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Korn/Ferry International (KFY)
F3Q09 Earnings Call
March 10, 2009; 9:00 am ET
Gary Burnison - Chief Executive Officer
Steve Giusto - Chief Financial Officer
Gregg Kvochak - Senior Vice President
Andrew Fones - UBS
Tobey Sommer - Suntrust
Ty Govatos - C.L. King
Mark Marcon - Robert W. Baird
Kevin Mcveigh - Credit Suisse
Previous Statements by KFY
» Korn/Ferry International F1Q10 (Qtr End 07/31/09) Earnings Call Transcript
» Korn/Ferry International F2Q09 (Quarter End 10/31/08) Earnings Call Transcript
» Korn/Ferry International F1Q09 (Qtr End 07/31/08) Earnings Call Transcript
Before I turn the call over to your host, Mr. Gary D. Burnison, let me first read the 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; please go ahead sir.
Well, thank you and good morning everyone. It goes without saying that this is one of the most difficult economic environments that the global business community has ever faced. The speed, in which companies have reduced their outside spend for all services has been absolutely unprecedented. In fact it was just six months ago that we achieved the highest revenue in our companies nearly 40 year history.
Although, we remain the leading brand in the industry, we’ve not been immune from a turbulent market that is affected virtually every company conducting business today. The question for us however, is not just to report on the climate, but to tell you what we’re doing about it. So, let me comment on our operating philosophy during this turbulent period.
Number one; we’re going to preserve our top line capacity and we are going to remain aggressive in the market. Two, we are going to proactively position ourselves to create a great company that links a client’s strategy to its most pressures resource, it’s workforce. A company that can not only help clients finds great talent, but as importantly help them more effectively and efficiently deploy, development, retain and reward their workforce.
Next, we are going to accelerate through the economic turn. The strongest companies make their best moves in tough markets. We’re going to continue to focus on a transformational strategy and we are going to remain consistent in our decision making. We are not going to run below deck in tough times, just as we didn’t over extend ourselves during periods of economic tailwinds.
Ultimately, we are going to continue to make the best decisions for our shareholders, clients and colleagues. Lastly, in this unprecedented environment we believe that the primary financial operating metric for our business is cash flow. As defined by EBITDA plus stock-based amortization expense.
Since September 2007, when this credit crisis began we started tapping the breaks in response to an uncertain market. We moved swiftly, planning to reduce our annualized operating expenses by over $200 million.
For the quarter our fee revenue was $136 million. It was down about 27% on a constant currency basis. FX did have a significant impact in the quarter. We achieved $0.08 pro forma EPS with a 4.1% operating margin that reflects the effects of our cost saving initiatives that we talked about on the last call and Steve will get into more detail on that.
In December, as we reported on our second quarter earnings call, we indicated that businesses and clients significantly curtailed outside spend and people initiatives and as a result new business at Korn/Ferry fell off shortly in November. Since that time, on a regional basis, December through February was relatively flat in the Americas, while EMEA and Asia Pacific deteriorated slightly.
On a positive note, I’m pleased to report that our leadership in talent consulting businesses are performing capably and actually grew in the quarter they were up 14% over the prior year and 2% sequentially. In fact alarming our business had one of its best months ever in December.
We think this trend indicates that clients may feel more need for advice on leadership capabilities that are required to succeed in a down market, and I believe these results illustrate that our diversified strategy is working. We’re going to continue to scale this business.
Revenues from our Futurestep outsourcing business declined more than our executive search service during the quarter and that reflects the tremendous global reductions in the mid-level workforce. Although that market has been hard hit and you read about it everyday in this downturn, there is a marked increase in activity and interest for our RPO team worldwide, in particular governments are becoming interested in the RPO Solution as they look to fill rolls created by the demographic trends as well as the stimulus packages around the world.
As an overall percentage of our business, Futurestep and the leadership businesses represent about 28% of the top-line. We are going to use this time as an opportunity, an opportunity to create change and to further our strategic agenda. We’re going to continue to further institutionalize our go-to-market strategy to outperform the market. We’re going to create a more consultative solutions based business model to drive integrated revenue growth and we are going to refine our operating model to deliver positive cash flow.