Korn/Ferry International F2Q09 (Quarter End 10/31/08) Earnings Call Transcript

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Korn/Ferry International (KFY)

F2Q09 Earnings Call

December 10, 2008 9:00 am ET

Executives

Gary D. Burnison - Chief Executive Officer, Director

Mark Neal- Senior Vice President

Gregg Kvochak - Senior Vice President

Analysts

Kevin McVeigh - Credit Suisse

Andrew Fones - UBS

Tobey Sommer - SunTrust Robinson Humphrey

Michel Morin - Merrill Lynch

Mark Marcon - Robert W. Baird & Co., Inc.

Presentation

Operator

Welcome to the Korn/Ferry International conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. As a reminder, this conference is being recorded.

Before I turn the call over to your host, Mr. Gary D. Burnison, let me first read a cautionary statement to investors. Certain statements made in the presentation today will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, investors 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 company’s control. Additional information concerning such risks and uncertainties can be found in the company’s annual report for fiscal 2008.

With that I’ll turn the call over to Mr. Burnison.

Gary D. Burnison

I’ll start off by saying that our Chief Financial Officer, Steve Giusto, is not on the call. He’s away attending to a family health matter. In his place I have two senior vice presidents with Korn/Ferry, Mark Neal and Gregg Kvochak, who are with me here in New York.

First let me say particularly in light of the environment, I’m’ pleased with our company’s performance in the second quarter. Fee revenue of $189 million with EPS of $0.30 a share and an operating margin of 11.4% and our non-search business Futurestep and leadership and talent consulting now represent 25% of our revenue.

The Korn/Ferry leadership’s job however is to look forward to anticipate, align, and navigate to build a multimillion dollar diversified HR solutions business. Therefore my comments this morning are going to be about the future.

Unfortunately as you’re all aware, the world around our global clients and as a result ourselves has changed dramatically particularly over the last few weeks. A world which had prospered for several years based on access to cheap credit and massive consumption has been brought to its knees as the credit markets have all but disappeared and the reality of deleverage has hit the global economy. At this point it’s obvious, the theory of decoupling has proven inaccurate and no industry or geography is immune.

The question at hand is: How will Korn/Ferry deal with this newest economy to not only survive but prosper during these difficult times and position themselves for growth?

As I mentioned on previous calls, we began tapping the brakes well over a year ago and at that time began taking steps to hopefully stay ahead of the upcoming curve in the road. Very recently however it’s become clear that that curve will be steep and possibly longer. As a result we’ve taken some prudent measures here to swiftly rationalize the cost structure of our businesses in line with that environment.

And I would say that we’ve done this and we’ve had to take these actions despite the fact that only a few weeks ago we were producing 50% more revenue with 20% fewer employees than at the last cycle. Unfortunately however we’re having to eliminate 15% of our global employee base, approximately 400 individuals. These decisions never come easy but it was in the best interest of all of our constituencies. Savings from these efforts are going to be about $50 million from associated salaries and benefits expense, and we’re targeting additional SG&A savings.

Ultimately reducing your cost base is only going to get you so far. We are committed to running a profitable company but our strategy can’t be based on fear and retreat. It has to be based on innovation and opportunity. We’re navigating from a position of strength; $270 million of cash, no bank debt, a differentiated strategy, loyal clients and great colleagues. Volatility will create opportunity and a period of turbulence gives any organization a chance to break from ingrained approaches to client service.

Korn/Ferry is not going to be a company that’s going to simply ride out the storm. I have reoriented the leadership team in three areas: Number one, to continue to institutionalize our go-to-market strategy to outperform the market; secondly, to create a more consultative solutions based workforce to drive integrated revenue growth; and third, to continue to refine our operating model to deliver profitable growth.

We’re going to continue to develop differentiated solutions to help our clients create a stickier more effective workforce. We’re going to continue to improve value, consistency and quality through a program called the KF Way that drives standardization, quality and client excellence across all of our businesses. Our new information platform, Searcher Express, that we’re rolling out now that we started a year and a half ago in development is one great example of that.

We’re going to continue to systematically drive broad global awareness for all of the solutions that the firm can offer. We’ve launched an initiative called the Client Advantage. This program’s going to expose our clients and prospects to talent management solutions for the challenges they’re facing right now.

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