Korn Ferry International Announces Fourth Quarter and Fiscal 2015 Results of Operations - Surpassing $1 Billion in Annual Fee Revenue for the First Time

LOS ANGELES, June 11, 2015 /PRNewswire/ -- Korn/Ferry International (NYSE: KFY), the preeminent authority on leadership and talent, today announced record fourth quarter fee revenue of $271.8 million and record annual fee revenue of $1,028.2 million.  Fourth quarter diluted and adjusted diluted earnings per share were $0.51 compared to $0.43 in the year-ago quarter.  Full year adjusted diluted earnings per share was $1.90, excluding net restructuring and integration/acquisition costs of $10.4 million.  Including such costs, diluted earnings per share was $1.76 for the year ended April 30, 2015.

"Korn Ferry closed out the fiscal year with a strong quarter and record fee revenue of $271.8 million – 14.2% growth year over year and 11.4% growth sequentially, at constant currency, with diluted earnings per share of $0.51.  With all service lines up year over year, our quarterly results propelled our fiscal year fee revenue to a record high of $1.03 billion – a major milestone in our firm's history," said Gary D. Burnison, CEO, Korn Ferry.  "The strategic transformation our firm has undertaken – from a mono line to a multi solutions talent advisory – is taking hold.  Korn Ferry will continue to build on our leadership position in helping companies deliver superior business outcomes through impactful people strategies."

Financial Results
(dollars in millions, except per share amounts)

Fiscal 2015 Fourth Quarter Results

Fee revenue was $271.8 million in Q4 FY'15, an increase of $20.1 million, or 8.0% ($35.8 million, or 14.2% on a constant currency basis), compared to Q4 FY'14, primarily due to increases of $8.4 million, $6.6 million, and $5.1 million in fee revenue in Executive Recruitment, Leadership & Talent Consulting, and Futurestep, respectively.  The overall fee revenue increase was driven by fee revenue growth in certain of our major markets – life science/healthcare, financial services, industrial and consumer, partially offset by a decline in technology.

Compensation and benefit expenses were $183.0 million in Q4 FY'15, an increase of $12.4 million, or 7.3%, compared to the year-ago quarter.  The increase was driven, in part, by higher performance related bonus expense resulting from an increase in fee revenue and profitability as a result of the continued adoption of our strategy, including referrals between lines of business.  Salaries and related payroll taxes and employee insurance were also higher due to an increase in the average headcount in Executive Recruitment and Futurestep in Q4 FY'15 compared to Q4 FY'14, reflecting our continued growth-related investments back into our business. 

General and administrative expenses were $41.6 million in Q4 FY'15, an increase of $2.5 million, or 6.4%, from Q4 FY'14, mainly due to increases in foreign exchange losses and premise and office expenses, which were partially offset by a decline in travel related expenses.

Adjusted EBITDA was $40.7 million in Q4 FY'15, an increase of $6.2 million, or 18.0%, compared to Q4 FY'14.  Adjusted EBITDA margin was 15.0% and 13.7% in Q4 FY'15 and Q4 FY'14, respectively.  The increase in Adjusted EBITDA was primarily driven by the factors discussed above.

On a GAAP basis, operating income was $28.1 million in Q4 FY'15 and $24.5 million in Q4 FY'14 resulting in an operating margin of 10.3% in Q4 FY'15 compared to 9.7% in the year-ago quarter.  Operating income was impacted by the above items.

Fiscal 2015 Results 

Fee revenue was $1,028.2 million in FY'15, an increase of $67.9 million, or 7.1% ($91.8 million or 9.6% on a constant currency basis), compared to FY'14, primarily due to fee revenue increases of $28.5 million, $26.9 million, and $12.5 million in Executive Recruitment, Futurestep and Leadership & Talent Consulting, respectively.  The overall higher fee revenue was driven by fee revenue growth in industrial, life science/healthcare, financial services and consumer sectors, offset by a decline in the education/non-profit sector, while the technology sector was essentially flat.

Adjusted EBITDA was $161.7 million during FY'15, an increase of $23.4 million, or 16.9%, compared to FY'14.  Adjusted EBITDA margin was 15.7% and 14.4% in FY'15 and FY'14, respectively. 

On a GAAP basis, operating income was $114.0 million in FY'15, an increase of $22.4 million, or 24.5%, compared to FY'14, resulting in an operating margin of 11.1% in FY'15 compared to 9.5% in FY'14.

Balance Sheet and Liquidity

Cash and marketable securities were $525.4 million at April 30, 2015, compared to $468.3 million at April 30, 2014.  Net of amounts held in trust for deferred compensation plans and to pay FY'15 bonuses, cash and marketable securities were $235.6 million and $211.1 million at April 30, 2015 and 2014, respectively.  As of April 30, 2015 and 2014, we held $143.4 million and $136.3 million, respectively, of cash and cash equivalents in foreign locations, net of amounts held in trust for deferred compensation plans and to pay FY'15 bonuses.  Cash and marketable securities increased by $57.1 million from April 30, 2014, primarily due to cash provided by operating activities, partially offset by Q1 FY'15 payments of FY'14 annual bonuses, $15.3 million to acquire Pivot Leadership and $5.1 million in dividend payments made to stockholders during the year.

In accordance with the Company's dividend policy, the Company declared a quarterly dividend of $0.10 per share on June 10, 2015, payable on July 15, 2015 to stockholders of record on June 25, 2015.

Results by Segment

Selected Executive Recruitment Data
(dollars in millions)

Executive Recruitment

Fee revenue was $156.6 million in Q4 FY'15, an increase of $8.4 million, or 5.7% (an increase of $18.0 million, or 12.1% on a constant currency basis), compared to Q4 FY'14.  The overall increase in fee revenue was primarily attributable to an increase of 4.2% in the number of engagements billed and a 1.4% increase in the weighted-average fees billed per engagement in Q4 FY'15 compared to Q4 FY'14.  On a regional basis, fee revenue increased in North America by $7.3 million, or 9.1% ($8.0 million, or 10.0% on a constant currency basis), Asia Pacific by $0.8 million, or 3.7% ($2.3 million, or 10.6% on a constant currency basis), and South America by $0.8 million, or 13.3% ($2.2 million, or 36.7% on a constant currency basis), partially offset by a decline in EMEA by $0.5 million, or 1.2% (an increase of $5.5 million, or 13.7% on a constant currency basis).

Adjusted EBITDA was $33.4 million and $31.7 million during Q4 FY'15 and Q4 FY'14, respectively.  The increase in Adjusted EBITDA was driven by higher fee revenues of $8.4 million, partially offset by increases in compensation and benefit expenses and general and administrative expenses of $4.9 million and $1.0 million, respectively.  The increase in compensation and benefit expenses was primarily due to an increase in performance related bonus expense resulting from an increase in fee revenue and average headcount and in the fair value of the vested amounts owed under certain deferred compensation plans in Q4 FY'15 compared to Q4 FY'14.  General and administrative expenses were higher due to an increase in foreign exchange loss and premise and office expense, partially offset by a decline in travel related expenses.

Operating income was $31.3 million in Q4 FY'15, an increase of $2.9 million, or 10.2%, compared to Q4 FY'14, resulting in an operating margin of 20.0% in Q4 FY'15 compared to 19.1% in Q4 FY'14.  Operating income was impacted by all of the above items and a decline in depreciation expense of $1.0 million in Q4 FY'15 compared to the year-ago quarter.

Selected Leadership & Talent Consulting Data
(dollars in millions)

Leadership & Talent Consulting

Fee revenue was $72.8 million in Q4 FY'15, an increase of $6.6 million, or 10.0% ($9.6 million, or 14.5% on a constant currency basis), from the year-ago quarter.  This increase is primarily attributed to higher consulting fee revenue of $5.4 million in Q4 FY'15 compared to Q4 FY'14 with the remaining increase being generated by product revenue.  The increase in consulting revenue includes $3.7 million of fee revenue from Pivot Leadership which was acquired on March 1, 2015.

Adjusted EBITDA was $12.1 million during Q4 FY'15, an increase of $2.1 million, or 21.0%, compared to Q4 FY'14.  Adjusted EBITDA margin was 16.6% in Q4 FY'15 compared to 15.1% in Q4 FY'14 due to higher fee revenue of $6.6 million, partially offset by increases in compensation and benefit expenses and general and administrative expenses of $2.8 million and $0.7 million, respectively.  The increase in compensation and benefit expenses was due to an increase in performance related bonus expense, higher recruitment costs and an increase in the use of temporary workers to deliver the higher levels of fee revenue.

Operating income was $8.4 million in Q4 FY'15, an increase of $1.6 million compared to Q4 FY'14, resulting in an operating margin of 11.5% in the current quarter compared to 10.3% in the year-ago quarter.  The increase in operating income was due to the factors impacting Adjusted EBITDA as discussed above and an increase in depreciation and amortization expense of $0.4 million in Q4 FY'15 compared to Q4 FY'14.

Selected Futurestep Data
(dollars in millions)

Futurestep

Fee revenue was $42.4 million in Q4 FY'15, an increase of $5.1 million, or 13.7% ($8.2 million, or 22.0% on a constant currency basis), compared to the year-ago quarter.  The increase in fee revenue was driven by a 13.9% increase in the weighted average fees billed per engagement in Q4 FY'15 compared to Q4 FY'14. 

Adjusted EBITDA was $6.1 million during Q4 FY'15, an increase of $1.3 million, or 27.1%, compared to Q4 FY'14, due primarily to the increase in fee revenue of $5.1 million, partially offset by higher compensation and benefit expenses of $3.4 million and an increase in general and administrative expenses of $0.5 million due primarily to higher foreign currency losses in Q4 FY'15 compared to the year-ago quarter.  The increase in compensation and benefit expenses was driven by higher salaries and related payroll taxes as a result of a 15% increase in average headcount and an increase in outside contractor expense.  The higher average headcount and use of outside contractors are both related to the higher levels of fee revenue driven by the continued adoption of our strategy, including referrals between lines of business.

Operating income was $5.5 million in Q4 FY'15, an increase of $1.2 million, compared to Q4 FY'14, resulting in an operating margin of 13.1% in the current quarter compared to 11.7% in the year-ago quarter.  The increase in operating income was due to the same factors impacting Adjusted EBITDA.

Outlook

The current strong U.S. dollar will negatively impact our FY'16 first quarter year-over-year revenue growth.  Assuming worldwide economic conditions and financial markets remain where they are currently and considering the effect of foreign exchange rates, fee revenue is expected to be in the range of $258 million to $270 million in Q1 FY'16, and diluted earnings per share are likely to be in the range of $0.44 to $0.50.

Earnings Conference Call Webcast

The earnings conference call will be held today at 4:30 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.  We will also post to this section of our website earnings slides, which will accompany our webcast, and other important information, and encourage you to review the information that we make available on our website.

About Korn Ferry

Korn Ferry is the preeminent authority on leadership and talent.  For decades, clients have trusted us to recruit leaders throughout the world.  Today we are their partner in designing strategies to accelerate business outcomes through talent.  For more information, visit www.kornferry.com.

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, 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, seasonality, our ability to successfully rationalize our cost structure 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 net income, adjusted to exclude restructuring charges, integration and acquisition costs and certain separation costs, net of income tax effect;
• adjusted basic and diluted earnings per share, adjusted to exclude restructuring charges, integration and acquisition costs and certain 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 charges, integration and acquisition costs and certain 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.

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