EXHIBIT 99.1
For Immediate Release
Contacts: For investors:
Gary Burnison (310) 226-2613
For media:
Anneli Ballard (212) 984-9350
Korn/Ferry International Announces a 25% increase in
Second Quarter Earnings
Highlights:
| • | Net income for the second quarter fiscal 2006 was $10.9 million, an improvement of $2.2 million or 25%, from $8.7 million in the prior year second quarter. |
| • | Second quarter fiscal 2006 diluted earnings per share was $0.25 compared to $0.21 in the prior year second quarter. |
| • | Second quarter fiscal 2006 fee revenue of $125.8 million increased $17.3 million, or 16%, from $108.5 million in the same quarter last year. |
Los Angeles, CA, December 8, 2005 - Korn/Ferry International (NYSE:KFY), the leading provider of executive search, outsourced recruiting and leadership development solutions, announced second quarter fiscal 2006 diluted earnings per share of $0.25 compared to $0.21 in Q2’05.
“Business remained strong in all geographic regions in the quarter which is encouraging, as our second quarter has historically been subject to seasonal declines,” said Paul C. Reilly, Chairman and CEO of Korn/Ferry. “The company has continued to invest for the future, especially in Futurestep where we are seeing increased demand in the marketplace for recruitment process outsourcing services.”
Financial Results
(dollars in millions, except per share amounts)
| Second Quarter | Year to Date | |||||||||||||||
| Q2’06 | Q2’05 | Q2’06 | Q2’05 | |||||||||||||
Fee Revenue | $ | 125.8 | $ | 108.5 | $ | 248.0 | $ | 211.3 | ||||||||
Revenue | $ | 132.9 | $ | 113.5 | $ | 262.0 | $ | 221.7 | ||||||||
Operating Income | $ | 18.1 | $ | 15.5 | $ | 36.8 | $ | 30.1 | ||||||||
Operating Margin | 14.4 | % | 14.3 | % | 14.9 | % | 14.2 | % | ||||||||
Net Income | $ | 10.9 | $ | 8.7 | $ | 22.5 | $ | 17.1 | ||||||||
Basic Earnings Per Share | 0.27 | 0.23 | 0.57 | 0.45 | ||||||||||||
Diluted Earnings Per Share | 0.25 | 0.21 | 0.51 | 0.40 | ||||||||||||
Fee revenue of $125.8 million in Q2’06 increased $17.3 million, or 16%, from $108.5 million in Q2’05. Fee revenue improved globally due to increases in the number of new engagements opened and engagements billed. Exchange rates impacted fee revenue in Q2’06 favorably by $0.4 million compared to Q2’05.
Compensation and benefits of $81.2 million in Q2’06 increased $12.2 million, or 18%, compared to $69.0 million in Q2’05. The increase is a reflection of increased headcount as the company continues to invest in both its Executive Recruitment and Futurestep operations.
General and administrative expense of $24.0 million in Q2’06 increased $2.6 million, or 12%, from $21.4 million in Q2’05 as a result of increased business development costs and various increased professional fees.
Operating income was $18.1 million in Q2’06, an improvement of $2.6 million, or 17%, compared to $15.5 million in Q2’05. Operating margin for the quarter increased to 14.4% from 14.3% in the prior year quarter.
Balance Sheet and Liquidity
Cash, cash equivalents and marketable securities was $188.5 million at October 31, 2005 compared to $206.9 million at April 30, 2005. The decline in cash at October 31, 2005 was due to the payment of fiscal 2005 bonuses in July 2005, which was offset by cash flows from operations in the first two quarters of fiscal 2006.
Interest expense in Q2’06 was $2.6 million, compared to $2.7 million in the same period last year. Interest expense in both years primarily related to borrowings under Korn/Ferry’s convertible securities and Company Owned Life Insurance (COLI) policies. At October 31, 2005, Korn/Ferry had no outstanding borrowings under its credit facility.
Results by Segment
Selected Executive Recruitment Data
(dollars in millions)
| Second Quarter | Year to Date | |||||||||||||||
| Q2’06 | Q2’05 | Q2’06 | Q2’05 | |||||||||||||
Fee revenue | $ | 109.0 | $ | 95.5 | $ | 214.4 | $ | 186.6 | ||||||||
Revenue | $ | 114.3 | $ | 99.8 | $ | 225.2 | $ | 195.4 | ||||||||
Operating Income | $ | 24.1 | $ | 19.3 | $ | 46.8 | $ | 38.5 | ||||||||
Operating Margin | 22.1 | % | 20.2 | % | 21.8 | % | 20.6 | % | ||||||||
Average number of consultants | 427 | 395 | 415 | 395 | ||||||||||||
Engagements (a) | 1,535 | 1,485 | 2,947 | 3,007 | ||||||||||||
| (a) | Represents new engagements opened in the respective period. |
Fee revenue was $109.0 million in Q2’06, an increase of $13.5 million, or 14%, from $95.5 million in Q2’05. Fee revenue improved in all regions due to an increase in the number of engagements billed and higher average fees as compared to the same quarter last year.
Executive recruitment operating income improved $4.8 million in Q2’06, or 25%, to $24.1 million compared to $19.3 million in Q2’05. Operating margin for the quarter improved to 22.1% compared to 20.2% in the prior year.
As we continue to make strides in growing the business, we have continued to invest in our people. The total number of consultants at October 31, 2005 was 432, an increase of 34 consultants from October 31, 2004.
Selected Futurestep Data
(dollars in millions)
| Second Quarter | Year to Date | |||||||||||||||
| Q2’06 | Q2’05 | Q2’06 | Q2’05 | |||||||||||||
Fee revenue | $ | 16.8 | $ | 13.0 | $ | 33.6 | $ | 24.7 | ||||||||
Revenue | $ | 18.6 | $ | 13.8 | $ | 36.8 | $ | 26.4 | ||||||||
Operating Income | $ | 1.5 | $ | 2.4 | $ | 3.4 | $ | 4.3 | ||||||||
Operating Margin | 8.7 | % | 18.4 | % | 10.1 | % | 17.4 | % | ||||||||
Fee revenue was $16.8 million in Q2’06, an increase of $3.8 million, or 29%, from Q2’05. Improvements in fee revenue were driven by an increase in the number of new engagements opened and continuing development of Futurestep’s recruitment process outsourcing operations.
Futurestep operating income was $1.5 million in Q2’06, a decrease of $0.9 million from $2.4 million in the prior year quarter. Operating margin for Futurestep declined to 8.7% from 18.4% in Q2’05, as the company has invested in hiring and developing resources and processes to meet the increasing demand for Futurestep’s services. The second quarter was also negatively impacted by seasonal holidays in Europe.
Outlook
Assuming constant foreign exchange rates, Korn/Ferry estimates that third quarter fiscal 2006 fee revenue is likely to be in the range of $125 million to $130 million and diluted earnings per share is likely to be in the range of $0.25 to $0.29.
Earnings Conference Call Webcast
The earnings conference call will be held today at 9:00 AM (EDT) and hosted by Paul Reilly, Chairman and CEO, and Gary Burnison, Chief Operating Officer. 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 70 offices in 36 countries, is the leading provider of executive search, outsourced recruiting and leadership development solutions. Based in Los Angeles, the firm partners with clients worldwide to deliver unparalleled senior-level search, management assessment, coaching and development and middle management recruitment services through its Futurestep subsidiary. For more information, visit the Korn/Ferry International Web site at www.kornferry.com or the Futurestep Web site at www.futurestep.com.
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. 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 which are beyond the control of Korn/Ferry. The potential risks and uncertainties relate to competition, the dependence on attracting and retaining qualified and experienced consultants, the portability of client relationships, local political or economic developments in or affecting countries where we have operations, risks related to the growth and results of Futurestep, restrictions imposed by off-limits agreements, reliance on information systems 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.
[Tables attached]
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| Three Months Ended October 31, | Six Months Ended October 31, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Fee revenue | $ | 125,789 | $ | 108,505 | $ | 247,990 | $ | 211,313 | ||||||||
Reimbursed out-of-pocket engagement expense | 7,143 | 5,036 | 14,037 | 10,411 | ||||||||||||
Total revenue | 132,932 | 113,541 | 262,027 | 221,724 | ||||||||||||
Compensation and benefits | 81,209 | 69,009 | 159,164 | 133,885 | ||||||||||||
General and administrative expense | 24,012 | 21,402 | 46,729 | 42,246 | ||||||||||||
Out-of-pocket engagement expense | 7,406 | 5,520 | 14,884 | 11,158 | ||||||||||||
Depreciation and amortization | 2,219 | 2,140 | 4,420 | 4,382 | ||||||||||||
Total operating expense | 114,846 | 98,071 | 225,197 | 191,671 | ||||||||||||
Operating income | 18,086 | 15,470 | 36,830 | 30,053 | ||||||||||||
Interest and other expense, net | (1,420 | ) | (2,348 | ) | (2,546 | ) | (4,496 | ) | ||||||||
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries | 16,666 | 13,122 | 34,284 | 25,557 | ||||||||||||
Provision for income taxes | 6,342 | 4,905 | 12,790 | 9,391 | ||||||||||||
Equity in earnings of unconsolidated subsidiaries | 580 | 492 | 1,023 | 915 | ||||||||||||
Net income | $ | 10,904 | $ | 8,709 | $ | 22,517 | $ | 17,081 | ||||||||
Interest expense on convertible securities, net of taxes | 785 | 785 | 1,569 | 1,560 | ||||||||||||
Net income adjusted for computation of diluted EPS | $ | 11,689 | $ | 9,494 | $ | 24,086 | $ | 18,641 | ||||||||
Basic earnings per common share | $ | 0.27 | $ | 0.23 | $ | 0.57 | $ | 0.45 | ||||||||
Basic weighted average common shares outstanding | 40,054 | 38,399 | 39,719 | 38,100 | ||||||||||||
Diluted earnings per common share | $ | 0.25 | $ | 0.21 | $ | 0.51 | $ | 0.40 | ||||||||
Diluted weighted average common shares outstanding | 47,185 | 46,262 | 47,133 | 46,349 | ||||||||||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
FINANCIAL SUMMARY BY SEGMENT
(in thousands)
| Three Months Ended October 31, | Six Months Ended October 31, | |||||||||||||||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||
Fee Revenue: | ||||||||||||||||||||||||||||
Executive recruitment: | ||||||||||||||||||||||||||||
North America | $ | 62,754 | $ | 55,657 | 124,481 | $ | 107,314 | |||||||||||||||||||||
Europe | 27,846 | 23,837 | 54,867 | 48,655 | ||||||||||||||||||||||||
Asia/Pacific | 14,692 | 13,554 | 28,011 | 26,056 | ||||||||||||||||||||||||
South America | 3,663 | 2,498 | 7,034 | 4,604 | ||||||||||||||||||||||||
Total executive recruitment | 108,955 | 95,546 | 214,393 | 186,629 | ||||||||||||||||||||||||
Futurestep | 16,834 | 12,959 | 33,597 | 24,684 | ||||||||||||||||||||||||
Total fee revenue | 125,789 | 108,505 | 247,990 | 211,313 | ||||||||||||||||||||||||
Reimbursed out-of-pocket engagement expenses | 7,143 | 5,036 | 14,037 | 10,411 | ||||||||||||||||||||||||
Total revenue | $ | 132,932 | $ | 113,541 | $ | 262,027 | $ | 221,724 | ||||||||||||||||||||
| Margin | Margin | Margin | Margin | |||||||||||||||||||||||||
Operating Income (Loss): | ||||||||||||||||||||||||||||
Executive recruitment: | ||||||||||||||||||||||||||||
North America | $ | 15,093 | 24 | % | $ | 11,956 | 21 | % | $ | 29,406 | 24 | % | $ | 24,056 | 22 | % | ||||||||||||
Europe | 5,508 | 20 | % | 4,022 | 17 | % | 10,595 | 19 | % | 8,583 | 18 | % | ||||||||||||||||
Asia/Pacific | 3,195 | 22 | % | 3,064 | 23 | % | 5,886 | 21 | % | 5,262 | 20 | % | ||||||||||||||||
South America | 281 | 8 | % | 272 | 11 | % | 947 | 13 | % | 552 | 12 | % | ||||||||||||||||
Total executive recruitment | 24,077 | 22 | % | 19,314 | 20 | % | 46,834 | 22 | % | 38,453 | 21 | % | ||||||||||||||||
Futurestep | 1,466 | 9 | % | 2,383 | 18 | % | 3,397 | 10 | % | 4,293 | 17 | % | ||||||||||||||||
Corporate | (7,457 | ) | (6,227 | ) | (13,401 | ) | (12,693 | ) | ||||||||||||||||||||
Total operating income | $ | 18,086 | 14 | % | $ | 15,470 | 14 | % | $ | 36,830 | 15 | % | $ | 30,053 | 14 | % | ||||||||||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
| As of October 31, 2005 | As of April 30, 2005 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 170,866 | $ | 199,133 | ||||
Marketable securities | 17,639 | 7,815 | ||||||
Receivables due from clients, net of allowance for doubtful accounts of $9,274 and $7,307 | 84,182 | 68,942 | ||||||
Income taxes and other receivables | 5,520 | 6,004 | ||||||
Deferred income taxes | 9,433 | 8,864 | ||||||
Prepaid expenses | 13,486 | 13,710 | ||||||
Total current assets | 301,126 | 304,468 | ||||||
Property and equipment, net | 18,976 | 18,287 | ||||||
Cash surrender value of company owned life insurance policies, net of loans | 67,488 | 65,047 | ||||||
Deferred income taxes | 34,486 | 30,889 | ||||||
Goodwill | 106,509 | 107,014 | ||||||
Deferred financing costs, investments and other | 8,207 | 8,463 | ||||||
Total assets | $ | 536,792 | $ | 534,168 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Accounts payable | $ | 8,521 | $ | 7,196 | ||||
Income taxes payable | 21,871 | 15,400 | ||||||
Compensation and benefits payable | 65,831 | 107,009 | ||||||
Other accrued liabilities | 26,804 | 28,792 | ||||||
Total current liabilities | 123,027 | 158,397 | ||||||
Deferred compensation and other retirement plans | 66,408 | 59,134 | ||||||
Long-term debt | 45,049 | 44,949 | ||||||
Other liabilities | 8,165 | 7,991 | ||||||
7.5% Convertible mandatorily redeemable preferred stock, net of unamortized discount and issuance costs, redemption value $11,387 | 10,893 | 10,795 | ||||||
Total liabilities | 253,542 | 281,266 | ||||||
Shareholders’ equity | ||||||||
Common stock: $0.01 par value, 150,000 shares authorized, 42,494 and 41,268 shares issued and 40,993 and 39,888 shares outstanding as of October 31 and April 30, 2005, respectively | 346,457 | 330,745 | ||||||
Retained deficit | (60,067 | ) | (82,584 | ) | ||||
Unearned restricted stock compensation | (9,650 | ) | (4,355 | ) | ||||
Accumulated other comprehensive income | 7,088 | 9,679 | ||||||
Shareholders’ equity | 283,828 | 253,485 | ||||||
Less: Notes receivable from shareholders | (578 | ) | (583 | ) | ||||
Total shareholders’ equity | 283,250 | 252,902 | ||||||
Total liabilities and shareholders’ equity | $ | 536,792 | $ | 534,168 | ||||