In the news release, Korn/Ferry International Announces Fourth Quarter and Fiscal 2013 Results of Operations, issued today by Korn/Ferry International over PR Newswire, we are advised by the company that the final sentence of the Outlook section should read "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," rather than "fourth quarter" as originally issued inadvertently. The complete, corrected release follows:
Korn/Ferry International Announces Fourth Quarter and Fiscal 2013 Results of Operations
Highlights
- Korn/Ferry reports record quarterly fee revenue of $227.9 million in the fourth quarter of 2013, an increase of 17% compared to Q4 FY'12, on a constant currency basis. Excluding current year acquisitions, quarterly fee revenues increased 2% on a constant currency basis.
- Fee revenue in Leadership & Talent Consulting services grew 92% from Q4 FY'12 to Q4 FY'13 on a constant currency basis. Excluding current year acquisitions, fourth quarter revenues were essentially flat year-over-year, on a constant currency basis.
- Fee revenue in Futurestep grew 7 %, from Q4 FY'12 to Q4 FY'13, on a constant currency basis.
- For the full year of FY'13, Korn/Ferry reports record annual fee revenue of $812.8 million, an increase of 5% over FY'12, on a constant currency basis. Excluding current year acquisitions, annual fee revenues were down 1% on a constant currency basis.
LOS ANGELES, June 17, 2013 /PRNewswire/ -- Korn/Ferry International KFY, a premier global provider of talent management solutions, announced record quarterly and annual fee revenues of $227.9 million and $812.8 million for the fourth quarter and full year of FY'13, respectively. Fourth quarter adjusted diluted earnings per share were $0.32, excluding restructuring and transaction and integration costs of $3.5 million. Full year adjusted diluted earnings per share were $1.10, excluding restructuring, transaction and integration, and separation costs of $26.5 million. Including such costs, diluted earnings per share was $0.25 and $0.70 in the three months and year ended April 30, 2013, respectively.
"I am pleased with our strategic progress and operating results for the fourth quarter, which includes accelerating the integration of our recent acquisitions as well as further diversifying and differentiating our Company. In the fourth quarter, Korn/Ferry's broader talent management offerings accounted for 40% of fee revenue which reflects the Company's transformation as a talent management consultancy," said Gary D. Burnison, CEO of Korn/Ferry International. "As global companies fight for growth and relevancy in this decade, talent will be the differentiator - Korn/Ferry is the bridge between a client's business and talent strategy - delivering solutions that help our clients with the design, building and attraction of that talent."
Financial Results
(dollars in millions, except per share amounts)
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
Fee revenue
$ 227.9
$ 198.1
$ 812.8
$ 790.5
Total revenue
$ 238.6
$ 207.6
$ 849.7
$ 826.8
Operating income
$ 15.4
$ 15.4
$ 43.9
$ 82.9
Operating margin
6.8%
7.8%
5.4%
10.5%
Net income
$ 12.2
$ 12.0
$ 33.3
$ 54.3
Basic earnings per share
$ 0.26
$ 0.26
$ 0.71
$ 1.17
Diluted earnings per share
$ 0.25
$ 0.25
$ 0.70
$ 1.15
EBITDA Results (a):
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
EBITDA
$ 24.3
$ 22.4
$ 71.3
$ 98.5
EBITDA margin
10.7%
11.3%
8.8%
12.5%
Adjusted Results (b):
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
Operating income
$ 18.9
$ 17.3
$ 70.4
$ 85.7
Operating margin
8.3%
8.7%
8.7%
10.8%
EBITDA (a)
$ 27.8
$ 24.3
$ 97.8
$ 101.3
EBITDA margin (a)
12.2%
12.2%
12.0%
12.8%
Net income
$ 15.6
$ 13.3
$ 52.8
$ 56.2
Basic earnings per share
$ 0.33
$ 0.28
$ 1.12
$ 1.21
Diluted earnings per share
$ 0.32
$ 0.28
$ 1.10
$ 1.19
____________
(a)
EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude restructuring charges, transaction and integration costs and separation costs. EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliation).
(b)
Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
Restructuring charges, net of recoveries
$ 2.9
$ -
$ 22.8
$ 0.9
Transaction and integration costs
$ 0.6
$ -
$ 3.1
$ -
Separation costs
$ -
$ 1.9
$ 0.6
$ 1.9
Fiscal 2013 Fourth Quarter Results
Fee revenue was $227.9 million in Q4 FY'13, an increase of $29.8 million, or 15%, compared to the year-ago quarter (foreign exchange rates negatively impacted fee revenue by $2.9 million), primarily driven by a $28.5 million and a $1.7 million increase in fee revenue in Leadership & Talent Consulting and Futurestep. Excluding the PDI Ninth House and Global Novations acquisitions (the "current year acquisitions"), fee revenue was $199.1 million in Q4 FY'13, an increase of 1% compared to the year-ago quarter (2% on a constant currency basis) driven by all market sectors with the largest increases in life science/healthcare, technology and the industrial sector.
Compensation and benefit expenses were $154.4 million in Q4 FY'13, an increase of $14.8 million, or 11%, compared to the year-ago quarter. The current year acquisitions contributed $18.6 million to the increase in compensation and benefit expenses, offset by a reduction of $3.8 million primarily in salaries and related payroll taxes due to lower average headcount in Executive Recruitment.
General and administrative expenses were $40.1 million in Q4 FY'13, an increase of $5.4 million, or 16%, from the year-ago quarter, resulting primarily from the current year acquisitions.
As previously disclosed, during Q4 FY'13, the Company took steps to integrate PDI Ninth House by consolidating and eliminating redundant office space around the world. As a result, the Company recorded net restructuring charges of $2.9 million in Q4 FY'13 and incurred transaction and integration costs of $0.6 million in Q4 FY'13. Excluding these costs, adjusted EBITDA was $27.8 million during Q4 FY'13, an increase of $3.5 million, or 14%, compared to Q4 FY'12. Adjusted EBITDA margin was 12.2% in both periods.
On a GAAP basis, operating income was $15.4 million in both Q4 FY'13 and Q4 FY'12 resulting in a margin of 6.8% in the current quarter compared to 7.8% in the year-ago quarter.
Fiscal 2013 Results
Fee revenue was $812.8 million in FY'13, an increase of $22.3 million, or 3%, compared to FY'12 (foreign exchange rates negatively impacted fee revenue by $15.1 million). Excluding current year acquisitions, fee revenue was $767.2 million in FY'13, a decrease of 3% (1% on a constant currency basis) compared to FY'12.
As previously disclosed, during FY'13, the Company took steps to rationalize its cost structure and to integrate the current year acquisitions. As a result, the Company recorded restructuring charges of $22.8 million to reduce its workforce and consolidate premises and incurred acquisition-related transaction and integration costs of $3.1 million in FY'13.
Adjusted EBITDA was $97.8 million during FY'13, a decrease of $3.5 million, or 3%, compared to FY'12. Adjusted EBITDA margin was 12.0%, down 80 basis points from the prior year. This decrease was primarily associated with the change in business mix and costs associated with incremental infrastructure and support services relating to the newly acquired businesses.
On a GAAP basis, operating income was $43.9 million in FY'13, a decrease of $39.0 million, or 47%, compared to FY'12 resulting in an operating margin of 5.4% in the current year compared to 10.5% in the prior year.
Balance Sheet and Liquidity
Cash and marketable securities were $366.0 million at April 30, 2013, compared to $417.7 million at April 30, 2012. Cash and marketable securities include $98.0 million held in trust for deferred compensation plans at April 30, 2013, compared to $82.2 million at April 30, 2012. Cash and marketable securities decreased by $51.7 million from April 30, 2012, mainly due to the payment of FY'12 annual bonuses in Q1 FY'13 and the payment for the current year acquisitions, partially offset by cash provided by operating activities.
Results by Segment
In Q1 FY'13, the Company began reporting its Leadership & Talent Consulting business as a separate segment. The Company reports its results in three global business segments: Executive Recruitment, Leadership & Talent Consulting and Futurestep. This change has no impact on previously reported consolidated net income or earnings per share.
Selected Executive Recruitment Data
(dollars in millions)
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
Fee revenue
$ 136.8
$ 137.2
$ 522.5
$ 561.2
Total revenue
$ 142.8
$ 143.4
$ 544.8
$ 586.5
Operating income
$ 26.5
$ 22.4
$ 81.0
$ 109.9
Operating margin
19.4%
16.3%
15.5%
19.6%
Ending number of consultants
399
400
399
400
Average number of consultants
395
399
400
420
Engagements billed
2,718
2,692
7,554
7,879
New engagements (a)
1,231
1,175
4,750
4,963
EBITDA Results (b):
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
EBITDA
$ 29.4
$ 24.9
$ 91.2
$ 118.1
EBITDA margin
21.5%
18.2%
17.5%
21.0%
Adjusted Results (c):
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
Operating income
$ 23.9
$ 22.4
$ 89.7
$ 110.7
Operating margin
17.5%
16.3%
17.2%
19.7%
EBITDA (a)
$ 26.8
$ 24.9
$ 99.9
$ 118.9
EBITDA margin (a)
19.6%
18.2%
19.1%
21.2%
____________
(a)
Represents new engagements opened in the respective period.
(b)
EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(c)
Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
Restructuring charges, net of recoveries
$ (2.6)
$ -
$ 8.1
$ 0.8
Separation costs
$ -
$ -
$ 0.6
$ -
Executive Recruitment
Fee revenue was $136.8 million in Q4 FY'13, essentially flat with the year-ago quarter (foreign exchange rates negatively impacted fee revenue by $1.9 million). Fee revenue increases in North America were offset by decreases in Europe, Asia and Latin America. Fee revenues were impacted by a 1% decrease in the weighted-average fee billed per engagement, offset by a 1% increase in the number of executive recruitment engagements billed compared to the year-ago quarter.
On a GAAP basis, operating income was $26.5 million in Q4 FY'13, an increase of $4.1 million, or 18%, compared to Q4 FY'12 resulting in an operating margin of 19.4% in the current quarter compared to 16.3% in the year-ago quarter.
Adjusted EBITDA was $26.8 million during Q4 FY'13, an increase of $1.9 million, or 8%, compared to Q4 FY'12. This increase is primarily attributable to a decrease in the average headcount and associated compensation and benefits costs during the quarter compared to the year-ago quarter. For the full year, adjusted EBITDA declined by $19.0 million due to a 5% decrease in fee revenue on a constant currency basis offset by reduced compensation and benefits and general and administrative expenses.
Selected Leadership & Talent Consulting Data
(dollars in millions)
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
Fee revenue
$ 60.1
$ 31.6
$ 168.1
$ 115.4
Total revenue
$ 63.1
$ 33.2
$ 176.6
$ 120.3
Operating (loss) income
$ (1.3)
$ 5.0
$ 6.4
$ 16.4
Operating margin
(2.1)%
15.7%
3.8%
14.2%
Ending number of consultants (a)
133
51
133
51
Staff utilization (b)
67%
67%
64%
62%
EBITDA Results (c):
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
EBITDA
$ 1.2
$ 5.6
$ 12.4
$ 19.1
EBITDA margin
2.0%
17.9%
7.4%
16.6%
Adjusted Results (d):
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
Operating income
$ 3.8
$ 5.0
$ 16.6
$ 16.4
Operating margin
6.3%
15.7%
9.9%
14.2%
EBITDA (c)
$ 6.3
$ 5.6
$ 22.6
$ 19.1
EBITDA margin (c)
10.4%
17.9%
13.4%
16.6%
____________
(a)
Represents number of employees originating consulting services. FY'13 includes approximately 81 consultants from the current year acquisitions.
(b)
Calculated by dividing the number of hours of our full-time LTC professional staff, who recorded time to an engagement during the period, by the total available working hours during the same period. Excluding the current year acquisitions, staff utilization was 64% and 63% for the three months and year ended April 30, 2013, respectively.
(c)
EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(d)
Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
Restructuring charges, net of recoveries
$ 5.1
$ —
$ 10.2
$ —
Leadership & Talent Consulting
Fee revenue was $60.1 million in Q4 FY'13, an increase of $28.5 million, or 90%, from the year-ago quarter. Excluding the current year acquisitions, fee revenue in Q4 FY'13 was essentially flat compared to Q4 FY'12.
On a GAAP basis, operating loss was $1.3 million, a decrease of $6.3 million compared to the year-ago quarter resulting in an operating margin of (2.1%) in the current quarter compared to 15.7% in the year-ago quarter.
Adjusted EBITDA was $6.3 million during Q4 FY'13, an increase of $0.7 million, or 13%, compared to Q4 FY'12, primarily due to the current year acquisitions. Adjusted EBITDA margin was 10.4% compared to 17.9% in Q4 FY'12 and was negatively impacted, in part, by the incremental infrastructure and support services costs related to the current year acquisitions. For the full year, adjusted EBITDA increased from $19.1 million in FY'12 to $22.6 million in FY'13 due to the current year acquisitions, offset by the incremental infrastructure costs described above.
Selected Futurestep Data
(dollars in millions)
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
Fee revenue
$ 31.0
$ 29.3
$ 122.2
$ 113.9
Total revenue
$ 32.7
$ 31.0
$ 128.3
$ 120.0
Operating income
$ 3.9
$ 1.4
$ 11.0
$ 8.5
Operating margin
12.4%
4.6%
9.0%
7.4%
Engagements billed
1,703
1,611
5,605
4,916
New engagements (a)
863
998
4,434
3,924
EBITDA Results (b):
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
EBITDA
$ 4.1
$ 1.7
$ 12.2
$ 9.6
EBITDA margin
13.3%
5.6%
10.0%
8.4%
Adjusted Results (c):
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
Operating income
$ 4.3
$ 2.3
$ 14.5
$ 9.5
Operating margin
13.8%
7.7%
11.9%
8.4%
EBITDA (b)
$ 4.5
$ 2.6
$ 15.7
$ 10.6
EBITDA margin (b)
14.7%
8.7%
12.9%
9.3%
____________
(a)
Represents new engagements opened in the respective period.
(b)
EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(c)
Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):
Fourth Quarter
Year to Date
FY'13
FY'12
FY'13
FY'12
Restructuring charges, net of recoveries
$ 0.4
$ -
$ 3.5
$ 0.1
Separation costs
$ -
$ 0.9
$ -
$ 0.9
Futurestep
Fee revenue was $31.0 million in Q4 FY'13, an increase of $1.7 million, or 6%, compared to the year-ago quarter (foreign exchange rates negatively impacted fee revenue by $0.4 million). The increase in fee revenue was due to an increase in recruitment process outsourcing and recruitment.
On a GAAP basis, operating income was $3.9 million in Q4 FY'13, an increase of $2.5 million, compared to Q4 FY'12 resulting in an operating margin of 12.4% in the current quarter compared to 4.6% in the year-ago quarter.
Adjusted EBITDA was $4.5 million during Q4 FY'13, an increase of $1.9 million, or 73%, compared to Q4 FY'12, due primarily to the increase in fee revenue and a decrease in performance related bonus expenses. For the full year, adjusted EBITDA increased $5.1 million due to the $8.3 million increase in fee revenue.
Outlook
Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, fee revenue is expected to be in the range of $215 million to $227 million in Q1 FY'14. Also during FY'14, we are continuing with our efforts to integrate the newly acquired businesses and to reduce the incremental infrastructure and support services costs in an effective and thoughtful manner, which will be enabled through investments to align and enhance our technology platform. In line with this, in Q1 FY'14, we expect to incur charges associated with these cost reduction efforts in the range of $3.8 million to $5.0 million which will yield $4.7 million to $5.5 million in annual savings starting late in the fiscal first quarter. Excluding these charges, adjusted diluted earnings per share in the first quarter are likely to be in the range of $0.26 to $0.32 with diluted earnings per share as measured by generally accepted accounting principles likely to be in the range of $0.19 to $0.27.
Earnings Conference Call Webcast
The earnings conference call will be held today at 5:00 PM (EDT) and hosted by CEO Gary Burnison, CFO Robert Rozek and SVP Finance Gregg Kvochak. The conference call will be webcast and available online at www.kornferry.com, accessible through the Investor Relations section.
Korn/Ferry International KFY, with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that help clients to attract, deploy, develop and reward their talent. Visit www.kornferry.com for more information on the Korn/Ferry International family of companies, and www.kornferryinstitute.com for thought leadership, intellectual property and research.
Forward-Looking Statements
Statements in this press release and our conference call that relate to future results and events ("forward-looking statements") are based on Korn/Ferry's current expectations. These statements, which include words such as "believes", "expects" or "likely" include references to our outlook. Readers are cautioned not to place undue reliance on such statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties that are beyond the control of Korn/Ferry. The potential risks and uncertainties include those relating to competition, the dependence on attracting and retaining qualified and experienced consultants, our ability to successfully integrate acquired businesses, including current year acquisitions, maintaining our brand name and professional reputation, potential legal liability, the portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to the growth, alignment of our cost structure with our growth, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, consolidation of industries we serve, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, impairment of goodwill and other intangible assets, deferred tax assets and employment liability risk. For a detailed description of risks and uncertainties that could cause differences, please refer to Korn/Ferry's periodic filings with the Securities and Exchange Commission. Korn/Ferry disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Use of Non-GAAP Financial Measures
This press release contains financial information calculated other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). In particular, it includes:
adjusted operating income and operating margin, adjusted to exclude restructuring, transaction and integration and separation costs;
adjusted net income, adjusted to exclude restructuring, transaction and integration and separation costs, net of income tax effect;
adjusted basic and diluted earnings per share, adjusted to exclude restructuring, transaction and integration and separation costs, net of income tax effect;
constant currency amounts that represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period;
EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin; and
adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring, transaction and integration and separation costs, and adjusted EBITDA margin.
This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial information determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.
Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn/Ferry's performance by excluding certain charges and other items that may not be indicative of Korn/Ferry's ongoing operating results. The use of these non-GAAP financial measures facilitate comparisons to Korn/Ferry's historical performance. Korn/Ferry includes these non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn/Ferry's ongoing operations and financial and operational decision-making. In the case of constant currency amounts, management believes the presentation of such information provides meaningful supplemental information regarding Korn/Ferry's performance as excluding the impact of exchange rate changes on Korn/Ferry's financial performance allows investors to make more meaningful period-to-period comparisons of the Company's operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn/Ferry's ongoing operations and financial and operational decision-making.
[Tables attached]
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Three Months Ended
Year Ended
April 30,
April 30,
2013
2012
2013
2012
(unaudited)
Fee revenue
$ 227,902
$ 198,087
$ 812,831
$ 790,505
Reimbursed out-of-pocket engagement expenses
10,705
9,471
36,870
36,254
Total revenue
238,607
207,558
849,701
826,759
Compensation and benefits
154,487
139,593
555,346
534,186
General and administrative expenses
40,096
34,668
142,771
138,872
Engagement expenses
19,834
14,295
65,847
55,889
Depreciation and amortization
5,877
3,650
19,004
14,017
Restructuring charges, net
2,921
-
22,857
929
Total operating expenses
223,215
192,206
805,825
743,893
Operating income
15,392
15,352
43,876
82,866
Other income (loss), net
2,501
2,761
6,309
(271)
Interest expense, net
(644)
(511)
(2,365)
(1,791)
Income before provision for income taxes
and equity in earnings of unconsolidated subsidiaries
17,249
17,602
47,820
80,804
Income tax provision
5,595
6,152
16,637
28,351
Equity in earnings of unconsolidated subsidiaries, net
543
578
2,110
1,850
Net income
$ 12,197
$ 12,028
$ 33,293
$ 54,303
Earnings per common share:
Basic
$ 0.26
$ 0.26
$ 0.71
$ 1.17
Diluted
$ 0.25
$ 0.25
$ 0.70
$ 1.15
Weighted-average common shares outstanding:
Basic
47,452
46,591
47,224
46,397
Diluted
48,345
47,524
47,883
47,261
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
FINANCIAL SUMMARY BY SEGMENT
(in thousands)
(unaudited)
Three Months Ended April 30,
Year Ended April 30,
2013
2012
% Change
2013
2012
% Change
Fee Revenue:
Executive recruitment:
North America
$ 77,511
$ 76,268
2%
$ 290,317
$ 305,717
(5%)
EMEA
32,242
32,728
(1%)
128,807
141,409
(9%)
Asia Pacific
19,199
19,524
(2%)
73,221
82,230
(11%)
South America
7,839
8,642
(9%)
30,134
31,846
(5%)
Total executive recruitment
136,791
137,162
(0%)
522,479
561,202
(7%)
Leadership & Talent Consulting
60,116
31,650
90%
168,115
115,407
46%
Futurestep
30,995
29,275
6%
122,237
113,896
7%
Total fee revenue
227,902
198,087
15%
812,831
790,505
3%
Reimbursed out-of-pocket engagement expenses
10,705
9,471
13%
36,870
36,254
2%
Total revenue
$ 238,607
$ 207,558
15%
$ 849,701
$ 826,759
3%
Reconciliation of Operating Income (GAAP) to Adjusted Operating Income
Operating Income:
Margin
Margin
Margin
Margin
Executive recruitment:
North America
$ 17,104
22.1%
$ 17,148
22.5%
$ 58,832
20.3%
$ 75,580
24.7%
EMEA
4,137
12.8%
(266)
(0.8%)
9,173
7.1%
13,288
9.4%
Asia Pacific
3,482
18.1%
3,001
15.4%
6,973
9.5%
11,859
14.4%
South America
1,761
22.5%
2,536
29.3%
5,987
19.9%
9,207
28.9%
Total executive recruitment
26,484
19.4%
22,419
16.3%
80,965
15.5%
109,934
19.6%
Leadership & Talent Consulting
(1,292)
(2.1%)
4,971
15.7%
6,424
3.8%
16,360
14.2%
Futurestep
3,834
12.4%
1,333
4.6%
10,975
9.0%
8,445
7.4%
Corporate
(13,634)
(13,371)
(54,488)
(51,873)
Total operating income
$ 15,392
6.8%
$ 15,352
7.8%
$ 43,876
5.4%
$ 82,866
10.5%
Restructuring, Transaction and Integration, and Separation Costs, net:
Executive recruitment:
North America
$ (1,853)
(2.4%)
$ -
-
$ 3,583
1.2%
$ (15)
(0.0%)
EMEA
(770)
(2.4%)
-
-
4,498
3.5%
897
0.6%
Asia Pacific
16
0.1%
-
-
629
0.9%
-
-
South America
-
-
-
-
-
-
(99)
(0.3%)
Total executive recruitment
(2,607)
(1.9%)
-
-
8,710
1.7%
783
0.1%
Leadership & Talent Consulting
5,080
8.4%
-
-
10,198
6.1%
-
-
Futurestep
441
1.4%
920
3.1%
3,527
2.9%
1,066
1.0%
Corporate
598
999
4,044
999
Total restructuring, transaction and integration, and separation charges, net
$ 3,512
1.5%
$ 1,919
0.9%
$ 26,479
3.3%
$ 2,848
0.3%
Adjusted Operating Income:
(Excluding Restructuring, Transaction and Integration, and Separation Costs, net)
Margin
Margin
Margin
Margin
Executive recruitment:
North America
$ 15,251
19.7%
$ 17,148
22.5%
$ 62,415
21.5%
$ 75,565
24.7%
EMEA
3,367
10.4%
(266)
(0.8%)
13,671
10.6%
14,185
10.0%
Asia Pacific
3,498
18.2%
3,001
15.4%
7,602
10.4%
11,859
14.4%
South America
1,761
22.5%
2,536
29.3%
5,987
19.9%
9,108
28.6%
Total executive recruitment (1)
23,877
17.5%
22,419
16.3%
89,675
17.2%
110,717
19.7%
Leadership & Talent Consulting
3,788
6.3%
4,971
15.7%
16,622
9.9%
16,360
14.2%
Futurestep (1)
4,275
13.8%
2,253
7.7%
14,502
11.9%
9,511
8.4%
Corporate
(13,036)
(12,372)
(50,444)
(50,874)
Total adjusted operating income
$ 18,904
8.3%
$ 17,271
8.7%
$ 70,355
8.7%
$ 85,714
10.8%
(1)
The Company revised the presentation for expenses that are not directly associated with Futurestep, resulting in an increase in Futurestep's operating income of $0.6 million and $2.2 million offset by a decrease in Executive Recruitment operating income in the three months and year ended April 30, 2012, respectively.
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
April 30,
2013
2012
ASSETS
Cash and cash equivalents
$ 224,066
$ 282,005
Marketable securities
20,347
40,936
Receivables due from clients, net of allowance for doubtful accounts
of $9,097 and $9,437 respectively
161,508
126,579
Income taxes and other receivables
8,944
11,902
Deferred income taxes
3,511
10,830
Prepaid expenses and other assets
28,724
27,815
Total current assets
447,100
500,067
Marketable securities, non-current
121,569
94,798
Property and equipment, net
53,628
49,808
Cash surrender value of company owned life insurance policies, net of loans
85,873
77,848
Deferred income taxes
63,203
57,290
Goodwill
257,293
176,338
Intangible assets, net
58,187
20,413
Investments and other assets
28,376
38,127
Total assets
$ 1,115,229
$ 1,014,689
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable
$ 19,460
$ 14,667
Income taxes payable
5,502
8,720
Compensation and benefits payable
160,298
160,810
Other accrued liabilities
83,291
37,527
Total current liabilities
268,551
221,724
Deferred compensation and other retirement plans
159,706
142,577
Other liabilities
22,504
20,912
Total liabilities
450,761
385,213
Stockholders' equity
Common stock: $0.01 par value, 150,000 shares authorized, 61,022 and
59,975 shares issued and 48,734 and 47,913 shares outstanding, respectively
431,508
419,998
Retained earnings
236,090
202,797
Accumulated other comprehensive (loss) income, net
(2,631)
7,191
Stockholders' equity
664,967
629,986
Less: notes receivable from stockholders
(499)
(510)
Total stockholders' equity
664,468
629,476
Total liabilities and stockholders' equity
$ 1,115,229
$ 1,014,689
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP)
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
Three Months Ended
April 30, 2013
April 30, 2012
As Reported
Adjustments
As Adjusted
As Reported
Adjustments
As Adjusted
Fee revenue
$ 227,902
$ 227,902
$ 198,087
$ 198,087
Reimbursed out-of-pocket engagement expenses
10,705
10,705
9,471
9,471
Total revenue
238,607
238,607
207,558
207,558
Compensation and benefits
154,487
154,487
139,593
(1,919)
137,674
General and administrative expenses
40,096
(591)
39,505
34,668
34,668
Engagement expenses
19,834
19,834
14,295
14,295
Depreciation and amortization
5,877
5,877
3,650
3,650
Restructuring charges, net
2,921
(2,921)
-
-
-
-
Total operating expenses
223,215
(3,512)
219,703
192,206
(1,919)
190,287
Operating income
15,392
3,512
18,904
15,352
1,919
17,271
Other income, net
2,501
2,501
2,761
2,761
Interest expense, net
(644)
(644)
(511)
(511)
Income before provision for income taxes
and equity in earnings of unconsolidated subsidiaries
17,249
3,512
20,761
17,602
1,919
19,521
Income tax provision (1) (2)
5,595
119
5,714
6,152
671
6,823
Equity in earnings of unconsolidated subsidiaries, net
543
543
578
578
Net income
$ 12,197
$ 3,393
$ 15,590
$ 12,028
$ 1,248
$ 13,276
Earnings per common share:
Basic
$ 0.26
$ 0.33
$ 0.26
$ 0.28
Diluted
$ 0.25
$ 0.32
$ 0.25
$ 0.28
Weighted-average common shares outstanding:
Basic
47,452
47,452
46,591
46,591
Diluted
48,345
48,345
47,524
47,524
Explanation of Non-GAAP Adjustments
(1)
The adjustments result in an effective tax rate of 28% and 35% for the as adjusted amounts for the three months ended April 30, 2013 and 2012, respectively.
(2)
The three months ended April 30, 2013 includes the tax effect on restructuring charges and transaction & integration costs associated with the acquisition of PDI Ninth House, while the three months ended April 30, 2012 includes the tax effect on the separation costs related to changes in certain leadership positions.
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP)
(in thousands, except per share amounts)
(unaudited)
Year Ended
Year Ended
April 30, 2013
April 30, 2012
As Reported
Adjustments
As Adjusted
As Reported
Adjustments
As Adjusted
Fee revenue
$ 812,831
$ 812,831
$ 790,505
$ 790,505
Reimbursed out-of-pocket engagement expenses
36,870
36,870
36,254
36,254
Total revenue
849,701
849,701
826,759
826,759
Compensation and benefits
555,346
(516)
554,830
534,186
(1,919)
532,267
General and administrative expenses
142,771
(3,106)
139,665
138,872
138,872
Engagement expenses
65,847
65,847
55,889
55,889
Depreciation and amortization
19,004
19,004
14,017
14,017
Restructuring charges, net
22,857
(22,857)
-
929
(929)
-
Total operating expenses
805,825
(26,479)
779,346
743,893
(2,848)
741,045
Operating income
43,876
26,479
70,355
82,866
2,848
85,714
Other income (loss), net
6,309
6,309
(271)
(271)
Interest expense, net
(2,365)
(2,365)
(1,791)
(1,791)
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries
47,820
26,479
74,299
80,804
2,848
83,652
Income tax provision (1) (2)
16,637
6,953
23,590
28,351
999
29,350
Equity in earnings of unconsolidated subsidiaries, net
2,110
2,110
1,850
1,850
Net income
$ 33,293
$ 19,526
$ 52,819
$ 54,303
$ 1,849
$ 56,152
Earnings per common share:
Basic
$ 0.71
$ 1.12
$ 1.17
$ 1.21
Diluted
$ 0.70
$ 1.10
$ 1.15
$ 1.19
Weighted-average common shares outstanding:
Basic
47,224
47,224
46,397
46,397
Diluted
47,883
47,883
47,261
47,261
Explanation of Non-GAAP Adjustments
(1) The adjustments result in an annual effective tax rate of 32% and 35% for the as adjusted amounts for the year ended April 30, 2013 and 2012, respectively.
(2) The year ended April 30, 2013 includes the tax effect on restructuring charges, transaction and integration costs associated with the acquisition of PDI Ninth House, and separation costs, while the year ended April 30, 2012 includes the tax effect on the separation costs related to changes in certain leadership positions and restructuring charges.
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO
EBITDA AND ADJUSTED EBITDA (NON-GAAP)
(in thousands)
(unaudited)
Three Months Ended April 30, 2013
Executive Recruitment
Leadership & Talent Consulting
Futurestep
Corporate
Consolidated
Fee revenue
$ 136,791
$ 60,116
$ 30,995
$ -
$ 227,902
Net income
$ 12,197
Other income, net
2,501
Interest expense, net
(644)
Income tax provision
5,595
Equity in earnings of unconsolidated subsidiaries, net
543
Operating income (loss)
$ 26,484
$ (1,292)
$ 3,834
$ (13,634)
15,392
Depreciation and amortization
2,243
2,625
240
769
5,877
Other income (loss), net
518
(146)
36
2,093
2,501
Equity in earnings of unconsolidated subsidiaries, net
129
-
-
414
543
EBITDA
29,374
1,187
4,110
(10,358)
24,313
EBITDA margin
21.5%
2.0%
13.3%
10.7%
Restructuring (recoveries) charges, net
(2,607)
5,080
441
7
2,921
Transaction and integration costs
-
-
-
591
591
Adjusted EBITDA
$ 26,767
$ 6,267
$ 4,551
$ (9,760)
$ 27,825
Adjusted EBITDA margin
19.6%
10.4%
14.7%
12.2%
Three Months Ended April 30, 2012
Executive Recruitment
Leadership & Talent Consulting
Futurestep
Corporate
Consolidated
Fee revenue
$ 137,162
$ 31,650
$ 29,275
$ -
$ 198,087
Net income
$ 12,028
Other income, net
2,761
Interest expense, net
(511)
Income tax provision
6,152
Equity in earnings of unconsolidated subsidiaries, net
578
Operating income (loss)
$ 22,419
$ 4,971
$ 1,333
$ (13,371)
15,352
Depreciation and amortization
2,103
671
285
591
3,650
Other income, net
218
18
9
2,516
2,761
Equity in earnings of unconsolidated subsidiaries, net
159
-
-
419
578
EBITDA
24,899
5,660
1,627
(9,845)
22,341
EBITDA margin
18.2%
17.9%
5.6%
11.3%
Separation costs
-
-
920
999
1,919
Adjusted EBITDA
$ 24,899
$ 5,660
$ 2,547
$ (8,846)
$ 24,260
Adjusted EBITDA margin
18.2%
17.9%
8.7%
12.2%
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO
EBITDA AND ADJUSTED EBITDA (NON-GAAP)
(in thousands)
(unaudited)
Year Ended April 30, 2013
Executive Recruitment
Leadership & Talent Consulting
Futurestep
Corporate
Consolidated
Fee revenue
$ 522,479
$ 168,115
$ 122,237
$ -
$ 812,831
Net income
$ 33,293
Other income, net
6,309
Interest expense, net
(2,365)
Income tax provision
16,637
Equity in earnings of unconsolidated subsidiaries, net
2,110
Operating income (loss)
$ 80,965
$ 6,424
$ 10,975
$ (54,488)
43,876
Depreciation and amortization
8,991
6,012
1,180
2,821
19,004
Other income (loss), net
793
(75)
51
5,540
6,309
Equity in earnings of unconsolidated subsidiaries, net
434
-
-
1,676
2,110
EBITDA
91,183
12,361
12,206
(44,451)
71,299
EBITDA margin
17.5%
7.4%
10.0%
8.8%
Restructuring charges, net
8,194
10,198
3,527
938
22,857
Transaction and integration costs
-
-
-
3,106
3,106
Separation costs
516
-
-
-
516
Adjusted EBITDA
$ 99,893
$ 22,559
$ 15,733
$ (40,407)
$ 97,778
Adjusted EBITDA margin
19.1%
13.4%
12.9%
12.0%
Year Ended April 30, 2012
Executive Recruitment
Leadership & Talent Consulting
Futurestep
Corporate
Consolidated
Fee revenue
$ 561,202
$ 115,407
$ 113,896
$ -
$ 790,505
Net income
$ 54,303
Other loss, net
(271)
Interest expense, net
(1,791)
Income tax provision
28,351
Equity in earnings of unconsolidated subsidiaries, net
1,850
Operating income (loss)
$ 109,934
$ 16,360
$ 8,445
$ (51,873)
82,866
Depreciation and amortization
8,140
2,613
1,070
2,194
14,017
Other (loss) income, net
(145)
146
41
(313)
(271)
Equity in earnings of unconsolidated subsidiaries, net
159
-
-
1,691
1,850
EBITDA
118,088
19,119
9,556
(48,301)
98,462
EBITDA margin
21.0%
16.6%
8.4%
12.5%
Restructuring charges, net
783
-
146
-
929
Separation costs
-
-
920
999
1,919
Adjusted EBITDA
$ 118,871
$ 19,119
$ 10,622
$ (47,302)
$ 101,310
Adjusted EBITDA margin
21.2%
16.6%
9.3%
12.8%
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