2,218

1.6%

$               39,047

10.8%

$             (22,734)

(8.8%)

 (1) Improvement primarily due to a decrease in net expenses related to the change in amounts due under deferred compensation plans determined by an increase (or decrease ) in market values, and adjustment to the fair value of contingent consideration for a prior acquisition, totaling $4.3 million and $3.8 million during the three and six months ended October 31, 2010 compared to the three and six months ended October 31, 2009, respectively.  

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

October 31,

April 30,

2010

2010

ASSETS

(unaudited)

Cash and cash equivalents

$             151,118

$             219,233

Marketable securities

16,189

4,114

Receivables due from clients, net of allowance for doubtful accounts

of $8,106 and $5,983, respectively

145,043

107,215

Income taxes and other receivables

8,476

6,292

Deferred income taxes

21,375

20,844

Prepaid expenses and other assets

27,940

23,166

Total current assets

370,141

380,864

Marketable securities, non-current

97,410

73,105

Property and equipment, net

37,470

24,963

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

71,929

69,069

Deferred income taxes

53,526

59,742

Goodwill

177,562

172,273

Intangible assets, net

24,310

25,425

Investments and other assets

31,931

21,657

Total assets

$             864,279

$             827,098

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable

$               11,308

$               11,148

Income taxes payable

8,487

6,323

Compensation and benefits payable

121,894

131,550

Other accrued liabilities

50,762

49,062

Total current liabilities

192,451

198,083

Deferred compensation and other retirement plans

131,009

123,794

Other liabilities

21,706

13,879

Total liabilities

345,166

335,756

Stockholders' equity

Common stock: $0.01 par value, 150,000 shares authorized, 58,548 and

57,614 shares issued and 46,388 and 45,979 shares outstanding, respectively

387,909

388,717

Retained earnings

114,780

90,220

Accumulated other comprehensive income, net

16,949

12,934

Stockholders' equity

519,638

491,871

Less:  notes receivable from stockholders

(525)

(529)

Total stockholders' equity

519,113

491,342

Total liabilities and stockholders' equity

$             864,279

$             827,098

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

Three Months Ended

October 31, 2010

October 31, 2009

As Reported

Adjustments

As Adjusted

As Reported

Adjustments

As Adjusted

Fee revenue

$             185,350

$             185,350

$             140,145

$             140,145

Reimbursed out-of-pocket engagement expenses

7,854

7,854

6,411

6,411

          Total revenue

193,204

193,204

146,556

146,556

Compensation and benefits

127,555

127,555

102,076

102,076

General and administrative expenses

27,363

27,363

27,164

27,164

Out-of-pocket engagement expenses

13,237

13,237

9,464

9,464

Depreciation and amortization

3,144

3,144

2,860

2,860

Restructuring charges, net

2,130

(2,130)

-

2,774

(2,774)

-

          Total operating expenses

173,429

(2,130)

171,299

144,338

(2,774)

141,564

Operating income

19,775

2,130

21,905

2,218

2,774

4,992

Interest and other income, net

1,657

1,657

1,180

1,180

          Income before provision for income taxes

                  and equity in earnings of unconsolidated subsidiaries 

21,432

2,130

23,562

3,398

2,774

6,172

Income tax provision (1)

8,288

821

9,109

879

1,260

2,139

Equity in earnings of unconsolidated subsidiaries, net

512

512

226

226

           Net income

$               13,656

$                      1,309

$               14,965

$                 2,745

$                      1,514

$                 4,259

Earnings per common share:

     Basic

$                   0.30

$                   0.33

$                   0.06

$                   0.10

     Diluted

$                   0.30

$                   0.33

$                   0.06

$                   0.09

Weighted-average common shares outstanding:

     Basic

45,130

45,130

44,470

44,470

     Diluted

45,918

45,918

45,291

45,291

Explanation of Non-GAAP Adjustments

(1) Calculated using an annual effective tax rate of 39% and 35% on operating expenses, adjusted for the three months ended October 31, 2010 and 2009, respectively.

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(in thousands, except per share amounts)

(unaudited)

Six Months Ended

Six Months Ended

October 31, 2010

October 31, 2009

As Reported

Adjustments

As Adjusted

As Reported

Adjustments

As Adjusted

Fee revenue

$             360,462

$             360,462

$             256,948

$             256,948

Reimbursed out-of-pocket engagement expenses

15,904

15,904

12,896

12,896

          Total revenue

376,366

376,366

269,844

269,844

Compensation and benefits

247,763

247,763

192,461

192,461

General and administrative expenses

55,978

55,978

55,218

55,218

Out-of-pocket engagement expenses

25,336

25,336

18,253

18,253

Depreciation and amortization

6,112

6,112

5,689

5,689

Restructuring charges, net

2,130

(2,130)

-

20,957

(20,957)

-

          Total operating expenses

337,319

(2,130)

335,189

292,578

(20,957)

271,621

Operating income (loss)

39,047

2,130

41,177

(22,734)

20,957

(1,777)

Interest and other (loss) income, net

(652)

(652)

4,471

-

4,471

          Income (loss) before provision (benefit) for income taxes

                  and equity in earnings of unconsolidated subsidiaries 

38,395

2,130

40,525

(18,263)

20,957

2,694

Income tax provision (benefit) (1)

14,809

821

15,630

(6,486)

7,442

956

Equity in earnings of unconsolidated subsidiaries, net

974

974

249

249

           Net income (loss)

$               24,560

$                      1,309

$               25,869

$             (11,528)

$                    13,515

$                 1,987

Earnings (loss) per common share:

     Basic

$                   0.55

$                   0.58

$                 (0.26)

$                   0.05

     Diluted

$                   0.53

$                   0.56

$                 (0.26)

$                   0.04

Weighted-average common shares outstanding:

     Basic

44,886

44,886

44,123

44,123

     Diluted

46,061

46,061

44,123

44,824

Explanation of Non-GAAP Adjustments

(1) Calculated using an annual effective tax rate of 39% and 35% on operating expenses, adjusted for the six months ended October 31, 2010 and 2009, respectively.

SOURCE Korn/Ferry International



RELATED LINKS

http://www.kornferry.com