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Korn Ferry International announces Q4 & fiscal 2014 results of operations

Futurestep 20.3%
Leadership and Talent Consulting 10.1%
Executive Recruitment 8.3%
-- Adjusted EBITDA margin was 13.7% in Q4 FY'14 compared to 12.2% in Q4 FY'13.
-- Q4 FY'14 diluted earnings per share was $0.43 compared to $0.25 in Q4 FY'13. Adjusted diluted earnings per share was $0.32 in Q4 FY'13, which excludes $3.5 million of net restructuring and integration/acquisition costs. No such costs were incurred in Q4 FY'14.
-- For the full year of FY'14, Korn Ferry reports record annual fee revenue of $960.3 million, an increase of 18.1% (19.1% on a constant currency basis) over FY'13. Adjusting for the prior year acquisitions, annual fee revenue increased 9.3% over FY'13.
-- FY'14 diluted earnings per share was $1.48 compared to $0.70 in FY'13. Adjusted diluted earnings per share was $1.60 in FY'14 and $1.10 in FY'13, excluding $8.6 million and $26.5 million of net restructuring, integration/acquisition and separation costs, respectively.

Korn/Ferry International (NYSE: KFY), has announced record quarterly and annual fee revenues of $251.7 million and $960.3 million for the fourth quarter and FY'14, respectively.  Fourth quarter diluted earnings per share were $0.43.  Full year adjusted diluted earnings per share were $1.60, excluding restructuring, integration/acquisition, and separation costs of $8.6 million.  Including such costs, diluted earnings per share was $1.48 for the year ended April 30, 2014.

"Korn Ferry closed out the fiscal year with a strong quarter – 10.7% growth in fee revenue for the quarter and 19.1% growth for the year, at constant currency – which represents the strongest top line results in the company's history, with earnings per share of $0.43," said Gary D. Burnison, CEO, Korn Ferry. "Korn Ferry's performance is a testament to our differentiated strategy, robust intellectual property and talented people."    

Financial Results

(dollars in millions, except per share amounts)

 

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Fee revenue

$       251.7

$      227.9

$     960.3

$      812.8

Total revenue

$       260.8

$      238.6

$     995.6

$      849.7

Operating income

$         24.5

$        15.4

$       91.6

$        43.9

Operating margin

9.7%

6.8%

9.5%

5.4%

Net income

$         21.2

$        12.2

$       72.7

$        33.3

Basic earnings per share

$         0.44

$        0.26

$       1.51

$        0.71

Diluted earnings per share

$         0.43

$        0.25

$       1.48

$        0.70

 

 

 

 

EBITDA Results (a):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

EBITDA

$         34.5

$        24.3

$     129.7

$        71.3

EBITDA margin

13.7%

10.7%

13.5%

8.8%

 

 

Adjusted Results (b):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Operating income

$         24.5

$        18.9

$     100.2

$        70.4

Operating margin

9.7%

8.3%

10.4%

8.7%

EBITDA (a)

$         34.5

$        27.8

$     138.3

$        97.8

EBITDA margin (a)

13.7%

12.2%

14.4%

12.0%

Net income

$         21.2

$        15.6

$       78.5

$        52.8

Basic earnings per share

$         0.44

$        0.33

$       1.63

$        1.12

Diluted earnings per share

$         0.43

$        0.32

$       1.60

$        1.10

Fiscal 2014 Fourth Quarter Results 

Fee revenue was $251.7 million in Q4 FY'14, an increase of $23.8 million, or 10.4% (the effect of exchange rates was not significant), compared to the year-ago quarter, primarily driven by an $11.4 million, $6.3 million, and a  $6.1 million increase in fee revenue in Executive Recruitment, Futurestep and Leadership & Talent Consulting, respectively.  The overall fee revenue increase was driven by fee revenue growth in financial services, technology, life science/healthcare and the industrial sectors.

Compensation and benefit expenses were $170.6 million in Q4 FY'14, an increase of $16.2 million, or 10.5%, compared to the year-ago quarter.  The increase was due to an increase in performance related bonus expense resulting from the increase in fee revenue and profitability, as well as an increase in salaries and related payroll taxes.  The increase in salaries and related payroll taxes was due to a 3.5% increase in the average headcount in Q4 FY'14 compared to Q4 FY'13. 

General and administrative expenses were $39.1 million in Q4 FY'14, a decrease of $1.0 million, or 2.5%, from the year-ago quarter, primarily due to a decrease in office and premise expense of $1.6 million due to synergies obtained from the PDI Ninth House and Global Novations acquisitions (the "prior year acquisitions") and a decrease in foreign exchange loss of $0.6 million, offset by an increase in travel and business development related expenses in Q4 FY'14 compared to the year-ago quarter.

Adjusted EBITDA was $34.5 million in Q4 FY'14, an increase of $6.7 million, or 24.1%, compared to Q4 FY'13.  Adjusted EBITDA margin was 13.7% and 12.2% in Q4 FY'14 and Q4 FY'13, respectively. 

On a GAAP basis, operating income was $24.5 million in Q4 FY'14 and $15.4 million in Q4 FY'13 resulting in a margin of 9.7% in the current quarter compared to 6.8% in the year-ago quarter. 

Fiscal 2014 Results 

Fee revenue was $960.3 million in FY'14, an increase of $147.5 million, or 18.1% (19.1% on a constant currency basis), compared to FY'13.  Adjusting for the prior year acquisitions, fee revenue was $888.4 million in FY'14, an increase of $75.6 million, or 9.3%, compared to FY'13.  The increase in fee revenue was driven by a 9.2% increase in the number of engagements billed in FY'14 compared to FY'13.  The overall fee revenue increase was driven by fee revenue growth in life science/healthcare, industrial, technology and financial services sectors.

Adjusted EBITDA was $138.3 million during FY'14, an increase of $40.5 million, or 41.4%, compared to FY'13.  Adjusted EBITDA margin was 14.4% and 12.0% in FY'14 and FY'13, respectively. 

On a GAAP basis, operating income was $91.6 million in FY'14, an increase of $47.7 million, or 108.7%, compared to FY'13, resulting in an operating margin of 9.5% in the current year compared to 5.4% in the prior year.

Balance Sheet and Liquidity

Cash and marketable securities were $468.3 million at April 30, 2014, compared to $366.0 million at April 30, 2013.  Cash and marketable securities include $116.2 million held in trust for deferred compensation plans at April 30, 2014, compared to $98.0 million at April 30, 2013.  Cash and marketable securities increased by $102.3 million from April 30, 2013, primarily attributable to cash provided by operating activities, partially offset by bonuses earned in fiscal 2013 and paid during the first quarter of fiscal 2014 and $15.0 million in contingent consideration paid to selling stockholders of PDI Ninth House.

Results by Segment

Selected Executive Recruitment Data

(dollars in millions)

 

 

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Fee revenue

$      148.2

$     136.8

$     568.9

$      522.5

Total revenue

$      153.7

$     142.8

$     591.2

$      544.8

Operating income

$        28.4

$       26.5

$     116.4

$        81.0

Operating margin

19.1%

19.4%

20.5%

15.5%

 

 

 

 

Ending number of consultants

432

399

432

399

Average number of consultants

431

395

416

400

Engagements billed

3,048

2,718

8,144

7,554

New engagements (a)

1,303

1,231

5,052

4,750

EBITDA Results (b):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

EBITDA

$        31.7

$       29.4

$    126.5

$        91.2

EBITDA margin

21.4%

21.5%

22.2%

17.5%

 

 

 

 

Adjusted Results (c):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Operating income

$        28.4

$        23.9

$    117.7

$        89.7

Operating margin

19.1%

17.5%

20.7%

17.2%

EBITDA (b)

$        31.7

$        26.8

$    127.8

$        99.9

EBITDA margin (b)

21.4%

19.6%

22.5%

19.1%

 

(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'14

FY'13

FY'14

FY'13

Restructuring charges, net of recoveries

$                  —

$            (2.6)

$            1.3

$              8.1

Separation costs

$                  —

$               —

$             —

$              0.6

Executive Recruitment

Fee revenue was $148.2 million in Q4 FY'14, an increase of $11.4 million, or 8.3% (the effect of exchange rates was not significant), compared to Q4 FY'13.  The increase in fee revenue was driven by increases in Europe, North America and Asia Pacific, partially offset by a decrease in Latin America.  This increase is primarily attributed to a 12.1% increase in the number of executive recruitment engagements billed, offset by a 3.4% decrease in the weighted-average fees billed per engagement in Q4 FY'14 compared to the Q4 FY'13. 

Adjusted EBITDA was $31.7 million during Q4 FY'14, an increase of $4.9 million, or 18.3%, compared to Q4 FY'13.  This increase is primarily attributed to the $11.4 million increase in fee revenue in Q4 FY'14 as compared to Q4 FY'13, partially offset by an increase of $5.9 million in compensation and benefit expenses driven primarily by an increase in performance related bonus expense and salaries and related payroll taxes.  For the full year, adjusted EBITDA increased by $27.9 million due to a $46.4 million increase in fee revenue and a decrease in general and administrative expenses offset by an increase in compensation and benefit expenses.

On a GAAP basis, operating income was $28.4 million in Q4 FY'14, an increase of $1.9 million, or 7.2%, compared to Q4 FY'13, resulting in an operating margin of 19.1% in the current quarter compared to 19.4% in the year-ago quarter.  On a GAAP basis, operating income was $116.4 million in FY'14, an increase of $35.4 million, or 43.7%, compared to FY'13, resulting in an operating margin of 20.5% in FY'14 compared to 15.5% in FY'13.

Selected Leadership & Talent Consulting Data

(dollars in millions)

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Fee revenue

$        66.2

$       60.1

$     254.6

$      168.1

Total revenue

$        68.4

$       63.1

$     263.0

$      176.6

Operating (loss) income

$          6.8

$       (1.3)

$       23.8

$          6.4

Operating margin

10.3%

(2.1)%

9.4%

3.8%

 

 

 

 

Ending number of consultants (a)

127

133

127

133

Staff utilization (b)

70%

67%

67%

64%

 

 

EBITDA Results (c):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

EBITDA

$        10.0

$        1.2

$       36.4

$        12.4

EBITDA margin 

15.1%

2.0%

14.3%

7.4%

 

 

Adjusted Results (d):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Operating income

$          6.8

$         3.8

$       25.0

$        16.6

Operating margin

10.3%

6.3%

9.8%

9.9%

EBITDA (c)

$         10.0

$         6.3

$       37.6

$        22.6

EBITDA margin (c)

15.1%

10.4%

14.8%

13.4%

 

(a)

Represents number of employees originating consulting services.

 

(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):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Restructuring charges, net of recoveries

$                  —

$             5.1

$            1.2

$            10.2

Leadership & Talent Consulting

Fee revenue was $66.2 million in Q4 FY'14, an increase of $6.1 million, or 10.1% (the effect of exchange rates was not significant), from the year-ago quarter.  The increase in fee revenue was driven by increases in North America and Europe.  This increase is primarily attributed to an increase in consulting fee revenue of $3.8 million and an increase in product revenue of $2.3 million in Q4 FY'14 compared to the year-ago quarter.

Adjusted EBITDA was $10.0 million during Q4 FY'14, an increase of $3.7 million, or 58.7%, compared to Q4 FY'13.  Adjusted EBITDA margin was 15.1% in Q4 FY'14 compared to 10.4% in Q4 FY'13 due to an increase in fee revenue of $6.1 million and a decrease in general administrative expenses of $1.2 million, offset by an increase in compensation and benefit expense of $4.2 million.  The decrease in general and administrative expenses was due to a decrease in office and premise expense due to synergies obtained from the prior year acquisitions.  The increase in compensation and benefit expenses was due to an increase in performance related bonus expense, salaries and related payroll taxes, and an increase in the use of outside contractors.  For the full year, adjusted EBITDA was $37.6 million, an increase of $15.0 million, or 66.4%, compared to FY'13.  Adjusted EBITDA margin was 14.8% compared 13.4% in FY'13. 

On a GAAP basis, operating income was $6.8 million in Q4 FY'14, an increase of $8.1 million compared to the year-ago quarter, resulting in an operating margin of 10.3% in the current quarter compared to (2.1%) in the year-ago quarter.  On a GAAP basis, operating income was $23.8 million in FY'14, an increase of $17.4 million compared to FY'13 resulting in an operating margin of 9.4% in FY'14 compared to 3.8% in FY'13.

Selected Futurestep Data

(dollars in millions)

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Fee revenue

$        37.3

$       31.0

$      136.8

$      122.2

Total revenue

$        38.7

$       32.7

$      141.4

$      128.3

Operating income

$          4.3

$         3.9

$        13.3

$        11.0

Operating margin

11.7%

12.4%

9.8%

9.0%

 

 

 

 

Engagements billed

1,205

1,032

3,246

3,074

New engagements (a)

598

524

2,427

2,308

 

 

EBITDA Results (b):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

EBITDA

$          4.8

$         4.1

$        15.7

$        12.2

EBITDA margin

13.1%

13.3%

11.5%

10.0%

 

 

Adjusted Results (c):

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Operating income

$          4.3

$         4.3

$        14.5

$        14.5

Operating margin

11.7%

13.8%

10.6%

11.9%

EBITDA (b)

$          4.8

$         4.5

$        16.9

$        15.7

EBITDA margin (b)

13.1%

14.7%

12.3%

12.9%

 

(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):

 

Fourth Quarter

Year to Date

FY'14

FY'13

FY'14

FY'13

Restructuring charges, net of recoveries

$                  —

$             0.4

$            1.2

$              3.5

Futurestep

Fee revenue was $37.3 million in Q4 FY'14, an increase of $6.3 million, or 20.3% (21.0% on a constant currency basis), compared to the year-ago quarter.  The increase in fee revenue was driven by a 16.8% increase in the number of engagements billed and a 3.0% increase in the weighted average fees billed per engagement in Q4 FY'14 compared to Q4 FY'13.  The increase was primarily due to large recruitment process outsourcing contracts entered into in the first six months of FY'14, which continued to be delivered in the current quarter and an increase in professional recruitment.

Adjusted EBITDA was $4.8 million during Q4 FY'14, an increase of $0.3 million, or 6.7%, compared to Q4 FY'13, due primarily to the increase in fee revenue of $6.3 million, offset by an increase in compensation and benefit expenses of $4.6 million (due to an increase in performance related bonus expense and headcount), an increase in cost of services expense of $0.7 million and an increase in general and administrative expenses of $0.5 million.  For the full year, adjusted EBITDA increased $1.2 million due to the $14.6 million increase in fee revenue, partially offset by an increase in compensation and benefit expenses of $11.0 million and $2.3 million in cost of services expenses.  The increase in compensation and benefit expenses for the full year is primarily driven by an increase in staffing to accommodate a number of larger recruitment process outsourcing contracts won by the Company in the current fiscal year and an increase in performance related bonus expense.

On a GAAP basis, operating income was $4.3 million in Q4 FY'14, an increase of $0.4 million, compared to Q4 FY'13, resulting in an operating margin of 11.7% in the current quarter compared to 12.4% in the year-ago quarter.  On a GAAP basis, operating income was $13.3 million in FY'14, an increase of $2.3 million, compared to FY'13, resulting in an operating margin of 9.8% in FY'14 compared to 9.0% in FY'13.

Outlook                                                        

As previously disclosed, over the past year we have implemented common technology systems designed to allow us to further integrate our legacy businesses with our recent acquisitions.  Due to the efficiencies we expect to gain from these investments, other integration items from recent acquisitions and other cost savings initiatives, we plan to take additional actions to rationalize our cost structure in Q1 FY'15.  We estimate the realized savings in FY'15 associated with these actions to be in the range of $0.08 to $0.10 per diluted earnings share with the cost of these actions in Q1 FY'15 to be in the range of $0.06 to $0.08 per diluted earnings share.  Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, Q1 FY'15 fee revenue is likely to range from $240 million to $250 million and, after taking into consideration the actions discussed above, adjusted diluted earnings per share are likely to range from $0.37 to $0.43 with diluted earnings per share as measured by Generally Accepted Accounting Principles likely to range from $0.29 to $0.37

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