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

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."

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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.

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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.

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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.

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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]

Explanation of Non-GAAP Adjustments 

SOURCE Korn/Ferry International