Korn/Ferry International Earnings Call Nuggets: Revenue Contributors and Priorities
Korn/Ferry International (NYSE:KFY) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Kevin McVeigh – Macquarie: I wonder, Gary, it sounds like the LTC business really contributing a nice percentage of the revenue now. As we think about that sustainable kind of adjusted EBITDA target of 16% to 18%, how are we thinking about kind of the different components and how would they contribute to that in terms of the search versus LTC?
Gary Burnison – CEO: Well, we’re very pleased that the non-search business has been very pursuant and we – the Futurestep business is going to have lower margins for sure, but that’s going to be a component of how much RPO activity we have. So as an organization, we are targeting 15% to 18%, and we would expect our LTC business to contribute those kinds of margins the search would be maybe a little bit more and Futurestep would be a little bit less.
Kevin McVeigh – Macquarie: As you think about LTC at 40% does that continue to climb here and just on the back of that it sounds like, if I heard it right pushing up kind of that initiative across all your consultants to kind of tweak the compensation structure as a result of that at all.
Gary Burnison – CEO: well, we’ve continued over time to evolve our compensation structure and we will continue to do that, today it’s all about being relevant and differentiating yourself and fighting for growth. So although compensation is important it is not number one and we have to be more relevant to our clients and we think, going to market is one, bringing a richer deeper set of offerings we will indeed drive the top line and our employees and colleagues will be further differentiated and just as a point of clarification the 40% it not only includes the LTC business, but includes the Futurestep business as well. LTC is about 26% of the topline, Futuresteps’ 14%…
Kevin McVeigh – Macquarie: Then last question if I may. What is overall expansion particularly in Europe and Asia-Pacific any thoughts on is that just kind of better revenue trend or cost actions really would show that out performance?
Gary Burnison – CEO: It’s both. We’ve seen a nice broad-based uptick in activity. And secondly, I think that we have really taken the right balance on the seesaw between investment and growth and we’ve I think we’ve actively managed the business over the past few quarters and I think it’s showing.
Tobey Sommer – SunTrust: Gary, over the last year or so, you’ve deployed some capital expanded and diversified the business and the cash balance is getting closer to back to the prior level. How do you feel in terms of deploying more capital to kind of further provide separation between yourself and the rest of the market versus other alternatives at your disposal?
Gary Burnison – CEO: It’s a great observation. Our first priority would always be to invest and grow and we really think that there is a multi-hundred million dollar opportunity for us here incrementally from where we are today. We see ourselves as a couple billion dollar company and we also believe we need to continue to arm our organization with deeper, richer offerings. We think we have a good opportunity on the product side to grow that business through intellectual property and technology. Having said that, we’re not necessarily proud with our return on capital this quarter which is kind of 7.5%, we’re very, very mindful of that as a leadership team. So I’m not going to comment other than I certainly recognize the question, our Board recognizes the question, and our priority would be to first deploy it in the business. But we’re very, very mindful of the alternatives with that capital…
Tobey Sommer – SunTrust: Your headcount was up sequentially in the quarter, but I guess primarily as a result of promotions, what do you think you do with it throughout the fiscal year? I ask that because the tone of the way demand was characterized in the prepared remarks to various people seem that to demonstrate some improvement, and I was wondering if you are confident enough in that trend to plan on adding to meet that demand?
Gary Burnison – CEO: Well, we – look, we continually are looking to promote from within first and foremost, within the organization, and also to add talent from the outside, like our clients do. So, we are not going to change our modus operandi, and we are going to continue to be aggressive in trying to bring people that not only can drive the top line, but they can drive change that can be forward leaning and that can help us continue to move our culture.
Tobey Sommer – SunTrust: Just one quick numerical question and one after that as well. If you gave the spendable cash balance, I didn’t catch it, so if I could get that? And then, Gary, could you talk a little bit more and expand upon what your plans are and the opportunity to capitalize on the IP resident within the firm and monetize that through perhaps kind of more lucrative channels.
Gary Burnison – CEO: I’ll comment on that and then Bob you can. As a CEO in just about any company or any industry any business there is an incredible fight for growth right now and at the same time you’re asking more from less people so with that as a backdrop and this fight for growth. Organizations spend anywhere from your $400 to $1,000 per employee on development and on motivation and stimulation. And so we think that there is an opportunity to license our intellectual property to help that CEO to help him or her drive that growth, create that excitement create that motivation. So today we’ve got what we would characterize as $50 million, essentially $50 million products business. Either paper-based or software-based where companies use our intellectual property to engage a workforce, develop a workforce, stimulate a workforce. And so we are thinking of ways in which we can take that intellectual property and capture some of that spend of say $500 or $1,000 per seat around development. So one of the things as an example is around this concept of learning agility which we think in the environment today is critical this kind of borderless growth. And so, we are developing product that can be licensed for companies to give us the kind of knowledge transfer that doesn’t require an army of consultants to really stimulate and motivate our workforce.
Robert Rozek – EVP and CFO: And then, Tobey, this is Bob. On the cash, I just run through the numbers quickly with you. So, our total cash and marketable security position again in the quarter is $280 million, and when you back out amounts for deferred comp and bonus that goes down to about $132 million. When you adjust that down further for global working capital needs, it’s about, really up about $32 million.
A Closer Look: Korn/Ferry International Earnings Cheat Sheet>>