Korn/Ferry International (KFY)

KFY 
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Korn/Ferry International (KFY)

Q1 2014 Earnings Call

September 05, 2013 5:00 pm ET

Executives

Gary D. Burnison - Chief Executive Officer, President, Treasurer and Executive Director

Robert P. Rozek - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Gregg Kvochak

Analysts

Kevin D. McVeigh - Macquarie Research

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Timothy McHugh - William Blair & Company L.L.C., Research Division

Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Korn/Ferry International First Quarter Fiscal Year 2014 conference call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. We've also made available on the Investor Relations section of our website at kornferry.com, a copy of the financial presentation that we will be reviewing with you today.

Before I turn the call over to your host, Mr. Gary Burnison, let me first read the cautionary statement to investors. Certain statements made in the call today, such as those relating to future performance, plans and goals, 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 release relating to the presentation, in the company's annual report for fiscal 2013 and in the other periodic reports filed by the company with the SEC. Also, some of the comments today may reference non-GAAP financial measures, such as constant currency amounts, EBITDA and adjusted EBITDA. Additional information concerning these measures, including reconciliations to the most direct comparable GAAP financial measure, is contained in the financial presentation and release relating to this call, both of which are posted on the company's website at www.kornferry.com.

With that, I'll turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison

Gary D. Burnison

Okay. Well, hello, everybody, and thank you for joining us, and a happy new year. First, start out with some overall comments. I'm very, very pleased with our momentum, our operating results for the quarter, as well as the strategic progress we've made on integrating our acquisitions. Fee revenue in the quarter grew. It was about $228 million, which is up 23% year-over-year. That's up 8% on an organic basis, measured at constant currency, and that's with growth in all of our major operating segments. So today, it's a company that is at an annualized first quarter run rate of about $920 million, with about $128 million of EBITDA.

As we talked about last quarter, we anticipated continued integration activities. And so in the quarter, we did complete those activities. Our adjusted EBITDA margin was 14%, and that's up substantially from the prior year. We'd like to see that be 15% to 18%, as an organization, that's what we're shooting for. Our adjusted EPS was $0.33, and that's up $0.11 from the prior year. And our balance sheet continues to be very strong.

I think we've effectively balanced growth and investment. And particularly, as efficiencies and growth come from our recent acquisitions, and with our leadership team around the world effectively driving our strategy, we've improved profitability but we've also increased revenue, not only within our flagship heritage Search business, but also our broader talent management offerings year-over-year, with strong margin expansion and earnings per share growth in the quarter, on an adjusted basis.

And so as a result, we're making this company more relevant. We're making our brand more elastic with, in the quarter now, 40% of the revenue mix was generated from our broader talent management offerings. And the interesting thing, I think, too, is that it also represents 40% of our EBITDA today.

The assimilation of last fiscal year's acquisitions has proceeded as planned. The outcome of which is an expanded and richer set of offerings to bring to market in an integrated fashion. And in the context of that integration plan, we're also on pace with a major initiative, kind of bottoms-up, to develop and train our consultants on our broader base of solutions. And that's going to continue during the course of this fiscal year.

But while we've experienced top line growth year-over-year, and over the last few months, we've seen a steady increase in new business in almost all regions across all of our lines of business. We all know, just looking at the computer, that market volatility, overall, is still very present in the world. And our assumption is that this volatility is going to continue to impact global organizations for quite some time. But with that also comes opportunity for Korn/Ferry. And as a result of today's uneven environment, clients are increasingly borderless, their knowledge-based, they're asking their workforce to do much more with much less, and yet, irrespective of industry or geography, when you talk to a CEO, talent is the ultimate driver of business success. And so we're transforming Korn/Ferry, not away from a monoline company, but to a unified talent solutions organization. The world's most relevant talent in leadership organization. A Korn/Ferry that helps boards and CEOs navigate this complex environment by more effectively linking their business and talent strategies.

Read the rest of this transcript for free on seekingalpha.com