Korn Ferry (NYSE:KFY) Q4 2023 Earnings Conference Call June 27, 2023 12:00 PM ET Company Participants Gary Burnison - Chief Executive Officer Bob Rozek - Chief Financial Officer Gregg Kvochak - Senior Vice President, Investor Relations Tiffany Louder - Vice President, Investor Relations Conference Call Participants George Tong - Goldman Sachs Jasper Bibb - Truist Securities Trevor Romeo - William Blair Marc Riddick - Sidoti Andre Childress - Baird Operator Ladies and gentlemen, thank you for standing by, an ...

Financial Performance - Korn Ferry generated $2,835.4 million in fee revenue for fiscal 2023, an increase of 8.0% compared to fiscal 2022[22]. - Net Income attributable to Korn Ferry was $209.5 million, with an operating income of $316.3 million and an Adjusted EBITDA of $457.3 million, representing margins of 11.2% and 16.1% respectively[22]. - Fiscal 2023 fee revenue for the Professional Search & Interim segment was $875.8 million, a decrease of 6% compared to fiscal 2022, representing 31% of total fee revenue[36]. - Adjusted EBITDA for the Professional Search & Interim segment was $205.8 million with an Adjusted EBITDA margin of 23.5%[36]. - The Executive Search segment generated fee revenue of $503.4 million, an increase of 69% compared to fiscal 2022, representing 18% of total fee revenue[37]. - Fee revenue for fiscal 2023 was $2,835.4 million, an increase of $208.7 million, or 8%, compared to $2,626.7 million in fiscal 2022, with all lines of business except Executive Search showing growth[193]. - Net income attributable to Korn Ferry decreased by $116.9 million to $209.5 million in fiscal 2023 from $326.4 million in fiscal 2022[193]. - Adjusted EBITDA was $457.3 million, a decrease of $81.6 million from $538.9 million in fiscal 2022[193]. - Total revenue for 2023 was $2,863,836, up from $2,643,455 in 2022[212]. Client Engagement and Loyalty - Korn Ferry worked with nearly 15,000 organizations in fiscal 2023, achieving a client loyalty rate of nearly 80% for repeat engagements[16]. - The company generated over 25% of total fee revenues through referrals between different lines of business, highlighting the effectiveness of its integrated solutions[18]. - Korn Ferry's go-to-market strategy resulted in approximately 80% of revenue coming from clients using multiple lines of business in fiscal 2023[49]. - Nearly 80% of assignments in fiscal 2023 were for clients who had previously engaged the Company, demonstrating strong client loyalty[188]. Investments and Acquisitions - The company invested $254.8 million in acquisitions and $61.0 million in capital expenditures during fiscal 2023, while returning $93.9 million in share repurchases and $33.0 million in dividends to shareholders[22]. - Korn Ferry's acquisition strategy included the purchase of three Interim hiring firms in the last 18 months, enhancing its capabilities in the Professional Search and Interim sectors[16]. - The company completed several strategic acquisitions, including The Lucas Group and Patina Solutions Group, Inc. in fiscal 2022, and Infinity Consulting Solutions and Salo LLC in fiscal 2023, as part of its growth strategy[129]. - The company acknowledges risks associated with acquisitions, including potential liabilities and operational issues that may not be discovered during due diligence[151]. Operational Metrics - Korn Ferry opened more than 6,300 new engagements in fiscal 2023, averaging 594 consultants per engagement[36]. - The company operates in 108 offices across 53 countries, with a workforce of 10,697 full-time employees, 62% of whom are female in the U.S.[41]. - The company has approximately 1.1 million square feet of leased office space across 107 locations in North America, EMEA, Asia Pacific, and Latin America as of April 30, 2023[156]. - The company promoted over 1,200 employees across its five lines of business and Corporate in fiscal 2023[58]. Financial Risks and Liabilities - The company faces significant competition from larger consulting firms, which may lead to pricing pressures and reduced market share[71]. - The company is highly dependent on a small executive team, and the loss of any key executive could adversely affect operations[80]. - The company is exposed to inflationary pressures that may increase operating costs, including labor and borrowing costs[99]. - The company may incur significant expenses to comply with evolving government regulations, which could adversely impact its business[89]. - The company is subject to interest rate risk due to its variable rate indebtedness, which could significantly increase debt service obligations if interest rates rise[106]. - A decline in operating results or available cash could lead to difficulties in complying with financial covenants, potentially resulting in bankruptcy or liquidation[114]. Employee Well-being and Diversity - Korn Ferry's employee well-being initiatives include mental health awareness campaigns and flexible work schedules[62]. - The company is implementing diversity, equity, and inclusion initiatives to enhance talent recruitment and retention[79]. - The company has been recognized as the best company for Parents 2022 and one of the Human Rights Campaign's Best Places to Work for LGBTQ Equality 2022[59]. Market and Economic Conditions - The company is exposed to economic conditions that can impact demand for its services, including recessions and inflation, which could negatively affect its financial results[134]. - The company faces potential operational challenges and client-related risks due to pandemics, including heightened attention to employee health and safety and disruptions in service delivery[154]. - The company faces risks related to compliance with various international laws and regulations, which could impact its operations and financial condition[136]. Financial Management and Capital Allocation - The company’s capital allocation strategy prioritizes investments in growth initiatives, including hiring consultants and developing intellectual property, while also considering share repurchases and dividends[173]. - The company approved an increase in its stock repurchase program by approximately $300 million, bringing the total capacity to $318 million[177]. - In fiscal 2023, the Company repurchased approximately $93.9 million of its common stock, compared to $98.8 million in fiscal 2022 and $30.4 million in fiscal 2021[177]. - The company has $645.4 million of availability under its $650.0 million five-year senior secured revolving credit facility[102]. Compliance and Regulatory Risks - Compliance with data protection laws such as GDPR has resulted in additional costs and may require changes to business practices, with potential penalties for non-compliance reaching up to 4% of annual worldwide revenue[123]. - The evolving regulatory landscape, including new cybersecurity laws in various U.S. states, may impose additional obligations and increase compliance costs[124]. - The company relies on third-party vendors for critical functions, and any failure on their part could lead to operational disruptions and increased costs[119]. - Cybersecurity incidents pose a risk of unauthorized disclosure of sensitive information, which could adversely impact the company's reputation and financial results[120].

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Presents Korn Ferry's unaudited consolidated financial statements and management's discussion and analysis for the reported periods [Item 1. Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) Presents Korn Ferry's unaudited consolidated financial statements and detailed notes for periods ended January 31, 2023, and April 30, 2022 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Summarizes Korn Ferry's financial position, detailing assets, liabilities, and equity as of January 31, 2023, and April 30, 2022 Consolidated Balance Sheets (in thousands) | Metric | Jan 31, 2023 (unaudited) (in thousands) | Apr 30, 2022 (in thousands) | | :-------------------------------- | :-------------------------------------- | :-------------------------- | | Cash and cash equivalents | $771,898 | $978,070 | | Total current assets | $1,613,427 | $1,759,970 | | Total assets | $3,406,188 | $3,464,546 | | Total current liabilities | $856,347 | $984,225 | | Total liabilities | $1,793,174 | $1,914,957 | | Total stockholders' equity | $1,613,014 | $1,549,589 | - Cash and cash equivalents decreased by **$206.172 million** from April 30, 2022, to January 31, 2023[7](index=7&type=chunk) - Total assets decreased by **$58.358 million**, while total liabilities decreased by **$121.783 million**, and total stockholders' equity increased by **$63.425 million**[7](index=7&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Details Korn Ferry's financial performance, including revenue, operating income, and net income for the three and nine months ended January 31, 2023 Consolidated Statements of Income (in thousands, except per share data) | Metric (in thousands, except per share data) | Three Months Ended Jan 31, 2023 | Three Months Ended Jan 31, 2022 | Nine Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2022 | | :------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Fee revenue | $680,782 | $680,741 | $2,104,534 | $1,905,579 | | Total revenue | $686,845 | $684,956 | $2,125,712 | $1,916,452 | | Operating income | $12,513 | $126,290 | $243,759 | $331,321 | | Net income attributable to Korn Ferry | $11,247 | $84,101 | $162,035 | $234,696 | | Basic EPS | $0.21 | $1.55 | $3.07 | $4.33 | | Diluted EPS | $0.21 | $1.54 | $3.05 | $4.28 | | Cash dividends declared per share | $0.15 | $0.12 | $0.45 | $0.36 | - For the three months ended January 31, 2023, net income attributable to Korn Ferry decreased by **86.6% YoY**, and diluted EPS decreased by **86.4% YoY**[9](index=9&type=chunk) - For the nine months ended January 31, 2023, net income attributable to Korn Ferry decreased by **31.0% YoY**, and diluted EPS decreased by **28.7% YoY**[9](index=9&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Presents Korn Ferry's comprehensive income, including net income and other comprehensive income components for the reported periods Consolidated Statements of Comprehensive Income (in thousands) | Metric (in thousands) | Three Months Ended Jan 31, 2023 | Three Months Ended Jan 31, 2022 | Nine Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $11,769 | $85,057 | $164,920 | $237,786 | | Comprehensive income | $52,065 | $70,822 | $160,931 | $208,687 | | Comprehensive income attributable to Korn Ferry | $51,110 | $69,913 | $157,418 | $205,798 | - Comprehensive income attributable to Korn Ferry decreased by **26.9%** for the three months ended January 31, 2023, and by **23.5%** for the nine months ended January 31, 2023, compared to the respective prior-year periods[12](index=12&type=chunk) [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Outlines changes in Korn Ferry's stockholders' equity, including common stock, retained earnings, and other comprehensive income for the reported periods Consolidated Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | Jan 31, 2023 | Apr 30, 2022 | | :-------------------- | :----------- | :----------- | | Common Stock Amount | $434,163 | $502,008 | | Retained Earnings | $1,271,618 | $1,134,523 | | Total Korn Ferry Stockholders' Equity | $1,608,979 | $1,544,346 | - Total Korn Ferry stockholders' equity increased by **$64.633 million** from April 30, 2022, to January 31, 2023[15](index=15&type=chunk) - The company repurchased **1,454,867 shares** of common stock for **$80.5 million** during the nine months ended January 31, 2023[15](index=15&type=chunk)[76](index=76&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Analyzes Korn Ferry's cash inflows and outflows from operating, investing, and financing activities for the nine months ended January 31, 2023 Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Nine Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $92,784 | $221,477 | | Net cash used in investing activities | $(165,356) | $(136,553) | | Net cash used in financing activities | $(130,119) | $(62,833) | | Net decrease in cash and cash equivalents | $(206,172) | $(4,273) | | Cash and cash equivalents at end of period | $771,898 | $846,505 | - Net cash provided by operating activities decreased by **$128.693 million (58.1%)** for the nine months ended January 31, 2023, compared to the prior-year period[21](index=21&type=chunk) - Net cash used in investing activities increased by **$28.803 million (21.1%)** due to higher cash paid for acquisitions and property/equipment[21](index=21&type=chunk)[256](index=256&type=chunk) - Net cash used in financing activities increased by **$67.286 million (107.1%)** primarily due to increased stock repurchases and dividend payments[21](index=21&type=chunk)[257](index=257&type=chunk) [Notes to Consolidated Unaudited Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Unaudited%20Financial%20Statements) Provides detailed explanations of Korn Ferry's accounting policies, financial instruments, segment performance, and recent corporate actions [1. Organization and Summary of Significant Accounting Policies](index=9&type=section&id=1.%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) Outlines Korn Ferry's global consulting business, eight segments, and key accounting policies like revenue recognition and compensation - Korn Ferry is a global organizational consulting firm focused on synchronizing strategy and talent to drive performance[22](index=22&type=chunk) - The company has transformed from a mono-line to a diversified business, expanding client engagement opportunities[23](index=23&type=chunk) - Effective fiscal 2023, the RPO & Professional Search segment was separated into two distinct segments: Professional Search & Interim and RPO, to align with strategic decisions and performance assessment[23](index=23&type=chunk)[96](index=96&type=chunk) - Consulting: Aligns organization structure, culture, performance, and people - Digital: Delivers scalable tech-enabled solutions for structures, roles, capabilities, and behaviors - Executive Search: Recruits board-level, chief executive, and senior executive talent (managed geographically across North America, EMEA, Asia Pacific, Latin America) - Professional Search & Interim: Provides enterprise talent acquisition for professional-level middle and upper management, including permanent and interim placements - RPO: Offers scalable recruitment outsourcing solutions leveraging technology and talent insights[24](index=24&type=chunk)[100](index=100&type=chunk) - Revenue recognition is based on a five-step model, with consulting revenue recognized as services are rendered, digital revenue as services are delivered or over contract term for symbolic IP, and executive/professional search revenue generally over the course of a search or duration of interim services[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk) - The company recorded restructuring charges of **$41.2 million** for the three and nine months ended January 31, 2023, related to workforce realignment[55](index=55&type=chunk)[119](index=119&type=chunk) [2. Basic and Diluted Earnings Per Share](index=14&type=section&id=2.%20Basic%20and%20Diluted%20Earnings%20Per%20Share) Details the calculation of basic and diluted EPS using the two-class method, summarizing net earnings and weighted-average shares outstanding - The company uses the two-class method for EPS calculation due to unvested share-based payment awards with non-forfeitable dividend rights[59](index=59&type=chunk) Basic and Diluted Earnings Per Share (in thousands, except per share data) | Metric (in thousands, except per share data) | Three Months Ended Jan 31, 2023 | Three Months Ended Jan 31, 2022 | Nine Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2022 | | :------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic net earnings attributable to common stockholders | $10,998 | $82,303 | $158,490 | $229,333 | | Diluted net earnings attributable to common stockholders | $10,998 | $82,318 | $158,510 | $229,385 | | Basic weighted-average number of common shares outstanding | 51,278 | 52,999 | 51,639 | 52,958 | | Diluted weighted-average number of common shares outstanding | 51,431 | 53,495 | 51,999 | 53,538 | | Basic earnings per share | $0.21 | $1.55 | $3.07 | $4.33 | | Diluted earnings per share | $0.21 | $1.54 | $3.05 | $4.28 | - Restricted stock awards of **1.2 million shares** were anti-dilutive and excluded from diluted EPS computation for both periods[61](index=61&type=chunk) [3. Comprehensive Income](index=15&type=section&id=3.%20Comprehensive%20Income) Defines comprehensive income and breaks down accumulated other comprehensive loss, including foreign currency and pension adjustments - Comprehensive income includes net income and other changes to stockholders' equity not from investments by or distributions to stockholders[63](index=63&type=chunk) Accumulated Other Comprehensive Loss, Net (in thousands) | Component (in thousands) | Jan 31, 2023 | Apr 30, 2022 | | :----------------------- | :----------- | :----------- | | Foreign currency translation adjustments | $(97,509) | $(92,717) | | Deferred compensation and pension plan adjustments, net of tax | $1,126 | $961 | | Marketable securities unrealized loss, net of tax | $(419) | $(429) | | Accumulated other comprehensive loss, net | $(96,802) | $(92,185) | - Accumulated other comprehensive loss, net, increased by **$4.617 million** from April 30, 2022, to January 31, 2023, primarily due to foreign currency translation adjustments[64](index=64&type=chunk)[65](index=65&type=chunk) [4. Employee Stock Plans](index=17&type=section&id=4.%20Employee%20Stock%20Plans) Details Korn Ferry's stock-based compensation plans, summarizing expense, restricted stock activity, and shares available for future issuance Stock-Based Compensation Expense (in thousands) | Stock-Based Compensation Expense (in thousands) | Three Months Ended Jan 31, 2023 | Three Months Ended Jan 31, 2022 | Nine Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2022 | | :---------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Restricted stock | $9,350 | $7,141 | $26,327 | $21,391 | | ESPP | $134 | $185 | $583 | $584 | | Total stock-based compensation expense | $9,484 | $7,326 | $26,910 | $21,975 | - Total stock-based compensation expense increased by **29.5%** for the three months and **22.5%** for the nine months ended January 31, 2023, compared to the prior-year periods[69](index=69&type=chunk) - As of January 31, 2023, **$78.8 million** of total unrecognized compensation cost related to non-vested restricted stock awards is expected to be recognized over a weighted-average period of **2.6 years**[74](index=74&type=chunk) - The company repurchased **370,857 shares** of restricted stock for **$22.1 million** to cover taxes on vested restricted stock during the nine months ended January 31, 2023[74](index=74&type=chunk) - The 2022 Stock Incentive Plan increased available shares by **1,700,000**, with **2,248,284 shares** remaining for issuance[70](index=70&type=chunk) - The ESPP had approximately **1.8 million shares** remaining available for future issuance as of January 31, 2023[75](index=75&type=chunk) [5. Financial Instruments](index=19&type=section&id=5.%20Financial%20Instruments) Details Korn Ferry's financial instruments, including marketable securities and foreign currency contracts, outlining fair value and balance sheet impact Financial Instrument Fair Value (in thousands) | Financial Instrument (in thousands) | Jan 31, 2023 Fair Value | Apr 30, 2022 Fair Value | | :---------------------------------- | :---------------------- | :---------------------- | | Total debt investments | $47,090 | $79,774 | | Total equity investments | $188,809 | $168,742 | | Cash | $735,392 | $874,490 | | Money market funds | $36,506 | $88,091 | | Foreign currency forward contracts | $1,303 | $(204) | - The fair value of equity investments (mutual funds held in trust for deferred compensation) increased by **$20.067 million** from April 30, 2022, to January 31, 2023[77](index=77&type=chunk)[78](index=78&type=chunk) - The company recognized a gain of **$12.7 million** and **$3.0 million** from the fair value increase of ECAP investments for the three and nine months ended January 31, 2023, respectively[78](index=78&type=chunk) - Foreign currency forward contracts resulted in a gain of **$3.3 million** and **$1.2 million** for the three and nine months ended January 31, 2023, respectively[80](index=80&type=chunk) [6. Deferred Compensation and Retirement Plans](index=21&type=section&id=6.%20Deferred%20Compensation%20and%20Retirement%20Plans) Describes Korn Ferry's deferred compensation and retirement plans, including pension and ECAP, and their net periodic benefit costs and COLI funding Net Periodic Benefit Costs (in thousands) | Metric (in thousands) | Three Months Ended Jan 31, 2023 | Three Months Ended Jan 31, 2022 | Nine Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2022 | | :---------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Service cost | $10,573 | $9,762 | $30,200 | $28,190 | | Interest cost | $2,439 | $1,038 | $7,263 | $3,095 | | Net periodic benefit costs | $12,840 | $10,849 | $36,946 | $31,443 | - Net periodic benefit costs increased by **18.4%** for the three months and **17.5%** for the nine months ended January 31, 2023, compared to the prior-year periods[82](index=82&type=chunk) - The cash surrender value of COLI contracts, net of loans, was **$198.6 million** as of January 31, 2023, up from **$183.3 million** at April 30, 2022[84](index=84&type=chunk)[258](index=258&type=chunk) - Deferred compensation liability increased, leading to compensation expense of **$12.1 million** and **$3.5 million** for the three and nine months ended January 31, 2023, respectively[87](index=87&type=chunk) [7. Fee Revenue](index=22&type=section&id=7.%20Fee%20Revenue) Details Korn Ferry's contract balances, performance obligations, and disaggregation of fee revenue by industry, including recognition timing Contract Balances (in thousands) | Contract Balances (in thousands) | Jan 31, 2023 | Apr 30, 2022 | | :------------------------------- | :----------- | :----------- | | Contract assets-unbilled receivables | $112,299 | $100,652 | | Contract liabilities-deferred revenue | $268,611 | $244,149 | - The aggregate transaction price allocated to unsatisfied performance obligations for contracts with an expected duration greater than one year was **$1,166.9 million** as of January 31, 2023[90](index=90&type=chunk) Industry Fee Revenue (in thousands) | Industry Fee Revenue (in thousands) | Three Months Ended Jan 31, 2023 | Three Months Ended Jan 31, 2022 | Nine Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2022 | | :---------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Industrial | $199,341 (29.3%) | $181,016 (26.6%) | $601,698 (28.6%) | $500,078 (26.2%) | | Life Sciences/Healthcare | $125,064 (18.4%) | $126,840 (18.6%) | $391,863 (18.6%) | $370,009 (19.4%) | | Financial Services | $117,880 (17.3%) | $121,459 (17.8%) | $367,878 (17.5%) | $341,099 (17.9%) | | Technology | $112,218 (16.5%) | $124,903 (18.4%) | $359,475 (17.1%) | $323,504 (17.0%) | | Consumer Goods | $88,631 (13.0%) | $97,210 (14.3%) | $283,859 (13.5%) | $271,233 (14.2%) | | Education/Non–Profit/General | $37,648 (5.5%) | $29,313 (4.3%) | $99,761 (4.7%) | $99,656 (5.3%) | | Total Fee Revenue | $680,782 (100.0%) | $680,741 (100.0%) | $2,104,534 (100.0%) | $1,905,579 (100.0%) | - Industrial sector fee revenue increased by **10.1%** for the three months and **20.3%** for the nine months ended January 31, 2023, becoming the largest contributor[92](index=92&type=chunk) [8. Credit Losses](index=23&type=section&id=8.%20Credit%20Losses) Outlines Korn Ferry's methodology for estimating credit losses on trade receivables and details unrealized losses on available-for-sale debt securities Allowance for Credit Losses (in thousands) | Allowance for Credit Losses (in thousands) | Amount | | :--------------------------------------- | :----- | | Balance at April 30, 2022 | $36,384 | | Provision for credit losses | $16,725 | | Write-offs | $(10,116) | | Recoveries | $598 | | Foreign currency translation | $15 | | Balance at January 31, 2023 | $43,606 | - The allowance for credit losses on trade receivables increased by **$7.222 million** from April 30, 2022, to January 31, 2023[94](index=94&type=chunk) - Unrealized losses on available-for-sale debt securities were primarily due to fluctuations in market interest rates, with the company not intending to sell these investments before maturity[94](index=94&type=chunk) [9. Income Taxes](index=24&type=section&id=9.%20Income%20Taxes) Provides income tax provision and effective tax rates for the reported periods, explaining factors influencing rate variability Income Tax Provision | Income Tax Provision | Three Months Ended Jan 31, 2023 | Three Months Ended Jan 31, 2022 | Nine Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2022 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Tax Expense (in millions) | $8.5 | $26.9 | $63.6 | $77.0 | | Effective Tax Rate | 41.8% | 24.0% | 27.8% | 24.4% | - The effective tax rate for the three months ended January 31, 2023, was significantly higher (**41.8% vs. 24.0%**) due to common permanent tax adjustments applied to lower earnings resulting from restructuring charges and tax expense for non-creditable withholding taxes[95](index=95&type=chunk) [10. Segments](index=24&type=section&id=10.%20Segments) Details Korn Ferry's revised eight-segment reporting structure, providing financial highlights like fee revenue and Adjusted EBITDA for each segment - Effective May 1, 2022, the RPO & Professional Search segment was separated into Professional Search & Interim and RPO, resulting in eight reportable segments[96](index=96&type=chunk)[98](index=98&type=chunk) - Adjusted EBITDA excludes restructuring charges, integration/acquisition costs, certain separation costs, and non-cash impairment charges[99](index=99&type=chunk) Segment Fee Revenue (in thousands) | Segment Fee Revenue (in thousands) | Three Months Ended Jan 31, 2023 | Three Months Ended Jan 31, 2022 | Nine Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2022 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Consulting | $162,155 | $162,889 | $501,731 | $476,260 | | Digital | $85,071 | $90,194 | $263,161 | $259,504 | | Executive Search (Total) | $212,045 | $238,999 | $663,193 | $691,362 | | Professional Search & Interim | $117,980 | $90,015 | $351,670 | $196,411 | | RPO | $103,531 | $98,644 | $324,779 | $282,042 | | Consolidated Total Fee Revenue | $680,782 | $680,741 | $2,104,534 | $1,905,579 | Segment Adjusted EBITDA (in thousands) | Segment Adjusted EBITDA (in thousands) | Three Months Ended Jan 31, 2023 | Three Months Ended Jan 31, 2022 | Nine Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2022 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Consulting | $23,305 | $28,556 | $83,944 | $85,458 | | Digital | $22,153 | $28,142 | $73,855 | $82,330 | | Executive Search (Total) | $46,427 | $65,717 | $163,150 | $193,443 | | Professional Search & Interim | $21,969 | $31,344 | $83,587 | $72,608 | | RPO | $9,849 | $12,765 | $43,562 | $41,726 | | Corporate | $(27,592) | $(28,193) | $(88,676) | $(81,022) | | Consolidated Adjusted EBITDA | $96,111 | $138,331 | $359,422 | $394,543 | [11. Long-Term Debt](index=27&type=section&id=11.%20Long-Term%20Debt) Details Korn Ferry's long-term debt, including Senior Unsecured Notes and the Amended Credit Agreement, outlining terms, covenants, and available capacity - The company has **$400 million** in 4.625% Senior Unsecured Notes due 2027, with a fair value of **$377.0 million** as of January 31, 2023[105](index=105&type=chunk)[247](index=247&type=chunk) - The Amended Credit Agreement provides for **$1,150.0 million** in senior secured credit facilities, including a **$650.0 million** revolving credit facility and a **$500.0 million** delayed draw term loan facility, maturing June 24, 2027[107](index=107&type=chunk)[248](index=248&type=chunk) - As of January 31, 2023, there was no outstanding liability under the Credit Facilities, and the company was in compliance with its debt covenants[111](index=111&type=chunk) - The company had **$1,145.3 million** available under the Credit Facilities as of January 31, 2023[112](index=112&type=chunk)[248](index=248&type=chunk) [12. Leases](index=29&type=section&id=12.%20Leases) Provides information on Korn Ferry's operating and finance leases, including terms, rates, and expense components, detailing real estate impairment charges - The company recorded an impairment charge of ROU assets of **$5.5 million** for both the three and nine months ended January 31, 2023, due to real estate footprint reduction[116](index=116&type=chunk) Lease Expense (in thousands) | Lease Expense (in thousands) | Three Months Ended Jan 31, 2023 | Three Months Ended Jan 31, 2022 | Nine Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2022 | | :--------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Finance lease cost | $413 | $267 | $1,245 | $849 | | Operating lease cost | $12,339 | $13,013 | $36,957 | $40,288 | | Lease impairment cost | $5,471 | $0 | $5,471 | $7,392 | | Total lease cost | $20,687 | $16,096 | $49,563 | $56,467 | - Total lease cost increased by **28.5%** for the three months ended January 31, 2023, primarily due to lease impairment costs[116](index=116&type=chunk) Weighted Average Lease Terms | Weighted Average Lease Terms | Jan 31, 2023 | Apr 30, 2022 | | :--------------------------- | :----------- | :----------- | | Operating leases | 4.5 years | 5.1 years | | Finance leases | 3.9 years | 3.3 years | [13. Restructuring Charges, Net](index=31&type=section&id=13.%20Restructuring%20Charges,%20Net) Details Korn Ferry's January 2023 restructuring plan to realign its workforce, outlining $41.2 million in severance and related charges - Korn Ferry initiated a restructuring plan on January 11, 2023, to realign its workforce, aiming to reduce annualized costs by **$45.0 million to $55.0 million**[119](index=119&type=chunk)[135](index=135&type=chunk) - Restructuring charges of **$41.2 million** were recorded for the three and nine months ended January 31, 2023, primarily for severance[119](index=119&type=chunk)[182](index=182&type=chunk) Restructuring Liability (in thousands) | Restructuring Liability (in thousands) | As of Oct 31, 2022 | As of Jan 31, 2023 | | :------------------------------------- | :----------------- | :----------------- | | Restructuring charges, net | $41,162 | $41,162 | | Reductions for cash payments | $(7,634) | $(8,067) | | Reductions for non-cash payments | $(10,827) | $(10,827) | | Balance | $463 | $23,297 | [14. Acquisition](index=32&type=section&id=14.%20Acquisition) Describes Korn Ferry's August 2022 acquisition of Infinity Consulting Solutions (ICS) for $99.3 million, enhancing interim professional placement - Korn Ferry acquired Infinity Consulting Solutions (ICS) on August 1, 2022, for **$99.3 million**, net of cash acquired[121](index=121&type=chunk)[133](index=133&type=chunk)[246](index=246&type=chunk) - ICS specializes in senior-level IT interim professional solutions and is integrated into the Professional Search & Interim segment[122](index=122&type=chunk)[134](index=134&type=chunk) Net Assets Acquired (in thousands) | Net Assets Acquired (in thousands) | Amount | | :--------------------------------- | :----- | | Current assets | $19,932 | | Long-term assets | $1,496 | | Intangible assets | $16,400 | | Current liabilities | $6,248 | | Long-term liabilities | $566 | | Net assets acquired | $31,014 | | Purchase price | $99,322 | | Goodwill | $68,308 | - The acquisition resulted in **$68.3 million** in goodwill, with **$66.0 million** being tax deductible[123](index=123&type=chunk)[124](index=124&type=chunk) [15. Subsequent Event](index=32&type=section&id=15.%20Subsequent%20Event) Discloses a subsequent event: the declaration of a quarterly cash dividend of $0.15 per share on March 7, 2023 - On March 7, 2023, the Board of Directors declared a quarterly cash dividend of **$0.15 per share**, payable April 14, 2023[126](index=126&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's overview of Korn Ferry's financial performance, condition, and strategic initiatives for the reported periods [Executive Summary](index=33&type=section&id=Executive%20Summary) Provides management's overview of Korn Ferry's financial performance, condition, and strategic initiatives for the reported periods - Korn Ferry is a global organizational consulting firm that helps clients with strategy, operations, and talent[130](index=130&type=chunk) - The company is pursuing a strategy to focus on clients and intensive collaboration, transforming talent management needs from a mono-line to a multi-faceted consultancy[131](index=131&type=chunk) - The RPO & Professional Search segment was separated into Professional Search & Interim and RPO in fiscal 2023 due to recent acquisitions (Lucas Group, Patina, ICS) and strategic alignment[132](index=132&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) - A restructuring plan initiated on January 11, 2023, aims to realign the workforce, reduce annualized costs by **$45.0 million to $55.0 million**, and resulted in **$41.2 million** in restructuring charges and **$9.9 million** in impairment charges for the three and nine months ended January 31, 2023[135](index=135&type=chunk)[136](index=136&type=chunk) Key Financial Metrics (in millions) | Metric (in millions) | Three Months Ended Jan 31, 2023 | Three Months Ended Jan 31, 2022 | Change (YoY) | | :------------------- | :------------------------------ | :------------------------------ | :----------- | | Fee revenue | $680.8 | $680.7 | +$0.1 | | Net income attributable to Korn Ferry | $11.2 | $84.1 | -$72.9 | | Adjusted EBITDA | $96.1 | $138.3 | -$42.2 | - Fee revenue was essentially flat YoY for the three months ended January 31, 2023, but net income attributable to Korn Ferry decreased by **$72.9 million**, primarily due to restructuring and impairment charges, and increased compensation and cost of services[139](index=139&type=chunk)[183](index=183&type=chunk) - Adjusted EBITDA decreased by **$42.2 million (31%)** for the three months ended January 31, 2023, driven by increased cost of services, compensation, and general & administrative expenses, and a shift towards less profitable services[139](index=139&type=chunk)[184](index=184&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Analyzes Korn Ferry's revenue, expenses, and profitability trends for the three and nine months ended January 31, 2023, compared to prior periods [Three Months Ended January 31, 2023 Compared to Three Months Ended January 31, 2022](index=39&type=section&id=Three%20Months%20Ended%20January%2031,%202023%20Compared%20to%20Three%20Months%20Ended%20January%2031,%202022) Analyzes Korn Ferry's financial results for the three months ended January 31, 2023, highlighting flat fee revenue, decreased net income, and lower Adjusted EBITDA Financial Performance (in thousands) | Metric (in thousands) | Jan 31, 2023 | Jan 31, 2022 | Change (YoY) | % Change (YoY) | | :-------------------- | :----------- | :----------- | :----------- | :------------- | | Fee Revenue | $680,782 | $680,741 | $41 | 0.0% | | Compensation and Benefits | $479,382 | $445,870 | $33,512 | 7.5% | | General and Administrative Expenses | $72,785 | $60,811 | $11,974 | 19.7% | | Cost of Services | $57,903 | $31,666 | $26,237 | 82.9% | | Restructuring Charges, net | $41,162 | $0 | $41,162 | N/A | | Operating Income | $12,513 | $126,290 | $(113,777) | -90.1% | | Net Income Attributable to Korn Ferry | $11,247 | $84,101 | $(72,854) | -86.6% | | Adjusted EBITDA | $96,111 | $138,331 | $(42,220) | -30.5% | - Executive Search fee revenue decreased by **$26.954 million (11.3%) YoY**, primarily in North America and Asia Pacific, due to a decline in engagements and weighted-average fees[149](index=149&type=chunk)[152](index=152&type=chunk)[154](index=154&type=chunk) - Professional Search & Interim fee revenue increased by **$28.0 million (31.1%) YoY**, largely due to the acquisition of ICS[149](index=149&type=chunk)[156](index=156&type=chunk) - Compensation and benefits expense increased by **$33.5 million (7.5%) YoY**, driven by higher salaries, payroll taxes, and employee insurance due to increased headcount (**19%**) and wage inflation, partially offset by lower performance-related bonuses[158](index=158&type=chunk) - Cost of services expense increased by **$26.2 million (82.9%) YoY**, mainly attributable to the acquisitions in Professional Search & Interim, which has a higher cost of service[180](index=180&type=chunk) - Other income, net, improved significantly to **$13.1 million** from a loss of **$7.3 million YoY**, primarily due to gains from marketable securities held in trust for deferred compensation plans[193](index=193&type=chunk) [Nine Months Ended January 31, 2023 Compared to Nine Months Ended January 31, 2022](index=45&type=section&id=Nine%20Months%20Ended%20January%2031,%202023%20Compared%20to%20Nine%20Months%20Ended%20January%2031,%202022) Analyzes Korn Ferry's financial results for the nine months ended January 31, 2023, noting increased fee revenue but decreased net income and Adjusted EBITDA Financial Performance (in thousands) | Metric (in thousands) | Jan 31, 2023 | Jan 31, 2022 | Change (YoY) | % Change (YoY) | | :-------------------- | :----------- | :----------- | :----------- | :------------- | | Fee Revenue | $2,104,534 | $1,905,579 | $198,955 | 10.4% | | Compensation and Benefits | $1,409,774 | $1,273,746 | $136,028 | 10.7% | | General and Administrative Expenses | $202,328 | $175,143 | $27,185 | 15.5% | | Cost of Services | $157,152 | $77,988 | $79,164 | 101.5% | | Restructuring Charges, net | $41,162 | $0 | $41,162 | N/A | | Operating Income | $243,759 | $331,321 | $(87,562) | -26.4% | | Net Income Attributable to Korn Ferry | $162,035 | $234,696 | $(72,661) | -31.0% | | Adjusted EBITDA | $359,422 | $394,543 | $(35,121) | -8.9% | - Fee revenue increased by **$198.9 million (10.4%) YoY**, with Professional Search & Interim growing by **$155.3 million (79%)** due to acquisitions, and RPO by **$42.8 million (15%)**; Executive Search declined by **$28.169 million (4.1%)**[197](index=197&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk) - Compensation and benefits expense increased by **$136.1 million (10.7%) YoY**, driven by higher salaries, payroll taxes, and employee insurance due to a **23%** increase in average headcount and wage inflation[207](index=207&type=chunk) - Cost of services expense more than doubled, increasing by **$79.2 million (101.5%) YoY**, primarily due to the acquisitions in Professional Search & Interim[228](index=228&type=chunk) - General and administrative expenses increased by **$27.2 million (15.5%) YoY**, mainly due to higher marketing, computer software licenses, legal fees, and impairment of fixed assets[218](index=218&type=chunk) - The effective tax rate for the nine months ended January 31, 2023, was **27.8%**, up from **24.4%** in the prior-year period, influenced by non-creditable withholding taxes[243](index=243&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses Korn Ferry's capital allocation, liquidity sources, and the impact of acquisitions and dividends on cash flows for the reported periods - The company's capital allocation priorities are growth investments, regular quarterly dividends, and opportunistic share repurchases[245](index=245&type=chunk) - On February 1, 2023, Korn Ferry acquired Salo, a Minneapolis-based interim firm, for approximately **$155 million**, net of cash acquired[246](index=246&type=chunk) - Cash, cash equivalents, and marketable securities decreased by **$203.3 million** to **$1,007.8 million** at January 31, 2023, from **$1,211.1 million** at April 30, 2022[140](index=140&type=chunk)[252](index=252&type=chunk) - The decrease in cash was mainly due to annual bonus payments, retention payments, the ICS acquisition, interest payments on notes, capital expenditures, stock repurchases, and dividends[140](index=140&type=chunk) - The company repurchased **$80.5 million** of common stock during the nine months ended January 31, 2023, with **$248.6 million** remaining available under the share repurchase program[250](index=250&type=chunk) - Working capital decreased by **$18.7 million** to **$757.1 million** as of January 31, 2023, compared to **$775.7 million** at April 30, 2022[141](index=141&type=chunk)[254](index=254&type=chunk) - Cash provided by operating activities decreased by **$128.7 million** to **$92.8 million** for the nine months ended January 31, 2023, compared to **$221.5 million** in the prior-year period[255](index=255&type=chunk) - Cash used in investing activities increased by **$28.8 million** to **$165.4 million**, and cash used in financing activities increased by **$67.3 million** to **$130.1 million** for the nine months ended January 31, 2023[256](index=256&type=chunk)[257](index=257&type=chunk) [Off-Balance Sheet Arrangements](index=53&type=section&id=Off-Balance%20Sheet%20Arrangements) Confirms Korn Ferry has no off-balance sheet arrangements or transactions involving unconsolidated special purpose entities - Korn Ferry has no off-balance sheet arrangements and has not entered into any transactions involving unconsolidated, special purpose entities[260](index=260&type=chunk) [Critical Accounting Policies](index=53&type=section&id=Critical%20Accounting%20Policies) Identifies Korn Ferry's key accounting policies requiring significant judgment and estimation, with no material changes reported - Revenue recognition - Performance-related bonuses - Deferred compensation - Carrying values of receivables - Goodwill - Intangible assets - Leases - Recoverability of deferred income taxes[261](index=261&type=chunk) - There have been no material changes in critical accounting policies since the end of fiscal 2022[261](index=261&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Discusses Korn Ferry's exposure to market risks, including foreign currency and interest rate fluctuations, and its risk management strategies - Korn Ferry is exposed to foreign currency exchange fluctuations and interest rate risk due to global operations[262](index=262&type=chunk) - A **10%** increase or decrease in the value of key currencies (USD, GBP, CAD, SGD, EUR, CHF, MXN) could result in a foreign exchange gain or loss of **$11.6 million** as of January 31, 2023[265](index=265&type=chunk) - The company uses foreign currency forward contracts, not designated as hedging instruments, to offset foreign currency exposures[265](index=265&type=chunk) - Interest rate risk is limited to Credit Facilities and borrowings against COLI contracts, with variable rates on COLI borrowings minimized by corresponding adjustments to crediting rates[266](index=266&type=chunk)[267](index=267&type=chunk) [Item 4. Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) Evaluates the effectiveness of Korn Ferry's disclosure controls and internal controls over financial reporting, confirming their effectiveness as of January 31, 2023 - Disclosure controls and procedures were effective as of January 31, 2023[268](index=268&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended January 31, 2023[268](index=268&type=chunk) [PART II. OTHER INFORMATION](index=55&type=section&id=PART%20II.%20OTHER%20INFORMATION) Covers legal proceedings, risk factors, equity security sales, and exhibits for Korn Ferry's interim financial report [Item 1. Legal Proceedings](index=55&type=section&id=Item%201.%20Legal%20Proceedings) Details Korn Ferry's involvement in legal proceedings, confirming no expected material adverse effects on its financial condition - The company is not engaged in any legal proceedings expected to have a material adverse effect on its business[270](index=270&type=chunk) [Item 1A. Risk Factors](index=55&type=section&id=Item%201A.%20Risk%20Factors) States no material changes to the risk factors previously disclosed in Korn Ferry's Annual Report on Form 10-K - No material changes to the risk factors described in the Form 10-K have occurred as of the report date[271](index=271&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=55&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Summarizes Korn Ferry's common stock repurchases and remaining authorization under its share repurchase program Common Stock Repurchases | Period (2022-2023) | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares That May Yet be Purchased Under the Programs | | :----------------- | :------------------------------- | :--------------------------- | :---------------------------------------------------------------------------- | | Nov 1 - Nov 30 | 210,000 | $55.67 | $261.9 million | | Dec 1 - Dec 31 | 153,358 | $52.38 | $254.0 million | | Jan 1 - Jan 31 | 100,566 | $53.08 | $248.6 million | | Total | 463,924 | $54.02 | N/A | - The company repurchased approximately **$25.0 million** of common stock during the third quarter of fiscal 2023[272](index=272&type=chunk) - As of January 31, 2023, **$248.6 million** remained available for common stock repurchases under the program[250](index=250&type=chunk)[272](index=272&type=chunk) - Share repurchases and dividends are permitted as long as there is no default under the Amended Credit Agreement and the consolidated net leverage ratio is not greater than **5.00 to 1.00**[272](index=272&type=chunk) [Item 6. Exhibits](index=56&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed as part of the Form 10-Q, including corporate governance documents and certifications [SIGNATURES](index=57&type=section&id=SIGNATURES) Contains the required certifications and signatures for the submission of Korn Ferry's Form 10-Q

Financial Data and Key Metrics Changes - Adjusted fully diluted earnings per share in the third quarter were $1.01, down $0.58 or 36% year-over-year, excluding an after-tax charge of $42 million related to workforce realignment and real estate impairment [5] - Consolidated new business, excluding RPO, was up 5% year-over-year at constant currency and up approximately 1% at actual rates [12] - Adjusted EBITDA was $96 million with an adjusted EBITDA margin of 14%, in line with guidance [12] Business Line Data and Key Metrics Changes - Fee revenue for Consulting grew to $162 million, flat year-over-year and up approximately 4% at constant currency [14] - Professional Search & Interim business saw new business increase by 30% year-over-year, with total fee revenue of $118 million, up $28 million or 31% [15] - Global fee revenue for Executive Search was $212 million, experiencing a year-over-year decline of 9% at constant currency [16] Market Data and Key Metrics Changes - Recruitment Process Outsourcing (RPO) new business for the third quarter was $44 million, with total revenue under contract at approximately $837 million [7] - Digital business global fee revenue was $85 million, down 6% year-over-year and approximately flat at constant currency [33] - Industrial sector showed a bright spot with a year-over-year increase of about 10%, representing nearly 30% of the company's portfolio [60] Company Strategy and Development Direction - The company is prioritizing investment in larger, faster-growing, less cyclical markets, with recent acquisitions in the Interim space contributing significantly to revenue [2] - The strategy focuses on building synergistic businesses around Executive Search to generate more durable fee revenues [2] - The company aims to transform its digital business into a more sustainable model, moving towards a SaaS approach [24] Management's Comments on Operating Environment and Future Outlook - Management noted that the current economic environment presents both challenges and opportunities, emphasizing the resilience of the company's strategy and brand [2][9] - The company expects fee revenue in the fourth quarter of fiscal '23 to range from $690 million to $710 million, with adjusted EBITDA margin around 14% [17] - Management highlighted the importance of maintaining capacity in consulting and digital businesses despite potential demand fluctuations [42] Other Important Information - The company repurchased approximately $80 million of its stock and paid cash dividends of approximately $25 million through the end of the third quarter [32] - The company is experiencing a shift in its business model, with a significant increase in subscription backlog from $300 million to about $350 million over the past 1.5 years [24] Q&A Session Summary Question: How did new business trends perform in February? - New business trends in February were up about 7% year-over-year, excluding RPO, with RPO achieving close to $45 million in new business [19][20] Question: Can you elaborate on the digital business revenue growth moderation? - The moderation in digital business growth is attributed to short-term and medium- to long-term drivers, including the ramp-up time for a relatively new sales force [39] Question: What is the expected incremental revenue from Salo in the fourth quarter? - The expected incremental revenue from Salo in the fourth quarter is about $30 million [41] Question: How should the company manage productivity thresholds versus maintaining capacity? - The company aims to maintain capacity in consulting and digital businesses, with a focus on managing productivity based on demand fluctuations [42] Question: What are the long-term EBITDA margin targets? - The company anticipates a margin shift of 200 to 300 basis points if the interim business reaches a $1 billion run rate, with a goal of achieving 12% to 15% EBITDA margins over time [44][58]

Korn Ferry (NYSE:KFY) Q2 2023 Earnings Conference Call December 8, 2022 12:00 PM ET Company Participants Gary Burnison - Chief Executive Officer Bob Rozek - Chief Financial Officer Gregg Kvochak - Senior Vice President of Investor Relations Conference Call Participants Mark Marcon - Baird George Tong - Goldman Sachs Tim Mulrooney - William Blair Marc Riddick - Sidoti Tobey Summers - Truist Securities Operator Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry Second Quarter Fiscal ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 2022 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ___________ Commission File Number 001-14505 KORN FERRY (Exact Name of Registrant as Specified in its Charter) (State or Other Jurisdiction of ...

Korn Ferry (NYSE:KFY) Q1 2023 Earnings Conference Call September 7, 2022 12:00 PM ET Company Participants Gary Burnison – Chief Executive Officer Gregg Kvochak – Senior Vice President-Investor Relations Bob Rozek – Chief Financial Officer Conference Call Participants George Tong – Goldman Sachs Tim Mulrooney – William Blair Mark Marcon – Baird Marc Riddick – Sidoti Tobey Sommer – Truist Securities Operator Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry First Quarter Fiscal Ye ...

Part I. Financial Information [Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) The unaudited consolidated financial statements for Q1 FY2023 report fee revenue of $695.9 million and net income of $77.2 million, with a new segment reporting structure Consolidated Statements of Income (Unaudited) | | Three Months Ended July 31, | | | :--- | :--- | :--- | | | **2022** | **2021** | | | (in thousands, except per share data) | | | **Fee revenue** | **$695,903** | **$585,395** | | Total revenue | $703,148 | $588,098 | | Operating income | $111,599 | $101,255 | | **Net income attributable to Korn Ferry** | **$77,247** | **$74,823** | | Diluted earnings per share | $1.45 | $1.37 | | Cash dividends declared per share | $0.15 | $0.12 | Consolidated Balance Sheets (Unaudited) | | **July 31, 2022** | **April 30, 2022** | | :--- | :--- | :--- | | | (in thousands) | | | **Total current assets** | $1,497,292 | $1,759,970 | | **Total assets** | **$3,204,079** | **$3,464,546** | | Total current liabilities | $686,054 | $984,225 | | **Total liabilities** | **$1,632,845** | **$1,914,957** | | **Total stockholders' equity** | **$1,571,234** | **$1,549,589** | - Beginning in fiscal 2023, the company separated its former RPO & Professional Search segment into two new reportable segments: Professional Search & Interim and RPO, aligning with strategic assessment and resource allocation[20](index=20&type=chunk)[95](index=95&type=chunk) [Notes to Consolidated Unaudited Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Unaudited%20Financial%20Statements) Detailed notes explain accounting policies, segment reporting, revenue recognition, and financial instruments, with a 25.0% effective tax rate for the quarter Fee Revenue by Industry (Three Months Ended July 31, 2022) | Industry | Dollars (in thousands) | % of Total | | :--- | :--- | :--- | | Industrial | $195,909 | 28.2% | | Life Sciences/Healthcare | $133,204 | 19.1% | | Technology | $122,652 | 17.6% | | Financial Services | $118,799 | 17.1% | | Consumer Goods | $95,948 | 13.8% | | Education/Non–Profit/General | $29,391 | 4.2% | | **Total Fee Revenue** | **$695,903** | **100.0%** | Segment Financial Highlights (Three Months Ended July 31, 2022) | Segment | Fee Revenue (in thousands) | Adjusted EBITDA (in thousands) | | :--- | :--- | :--- | | Consulting | $166,484 | $29,550 | | Digital | $83,761 | $24,178 | | Executive Search | $232,789 | $62,232 | | Professional Search & Interim | $98,947 | $29,161 | | RPO | $113,922 | $17,709 | | **Consolidated** | **$695,903** | **$132,208** | - On June 24, 2022, the company amended its credit agreement, extending maturity to 2027 and increasing the total facility to **$1.15 billion**, comprising a **$650 million** revolver and a **$500 million** delayed draw term loan facility[103](index=103&type=chunk) - On September 6, 2022, the Board of Directors declared a quarterly cash dividend of **$0.15 per share**[116](index=116&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 FY2023 financial results, highlighting a 19% fee revenue increase to $695.9 million and 9% Adjusted EBITDA growth to $132.2 million, alongside capital allocation Q1 FY2023 vs Q1 FY2022 Performance | Metric | Q1 FY2023 (in millions) | Q1 FY2022 (in millions) | Change (in millions) | % Change | | :--- | :--- | :--- | :--- | :--- | | Fee Revenue | $695.9 | $585.4 | +$110.5 | +19% | | Net Income (attributable to KF) | $77.2 | $74.8 | +$2.4 | +3% | | Adjusted EBITDA | $132.2 | $121.3 | +$10.9 | +9% | | Adjusted EBITDA Margin | 19.0% | 20.7% | -1.7 p.p. | N/A | - The Professional Search & Interim segment's fee revenue grew **91%** YoY to **$98.9 million**, primarily due to the acquisitions of Lucas Group and Patina Solutions Group[144](index=144&type=chunk) - Capital allocation actions during the quarter included increasing the quarterly dividend by **25%** to **$0.15 per share** and repurchasing **$22.4 million** of common stock[191](index=191&type=chunk)[192](index=192&type=chunk) - Subsequent to the quarter's end, on August 1, 2022, the company acquired Infinity Consulting Solutions (ICS) for approximately **$100 million** to be integrated into the Professional Search & Interim segment[187](index=187&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are foreign currency exchange rate fluctuations and interest rate changes, with foreign currency risk managed via forward contracts - The company is exposed to foreign currency risk, primarily from the Pound Sterling, Canadian Dollar, Euro, and other currencies, where a hypothetical **10%** change could result in a foreign exchange gain or loss of **$13.8 million**[208](index=208&type=chunk) - Interest rate risk is mainly associated with the variable-rate Credit Facilities, with no amounts outstanding as of July 31, 2022[209](index=209&type=chunk) [Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of July 31, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of July 31, 2022[212](index=212&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[212](index=212&type=chunk) Part II. Other Information [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - As of the report date, the company is not engaged in any legal proceedings expected to have a material adverse effect on its business[215](index=215&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes have occurred to the risk factors described in the company's Form 10-K[216](index=216&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the quarter, the company repurchased 369,867 shares for $22.4 million, and the Board approved a $300 million increase to the share repurchase program Issuer Purchases of Equity Securities (Quarter Ended July 31, 2022) | Period | Total Shares Purchased (in shares) | Average Price Paid Per Share (in USD) | Shares Purchased (Public Program) (in shares) | | :--- | :--- | :--- | :--- | | May 2022 | 174,120 | $61.61 | 174,120 | | June 2022 | 41,227 | $57.52 | 40,000 | | July 2022 | 519,984 | $59.96 | 155,747 | | **Total** | **735,331** | **$60.21** | **369,867** | - On June 21, 2022, the Board of Directors authorized a **$300 million** increase to the share repurchase program, with **$306.7 million** available for future repurchases as of July 31, 2022[217](index=217&type=chunk)[218](index=218&type=chunk) [Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and Inline XBRL data files

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------------------------|-------|-------|-------|-------|-------|-------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | FY'23 Q1 Earnings Call | | | | | | | | | | | Safe Harbor Statement FORWARD-LOOKING STATEMENTS Statements in this presentation that relate to goals, strategies, future plans and expectation ...

PART I [Item 1. Business](index=3&type=section&id=Item%201%20Business) Korn Ferry is a global organizational consulting firm that has diversified its service offerings to synchronize strategy, operations, and talent for superior client performance - The company partnered with almost **15,000 organizations** in fiscal 2022, with nearly **90% of engagements from repeat clients**, demonstrating strong client loyalty[13](index=13&type=chunk) - Strategic investments include acquisitions (The Lucas Group, Patina Solutions Group) to enhance search portfolios and **$45.6 million** in technology-enabled products and solutions[13](index=13&type=chunk)[19](index=19&type=chunk) Fiscal 2022 Performance Highlights | Metric | Fiscal 2022 | Change vs. FY2021 | | :--- | :--- | :--- | | Fee Revenue | $2,626.7 million | Up 45.1% | | Diluted Earnings Per Share | $5.98 | New high | | Net Income Attributable to Korn Ferry | $326.4 million | Up $211.9 million | | Operating Income | $470.1 million | Up $314.3 million | | Adjusted EBITDA | $538.9 million | Up $252.6 million | [Company Overview](index=3&type=section&id=Company%20Overview) Korn Ferry has transformed into a diverse organizational consulting firm offering end-to-end human capital solutions, achieving record performance in fiscal 2022 - Korn Ferry is a global organizational consulting firm that has diversified its service and solution offerings to align with clients' needs to synchronize strategy, operations, and talent[10](index=10&type=chunk)[11](index=11&type=chunk) - In fiscal 2022, the company partnered with almost **15,000 organizations**, with nearly **90% of engagements from clients served in the previous three fiscal years**, indicating strong client loyalty[13](index=13&type=chunk) - Significant investments were made in strategic acquisitions (The Lucas Group, Patina Solutions Group) and the innovation and development of assets, platforms, and core capabilities, totaling **$133.8 million** for acquisitions and **$45.6 million** for technology-enabled products[13](index=13&type=chunk)[19](index=19&type=chunk) Fiscal 2022 Key Financial Performance | Metric | Value (Fiscal 2022) | Change vs. Fiscal 2021 | | :--- | :--- | :--- | | Fee Revenue | $2,626.7 million | +45.1% | | Diluted Earnings Per Share | $5.98 | New high | | Net Income Attributable to Korn Ferry | $326.4 million | +$211.9 million | | Operating Income | $470.1 million | +$314.3 million | | Adjusted EBITDA | $538.9 million | +$252.6 million | [Our Strategy](index=4&type=section&id=Our%20Strategy) The company's strategy centers on a 'One Korn Ferry' approach, brand leadership, client innovation, talent attraction, and transformational M&A opportunities - The strategy emphasizes a 'One Korn Ferry' go-to-market approach, focusing on Marquee and Regional Accounts (**36% of fee revenue from 2% of clients**) and integration across solutions and geographies[17](index=17&type=chunk)[21](index=21&type=chunk) - Key priorities include leading innovation through relevant market offerings, evolving thought leadership, diversifying into integrated and scalable client engagements, and attracting/retaining top talent[21](index=21&type=chunk) - The company aims to pursue transformational M&A opportunities at the intersection of talent and strategy[21](index=21&type=chunk) [Our Core Capabilities](index=5&type=section&id=Our%20Core%20Capabilities) Korn Ferry provides five core capabilities covering the entire talent journey: Organization Strategy, Assessment, Talent Acquisition, Development, and Total Rewards - Organization Strategy: Mapping talent strategy to business strategy and designing organizational structures[23](index=23&type=chunk) - Assessment and Succession: Identifying talent needs, comparing to existing talent, and closing gaps[23](index=23&type=chunk) - Talent Acquisition: From executive search to RPO, helping organizations attract and retain talent[23](index=23&type=chunk) - Leadership and Professional Development: Developing leaders at all career stages with high-touch and high-tech experiences[23](index=23&type=chunk) - Total Rewards: Designing fair compensation and valuable rewards at an affordable cost[23](index=23&type=chunk) [Our Integrated Solutions](index=5&type=section&id=Our%20Integrated%20Solutions) The company delivers integrated solutions leveraging its core capabilities to address specific client challenges like cost optimization, ESG, and revenue growth - Cost Optimization: Managing cost drivers (organization, people, rewards) to achieve reductions while maintaining performance[23](index=23&type=chunk) - Workforce Transformation: Providing practical solutions for re-shaping workforces for the future[23](index=23&type=chunk) - Accelerating Revenue Growth: Combining technology and methodology to help organizations achieve top-line growth[23](index=23&type=chunk) - ESG: Offering people-focused approaches to manage environmental, social, and governance matters[23](index=23&type=chunk) - DE&I: Building diverse and inclusive organizations for superior performance[23](index=23&type=chunk) - Learning Development (LDO): Creating a culture of learning through platforms like Korn Ferry Advance for scalable coaching[23](index=23&type=chunk) [Our Businesses](index=5&type=section&id=Our%20Businesses) Korn Ferry operates through four main business lines: Consulting, Digital, Executive Search, and RPO & Professional Search, each offering specialized services - The company's structure includes seven reportable segments operating through four lines of business: Consulting, Digital, Executive Search (North America, EMEA, Asia Pacific, Latin America), and RPO & Professional Search[22](index=22&type=chunk) [Consulting](index=5&type=section&id=Consulting) The Consulting segment aligns organizational structure and people to drive growth, achieving a **26.1%** increase in fee revenue to **$650.2 million** in fiscal 2022 - Consulting focuses on aligning organization structure, culture, performance, and people to drive sustainable growth, supported by comprehensive IP and data[22](index=22&type=chunk) - **28% of Consulting's fiscal 2022 fee revenue** was referred from other Korn Ferry lines of business, indicating strong internal synergy[22](index=22&type=chunk) Consulting Segment Fiscal 2022 Highlights | Metric | Value (Fiscal 2022) | | :--- | :--- | | Fee Revenue | $650.2 million | | Growth (YoY) | +26.1% | | % of Total Fee Revenue | 25% | | Adjusted EBITDA | $116.1 million | | Adjusted EBITDA Margin | 17.9% | | Consulting & Execution Staff | 1,841 (increase of 276 YoY) | | Average Bill Rate Increase | $38 per hour (+12% YoY) | [Digital](index=6&type=section&id=Digital) The Digital segment provides scalable tech-enabled solutions and proprietary data, generating **$349.0 million** in fee revenue with a **31.5%** Adjusted EBITDA margin - Digital delivers scalable tech-enabled solutions, providing clients with access to proprietary data and analytics to align organizational structure with business strategy[26](index=26&type=chunk) - **34% of Digital's fiscal 2022 fee revenue** was referred from other Korn Ferry lines of business, primarily Consulting[26](index=26&type=chunk) Digital Segment Fiscal 2022 Highlights | Metric | Value (Fiscal 2022) | | :--- | :--- | | Fee Revenue | $349.0 million | | Growth (YoY) | +21.5% | | % of Total Fee Revenue | 13% | | Subscription & License Fee Revenue | $108.7 million (+21% YoY) | | Adjusted EBITDA | $110.1 million | | Adjusted EBITDA Margin | 31.5% | [Executive Search](index=6&type=section&id=Executive%20Search) Executive Search recruits senior management talent, generating **$935.6 million** in fee revenue, a **47%** increase, and representing **36%** of total fee revenue - Executive Search focuses on recruiting board-level, chief executive, and senior executive talent, utilizing research-based IP, proprietary assessments, and behavioral interviewing[27](index=27&type=chunk) - Most assignments in fiscal 2022 were for the Board & CEO Services group, which focuses exclusively on placing CEOs and board directors globally[28](index=28&type=chunk) Executive Search Segment Fiscal 2022 Highlights | Metric | Value (Fiscal 2022) | | :--- | :--- | | Fee Revenue | $935.6 million | | Growth (YoY) | +47% | | % of Total Fee Revenue | 36% | | Adjusted EBITDA | $257.6 million | | Adjusted EBITDA Margin | 27.5% | | New Engagements Opened | >7,200 | Fiscal 2022 Assignments by Functional Expertise | Functional Expertise | Percentage of Assignments | | :--- | :--- | | Board Level/CEO/CFO/Senior Executive and General Management | 76% | | Finance and Control | 7% | | Information Systems | 6% | | Marketing and Sales | 4% | | Manufacturing/Engineering/Research and Development/Technology | 4% | | Human Resources and Administration | 3% | [RPO and Professional Search](index=7&type=section&id=RPO%20and%20Professional%20Search) This segment delivers enterprise talent acquisition solutions, with fee revenue growing **87%** to **$691.9 million**, boosted by strategic acquisitions - RPO & Professional Search provides enterprise talent acquisition solutions, from single professional searches to global outsource recruiting, leveraging IP-enabled technology[33](index=33&type=chunk) - The segment acquired The Lucas Group and Patina Solutions Group in fiscal 2022, enhancing its professional search and interim placement expertise[19](index=19&type=chunk)[33](index=33&type=chunk) RPO & Professional Search Segment Fiscal 2022 Highlights | Metric | Value (Fiscal 2022) | | :--- | :--- | | Fee Revenue | $691.9 million | | Growth (YoY) | +87% | | % of Total Fee Revenue | 26% | | Adjusted EBITDA | $165.1 million | | Adjusted EBITDA Margin | 23.9% | [Corporate Center & Geographic Markets](index=7&type=section&id=Corporate%20Center%20&%20Geographic%20Markets) The corporate center manages key functions while the company operates globally across four geographic markets with a commitment to diversity and inclusion - The corporate center manages essential functions including finance, legal, technology/IT, human resources, marketing, and the Korn Ferry Institute (research arm)[35](index=35&type=chunk) - Korn Ferry operates in **105 offices across 53 countries**, serving clients in North America, Latin America, EMEA, and APAC[35](index=35&type=chunk)[36](index=36&type=chunk) - The company is committed to diversity and inclusion, with **72% of its U.S. workforce being female or from an underrepresented group** as of April 30, 2022[36](index=36&type=chunk) Employee Headcount by Segment (April 30, 2022) | Segment | Consultants and execution staff | Support staff | Total employees | | :--- | :--- | :--- | :--- | | Executive Search | 587 | 1,174 | 1,761 | | Consulting | 1,841 | 396 | 2,237 | | Digital | 305 | 985 | 1,290 | | RPO & Professional Search | 738 | 4,544 | 5,282 | | Corporate | — | 209 | 209 | | **Total** | **3,471** | **7,308** | **10,779** | [Business Challenges We Solve](index=8&type=section&id=Business%20Challenges%20We%20Solve) Korn Ferry addresses critical organizational challenges, including business transformation, leadership in hybrid work, ESG initiatives, and talent management - Transforming businesses while delivering robust performance[44](index=44&type=chunk) - Solving leadership challenges arising from hybrid and remote working[44](index=44&type=chunk) - Delivering for people, planet, and profit, and assisting with ESG initiatives[44](index=44&type=chunk) - Finding the right talent in a dynamic and dislocated labor market[44](index=44&type=chunk) - Engaging and motivating employees for talent retention and reward[44](index=44&type=chunk) - Supporting the work-scape transition from a place of work to collaboration spaces[44](index=44&type=chunk) - Building work environments that are inclusive and free from bias[44](index=44&type=chunk) [Korn Ferry Intelligence Cloud](index=8&type=section&id=Korn%20Ferry%20Intelligence%20Cloud) The Intelligence Cloud is a digital platform blending proprietary insight, market data, and AI to provide actionable insights across the talent lifecycle - Korn Ferry Intelligence Cloud is a digital platform that integrates proprietary insight, market data, and AI technology to provide actionable insights[40](index=40&type=chunk) - Talent mobility: Benchmarking people and creating career paths for a future-ready workforce[41](index=41&type=chunk) - Talent management: Pinpointing necessary skillsets and mindsets, identifying gaps, and upskilling/reskilling employees[42](index=42&type=chunk) - Talent acquisition & strategy: Using AI to analyze external talent market data for critical roles[43](index=43&type=chunk) - Sales effectiveness: Combining Miller Heiman™ sales methodology with AI-powered technology for improved sales performance[41](index=41&type=chunk) [Our Knowledge in Data](index=8&type=section&id=Our%20Knowledge%20in%20Data) The company leverages vast data assets, including over five billion data points and rewards data for 23 million people, for comprehensive benchmarking - Over **five billion data points** collected[45](index=45&type=chunk) - More than **86 million assessments** taken[45](index=45&type=chunk) - Almost **six million employee engagement survey responses** over the recent three-year period[45](index=45&type=chunk) - Rewards data for over **23 million people**[45](index=45&type=chunk) - Organizational benchmark data on **12,000 entities**[45](index=45&type=chunk) - More than **5,000 individual success profiles** covering over 30,000 job titles[45](index=45&type=chunk) - Management data on more than **150 countries**[45](index=45&type=chunk) [Innovation & Intellectual Property](index=9&type=section&id=Innovation%20&%20Intellectual%20Property) Korn Ferry invests in technology, learning platforms, and data insights to develop leading-edge services and differentiate its market competitiveness - Korn Ferry is committed to developing leading-edge services and leveraging innovation, transforming how clients address talent management needs[46](index=46&type=chunk) - Investments have been made in technology, learning platforms, virtual coaching, data insights, and intellectual property that permeates all solutions[46](index=46&type=chunk) [The Korn Ferry Institute](index=9&type=section&id=The%20Korn%20Ferry%20Institute) The Korn Ferry Institute, its research arm, develops innovative IP and advanced analytics based on robust research, science, and client data management - The Korn Ferry Institute is the company's research and analytics arm, focused on developing robust research, innovative IP, and advanced analytics[47](index=47&type=chunk) - Robust Research and Thought Leadership: Anticipating and innovating trends in leadership and human/organizational performance (e.g, Board and investor ESG research, CEO of the future)[48](index=48&type=chunk) - Science-Based IP: Developing and measuring success requirements in the new economy (e.g, Personal purpose inventory, Success Profiles expansion)[48](index=48&type=chunk) - Client Advanced Analytics and Data Management: Integrating datasets and external data with AI/ML to produce predictive insights and demonstrable client impact (e.g, **190+ advanced analytic client projects in FY2022**)[48](index=48&type=chunk) [Global Delivery Capability](index=9&type=section&id=Global%20Delivery%20Capability) The company's global delivery capability enables it to deploy personnel worldwide in physical and virtual environments to support evolving client needs - Global delivery capability is a key differentiator, allowing support for all business parts and value-added services worldwide[48](index=48&type=chunk) - The company can deploy personnel globally in physical and virtual environments, crucial for rapidly changing business conditions[48](index=48&type=chunk) [Competition](index=10&type=section&id=Competition) The company operates in a fragmented global marketplace but believes its integrated service range provides a unique competitive advantage for growth - Korn Ferry operates in a rapidly changing global marketplace with a diverse range of organizations offering similar services[49](index=49&type=chunk) - The company believes its unique full range of services differentiates it in a highly fragmented and competitive landscape[49](index=49&type=chunk) [Our Market and Approach](index=10&type=section&id=Our%20Market%20and%20Approach) The go-to-market strategy focuses on integrated client relationships, with approximately **70%** of fiscal 2022 revenue from clients using multiple business lines - The go-to-market strategy aims to drive integrated, scalable client relationships and increase cross-line business referrals[50](index=50&type=chunk) - Approximately **70% of fiscal 2022 revenue** came from clients utilizing multiple lines of business, consistent with fiscal 2021[50](index=50&type=chunk) - The Marquee and Regional Accounts program, comprising over **one-third of revenue from 2% of clients**, is a pillar of the growth strategy, fostering long-term client relationships[51](index=51&type=chunk) - The company elevates its brand voice through thought leadership, whitepapers, research, and insights on talent and people topics[52](index=52&type=chunk) [Our People](index=10&type=section&id=Our%20People) Korn Ferry fosters an inclusive culture guided by its core values, investing in employee development, competitive benefits, and well-being - Korn Ferry strives to foster a supportive, respectful culture where diversity drives innovation and connects with customers and communities[53](index=53&type=chunk) - The company's culture is built on values of **Inclusion, Honesty, Knowledge, and Performance**[54](index=54&type=chunk) - In fiscal 2022, **almost 2,000 people were promoted** across the four lines of business and Corporate, reflecting dedication and service[57](index=57&type=chunk) - The company offers competitive, customized benefits globally, focusing on physical, emotional, financial, and social well-being, earning top recognitions for female hires/promotions and LGBTQ+ equality[58](index=58&type=chunk)[61](index=61&type=chunk) [Available Information](index=11&type=section&id=Available%20Information) SEC filings, corporate governance documents, and other investor materials are publicly available on the SEC's website and the company's Investor Relations site - Korn Ferry files annual, quarterly, and current reports, proxy statements, and other documents with the SEC, available at https://www.sec.gov[63](index=63&type=chunk) - These reports, along with corporate governance guidelines, code of business conduct, committee charters, press releases, and earnings presentations, are also available on the company's Investor Relations website at http://ir.kornferry.com[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk) [Item 1A. Risk Factors](index=12&type=section&id=Item%201A%20Risk%20Factors) The company faces risks from health crises, competition, talent retention, operational disruptions, regulatory compliance, and acquisition integration - The company faces risks from health epidemics and pandemics, which can negatively impact client operations, demand for services, and internal operations[68](index=68&type=chunk)[69](index=69&type=chunk)[71](index=71&type=chunk) - Significant competition exists across all service lines from large consulting firms, specialist providers, and technology-enabled platforms, potentially leading to pricing pressures and market share loss[74](index=74&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk) - Failure to attract and retain qualified consultants and executives, or to maintain professional reputation, could adversely affect client relationships, revenue, and business operations[79](index=79&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - The company's substantial indebtedness (**$400.0 million outstanding as of June 24, 2022**) could adversely affect financial condition, limit operational flexibility, and divert cash flow for debt payments[103](index=103&type=chunk)[105](index=105&type=chunk) - Technological advances, cybersecurity vulnerabilities, and evolving data privacy laws (e.g, GDPR) pose risks of market disruption, information disclosure, increased costs, and reputational harm[119](index=119&type=chunk)[125](index=125&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk) [Risks Related to Our Business](index=12&type=section&id=Risks%20Related%20to%20Our%20Business) Business risks include health epidemics, intense competition, talent retention challenges, and the operational and legal complexities of global expansion - Health epidemics and pandemics can cause global economic slowdowns, decrease demand for services, and disrupt operations, with unpredictable full impacts[68](index=68&type=chunk)[69](index=69&type=chunk)[71](index=71&type=chunk) - The company faces **significant competition** across all service lines from larger consulting firms, specialist providers, and technology-enabled platforms, which can lead to pricing pressures and loss of market share[74](index=74&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk) - **Failure to attract and retain qualified and experienced consultants**, or the loss of key executives, could result in client loss, revenue decline, and harm to the business[79](index=79&type=chunk)[81](index=81&type=chunk) - Expansion into new services, clients, and geographic locations places substantial demands on management and systems, increasing operating and legal risks[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk) - The company is subject to numerous and varied government regulations, including data protection and environmental laws, with non-compliance potentially leading to fines, penalties, and adverse publicity[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) [Risks Related to Our Profitability](index=16&type=section&id=Risks%20Related%20to%20Our%20Profitability) Profitability is sensitive to aligning costs with revenue, maintaining consultant utilization, managing fixed-fee projects, and inflationary pressures - Inability to align cost structure with revenue levels, especially during weakening customer demand, may require additional financing or negatively impact profitability[94](index=94&type=chunk) - Profitability is highly dependent on achieving and maintaining **adequate utilization and suitable billing rates** for consultants, which are affected by client engagement, consultant transitions, and economic conditions[95](index=95&type=chunk)[96](index=96&type=chunk)[98](index=98&type=chunk) - Fixed-fee engagements (**22% of 2022 revenues**) carry a risk that underestimated costs or unanticipated delays could reduce profitability[99](index=99&type=chunk) - Inflationary pressures could increase operating costs, particularly labor, which may not be fully offset by price increases, potentially reducing operating margins[100](index=100&type=chunk) [Risks Related to Accounting and Taxation](index=17&type=section&id=Risks%20Related%20to%20Accounting%20and%20Taxation) Financial results are exposed to foreign currency fluctuations and risks related to the utilization of deferred tax assets, which depend on future taxable income - A material portion of revenue and expenses are generated by foreign operations, exposing financial results to **fluctuations in foreign currency exchange rates**[101](index=101&type=chunk) - The company has deferred tax assets whose usability depends on generating sufficient future taxable income in certain jurisdictions; changes in tax rates or legislation could adversely affect their value[102](index=102&type=chunk) [Risks Related to Our Financing/Indebtedness](index=17&type=section&id=Risks%20Related%20to%20Our%20Financing/Indebtedness) Substantial indebtedness of **$400.0 million** could impair financial condition, while variable rate debt and restrictive covenants pose additional risks - As of June 24, 2022, Korn Ferry had approximately **$400.0 million in total indebtedness**, which could impair its ability to obtain additional financing and fund operations[103](index=103&type=chunk)[105](index=105&type=chunk) - The company's variable rate indebtedness (e.g, Revolver) subjects it to **interest rate risk**, potentially increasing debt service obligations and decreasing net income and cash flows[106](index=106&type=chunk)[108](index=108&type=chunk) - **Restrictive covenants** in the Amended Credit Agreement and Notes indenture limit the company's ability to incur additional debt, pay dividends, make investments, and engage in other business activities, potentially hindering growth opportunities[112](index=112&type=chunk)[115](index=115&type=chunk) - A decline in operating results or available cash could lead to difficulties in complying with financial covenants, potentially resulting in an event of default and forced repayment of borrowings[117](index=117&type=chunk) [Risks Related to Technology, Cybersecurity and Intellectual Property](index=19&type=section&id=Risks%20Related%20to%20Technology,%20Cybersecurity%20and%20Intellectual%20Property) The company faces risks from social media, technological disruption, cybersecurity vulnerabilities, and evolving data privacy laws - Social media platforms present risks of brand damage, litigation, and information leakage due to inappropriate or unauthorized use by clients or employees[118](index=118&type=chunk) - Technological advances (automation, AI) may significantly disrupt the labor market, reduce demand for human capital services, and enable competitors to develop superior offerings[119](index=119&type=chunk) - Heavy reliance on information systems, third-party licensed software, and outsourced critical functions makes the business vulnerable to technology loss, failures, and security breaches[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) - **Cybersecurity vulnerabilities and incidents**, along with evolving data security and privacy laws (e.g, GDPR, CCPA), pose risks of improper information disclosure, increased compliance costs, significant penalties, and reputational harm[125](index=125&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) [Risks Related to Acquisitions](index=21&type=section&id=Risks%20Related%20to%20Acquisitions) The growth strategy relies on acquisitions, which carry risks related to integration, retention of key personnel, and potential impairment of goodwill - The company's growth strategy involves strategic acquisitions, but there's no guarantee of identifying or acquiring suitable candidates on satisfactory terms[132](index=132&type=chunk)[134](index=134&type=chunk) - Integrating acquired businesses presents risks including diversion of management attention, inability to retain key personnel, operational inefficiencies, and exposure to legal claims[155](index=155&type=chunk) - Acquisitions result in substantial goodwill and intangible assets (**21% and 3% of total assets**, respectively, as of April 30, 2022), which are subject to impairment and could negatively impact profitability[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk) [Risks Related to Global Operations](index=22&type=section&id=Risks%20Related%20to%20Global%20Operations) As a cyclical company operating in 53 countries, performance is tied to economic conditions and exposed to geopolitical and regulatory risks - Korn Ferry is a cyclical company, and demand for its services is directly affected by global and local economic conditions, making it vulnerable to economic slowdowns and competitive pricing pressure[138](index=138&type=chunk) - Operating in **53 countries**, with **49% of fiscal 2022 fee revenue from outside the U.S.**, exposes the company to risks from social and political instability, legal requirements, and economic conditions in international operations[139](index=139&type=chunk) - Changes in and compliance with applicable laws and regulatory requirements (e.g, Foreign Corrupt Practices Act, U.K. Bribery Act)[140](index=140&type=chunk) - Difficulties in staffing and managing global operations, impacting internal control[144](index=144&type=chunk) - Social, economic, and political instability, including repercussions of geopolitical events[140](index=140&type=chunk) - Differences in cultures, business practices, accounting/reporting, and labor market conditions[140](index=140&type=chunk) [Risks Related to Our Dividend Policy](index=23&type=section&id=Risks%20Related%20to%20Our%20Dividend%20Policy) The dividend policy is discretionary and not guaranteed, subject to financial performance, capital needs, and restrictive debt covenants - The declaration and payment of future dividends are at the discretion of the Board of Directors and depend on earnings, capital requirements, financial conditions, and debt terms[142](index=142&type=chunk) - Both the Amended Credit Agreement and the Notes indenture **restrict the company's ability to pay dividends**, potentially limiting payments unless waivers are obtained or debt is refinanced[143](index=143&type=chunk) - The dividend policy may limit the retention of sufficient cash to finance growth opportunities, meet unanticipated liquidity requirements, or fund operations during a business downturn[144](index=144&type=chunk) [Risks Related to Our Stockholders](index=24&type=section&id=Risks%20Related%20to%20Our%20Stockholders) Anti-takeover provisions could make an acquisition more difficult, and the company is subject to the actions of activist stockholders - **Anti-takeover provisions** in the Certificate of Incorporation, Bylaws, and Delaware law make acquisitions more difficult and expensive, potentially discouraging attempts where stockholders could receive a premium[146](index=146&type=chunk)[147](index=147&type=chunk) - The company is subject to **activist stockholders**, whose campaigns can be costly, disrupt operations, divert management attention, and create uncertainties that harm stock price and business opportunities[158](index=158&type=chunk)[159](index=159&type=chunk) [General Risk Factors](index=24&type=section&id=General%20Risk%20Factors) General risks include retaining key personnel, changes in accounting estimates, unfavorable tax laws, and limited protection of intellectual property - Future success depends on retaining executive officers and key personnel; competition for qualified personnel is intense, and loss of these individuals could adversely affect business management[148](index=148&type=chunk) - Changes in accounting estimates and assumptions (e.g, revenue recognition, goodwill) and evolving financial/nonfinancial reporting standards (e.g, ESG) could negatively affect financial position and results[149](index=149&type=chunk)[150](index=150&type=chunk) - Unfavorable tax laws, changes, or rulings in the U.S. and foreign jurisdictions may adversely affect results, with potential for significant changes in corporate taxation[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) - Limited protection of intellectual property (IP) could harm the business, and there's a risk that the company's services or products may infringe upon the IP rights of others[154](index=154&type=chunk) [Item 1B. Unresolved Staff Comments](index=26&type=section&id=Item%201B%20Unresolved%20Staff%20Comments) This section states that there are no unresolved staff comments from the SEC [Item 2. Properties](index=26&type=section&id=Item%202%20Properties) The company leases 105 offices globally totaling approximately 1.2 million square feet and believes its current facilities are adequate for future growth - Korn Ferry's corporate office is in Los Angeles, California[160](index=160&type=chunk) - The company leases **104 offices globally** (North America, EMEA, Asia Pacific, Latin America), totaling approximately **1.2 million square feet**, with lease terms generally ranging from 1 to 10 years[160](index=160&type=chunk) - Management believes current facilities are adequate and can accommodate future growth[160](index=160&type=chunk) [Item 3. Legal Proceedings](index=26&type=section&id=Item%203%20Legal%20Proceedings) The company is involved in various litigation matters incidental to its business but expects no material adverse effect from current proceedings - Korn Ferry is involved in litigation incidental to its business from time to time[161](index=161&type=chunk) - As of the report date, no legal proceedings are expected to have a material adverse effect on the company's business, financial condition, or results of operations[161](index=161&type=chunk) [Item 4. Mine Safety Disclosures](index=26&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to Korn Ferry [Executive Officers](index=26&type=section&id=Executive%20Officers) The executive team includes key leaders for the company's main business lines, all serving at the discretion of the Board of Directors Korn Ferry Executive Officers (as of April 30, 2022) | Name | Age | Position | | :--- | :--- | :--- | | Gary D. Burnison | 61 | President and Chief Executive Officer | | Robert P. Rozek | 61 | Executive Vice President, Chief Financial Officer and Chief Corporate Officer | | Mark Arian | 61 | Chief Executive Officer, Consulting | | Byrne Mulrooney | 61 | Chief Executive Officer, RPO Professional Search & Digital | | Michael Distefano | 52 | Chief Executive Officer, Professional Search | - Executive officers serve at the discretion of the Board of Directors, and there are no family relationships between any executive officer or director[163](index=163&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=28&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company maintains a balanced capital allocation approach, returning capital to stockholders via dividends and opportunistic share repurchases - Korn Ferry's common stock is listed on the New York Stock Exchange under the symbol **KFY**, with approximately **46,937 stockholders** of record as of June 21, 2022[172](index=172&type=chunk) - The company's capital allocation approach prioritizes growth investments (hiring, IP development, M&A), followed by returning excess capital to stockholders through regular quarterly dividends and opportunistic share repurchases[178](index=178&type=chunk) - On June 21, 2022, the Board of Directors approved a **25% increase in quarterly dividends to $0.15 per share**[179](index=179&type=chunk) - The company repurchased approximately **$98.8 million of common stock** in fiscal 2022 and approved an increase of **$300 million** to its stock repurchase program on June 21, 2022, bringing available capacity to **$318 million**[19](index=19&type=chunk)[181](index=181&type=chunk) Issuer Purchases of Equity Securities (Q4 Fiscal 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | February 1, 2022 — February 28, 2022 | 240,000 | $66.68 | | March 1, 2022 — March 31, 2022 | 453,182 | $64.10 | | April 1, 2022 — April 30, 2022 | 346,698 | $64.82 | | **Total** | **1,039,880** | **$64.94** | [Item 6. Reserved](index=29&type=section&id=Item%206.%20Reserved) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses record fiscal 2022 performance, driven by revenue growth across all business lines and strategic acquisitions - Korn Ferry achieved record performance in fiscal 2022, with fee revenue increasing by **45.1% to $2,626.7 million**, and Net Income Attributable to Korn Ferry rising to **$326.4 million**[197](index=197&type=chunk) - Growth was driven by increased relevance of the company's solutions and strategic acquisitions, particularly The Lucas Group and Patina Solutions Group, which enhanced the RPO & Professional Search segment[191](index=191&type=chunk)[192](index=192&type=chunk)[197](index=197&type=chunk) - The company's capital allocation strategy prioritizes growth investments, regular quarterly dividends, and opportunistic share repurchases, supported by strong cash flows from operations[178](index=178&type=chunk)[198](index=198&type=chunk)[265](index=265&type=chunk) Consolidated Financial Highlights (Fiscal 2022 vs. 2021) | Metric | Fiscal 2022 | Fiscal 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Fee Revenue | $2,626.7M | $1,810.0M | +45.1% | | Net Income Attributable to Korn Ferry | $326.4M | $114.5M | +$211.9M | | Adjusted EBITDA | $538.9M | $286.3M | +$252.6M | | Cash, Cash Equivalents & Marketable Securities | $1,211.1M | $1,097.1M | +$114.0M | | Working Capital | $775.7M | $737.1M | +$38.6M | [Forward-Looking Statements](index=30&type=section&id=Forward-Looking%20Statements) This section identifies forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are identified by phrases like 'believe,' 'expect,' 'anticipate,' and describe objectives, plans, or goals[185](index=185&type=chunk) - These statements are subject to risks and uncertainties, including global economic developments, competition, talent dependence, inflationary pressures, and cybersecurity, as detailed in Item 1A[185](index=185&type=chunk) [Executive Summary](index=30&type=section&id=Executive%20Summary) The company achieved record results in fiscal 2022, driven by its strategy to synchronize client strategy, operations, and talent across all business lines - Korn Ferry is a global organizational consulting firm focused on synchronizing client strategy, operations, and talent to drive superior business performance[187](index=187&type=chunk) - The company's strategy involves focusing on clients and intensive collaboration across its four lines of business: Consulting, Digital, Executive Search, and RPO & Professional Search[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk)[194](index=194&type=chunk) - In fiscal 2022, Korn Ferry acquired The Lucas Group (**$90.9 million**) and Patina Solutions Group (**$42.9 million**) to enhance its professional search and interim executive solutions expertise, integrating them into the RPO & Professional Search segment[191](index=191&type=chunk)[192](index=192&type=chunk) Fiscal 2022 Key Financial Performance | Metric | Fiscal 2022 | Fiscal 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Fee Revenue | $2,626.7M | $1,810.0M | +45.1% | | Net Income Attributable to Korn Ferry | $326.4M | $114.5M | +$211.9M | | Adjusted EBITDA | $538.9M | $286.3M | +$252.6M | [Critical Accounting Policies](index=32&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve significant management judgment, particularly in revenue recognition, bonuses, deferred compensation, and asset valuations - Critical accounting policies require significant management judgment and estimates, affecting reported assets, liabilities, revenue, and expenses[200](index=200&type=chunk) - Revenue Recognition: Recognized when control of goods/services is transferred, with estimates for consulting hours, digital subscriptions, executive search 'uptick' fees, and RPO phases[202](index=202&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk) - Annual Performance-Related Bonuses: Estimated quarterly based on consultant productivity, company profitability, and economic conditions[207](index=207&type=chunk) - Deferred Compensation: Requires assumptions on payment timing, probability, and discount rates[208](index=208&type=chunk) - Carrying Values: Valuations for receivables, goodwill, intangible assets, share-based payments, leases, and deferred income taxes, with goodwill impairment tested annually[209](index=209&type=chunk)[211](index=211&type=chunk)[212](index=212&type=chunk)[213](index=213&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Fiscal 2022 saw strong performance with total fee revenue increasing **45.1%** to **$2,626.7 million**, driving significant growth in net income and Adjusted EBITDA Consolidated Results of Operations (Fiscal 2022 vs. 2021 vs. 2020) | Metric | FY2022 (in thousands) | FY2021 (in thousands) | FY2020 (in thousands) | | :--- | :--- | :--- | :--- | | Fee revenue | $2,626,718 | $1,810,047 | $1,932,732 | | Total revenue | $2,643,455 | $1,819,946 | $1,977,330 | | Compensation and benefits | $1,741,452 | $1,297,880 | $1,297,994 | | General and administrative expenses | $237,272 | $191,776 | $258,957 | | Operating income | $470,074 | $155,784 | $176,025 | | Net income attributable to Korn Ferry | $326,360 | $114,454 | $104,946 | | Diluted Earnings Per Share | $5.98 | $2.09 | $1.90 | | Adjusted EBITDA | $538,928 | $286,292 | $300,951 | [Fiscal 2022 Compared to Fiscal 2021](index=37&type=section&id=Fiscal%202022%20Compared%20to%20Fiscal%202021) Fiscal 2022 showed substantial growth, with fee revenue up **45.1%**, net income more than doubling, and Adjusted EBITDA increasing **88.2%** versus fiscal 2021 Fee Revenue by Line of Business (Fiscal 2022 vs. 2021) | Line of Business | FY2022 (in thousands) | FY2021 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | Consulting | $650,204 | $515,844 | +26% | | Digital | $349,025 | $287,306 | +21% | | Executive Search | $935,561 | $637,035 | +47% | | RPO & Professional Search | $691,928 | $369,862 | +87% | | **Total Fee Revenue** | **$2,626,718** | **$1,810,047** | **+45.1%** | Adjusted EBITDA by Line of Business (Fiscal 2022 vs. 2021) | Line of Business | FY2022 (in thousands) | FY2021 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | Consulting | $116,108 | $81,522 | +42% | | Digital | $110,050 | $86,095 | +28% | | Executive Search | $257,613 | $127,806 | +101.6% | | RPO & Professional Search | $165,141 | $69,411 | +138% | | Corporate (Net) | $(109,984) | $(78,542) | -40.0% | | **Consolidated Adjusted EBITDA** | **$538,928** | **$286,292** | **+88.2%** | - Compensation and benefits expense increased by **$443.6 million (+34%)** to **$1,741.5 million**, primarily due to higher salaries, performance-related bonuses, and increased headcount, but decreased as a percentage of fee revenue from **72% to 66%**[227](index=227&type=chunk) - General and administrative expenses increased by **$45.5 million (+24%)** to **$237.3 million**, driven by higher marketing, premise expenses, bad debt, and acquisition-related costs, but decreased as a percentage of fee revenue from **11% to 9%**[237](index=237&type=chunk) - Net income attributable to Korn Ferry increased by **$211.9 million to $326.4 million**, with the effective tax rate decreasing from **29%** in fiscal 2021 to **24%** in fiscal 2022 due to tax credits and stock-based award windfalls[250](index=250&type=chunk)[262](index=262&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a balanced capital allocation strategy, with sufficient liquidity from operations and its credit facility to meet anticipated needs - Korn Ferry's capital allocation prioritizes growth investments (consultant hiring, IP development, M&A), quarterly dividends, and opportunistic share repurchases[265](index=265&type=chunk) - In fiscal 2022, the company completed acquisitions of Patina Solutions Group (**$42.9 million**) and The Lucas Group (**$90.9 million**), totaling **$133.8 million**, to enhance its talent solutions[266](index=266&type=chunk)[267](index=267&type=chunk)[279](index=279&type=chunk) - Cash and cash equivalents and marketable securities increased by **$114.0 million to $1,211.1 million** at April 30, 2022[198](index=198&type=chunk)[275](index=275&type=chunk) - The company believes its cash on hand, funds from operations, and the Amended Credit Agreement (including a **$650.0 million revolving credit facility**) will be sufficient to meet anticipated working capital, capital expenditures, debt obligations, and dividend payments for the next 12 months[199](index=199&type=chunk)[270](index=270&type=chunk)[274](index=274&type=chunk) Cash Flow Activities (Fiscal 2022 vs. 2021) | Activity | FY2022 (in thousands) | FY2021 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $501,658 | $251,433 | | Cash used in investing activities | $(184,332) | $(61,379) | | Cash used in financing activities | $(137,444) | $(66,886) | [Off-Balance Sheet Arrangements](index=44&type=section&id=Off-Balance%20Sheet%20Arrangements) Korn Ferry has no off-balance sheet arrangements or transactions involving unconsolidated, special purpose entities - Korn Ferry has no off-balance sheet arrangements[281](index=281&type=chunk) - The company has not entered into any transactions involving unconsolidated, special purpose entities[281](index=281&type=chunk) [Contractual Obligations](index=44&type=section&id=Contractual%20Obligations) Total contractual obligations amount to **$774.1 million**, primarily consisting of operating leases and long-term debt, with **$80.9 million** due within one year Contractual Obligations as of April 30, 2022 (in thousands) | Obligation | Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease commitments | $222,862 | $55,890 | $87,643 | $55,345 | $23,984 | | Finance lease commitments | $2,835 | $1,115 | $1,299 | $421 | $— | | Accrued restructuring charges | $1,502 | $1,001 | $— | $— | $501 | | Interest payments on COLI loans | $35,855 | $4,421 | $8,832 | $8,621 | $13,981 | | Long-term debt | $400,000 | $— | $— | $— | $400,000 | | Estimated interest on long-term debt | $111,000 | $18,500 | $37,000 | $37,000 | $18,500 | | **Total** | **$774,054** | **$80,927** | **$134,774** | **$101,387** | **$456,966** | - The company also has liabilities related to employee benefit plans and contingent commitments under employment agreements payable upon involuntary termination without cause[284](index=284&type=chunk)[285](index=285&type=chunk) [Cash Surrender Value of Company Owned Life Insurance Policies, Net of Loans](index=45&type=section&id=Cash%20Surrender%20Value%20of%20Company%20Owned%20Life%20Insurance%20Policies,%20Net%20of%20Loans) The company holds COLI policies to fund deferred compensation, with a net cash surrender value of **$183.3 million** as of April 30, 2022 - COLI policies are held to fund benefits under deferred compensation and pension plans[286](index=286&type=chunk) COLI Policies Summary (as of April 30) | Metric | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Gross Cash Surrender Value (CSV) | $263.2 | $241.3 | | Total Outstanding Borrowings | $79.8 | $80.0 | | Net Cash Value of Policies | $183.3 | $161.3 | | Total Death Benefits Payable, Net of Loans | $449.3 | $443.9 | [Accounting Developments](index=45&type=section&id=Accounting%20Developments) The company adopted FASB guidance on Reference Rate Reform with no material impact and anticipates no material impact from a future amendment - Adopted FASB guidance on Reference Rate Reform in fiscal year beginning May 1, 2021, with no material impact on consolidated financial statements[288](index=288&type=chunk) - Will adopt FASB amendment on accounting for contract assets and liabilities in business combinations in fiscal year beginning May 1, 2023, with no anticipated material impact[289](index=289&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks primarily from foreign currency exchange rate fluctuations and interest rate changes on its variable rate debt - Korn Ferry is exposed to market risks from foreign currency exchange fluctuations and interest rate changes due to global operations[290](index=290&type=chunk) [Foreign Currency Risk](index=45&type=section&id=Foreign%20Currency%20Risk) Financial results are affected by foreign currency fluctuations, which the company manages through the use of foreign currency forward contracts - Foreign subsidiaries' operations are measured in local currencies, leading to translation adjustments and exposure to foreign currency exchange rate fluctuations[291](index=291&type=chunk) - Primary exposure currencies include U.S. Dollar, Pound Sterling, Euro, Canadian Dollar, Singapore Dollar, Brazilian Real, Mexican Peso, Danish Krone, Swiss Franc, Korean Won, and South African Rand[293](index=293&type=chunk) - A **10% increase or decrease** in these currencies could result in a foreign exchange gain or loss of **$13.0 million** as of April 30, 2022[293](index=293&type=chunk) - The company uses foreign currency forward contracts to offset risks from intercompany balances, recording foreign currency losses of **$1.2 million** in general and administrative expenses in fiscal 2022[292](index=292&type=chunk)[293](index=293&type=chunk) [Interest Rate Risk](index=46&type=section&id=Interest%20Rate%20Risk) Interest rate risk is primarily limited to the company's Revolver and COLI borrowings, both of which bear variable interest rates - Interest rate risk is limited to the Revolver and borrowings against COLI contracts[295](index=295&type=chunk) - The Revolver's interest rate is variable, based on Term Secured Overnight Financing Rate (SOFR) or an alternate base rate, plus a margin that fluctuates with the company's consolidated net leverage ratio[295](index=295&type=chunk) - COLI borrowings (**$79.8 million outstanding** at April 30, 2022) bear variable interest rates, but the risk is mitigated by corresponding adjustments to the borrowed funds crediting rate[296](index=296&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=46&type=section&id=Item%208%20Financial%20Statements%20and%20Supplementary%20Data) This section refers to the Consolidated Financial Statements, which begin on page F-1 of the Annual Report on Form 10-K - The Consolidated Financial Statements are located starting on page F-1 of this Annual Report on Form 10-K[297](index=297&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=46&type=section&id=Item%209%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item states that there are no changes in or disagreements with accountants on accounting and financial disclosure [Item 9A. Controls and Procedures](index=46&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of April 30, 2022, with no material changes in internal control - As of April 30, 2022, the Chief Executive Officer and Chief Financial Officer concluded that Korn Ferry's disclosure controls and procedures were effective[299](index=299&type=chunk) - There were no changes in internal control over financial reporting during the fourth fiscal quarter that materially affected or are reasonably likely to materially affect internal control over financial reporting[299](index=299&type=chunk) [Item 9B. Other Information](index=46&type=section&id=Item%209B%20Other%20Information) This item states that there is no other information to report [Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections](index=46&type=section&id=Item%209C.%20Disclosures%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to Korn Ferry PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=47&type=section&id=Item%2010%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement and Part I of this report[304](index=304&type=chunk) - Korn Ferry has a 'Code of Business Conduct and Ethics' for all directors, officers, and employees, available on its Investor Relations website[305](index=305&type=chunk) [Item 11. Executive Compensation](index=47&type=section&id=Item%2011%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from Korn Ferry's 2022 Proxy Statement - Information on executive compensation is incorporated by reference from the 2022 Proxy Statement[306](index=306&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=47&type=section&id=Item%2012%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from Korn Ferry's 2022 Proxy Statement - Information on security ownership of certain beneficial owners and management is incorporated by reference from the 2022 Proxy Statement[307](index=307&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=47&type=section&id=Item%2013%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information regarding related transactions and director independence is incorporated by reference from Korn Ferry's 2022 Proxy Statement - Information on certain relationships and related transactions, and director independence, is incorporated by reference from the 2022 Proxy Statement[308](index=308&type=chunk) [Item 14. Principal Accountant Fees and Services](index=47&type=section&id=Item%2014%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from Korn Ferry's 2022 Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the 2022 Proxy Statement[309](index=309&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=48&type=section&id=Item%2015%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits and financial statement schedules filed as part of the Form 10-K - This section includes an index to financial statements and a comprehensive list of exhibits filed as part of the report[313](index=313&type=chunk) - Exhibits include stock purchase agreements, corporate governance documents (Certificate of Incorporation, Bylaws), debt indentures, various compensation plans, and employment agreements[312](index=312&type=chunk)[315](index=315&type=chunk) - All financial statement schedules have been omitted because the required information is included in the financial statements or notes thereto, or is not required[313](index=313&type=chunk) [Item 16. Form 10-K Summary](index=50&type=section&id=Item%2016%20Form%2010-K%20Summary) This item indicates that no Form 10-K Summary is provided [Signatures](index=51&type=section&id=Signatures) This section contains the signatures of authorized officers and directors certifying the report's submission to the SEC - The report is duly signed on behalf of Korn Ferry by authorized officers and directors[319](index=319&type=chunk) - Signatories include the President & Chief Executive Officer (Gary D. Burnison), Executive Vice President, Chief Financial Officer and Chief Corporate Officer (Robert P. Rozek), and Chairman of the Board (Christina A. Gold), among others[320](index=320&type=chunk)[323](index=323&type=chunk) [Financial Statements and Financial Statement Schedules](index=52&type=section&id=Financial%20Statements%20and%20Financial%20Statement%20Schedules) This section presents the consolidated financial statements for fiscal years 2020-2022, along with management's and auditors' reports - The section includes Management's Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting, both affirming effectiveness as of April 30, 2022[325](index=325&type=chunk)[329](index=329&type=chunk)[331](index=331&type=chunk) - Ernst & Young LLP issued an **unqualified opinion** on the consolidated financial statements for the three years ended April 30, 2022[339](index=339&type=chunk) - **Revenue recognition** is highlighted as a Critical Audit Matter due to the volume of transactions and management estimates for search engagements and consulting contracts[344](index=344&type=chunk)[345](index=345&type=chunk) [Management's Report on Internal Control over Financial Reporting](index=53&type=section&id=Management's%20Report%20on%20Internal%20Control%20over%20Financial%20Reporting) Management concluded that the company's internal control over financial reporting was effective as of April 30, 2022, with no material weaknesses - Management is responsible for establishing and maintaining adequate internal control over financial reporting[325](index=325&type=chunk) - As of April 30, 2022, management concluded that the company's internal control over financial reporting was **effective**, based on criteria from the COSO Integrated Framework (2013)[328](index=328&type=chunk)[329](index=329&type=chunk) - **No material weaknesses** were identified in the company's internal control over financial reporting[329](index=329&type=chunk) [Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting](index=54&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20on%20Internal%20Control%20over%20Financial%20Reporting) Ernst & Young LLP issued an unqualified opinion, concluding that the company maintained effective internal control over financial reporting - Ernst & Young LLP audited Korn Ferry's internal control over financial reporting as of April 30, 2022[331](index=331&type=chunk) - The audit concluded that Korn Ferry maintained, in all material respects, **effective internal control over financial reporting** based on the COSO criteria[331](index=331&type=chunk) - The report also noted an **unqualified opinion** on the consolidated financial statements for the three years ended April 30, 2022[332](index=332&type=chunk) [Report of Independent Registered Public Accounting Firm](index=55&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued an unqualified opinion on the financial statements and identified revenue recognition as a critical audit matter - Ernst & Young LLP issued an **unqualified opinion** on Korn Ferry's consolidated financial statements for the three years ended April 30, 2022[339](index=339&type=chunk) - **Revenue recognition** was identified as a critical audit matter due to the volume of transactions across various revenue streams and the complexity of management estimates for 'uptick' fees in Search and total hours at completion in Consulting contracts[344](index=344&type=chunk)[345](index=345&type=chunk) - Audit procedures included testing controls over contractual terms, performance obligation identification, and the accuracy/completeness of underlying data for management estimates[347](index=347&type=chunk)[348](index=348&type=chunk) [Consolidated Balance Sheets](index=57&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$3,464.5 million** in 2022, driven by increases in cash, receivables, and goodwill, with total stockholders' equity growing to **$1,549.6 million** Consolidated Balance Sheet Summary (as of April 30, in thousands) | Item | 2022 | 2021 | | :--- | :--- | :--- | | **ASSETS** | | | | Cash and cash equivalents | $978,070 | $850,778 | | Receivables due from clients, net | $590,260 | $448,733 | | Total current assets | $1,759,970 | $1,487,132 | | Goodwill | $725,592 | $626,669 | | Total assets | $3,464,546 | $3,056,526 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Compensation and benefits payable | $547,826 | $394,606 | | Total current liabilities | $984,225 | $750,070 | | Long-term debt | $395,477 | $394,794 | | Total liabilities | $1,914,957 | $1,687,751 | | Total stockholders' equity | $1,549,589 | $1,368,775 | [Consolidated Statements of Income](index=58&type=section&id=Consolidated%20Statements%20of%20Income) In fiscal 2022, fee revenue increased to **$2,626.7 million**, leading to a rise in operating income to **$470.1 million** and diluted EPS of **$5.98** Consolidated Statements of Income Summary (Year Ended April 30, in thousands, except per share data) | Item | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Fee revenue | $2,626,718 | $1,810,047 | $1,932,732 | | Total revenue | $2,643,455 | $1,819,946 | $1,977,330 | | Compensation and benefits | $1,741,452 | $1,297,880 | $1,297,994 | | General and administrative expenses | $237,272 | $191,776 | $258,957 | | Operating income | $470,074 | $155,784 | $176,025 | | Net income attributable to Korn Ferry | $326,360 | $114,454 | $104,946 | | Diluted Earnings Per Share | $5.98 | $2.09 | $1.90 | | Cash dividends declared per share | $0.48 | $0.40 | $0.40 | [Consolidated Statements of Comprehensive Income](index=59&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income attributable to Korn Ferry was **$286.0 million** in fiscal 2022, reflecting net income adjusted for other comprehensive losses Consolidated Statements of Comprehensive Income Summary (Year Ended April 30, in thousands) | Item | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net income | $330,845 | $115,562 | $107,017 | | Foreign currency translation adjustments | $(59,227) | $50,069 | $(23,764) | | Deferred compensation and pension plan adjustments, net of tax | $19,096 | $5,419 | $(6,716) | | Comprehensive income attributable to Korn Ferry | $285,995 | $169,806 | $74,426 | [Consolidated Statements of Stockholders' Equity](index=60&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity increased to **$1,544.3 million** in 2022, driven by net income, partially offset by dividends and stock repurchases Consolidated Statements of Stockholders' Equity Summary (Year Ended April 30, in thousands) | Item | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Balance at May 1 | $1,366,389 | $1,221,381 | $1,240,656 | | Net income | $326,360 | $114,454 | $104,946 | | Other comprehensive (loss) income | $(40,365) | $55,352 | $(30,520) | | Dividends paid to shareholders | $(26,786) | $(22,498) | $(22,798) | | Purchase of stock | $(117,301) | $(35,376) | $(101,439) | | Stock-based compensation | $28,361 | $26,516 | $21,495 | | Balance at April 30 | $1,544,346 | $1,366,389 | $1,221,381 | [Consolidated Statements of Cash Flows](index=61&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities increased to **$501.7 million** in fiscal 2022, while cash used in investing and financing activities also rose Consolidated Statements of Cash Flows Summary (Year Ended April 30, in thousands) | Item | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $501,658 | $251,433 | $236,349 | | Net cash used in investing activities | $(184,332) | $(61,379) | $(198,762) | | Net cash (used in) provided by financing activities | $(137,444) | $(66,886) | $43,681 | | Net increase in cash and cash equivalents | $127,292 | $161,534 | $62,884 | | Cash and cash equivalents at end of period | $978,070 | $850,778 | $689,244 | [Notes to Consolidated Financial Statements](index=62&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on accounting policies, financial instruments, revenue recognition, segment reporting, and other key financial data [Note 1. Organization and Summary