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Korn/Ferry: Korn Ferry International Announces Second Quarter Fiscal 2016 Results Of Operations Highlights

The following excerpt is from the company's SEC filing.

Korn Ferry reports record fee revenue of $280.6 million in the second quarter of fiscal 2016, an increase of $24.9 million, or 9.7% ($41.3 million, or 16.2% on a constant currency basis), from Q2 FY15, with increases across all segments on a constant currency basis:

Futurestep

Leadership and Talent Consulting

Executive Recruitment

Adjusted EBITDA margin was 16.4% in Q2 FY16.

Adjusted diluted earnings per share was $0.51 in Q2 FY16, excluding $12.0 million of integration/acquisition costs, compared to diluted earnings per share of $0.51 in Q2 FY15. Q2 FY16 diluted earnings per share was $0.35.

The Company declared a quarterly dividend of $0.10 per share on December 8, 2015, payable on January 15, 2016 to stockholders of record on December 21, 2015.

Los Angeles, CA, December 9, 2015

Korn/Ferry International (NYSE: KFY), the preeminent global people and organizational advisory firm, today announced second quarter fee revenue of $280.6 million and adjusted diluted earnings per share of $0.51, excluding integration/acquisition costs of $12.0 million. On a GAAP basis, diluted earnings per share was $0.35 in the three months ended October 31, 2015.

In our recently completed second fiscal quarter, I am proud to report that Korn Ferry generated the strongest topline results in the Companys history, representing a 16% year-over-year increase in fee revenue on a constant currency basis, said Gary D. Burnison, CEO, Korn Ferry. Now with the close of our acquisition of Hay Group, we have unified two great organizations to create the preeminent advisor for an organization and its people. As a combined firm, we have an unrivaled ability to address the entire talent continuum, a move that affirms the critical role that people and leadership play in driving organization performance.

Selected Financial Results

(dollars in millions, except per share amounts)

Second Quarter

Year to Date

Fee revenue

Total revenue

Operating income

Operating margin

Net income

Basic earnings per share

Diluted earnings per share

EBITDA Results (a):

Adjusted Results (b):

EBITDA (a)

EBITDA margin (a)

EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude restructuring charges and integration/acquisition costs. EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).

Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):

Integration/acquisition costs

Restructuring charges, net

Fee revenue was $280.6 million in Q2 FY16, an increase of $24.9 million, or 9.7% ($41.3 million, or 16.2% on a constant currency basis), compared to Q2 FY15, primarily due to increases of $10.1 million, $7.5 million, and $7.3 million in fee revenue in Futurestep, Executive Recruitment, and Leadership & Talent Consulting, respectively. The overall fee revenue increase was driven by fee revenue growth in certain of our major markets financial services, life science/healthcare, technology and education/non-profit, partially offset by a decline in industrial and consumer goods.

Compensation and benefit expenses were $188.6 million in Q2 FY16, an increase of $13.9 million, or 8.0%, compared to the year-ago quarter. The increase was driven, in part, by higher salaries (increase of $9.3 million) due to a 19.9% increase in the average consultant headcount in Q2 FY16 compared to Q2 FY15 and $3.3 million in integration costs associated with the Hay Group acquisition.

General and administrative expenses were $44.6 million in Q2 FY16, an increase of $14.5 million compared to Q2 FY15. The increase was driven by acquisition costs of $8.6 million that were incurred in Q2 FY16 related to the Hay Group acquisition and from the fact that in Q2 FY15, the Company received a $6.2 million insurance reimbursement that reduced legal fees in Q2 FY15. Neutralizing the effect of these items, general and administrative expenses were essentially flat year-over-year.

Adjusted EBITDA was $46.0 million in Q2 FY16, an increase of $2.0 million, or 4.5%, compared to Q2 FY15. Adjusted EBITDA margin was 16.4% in Q2 FY16 and 17.2% in Q2 FY15. Adjusted EBITDA margin for Q2 FY15 was favorably impacted (by approximately 90 basis points) by the insurance reimbursement discussed above, partially offset by higher other professional fees and additional performance-related bonus expense.

On a GAAP basis, operating income was $29.0 million in Q2 FY16 and $34.4 million in Q2 FY15, resulting in an operating margin of 10.3% in Q2 FY16 compared to 13.5% in the year-ago quarter. The decrease in operating income was due to the increases in compensation and benefit expenses and general and administrative expenses as discussed above, offset by an increase in fee revenue.

Balance Sheet and Liquidity

Cash and marketable securities were $417.7 million at October 31, 2015, compared to $525.4 million at April 30, 2015. Cash and marketable securities decreased by $107.7 million from April 30, 2015, primarily due to Q1 FY16 payments of FY15 annual bonuses and $10.3 million in dividend payments made to stockholders during the year, partially offset by cash provided by operating activities. Net of amounts held in trust for deferred compensation plans and accrued bonuses, cash and marketable securities were $186.2 million and $235.6 million at October 31, 2015 and April 30, 2015, respectively. As of October 31, 2015 and April 30, 2015, we held $121.6 million and $143.4 million, respectively, of cash and cash equivalents in foreign locations, net of amounts held in trust for deferred compensation plans and bonuses.

The Company declared a quarterly dividend of $0.10 per share on December 8, 2015, payable on January 15, 2016 to stockholders of record on December 21, 2015.

Results by Segment

Selected Executive Recruitment Data

(dollars in millions)

Ending number of consultants

Average number of consultants

Engagements billed

New engagements (a)

EBITDA Results (b):

Adjusted Results (c):

EBITDA (b)

EBITDA margin (b)

Represents new engagements opened in the respective period.

EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).

Fee revenue was $156.5 million in Q2 FY16, an increase of $7.5 million, or 5.0% ($16.6 million, or 11.1% on a constant currency basis), compared to Q2 FY15. The overall increase in fee revenue was primarily attributable to a 3.2% increase in the number of engagements billed and a 1.6% increase in the weighted-average fees billed per engagement in Q2 FY16 compared to Q2 FY15. On a regional basis, the fee revenue increase was driven by a $10.1 million increase in North America, partially offset by a $2.3 million decrease in South America. On a constant currency basis, all regions, with the exception of South America, experienced year-over-year growth with North America at 13.3%, EMEA at 11.2% and Asia Pacific at 9.9%.

Adjusted EBITDA was $40.6 million and $32.0 million during Q2 FY16 and Q2 FY15, respectively. The increase in Adjusted EBITDA was driven by higher fee revenue and decreases in compensation and benefit expenses of $1.2 million and general and administrative expenses of $1.0 million.

Operating income was $39.2 million in Q2 FY16, an increase of $9.3 million, or 31.1%, compared to Q2 FY15, resulting in operating margin of 25.1% in Q2 FY16 compared to 20.1% in Q2 FY15. Operating income was impacted by all of the above items.

Selected Leadership & Talent Consulting Data

(dollars in millions)

Ending number of consultants (a)

Staff utilization (b)

EBITDA Results (c):

Adjusted Results (d):

EBITDA (c)

EBITDA margin (c)

Represents number of employees originating consulting services.

Calculated by dividing the number of hours our full-time LTC professional staff record to engagements during the period, by the total available working hours during the same period.

Integration costs

Fee revenue was $73.6 million in Q2 FY16, an...


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