Korn Ferry(KFY) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents Korn Ferry's unaudited consolidated financial statements and management's discussion and analysis for the reported periods Item 1. Consolidated Financial Statements Presents Korn Ferry's unaudited consolidated financial statements and detailed notes for periods ended January 31, 2023, and April 30, 2022 Consolidated Balance Sheets 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] - 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] Consolidated Statements of Income 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] - 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] Consolidated Statements of Comprehensive Income 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] Consolidated Statements of Stockholders' Equity 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] - The company repurchased 1,454,867 shares of common stock for $80.5 million during the nine months ended January 31, 2023[15][76] Consolidated Statements of Cash Flows 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] - Net cash used in investing activities increased by $28.803 million (21.1%) due to higher cash paid for acquisitions and property/equipment[21][256] - Net cash used in financing activities increased by $67.286 million (107.1%) primarily due to increased stock repurchases and dividend payments[21][257] Notes to Consolidated Unaudited Financial Statements 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 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] - The company has transformed from a mono-line to a diversified business, expanding client engagement opportunities[23] - 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][96] - 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][100] - 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][30][31][32][33] - The company recorded restructuring charges of $41.2 million for the three and nine months ended January 31, 2023, related to workforce realignment[55][119] 2. Basic and Diluted Earnings Per Share 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] 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] 3. Comprehensive Income 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] 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][65] 4. Employee Stock Plans 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] - 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] - 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] - The 2022 Stock Incentive Plan increased available shares by 1,700,000, with 2,248,284 shares remaining for issuance[70] - The ESPP had approximately 1.8 million shares remaining available for future issuance as of January 31, 2023[75] 5. Financial Instruments 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][78] - 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] - 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] 6. Deferred Compensation and Retirement Plans 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] - 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][258] - 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] 7. Fee Revenue 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] 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] 8. Credit Losses 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] - 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] 9. Income Taxes 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] 10. Segments 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][98] - Adjusted EBITDA excludes restructuring charges, integration/acquisition costs, certain separation costs, and non-cash impairment charges[99] 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 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][247] - 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][248] - 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] - The company had $1,145.3 million available under the Credit Facilities as of January 31, 2023[112][248] 12. Leases 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] 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] 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 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][135] - Restructuring charges of $41.2 million were recorded for the three and nine months ended January 31, 2023, primarily for severance[119][182] 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 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][133][246] - ICS specializes in senior-level IT interim professional solutions and is integrated into the Professional Search & Interim segment[122][134] 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][124] 15. Subsequent Event 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's overview of Korn Ferry's financial performance, condition, and strategic initiatives for the reported periods Executive Summary 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] - 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] - 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][133][134] - 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][136] 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][183] - 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][184] Results of Operations 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 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][152][154] - Professional Search & Interim fee revenue increased by $28.0 million (31.1%) YoY, largely due to the acquisition of ICS[149][156] - 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] - 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] - 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] Nine Months Ended January 31, 2023 Compared to Nine Months Ended January 31, 2022 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][205][206] - 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] - 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] - 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] - 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] Liquidity and Capital Resources 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] - On February 1, 2023, Korn Ferry acquired Salo, a Minneapolis-based interim firm, for approximately $155 million, net of cash acquired[246] - 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][252] - 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] - 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] - 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][254] - 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] - 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][257] Off-Balance Sheet Arrangements 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] Critical Accounting Policies 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] - There have been no material changes in critical accounting policies since the end of fiscal 2022[261] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - The company uses foreign currency forward contracts, not designated as hedging instruments, to offset foreign currency exposures[265] - 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][267] Item 4. Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during the three months ended January 31, 2023[268] PART II. OTHER INFORMATION Covers legal proceedings, risk factors, equity security sales, and exhibits for Korn Ferry's interim financial report Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - As of January 31, 2023, $248.6 million remained available for common stock repurchases under the program[250][272] - 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] Item 6. Exhibits Lists all exhibits filed as part of the Form 10-Q, including corporate governance documents and certifications SIGNATURES Contains the required certifications and signatures for the submission of Korn Ferry's Form 10-Q