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Korn Ferry announces second quarter fiscal 2014

Results of Operations

Key highlights for the second quarter of fiscal 2014 are as follows:

• Korn Ferry reports record quarterly fee revenue of $238.0 million in Q2 FY’14, an increase of 23%

on a constant currency basis compared to Q2 FY’13 (21% at actual exchange rates). Excluding the

prior year acquisitions, quarterly fee revenue increased 8% on a constant currency basis from Q2

FY’13.

• Fee revenue in Executive Recruitment was $140.1 million in Q2 FY’14, which grew 11%, on a

constant currency basis, from Q2 FY’13.

• Fee revenue in Leadership & Talent Consulting was $66.0 million in Q2 FY’14, up 73%, on a

constant currency basis, from Q2 FY’13 and up 9% sequentially.

• Fee revenue in Futurestep was $31.9 million in Q2 FY’14, up 8%, on a constant currency basis, from

Q2 FY’13.

• Q2 FY’14 adjusted EBITDA margin was 15.4% compared to adjusted EBITDA margin of 12.5% in Q2

FY’13.

• Q2 FY’14 adjusted diluted earnings per share, excluding separation charges of $2.0 million, was a

record $0.41 compared to adjusted diluted earnings per share, excluding net restructuring charges of

$15.5 million, of $0.25 in Q2 FY’13. Including such costs, Q2 FY’14 and Q2 FY’13 diluted earnings

per share was $0.38 and $0.03, respectively.

Korn Ferry today announced record second quarter results with fee revenue of $238.0 million and adjusted diluted earnings per share of $0.41, excluding separation charges of $2.0 million. Including such charges, diluted earnings per share was $0.38 in the three months ended October 31, 2013.

“I am extremely proud of what Korn Ferry has accomplished. The second quarter represented the strongest top line results in the company’s history and represents a 23% year over year increase in fee revenue, or 8% excluding the prior year acquisitions, on a constant currency basis. Once again, we delivered strong margin expansion and earnings per share growth in the quarter. Our firm’s alignment to broad talent management offerings is taking hold, as evidenced by our non-Search businesses generating 41% of the revenue mix aided by the performance of the prior year acquisitions – an all-time high,” said Gary D. Burnison, CEO of Korn Ferry.

“In the current economy, the winning companies will be those that can find and develop outperforming leaders in an underperforming economy. This environment is creating an opportunity for Korn Ferry – as we help clients drive growth by more effectively linking their business and talent strategies.”

Financial Results

(dollars in millions, except per share amounts)

Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

Fee revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 238.0 $ 196.2 $ 466.4 $ 382.9

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 246.2 $ 204.8 $ 483.8 $ 400.8

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23.2 $ 2.8 $ 39.8 $ 19.8

Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.7% 1.4% 8.5% 5.2%

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18.8 $ 1.2 $ 30.2 $ 11.6

Basic earnings per share. . . . . . . . . . . . . . . . . . . . . . $ 0.39 $ 0.03 $ 0.63 $ 0.25

Diluted earnings per share . . . . . . . . . . . . . . . . . . . . $ 0.38 $ 0.03 $ 0.62 $ 0.24

EBITDA Results (a): Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34.7 $ 8.9 $ 60.0 $ 29.3

EBITDA margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6% 4.6% 12.9% 7.7%

Adjusted Results (b): Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25.2 $ 18.3 $ 48.4 $ 35.3

Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.6% 9.3% 10.4% 9.2%

EBITDA (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36.7 $ 24.4 $ 68.6 $ 44.8

EBITDA margin (a) . . . . . . . . . . . . . . . . . . . . . . . . . 15.4% 12.5% 14.7% 11.7%

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20.0 $ 11.8 $ 36.0 $ 22.2

Basic earnings per share. . . . . . . . . . . . . . . . . . . . . . $ 0.41 $ 0.25 $ 0.75 $ 0.47

Diluted earnings per share . . . . . . . . . . . . . . . . . . . . $ 0.41 $ 0.25 $ 0.74 $ 0.47

(a) EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude

restructuring charges (net of recoveries) and/or transaction, integration/acquisition 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):

Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

Separation costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.0 $ — $ 4.5 $ —

Restructuring charges, net of recoveries . . . . . . . . . . . . . . . . $ — $ 15.5 $ 3.7 $ 15.5

Integration/acquisition costs. . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $ 0.4 $ —

Fee revenue was $238.0 million in Q2 FY’14, an increase of $41.8 million, or 23% on a constant currency basis (21% at actual exchange rates), compared to Q2 FY’13, primarily due to an increase of $27.6 million and $12.3 million in fee revenue in Leadership & Talent Consulting and Executive Recruitment, respectively. The overall fee revenue increase was driven by fee revenue growth in the life science/healthcare, industrial, technology and financial services sectors. Excluding the PDI Ninth House and Global Novations acquisitions (the “prior year acquisitions”), fee revenue increased 7% in Q2 FY’14 compared to the year-ago quarter (8% on a constant currency basis) to $204.7 million in Q2 FY’14 from $191.0 million in Q2 FY’13.

Compensation and benefit expenses were $161.3 million in Q2 FY’14, an increase of $28.2 million, or 21%, compared to Q2 FY’13. The prior year acquisitions contributed $14.5 million to the increase in compensation and benefit expenses. The remainder of the increase was due to an increase in performance related bonus expense, salaries and related payroll taxes and an increase in expense associated with company contributions to deferred compensation plans. The increase in the performance related bonus expense resulted from an increase in fee revenue and profitability. The increase in salaries and related payroll taxes was due to an increase in the headcount in both Futurestep and Leadership & Talent Consulting.

General and administrative expenses were $35.8 million in Q2 FY’14, an increase of $2.4 million, or 7%, compared to Q2 FY’13. The prior year acquisitions contributed $3.6 million to the increase in general and administrative expenses in Q2 FY’14 compared to Q2 FY’13. Excluding the costs from the prior year acquisitions, there was a decline in general and administrative expenses of $1.2 million during the same period. The decline was due to a gain as a result of favorable exchange rates in Q2 FY’14 compared to Q2 FY’13 and a decrease in business development expenses.

Adjusted EBITDA was $36.7 million in Q2 FY’14, an increase of $12.3 million, or 50%, compared to Q2 FY’13. Adjusted EBITDA margin was 15.4% and 12.5% in Q2 FY’14 and Q2 FY’13, respectively.

On a GAAP basis, operating income was $23.2 million in Q2 FY’14, an increase of $20.4 million, or 729%, compared to Q2 FY’13 resulting in a margin of 9.7% in the current quarter compared to 1.4% in the year-ago quarter.

Balance Sheet and Liquidity

Cash and marketable securities were $314.9 million at October 31, 2013, compared to $366.0 million at April 30, 2013. Cash and marketable securities include $118.0 million held in trust for deferred compensation plans at October 31, 2013, compared to $98.0 million at April 30, 2013. Cash and marketable securities decreased by $51.1 million from April 30, 2013, mainly due to Q1 FY’14 payments of FY’13 annual bonuses and contingent consideration paid to selling shareholders of PDI Ninth House partially offset by cash provided by operating activities.

Results by Segment

Selected Executive Recruitment Data

(dollars in millions)

Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

Fee revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 140.1 $ 127.8 $ 276.7 $ 255.2

Total revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 145.3 $ 133.1 $ 287.8 $ 266.3

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28.1 $ 10.5 $ 56.4 $ 32.9

Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.1% 8.1% 20.4% 12.9%

Ending number of consultants . . . . . . . . . . . . . . . . . . 412 402 412 402

Average number of consultants . . . . . . . . . . . . . . . . . 414 409 406 401

Engagements billed. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,965 2,656 4,690 4,377

New engagements (a) . . . . . . . . . . . . . . . . . . . . . . . . . 1,300 1,172 2,516 2,381

EBITDA Results (b): Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30.7 $ 12.5 $ 61.2 $ 37.4

EBITDA margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.9% 9.8% 22.1% 14.7%

Adjusted Results (c): Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28.1 $ 21.2 $ 57.7 $ 43.6

Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.1% 16.6% 20.9% 17.1%

EBITDA (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30.7 $ 23.2 $ 62.5 $ 48.1

EBITDA margin (b) . . . . . . . . . . . . . . . . . . . . . . . . . . 21.9% 18.2% 22.6% 18.9%

(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):

Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

Restructuring charges, net of recoveries . . . . . . . . . . . . . . . . $ — $ 10.7 $ 1.3 $ 10.7

Executive Recruitment

Fee revenue was $140.1 million in Q2 FY’14, an increase of $12.3 million, or 11% on a constant currency basis (10% at actual exchange rates), compared to Q2 FY’13. The increase in fee revenue was driven by fee revenue increases in all regions with the largest increases in North America and Asia. This increase is primarily attributed to a 12% increase in the number of executive recruitment engagements billed, partially offset by a 2% decrease in the weighted-average fee billed per engagement compared to the year-ago quarter.

Adjusted EBITDA was $30.7 million during Q2 FY’14, an increase of $7.5 million, or 32%, compared to Q2 FY’13. Adjusted EBITDA margin was 21.9%, in Q2 FY’14 compared to 18.2% in Q2 FY’13. This increase is primarily attributed to the $12.3 million increase in fee revenue in Q2 FY’14 as compared to Q2 FY’13, combined with a decrease of $1.1 million in general and administrative expenses, partially offset by an increase of $6.8 million in compensation and benefit expenses driven primarily by an increase in performance related bonus expense.

On a GAAP basis, operating income was $28.1 million in Q2 FY’14, an increase of $17.6 million, or 168% ($6.9 million, or 33% on an adjusted basis), compared to Q2 FY’13, resulting in an operating margin of 20.1% in the current quarter compared to 8.1% in the year-ago quarter.

Selected Leadership & Talent Consulting Data

(dollars in millions)

Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

Fee revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66.0 $ 38.4 $ 126.1 $ 66.8

Total revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68.2 $ 40.6 $ 130.3 $ 70.4

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.0 $ 6.2 $ 11.3 $ 10.5

Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.6% 16.3% 9.0% 15.7%

Ending number of consultants (a) . . . . . . . . . . . . . . . 129 72 129 72

Staff utilization (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 70% 67% 68% 66%

EBITDA Results (c): Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.3 $ 7.3 $ 17.5 $ 12.2

EBITDA margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5% 18.9% 13.8% 18.2%

Adjusted Results (d): Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.0 $ 6.9 $ 12.5 $ 11.2

Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.6% 18.0% 9.9% 16.7%

EBITDA (c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.3 $ 8.0 $ 18.7 $ 12.9

EBITDA margin (c) . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5% 20.7% 14.7% 19.2%

(a) Represents number of employees originating consulting services. FY’14 and FY’13 include approximately 70 consultants and 22 consultants, respectively, from the prior 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.

(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):

Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

Restructuring charges, net of recoveries . . . . . . . . . . . . . . . . $ — $ 0.7 $ 1.2 $ 0.7

Leadership & Talent Consulting

Fee revenue was $66.0 million in Q2 FY’14, an increase of $27.6 million, or 73% on a constant currency basis (72% at actual exchange rates), from the year-ago quarter. Excluding the prior year acquisitions, fee revenue was essentially flat on a constant currency basis, in Q2 FY’14 compared to Q2 FY’13, but up 3% sequentially.

Adjusted EBITDA was $10.3 million during Q2 FY’14, an increase of $2.3 million, or 29%, compared to Q2 FY’13. Adjusted EBITDA margin was 15.5% compared to 20.7% in Q2 FY’13. The increase in adjusted EBITDA is due to an increase in fee revenue, partially offset by an increase in compensation and benefit expenses, both primarily related to the prior year acquisitions.

On a GAAP basis, operating income was $7.0 million in Q2 FY’14, an increase of $0.8 million, or 13%, compared to Q2 FY’13 driven by an increase in productivity as measured by staff utilization. Operating margin was 10.6% in the current quarter compared to 16.3% in the year-ago quarter.

Selected Futurestep Data

(dollars in millions)

Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

Fee revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31.9 $ 30.0 $ 63.6 $ 60.9

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32.7 $ 31.1 $ 65.7 $ 64.1

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.6 $ 0.2 $ 5.1 $ 3.4

Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0% 0.8% 8.0% 5.6%

Engagements billed . . . . . . . . . . . . . . . . . . . . . . . . . . 1,195 1,152 1,952 2,005

New engagements (a). . . . . . . . . . . . . . . . . . . . . . . . . 620 626 1,245 1,271

EBITDA Results (b): Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.0 $ 0.5 $ 6.5 $ 4.0

EBITDA margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3% 1.9% 10.2% 6.6%

Adjusted Results (c): Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.6 $ 3.3 $ 6.3 $ 6.5

Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0% 11.1% 9.8% 10.7%

EBITDA (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.0 $ 3.6 $ 7.7 $ 7.1

EBITDA margin (b). . . . . . . . . . . . . . . . . . . . . . . . . . 9.3% 12.1% 12.0% 11.7%

(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):

Second Quarter Year to Date

FY’14 FY’13 FY’14 FY’13

Restructuring charges, net of recoveries . . . . . . . . . . . . . . . . $ — $ 3.1 $ 1.2 $ 3.1

Futurestep

Fee revenue was $31.9 million in Q2 FY’14, an increase of $1.9 million, or 8% on a constant currency basis (6% at actual exchange rates), compared to the year-ago quarter. The increase in fee revenue was driven by a 4% increase in the number of engagements billed and a 2% increase in weighted-average fee billed per engagement in Q2 FY’14 compared to Q2 FY’13 driven by increases in recruitment process outsourcing and non-executive and other professional recruitment.

Adjusted EBITDA was $3.0 million during Q2 FY’14, a decrease of $0.6 million, or 17%, compared to Q2 FY’13. Adjusted EBITDA margin decreased to 9.3% in Q2 FY’14 compared to 12.1% in Q2 FY’13. The decrease in Adjusted EBITDA and Adjusted EBITDA margin was primarily due to an increase of $1.9 million in compensation and benefit expenses, an increase in cost of services expense of $0.4 million, and an increase in general and administrative of $0.2 million, partially offset by an increase in fee revenue of $1.9 million.

The increase in compensation and benefit expenses was driven by an increase in salaries and related payroll taxes due to a 13% increase in the average headcount primarily associated with an increase in staffing to accommodate a number of larger recruitment process outsourcing contracts won by the Company in the quarter and for which delivery will occur in subsequent periods.

On a GAAP basis, operating income was $2.6 million in Q2 FY’14, an increase of $2.4 million, compared to Q2 FY’13 resulting in an operating margin of 8.0% in the current quarter compared to 0.8% in the year-ago quarter.

Outlook

The third quarter is our seasonal low quarter due to the heavy concentration of holidays which results in lower productivity. Given this and assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, fee revenue is expected to be in the range of $221 million to $237 million in Q3 FY’14 and diluted earnings per share are likely to be in the range of $0.30 to $0.38.

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