Korn/Ferry International Announces Third Quarter Fiscal 2013 Results of Operations

Highlights

- Korn/Ferry reports Q3 FY'13 fee revenue of $202.0 million, an increase of 9% (2% excluding fee revenue from the recently acquired PDI Ninth House and Global Novations) compared to the year-ago quarter.

- Fee revenue in Leadership & Talent Consulting and Futurestep services grew 47% (5% excluding fee revenue from the recently acquired PDI Ninth House and Global Novations) and 17%, respectively, from Q3 FY'12 to Q3 FY'13.

- Q3 FY'13 adjusted diluted earnings per share was $0.31 compared to adjusted diluted earnings per share of $0.26 in Q3 FY'12, excluding restructuring, transaction and integration, and separation costs, of $7.5 million in Q3 FY'13 and $0.9 million in Q3 FY'12. Including such costs, Q3 FY'13 diluted earnings per share was $0.20 compared to diluted earnings per share of $0.25 in Q3 FY'12.

- The Company completed its previously announced acquisition of Minneapolis-based PDI Ninth House, a leading, globally-recognized provider of leadership assessment and development solutions.

- The Company entered into a five-year, $75 million unsecured revolving credit facility, increasing its borrowing capacity and significantly improving the terms and conditions from the Company's previous credit agreement.

06 Mar, 2013, 16:01 ET from Korn/Ferry International

LOS ANGELES, March 6, 2013 /PRNewswire/ -- Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced third quarter adjusted diluted earnings per share of $0.31 compared to adjusted diluted earnings per share of $0.26 in the three months ended January 31, 2012, excluding restructuring, transaction and integration, and separation costs, of $7.5 million and $0.9 million, respectively.  Including such costs, diluted earnings per share was $0.20 and $0.25 in the three months ended January 31, 2013 and 2012, respectively.

"I am pleased with the results of our fiscal 2013 third quarter, which once again included year over year growth within our broader talent management offerings," said Gary D. Burnison, CEO of Korn/Ferry International.  "Korn/Ferry continues to evolve from finding great people, to finding out 'who they are,' to helping companies design, build and develop winning teams through the right combination of talent. As the world continues to evolve, we are at the forefront—agile and committed to defining who we are, one client, one candidate at a time."

As a global provider of talent management solutions, Korn/Ferry contributes to the success of its clients by more efficiently and effectively linking their business and talent strategies.  Korn/Ferry helps create high performing organizations through three broad categories: Talent Strategy Design, Talent Development and Talent Attraction.

As part of its talent strategy design capabilities, Korn/Ferry offers organizational design, strategy and talent alignment and integrated talent management solutions.  In helping clients build and develop talent capability, Korn/Ferry offers board effectiveness, succession planning, CEO and top team effectiveness, assessment, leadership and employee development, diversity and inclusion consulting and on-line and branded learning products and offerings.  Talent attraction solutions include board, executive, professional and project recruitment; recruitment process outsourcing; on-boarding; and, talent communications and employer branding.

Financial Results

(dollars in millions, except per share amounts)

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Fee revenue

$         202.0

$        185.9

$       584.9

$         592.4

Total  revenue

$         210.3

$        194.6

$       611.1

$         619.2

Operating income

$              8.7

$          16.2

$         28.5

$           67.5

Operating margin

4.3%

8.7%

4.9%

11.4%

Net income

$              9.5

$          11.7

$         21.1

$           42.3

Basic earnings per share

$            0.20

$          0.25

$         0.45

$           0.91

Diluted earnings per share

$            0.20

$          0.25

$         0.44

$           0.90

EBITDA Results (a):

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

EBITDA

$            17.7

$          21.6

$         47.0

$           76.1

EBITDA margin

8.8%

11.6%

8.0%

12.8%

Adjusted Results (b):

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Operating income

$            16.2

$          17.1

$         51.5

$           68.4

Operating margin

8.0%

9.2%

8.8%

11.6%

EBITDA (a)

$            25.2

$          22.5

$         70.0

$           77.0

EBITDA margin (a)

12.5%

12.1%

12.0%

13.0%

Net income

$            15.0

$          12.3

$         37.2

$           42.9

Basic earnings per share

$            0.32

$          0.26

$         0.79

$           0.93

Diluted earnings per share

$            0.31

$          0.26

$         0.78

$           0.91

(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 charges. 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):

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Restructuring charges

$                4.4

$             0.9

$          19.9

$             0.9

Transaction and integration

costs

$                2.5

$              —

$            2.5

$              —

Separation charges

$                0.6

$              —

$            0.6

$               —

Results for the three months ended January 31, 2013

Fee revenue was $202.0 million in the three months ended January 31, 2013, an increase of $16.1 million, or 9%, compared to the year-ago quarter, due to a $13.1 million and $4.5 million increase in fee revenue in Leadership & Talent Consulting and Futurestep, respectively, partially offset by a decrease in fee revenue of $1.5 million in Executive Recruitment.  The increase in fee revenue was driven by increases in the majority of market sectors with the largest increases in financial services, life science/healthcare, consumer and technology sectors, partially offset by a decrease in the industrial sector. 

Excluding PDI Ninth House and Global Novations, fee revenue was $190.4 million in the three months ended January 31, 2013, an increase of $4.5 million, or 2% compared to the year-ago quarter.  This increase in fee revenue was primarily attributable to an increase in Futurestep fee revenue and to a lesser extent, an increase in Leadership & Talent Consulting fee revenue, offset by a decrease in Executive Recruitment fee revenue as described in the following results for each segment below.

Compensation and benefit expenses were $139.8 million in three months ended January 31, 2013, an increase of $14.1 million, or 11%, compared to the year-ago quarter.  The acquisitions of PDI Ninth House and Global Novations contributed 7% to the increase in compensation and benefit expenses.  Compensation and benefit expenses were also higher due to an increase in performance related bonus expense.  Also included in compensation and benefit expenses was a decrease in salaries and related payroll taxes due to lower consultant headcount in Executive Recruitment and Futurestep mainly due to our restructuring efforts in Q2 FY'13. This decrease was primarily offset by an increase in outside contractor expense (temporary service personnel) and an increase in the fair value of amounts owed under certain deferred compensation plans, which was partially offset by an increase in the fair value of marketable securities classified as trading recorded in other income (loss).

General and administrative expenses were $35.9 million in the three months ended January 31, 2013, an increase of $0.7 million, or 2%, from the year-ago quarter.  PDI Ninth House and Global Novations contributed $2.0 million to the increase in general and administrative expenses for the three months ended January 31, 2013 and the Company incurred transaction and integration cost of $2.5 million as a result of the acquisition of PDI Ninth House.  These increases in general and administrative expenses were offset by a decrease in legal and other professional service fees and a foreign exchange gain in the current quarter compared to a foreign exchange loss in the year-ago quarter.

As previously disclosed, during the three months ended January 31, 2013, the Company took steps to integrate PDI Ninth House. As a result, the Company recorded restructuring charges of $4.4 million in order to eliminate redundant positions.

Excluding restructuring, transaction and integration, and separation costs, adjusted operating income was $16.2 million, during the three months ended January 31, 2013, a decrease of $0.9 million, or 5%, compared to the year-ago quarter.  Adjusted operating margin declined by 1.2 percentage points primarily due to a change in mix of fee revenues and various expense items described above.  On a GAAP basis, including restructuring, transaction and integration, and separation charges, operating income was $8.7 million in three months ended January 31, 2013, a decrease of $7.5 million, or 46%, compared to the year-ago quarter. 

Balance Sheet and Liquidity

Cash and marketable securities were $305.3 million and $352.4 million at January 31, 2013 and 2012, respectively, compared to $417.7 million at April 30, 2012.  Cash and marketable securities include $95.8 million and $80.5 million held in trust for deferred compensation plans at January 31, 2013 and 2012, respectively, compared to $82.2 million at April 30, 2012.  Cash and marketable securities decreased by $112.4 million from April 30, 2012, mainly due to the payment of FY'12 annual bonuses in Q1 FY'13 and the payment for the acquisitions of PDI Ninth House and Global Novations in the nine months ended January 31, 2013, 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)

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Fee revenue

$         130.5

$       132.0

$       385.7

$         424.0

Total revenue

$         135.7

$       138.5

$       402.0

$         443.1

Operating income

$           21.6

$         22.3

$         54.5

$           87.5

Operating margin

16.6%

16.9%

14.1%

20.6%

Ending number of consultants

390

398

390

398

Average number of consultants

396

408

395

419

Engagements billed

2,670

2,735

5,944

6,397

New engagements (a)

1,138

1,181

3,519

3,817

EBITDA Results (b):

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

EBITDA

$           24.4

$         24.3

$         61.8

$           93.2

EBITDA margin

18.7%

18.4%

16.0%

22.0%

Adjusted Results (c):

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Operating income

$            22.2

$          23.1

$         65.8

$           88.3

Operating margin

17.0%

17.5%

17.1%

20.8%

EBITDA (b)

$            25.0

$          25.1

$         73.1

$           94.0

EBITDA margin (b)

19.1%

19.0%

19.0%

22.2%

(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):

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Restructuring charges

$                 —

$             0.8

$          10.7

$              0.8

Separation charges

$                0.6

$              —

$            0.6

$                —

Results for the three months ended January 31, 2013 – Executive Recruitment

Within our Executive Recruitment segment, we offer Board of Director and C-level recruitment as well as a robust set of research-based interviewing and onboarding solutions. Our industry leading executive recruitment offering is backed by the strength of our statistically validated assessment tools, which have been proven to improve candidate fit as well as the results of our search process. Korn/Ferry provides its offerings in over 75 offices on six continents.

Fee revenue was $130.5 million in the three months ended January 31, 2013, a decrease of $1.5 million, or 1%, when compared with the year-ago quarter.  Fee revenue decreased slightly in Europe and North America while Asia and Latin America were relatively flat compared to the year-ago quarter.  The decrease in fee revenues was due to a 2% decrease in the number of executive recruitment engagements billed, offset by a 1% increase in the weighted-average fee billed per engagement compared to the year-ago quarter.

Excluding restructuring and separation charges, adjusted operating income was $22.2 million in the three months ended January 31, 2013, a decrease of $0.9 million, or 4%, compared year-ago quarter.  This decrease is primarily attributable to an increase in compensation and benefits expense of $1.9 million in the three months ended January 31, 2013 compared to the year-ago quarter and a decrease in fee revenue of $1.5 million, offset by a decrease in general and administrative expense of $3.2 million. The increase in compensation and benefits expense primarily resulted from an increase in performance related bonus expense and an increase in the fair value of amounts owed under certain compensation plans during the period, offset by a decrease salaries and related payroll taxes due to lower consultant headcount. The decrease in general and administrative expenses was primarily due to favorable foreign exchange rates in the current quarter compared to the year-ago quarter, a decrease in bad debt expense due to a decline in historical bad debt trends, and a reduction in premise expense due to our restructuring in Q2 FY'13.

Selected Leadership & Talent Consulting Data

(dollars in millions)

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Fee revenue

$            41.2

$          28.1

$        108.0

$           83.8

Total revenue

$            43.1

$          29.1

$        113.5

$           87.1

Operating (loss) income

$            (2.8)

$            5.2

$            7.7

$           11.4

Operating margin

(6.8)%

18.5%

7.1%

13.6%

Ending number of consultants (a)

149

52

149

52

Staff utilization (b)

58%

58%

63%

60%

EBITDA Results (c):

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

EBITDA

$            (1.0)

$            6.0

$          11.2

$           13.5

EBITDA margin

(2.4)%

21.4%

10.3%

16.1%

Adjusted Results (d):

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Operating income

$               1.6

$             5.2

$         12.8

$           11.4

Operating margin

4.0%

18.5%

11.9%

13.6%

EBITDA (c)

$               3.4

$             6.0

$         16.3

$           13.5

EBITDA margin (c)

8.4%

21.4%

15.1%

16.1%

(a)

Represents number of employees originating consulting services. FY'13 includes 20 consultants from the Global Novations acquisition and 72 consultants from the PDI acquisition.

(b)

Calculated by dividing the number of hours of our full-time professional staff, who recorded time to an engagement during the period, by the total available working hours for the professional staff during the same period.  Excluding professional staff from the recent acquisitions of PDI Ninth House and Global Novations, staff utilization was 57% and 62% for the three and nine months ended January 31, 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):

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Restructuring charges

$                 4.4

$               —

$            5.1

$                —

Results for the three months ended January 31, 2013 – Leadership & Talent Consulting

As a preeminent leadership firm, we help teams and organizations drive accelerated business results and achieve sustainable change. Our Leadership & Talent Consulting segment, operating in 19 countries around the world with 979 colleagues, includes both consulting services and product revenue.  Service and product offerings in this segment include: Leadership Strategy, Board, CEO and Top Team Effectiveness, Succession Planning, Assessment, Leadership and Employee Development, Diversity and Inclusion as well as a rich library of online and blended learning modules.

Fee revenue was $41.2 million in the three months ended January 31, 2013, an increase of $13.1 million, or 47%, from the year-ago quarter.  The improvement in fee revenue was driven by the acquisitions of PDI Ninth House and Global Novations.  Also contributing to the increase in fee revenue was an increase in product revenue and consulting fee revenue due to an increase in consulting fee revenue per client.  Excluding PDI Ninth House and Global Novations, the fee revenue increased 5%, which was driven by increases in fee revenue in North America and Asia.

Excluding restructuring charges, adjusted operating income was $1.6 million in the three months ended January 31, 2013, a decrease of $3.6 million, or 69%, compared to the year-ago quarter.  The decrease is primarily attributed to lower billable hours resulting from the ongoing integration activities associated with integrating both PDI Ninth House and Global Novations into our legacy Leadership & Talent Consulting business. Fee revenues and operating income were also adversely affected by lower realized revenue per billable hour and lower new business volumes. In addition, amortization increased by $0.9 million due to the acquisitions of PDI Ninth House and Global Novations, bad debt expense increased and the use of contractors increased due to the mix of work in the current quarter compared to the year earlier quarter.  On a GAAP basis, and thus including restructuring charges of $4.4 million in the three months January 31, 2013, operating loss was $2.8 million, a decrease of $8.0 million compared to the year-ago quarter. 

Selected Futurestep Data

(dollars in millions)

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Fee revenue

$           30.3

$         25.8

$         91.2

$           84.6

Total revenue

$           31.5

$         27.0

$         95.6

$           89.0

Operating income

$             3.7

$           1.5

$           7.1

$             7.1

Operating margin

12.3%

5.6%

7.8%

8.4%

Engagements billed

1,813

1,588

4,419

3,849

New engagements (a)

1,163

905

3,571

2,898

EBITDA Results (b):

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

EBITDA

$             4.1

$           1.7

$           8.1

$             7.9

EBITDA margin

13.3%

6.6%

8.9%

9.4%

Adjusted Results (c):

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Operating income

$              3.7

$             1.6

$         10.2

$             7.2

Operating margin

12.3%

6.1%

11.2%

8.6%

EBITDA (b)

$              4.1

$             1.8

$         11.2

$             8.0

EBITDA margin (b)

13.3%

7.2%

12.3%

9.5%

(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): 

Third Quarter

Year to Date

FY'13

FY'12

FY'13

FY'12

Restructuring charges

$                  —

$             0.1

$            3.1

$               0.1

Results for the three months ended January 31, 2013 – Futurestep

Futurestep is a global industry leader in high impact enterprise wide consulting and recruitment solutions. Operating in 17 countries with 792 colleagues, Futurestep can meet a variety of workforce requirements; from Recruitment Process Outsourcing (RPO) and project recruitment to professional and knowledge worker search to talent consulting offerings. This segment also includes revenue from helping organizations design and develop their Employer Brand as well as build robust pools of future employees through our Talent Communities and Communications offering.

Fee revenue was $30.3 million in the three months ended January 31, 2013, an increase of $4.5 million, or 17%, compared to the year-ago quarter.  The improvement in fee revenue was driven by a 14% increase in the number of engagements billed and a 2% increase in the weighted average fee per engagement.  The increase in fee revenue was due to an increase in recruitment process outsourcing and middle management recruitment. 

Excluding restructuring charges, adjusted operating income was $3.7 million in the three months ended January 31, 2013, an increase of $2.1 million, or 131%, compared to the year-ago quarter.  The increase in operating income was due primarily to the increase in fee revenue, partially offset by an increase in compensation and benefit expenses of $1.3 million due in large part to the increase in performance related bonus expense. 

Outlook

In looking ahead to Q4 FY'13, assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, Q4 FY'13 fee revenue is likely to be in the range of $210 million to $230 million.  In Q4 FY'13, as we drive the next phase of our worldwide integration with PDI-Ninth House which involves the consolidation and elimination of redundant office space around the world, lease termination, fixed asset write-offs and other charges associated with the consolidation are estimated to be in the range of $3.5 million to $5.5 million and are estimated to result in $2.0 million to $3.0 million of annual savings starting primarily in FY'14.  Excluding these estimated charges, adjusted diluted earnings per share in the fourth quarter are likely to be in the range of $0.28 to $0.34 with diluted earnings per share as measured by generally accepted accounting principles likely to be in the range of $0.21 to $0.29.  

Earnings Conference Call Webcast

The earnings conference call will be held today at 4:30 PM (EST) 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, 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 successfully integrate acquired businesses, including PDI Ninth House, our ability to develop new products and services, 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 income tax effect;
  • adjusted basic and diluted earnings per share, adjusted to exclude restructuring, transaction and integration and separation costs;
  • 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. 

[Tables attached]

 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 (in thousands, except per share amounts) 

 Three Months Ended 

 Nine Months Ended 

 January 31, 

 January 31, 

2013

2012

2013

2012

 (unaudited) 

 Fee revenue 

$   202,004

$    185,951

$   584,929

$   592,418

 Reimbursed out-of-pocket engagement expenses 

8,268

8,672

26,165

26,783

           Total revenue 

210,272

194,623

611,094

619,201

 Compensation and benefits 

139,788

125,741

400,859

394,593

 General and administrative expenses 

35,915

35,242

102,675

104,204

 Engagement expenses 

16,334

13,023

46,013

41,594

 Depreciation and amortization 

5,088

3,523

13,127

10,367

 Restructuring charges, net 

4,441

929

19,936

929

           Total operating expenses 

201,566

178,458

582,610

551,687

 Operating income  

8,706

16,165

28,484

67,514

 Other income (loss), net 

3,296

1,607

3,808

(3,032)

 Interest expense, net 

(360)

(310)

(1,721)

(1,280)

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

11,642

17,462

30,571

63,202

 Income tax provision  

2,753

6,038

11,042

22,199

 Equity in earnings of unconsolidated subsidiaries, net 

593

293

1,567

1,272

            Net income 

$       9,482

$      11,717

$     21,096

$     42,275

 Earnings per common share: 

      Basic 

$         0.20

$          0.25

$         0.45

$         0.91

      Diluted 

$         0.20

$          0.25

$         0.44

$         0.90

 Weighted-average common shares outstanding: 

      Basic 

47,367

46,528

47,149

46,332

      Diluted 

48,015

47,345

47,742

47,193

 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

 (unaudited) 

Three Months Ended January 31,

Nine Months Ended January 31,

2013

2012

% Change

2013

2012

% Change

Fee Revenue:

Executive recruitment:

North America

$        71,259

$       72,000

(1%)

$     212,806

$     229,449

(7%)

EMEA 

33,600

34,442

(2%)

96,565

108,681

(11%)

Asia Pacific

18,301

18,383

(0%)

54,022

62,706

(14%)

South America

7,334

7,256

1%

22,295

23,204

(4%)

Total executive recruitment

130,494

132,081

(1%)

385,688

424,040

(9%)

Leadership & Talent Consulting

41,155

28,031

47%

107,999

83,757

29%

Futurestep

30,355

25,839

17%

91,242

84,621

8%

Total fee revenue

202,004

185,951

9%

584,929

592,418

(1%)

 Reimbursed out-of-pocket engagement expenses 

8,268

8,672

(5%)

26,165

26,783

(2%)

Total revenue

$      210,272

$     194,623

8%

$     611,094

$     619,201

(1%)

Reconciliation of Operating Income (GAAP) to Adjusted Operating Income

Operating Income:

Margin

Margin

Margin

Margin

Executive recruitment:

North America

$        14,637

20.5%

$       15,616

21.7%

$       41,728

19.6%

$       58,432

25.5%

EMEA

4,177

12.4%

3,522

10.2%

5,036

5.2%

13,554

12.5%

Asia Pacific

1,913

10.5%

1,397

7.6%

3,491

6.5%

8,858

14.1%

South America

920

12.5%

1,786

24.6%

4,226

19.0%

6,671

28.7%

Total executive recruitment

21,647

16.6%

22,321

16.9%

54,481

14.1%

87,515

20.6%

Leadership & Talent Consulting

(2,798)

(6.8%)

5,195

18.5%

7,716

7.1%

11,389

13.6%

Futurestep

3,722

12.3%

1,441

5.6%

7,141

7.8%

7,112

8.4%

Corporate

(13,865)

(12,792)

(40,854)

(38,502)

 Total operating income

$          8,706

4.3%

$       16,165

8.7%

$       28,484

4.9%

$       67,514

11.4%

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

Executive recruitment:

North America

$                -

-

$             (15)

(0.0%)

$         5,436

2.6%

$             (15)

(0.0%)

EMEA

516

1.6%

897

2.6%

5,268

5.5%

897

0.8%

Asia Pacific

-

-

-

0.0%

613

1.1%

-

0.0%

South America

-

-

(99)

(1.4%)

-

-

(99)

(0.4%)

Total executive recruitment

516

0.4%

783

0.6%

11,317

3.0%

783

0.2%

Leadership & Talent Consulting

4,441

10.8%

-

0.0%

5,118

4.8%

-

0.0%

Futurestep

-

-

146

0.5%

3,086

3.4%

146

0.2%

Corporate

2,515

-

3,446

-

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

$          7,472

3.7%

$            929

0.5%

$       22,967

3.9%

$            929

0.2%

Adjusted Operating Income:

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

Margin

Margin

Margin

Margin

Executive recruitment:

North America

$        14,637

20.5%

$       15,601

21.7%

$       47,164

22.2%

$       58,417

25.5%

EMEA

4,693

14.0%

4,419

12.8%

10,304

10.7%

14,451

13.3%

Asia Pacific

1,913

10.5%

1,397

7.6%

4,104

7.6%

8,858

14.1%

South America

920

12.5%

1,687

23.2%

4,226

19.0%

6,572

28.3%

Total executive recruitment

22,163

17.0%

23,104

17.5%

65,798

17.1%

88,298

20.8%

Leadership & Talent Consulting

1,643

4.0%

5,195

18.5%

12,834

11.9%

11,389

13.6%

Futurestep (1)

3,722

12.3%

1,587

6.1%

10,227

11.2%

7,258

8.6%

Corporate 

(11,350)

(12,792)

(37,408)

(38,502)

 Total adjusted operating income 

$        16,178

8.0%

$       17,094

9.2%

$       51,451

8.8%

$       68,443

11.6%

_____________________________

(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 $1.7 million offset by a decrease in Executive Recruitment operating income in the three and nine months ended January 31, 2012, respectively.

 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (in thousands, except per share amounts) 

 January 31, 

 April 30, 

2013

2012

ASSETS

 (unaudited) 

Cash and cash equivalents

$       168,235

$     282,005

Marketable securities

23,318

40,936

Receivables due from clients, net of allowance for doubtful accounts 

of $11,027 and $9,437 respectively

164,870

126,579

Income taxes and other receivables

20,923

11,902

Deferred income taxes

7,971

10,830

Prepaid expenses and other assets

30,513

27,815

Total current assets

415,830

500,067

Marketable securities, non-current

113,793

94,798

Property and equipment, net

50,466

49,808

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

83,534

77,848

Deferred income taxes

49,143

57,290

Goodwill

261,182

176,338

Intangible assets, net

59,734

20,413

Investments and other assets

29,708

38,127

Total assets

$    1,063,390

$  1,014,689

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable

$         16,476

$       14,667

Income taxes payable

5,576

8,720

Compensation and benefits payable

127,179

160,810

Other accrued liabilities

85,116

37,527

Total current liabilities

234,347

221,724

Deferred compensation and other retirement plans

148,651

142,577

Other liabilities

22,169

20,912

Total liabilities

405,167

385,213

Stockholders' equity

Common stock: $0.01 par value, 150,000 shares authorized, 60,912 and 59,975 shares issued and 48,630 and 47,913 shares outstanding, respectively

427,693

419,998

Retained earnings

223,893

202,797

Accumulated other comprehensive income, net

7,139

7,191

Stockholders' equity

658,725

629,986

Less:  notes receivable from stockholders

(502)

(510)

Total stockholders' equity

658,223

629,476

Total liabilities and stockholders' equity

$    1,063,390

$  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 

January 31, 2013

January 31, 2012

As Reported

Adjustments

As Adjusted

As Reported

Adjustments

As Adjusted

 Fee revenue 

$     202,004

$     202,004

$     185,951

$     185,951

 Reimbursed out-of-pocket engagement expenses 

8,268

8,268

8,672

8,672

           Total revenue 

210,272

210,272

194,623

194,623

 Compensation and benefits 

139,788

(516)

139,272

125,741

125,741

 General and administrative expenses 

35,915

(2,515)

33,400

35,242

35,242

 Engagement expenses 

16,334

16,334

13,023

13,023

 Depreciation and amortization 

5,088

5,088

3,523

3,523

 Restructuring charges, net 

4,441

(4,441)

-

929

(929)

-

           Total operating expenses 

201,566

(7,472)

194,094

178,458

(929)

177,529

 Operating income 

8,706

7,472

16,178

16,165

929

17,094

 Other income, net 

3,296

3,296

1,607

1,607

 Interest expense, net 

(360)

(360)

(310)

(310)

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

11,642

7,472

19,114

17,462

929

18,391

 Income tax provision (1) (2) 

2,753

1,945

4,698

6,038

328

6,366

 Equity in earnings of unconsolidated subsidiaries, net 

593

593

293

293

            Net income 

$         9,482

$             5,527

$       15,009

$       11,717

$                601

$       12,318

 Earnings per common share: 

      Basic 

$           0.20

$           0.32

$           0.25

$           0.26

      Diluted 

$           0.20

$           0.31

$           0.25

$           0.26

 Weighted-average common shares outstanding: 

      Basic 

47,367

47,367

46,528

46,528

      Diluted 

48,015

48,015

47,345

47,345

Explanation of Non-GAAP Adjustments

(1)

The adjustments result in an effective tax rate of 25% and 35% for the as adjusted amounts for the three months ended January 31, 2013 and 2012, respectively.

(2)

The three months ended January 31, 2013 includes the tax effect on restructuring charges, transaction and integration costs associated with the acquisition of PDI Ninth House, and separation charges, while the three months ended January 31, 2012 includes the tax effect on restructuring charges.

 

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) 

 Nine Months Ended 

 Nine Months Ended 

January 31, 2013

January 31, 2012

As Reported

Adjustments

As Adjusted

As Reported

Adjustments

As Adjusted

 Fee revenue 

$     584,929

$     584,929

$     592,418

$     592,418

 Reimbursed out-of-pocket engagement expenses 

26,165

26,165

26,783

26,783

           Total revenue 

611,094

611,094

619,201

619,201

 Compensation and benefits 

400,859

(516)

400,343

394,593

394,593

 General and administrative expenses 

102,675

(2,515)

100,160

104,204

104,204

 Engagement expenses 

46,013

46,013

41,594

41,594

 Depreciation and amortization 

13,127

13,127

10,367

10,367

 Restructuring charges, net 

19,936

(19,936)

-

929

(929)

-

           Total operating expenses 

582,610

(22,967)

559,643

551,687

(929)

550,758

 Operating income 

28,484

22,967

51,451

67,514

929

68,443

 Other income (loss), net 

3,808

3,808

(3,032)

(3,032)

 Interest expense, net 

(1,721)

(1,721)

(1,280)

(1,280)

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

30,571

22,967

53,538

63,202

929

64,131

 Income tax provision (1) (2) 

11,042

6,834

17,876

22,199

328

22,527

 Equity in earnings of unconsolidated subsidiaries, net 

1,567

1,567

1,272

1,272

            Net income  

$       21,096

$           16,133

$       37,229

$       42,275

$                601

$       42,876

 Earnings per common share: 

      Basic 

$           0.45

$           0.79

$           0.91

$           0.93

      Diluted 

$           0.44

$           0.78

$           0.90

$           0.91

 Weighted-average common shares outstanding: 

      Basic 

47,149

47,149

46,332

46,332

      Diluted 

47,742

47,742

47,193

47,193

Explanation of Non-GAAP Adjustments 

(1)

The adjustments result in an annual effective tax rate of 33% and 35% for the as adjusted amounts for the nine months ended January 31, 2013 and 2012, respectively.

(2)

The nine months ended January 31, 2013 includes the tax effect on restructuring charges, transaction and integration costs associated with the acquisition of PDI Ninth House, and separation charges, while the nine months ended January 31, 2012 includes the tax effect on 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 January 31, 2013 

 Executive Search 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 

 Fee revenue 

$    130,494

$       41,155

$       30,355

$                -

$          202,004

 Net income 

$              9,482

       Other income, net 

3,296

       Interest expense, net 

(360)

       Income tax provision 

2,753

       Equity in earnings of unconsolidated subsidiaries, net 

593

 Operating income (loss) 

$      21,647

$       (2,798)

$         3,722

$    (13,865)

8,706

       Depreciation and amortization 

2,247

1,764

324

753

5,088

        Other income, net 

325

37

5

2,929

3,296

       Equity in earnings of unconsolidated subsidiaries, net 

148

-

-

445

593

 EBITDA 

24,367

(997)

4,051

(9,738)

17,683

 EBITDA margin 

18.7%

(2.4%)

13.3%

8.8%

       Restructuring charges, net 

-

4,441

-

-

4,441

       Transaction and integration costs 

-

-

-

2,515

2,515

       Separation costs 

516

-

-

-

516

 Adjusted EBITDA 

$      24,883

$         3,444

$         4,051

$      (7,223)

$            25,155

 Adjusted EBITDA margin 

19.1%

8.4%

13.3%

12.5%

 Three Months Ended January 31, 2012 

 Executive Search 

 Leadership & Talent Consulting 

 Futurestep 

 Corporate 

 Consolidated 

 Fee revenue 

$    132,081

$       28,031

$       25,839