Korn Ferry(KFY) - 2022 Q4 - Annual Report

PART I Item 1. Business 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] - 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][19] 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 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][11] - 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] - 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][19] 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 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][21] - 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] - The company aims to pursue transformational M&A opportunities at the intersection of talent and strategy[21] Our Core Capabilities 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] - Assessment and Succession: Identifying talent needs, comparing to existing talent, and closing gaps[23] - Talent Acquisition: From executive search to RPO, helping organizations attract and retain talent[23] - Leadership and Professional Development: Developing leaders at all career stages with high-touch and high-tech experiences[23] - Total Rewards: Designing fair compensation and valuable rewards at an affordable cost[23] Our Integrated Solutions 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] - Workforce Transformation: Providing practical solutions for re-shaping workforces for the future[23] - Accelerating Revenue Growth: Combining technology and methodology to help organizations achieve top-line growth[23] - ESG: Offering people-focused approaches to manage environmental, social, and governance matters[23] - DE&I: Building diverse and inclusive organizations for superior performance[23] - Learning Development (LDO): Creating a culture of learning through platforms like Korn Ferry Advance for scalable coaching[23] Our Businesses 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] 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] - 28% of Consulting's fiscal 2022 fee revenue was referred from other Korn Ferry lines of business, indicating strong internal synergy[22] 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 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] - 34% of Digital's fiscal 2022 fee revenue was referred from other Korn Ferry lines of business, primarily Consulting[26] 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 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] - Most assignments in fiscal 2022 were for the Board & CEO Services group, which focuses exclusively on placing CEOs and board directors globally[28] 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 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] - The segment acquired The Lucas Group and Patina Solutions Group in fiscal 2022, enhancing its professional search and interim placement expertise[19][33] 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 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] - Korn Ferry operates in 105 offices across 53 countries, serving clients in North America, Latin America, EMEA, and APAC[35][36] - 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] 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 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] - Solving leadership challenges arising from hybrid and remote working[44] - Delivering for people, planet, and profit, and assisting with ESG initiatives[44] - Finding the right talent in a dynamic and dislocated labor market[44] - Engaging and motivating employees for talent retention and reward[44] - Supporting the work-scape transition from a place of work to collaboration spaces[44] - Building work environments that are inclusive and free from bias[44] Korn Ferry Intelligence Cloud 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] - Talent mobility: Benchmarking people and creating career paths for a future-ready workforce[41] - Talent management: Pinpointing necessary skillsets and mindsets, identifying gaps, and upskilling/reskilling employees[42] - Talent acquisition & strategy: Using AI to analyze external talent market data for critical roles[43] - Sales effectiveness: Combining Miller Heiman™ sales methodology with AI-powered technology for improved sales performance[41] Our Knowledge in Data 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] - More than 86 million assessments taken[45] - Almost six million employee engagement survey responses over the recent three-year period[45] - Rewards data for over 23 million people[45] - Organizational benchmark data on 12,000 entities[45] - More than 5,000 individual success profiles covering over 30,000 job titles[45] - Management data on more than 150 countries[45] Innovation & Intellectual Property 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] - Investments have been made in technology, learning platforms, virtual coaching, data insights, and intellectual property that permeates all solutions[46] The Korn Ferry Institute 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] - 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] - Science-Based IP: Developing and measuring success requirements in the new economy (e.g, Personal purpose inventory, Success Profiles expansion)[48] - 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] Global Delivery Capability 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] - The company can deploy personnel globally in physical and virtual environments, crucial for rapidly changing business conditions[48] 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] - The company believes its unique full range of services differentiates it in a highly fragmented and competitive landscape[49] Our Market and Approach 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] - Approximately 70% of fiscal 2022 revenue came from clients utilizing multiple lines of business, consistent with fiscal 2021[50] - 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] - The company elevates its brand voice through thought leadership, whitepapers, research, and insights on talent and people topics[52] Our People 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] - The company's culture is built on values of Inclusion, Honesty, Knowledge, and Performance[54] - In fiscal 2022, almost 2,000 people were promoted across the four lines of business and Corporate, reflecting dedication and service[57] - 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][61] Available Information 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][66] Item 1A. Risk Factors 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][69][71] - 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][75][76][77] - Failure to attract and retain qualified consultants and executives, or to maintain professional reputation, could adversely affect client relationships, revenue, and business operations[79][81][82] - 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][105] - 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][125][128][129] Risks Related to Our Business 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][69][71] - 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][75][76][77] - 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][81] - Expansion into new services, clients, and geographic locations places substantial demands on management and systems, increasing operating and legal risks[83][84][85][86] - 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][92][93] Risks Related to Our Profitability 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] - 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][96][98] - Fixed-fee engagements (22% of 2022 revenues) carry a risk that underestimated costs or unanticipated delays could reduce profitability[99] - Inflationary pressures could increase operating costs, particularly labor, which may not be fully offset by price increases, potentially reducing operating margins[100] Risks Related to Accounting and Taxation 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] - 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] Risks Related to Our Financing/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][105] - 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][108] - 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][115] - 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] Risks Related to Technology, Cybersecurity and Intellectual Property 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] - Technological advances (automation, AI) may significantly disrupt the labor market, reduce demand for human capital services, and enable competitors to develop superior offerings[119] - 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][123][124] - 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][127][128][129][130][131] Risks Related to Acquisitions 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][134] - Integrating acquired businesses presents risks including diversion of management attention, inability to retain key personnel, operational inefficiencies, and exposure to legal claims[155] - 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][136][137] Risks Related to Global Operations 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] - 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] - Changes in and compliance with applicable laws and regulatory requirements (e.g, Foreign Corrupt Practices Act, U.K. Bribery Act)[140] - Difficulties in staffing and managing global operations, impacting internal control[144] - Social, economic, and political instability, including repercussions of geopolitical events[140] - Differences in cultures, business practices, accounting/reporting, and labor market conditions[140] Risks Related to Our Dividend Policy 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] - 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] - 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] Risks Related to Our Stockholders 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][147] - 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][159] General Risk Factors 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] - 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][150] - 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][152][153] - 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] Item 1B. Unresolved Staff Comments This section states that there are no unresolved staff comments from the SEC Item 2. Properties 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] - 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] - Management believes current facilities are adequate and can accommodate future growth[160] Item 3. Legal Proceedings 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] - 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] Item 4. Mine Safety Disclosures This item is not applicable to Korn Ferry Executive Officers 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] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - 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] - On June 21, 2022, the Board of Directors approved a 25% increase in quarterly dividends to $0.15 per share[179] - 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][181] 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 This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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] - 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][192][197] - The company's capital allocation strategy prioritizes growth investments, regular quarterly dividends, and opportunistic share repurchases, supported by strong cash flows from operations[178][198][265] 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 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] - 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] Executive Summary 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] - 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][189][190][194] - 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][192] 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 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] - 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][204][205][206] - Annual Performance-Related Bonuses: Estimated quarterly based on consultant productivity, company profitability, and economic conditions[207] - Deferred Compensation: Requires assumptions on payment timing, probability, and discount rates[208] - Carrying Values: Valuations for receivables, goodwill, intangible assets, share-based payments, leases, and deferred income taxes, with goodwill impairment tested annually[209][211][212][213] Results of Operations 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 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] - 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] - 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][262] Liquidity and Capital Resources 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] - 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][267][279] - Cash and cash equivalents and marketable securities increased by $114.0 million to $1,211.1 million at April 30, 2022[198][275] - 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][270][274] 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 Korn Ferry has no off-balance sheet arrangements or transactions involving unconsolidated, special purpose entities - Korn Ferry has no off-balance sheet arrangements[281] - The company has not entered into any transactions involving unconsolidated, special purpose entities[281] Contractual Obligations 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][285] Cash Surrender Value of Company Owned Life Insurance Policies, Net of Loans 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] 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 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] - 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] Item 7A. Quantitative and Qualitative Disclosures About Market Risk 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] Foreign Currency Risk 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] - 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] - 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] - 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][293] Interest Rate Risk 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] - 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] - 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] Item 8. Financial Statements and Supplementary Data 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] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item states that there are no changes in or disagreements with accountants on accounting and financial disclosure Item 9A. Controls and Procedures 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] - 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] Item 9B. Other Information This item states that there is no other information to report Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Korn Ferry PART III Item 10. Directors, Executive Officers and Corporate Governance 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] - Korn Ferry has a 'Code of Business Conduct and Ethics' for all directors, officers, and employees, available on its Investor Relations website[305] Item 11. Executive Compensation 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] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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] Item 13. Certain Relationships and Related Transactions, and Director Independence 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] Item 14. Principal Accountant Fees and Services 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] PART IV Item 15. Exhibits and Financial Statement Schedules 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] - Exhibits include stock purchase agreements, corporate governance documents (Certificate of Incorporation, Bylaws), debt indentures, various compensation plans, and employment agreements[312][315] - 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] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided 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] - 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][323] Financial Statements and Financial Statement Schedules 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][329][331] - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the three years ended April 30, 2022[339] - 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][345] Management's Report on Internal Control over Financial Reporting 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] - 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][329] - No material weaknesses were identified in the company's internal control over financial reporting[329] Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting 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] - The audit concluded that Korn Ferry maintained, in all material respects, effective internal control over financial reporting based on the COSO criteria[331] - The report also noted an unqualified opinion on the consolidated financial statements for the three years ended April 30, 2022[332] Report of Independent Registered Public Accounting Firm 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] - 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][345] - Audit procedures included testing controls over contractual terms, performance obligation identification, and the accuracy/completeness of underlying data for management estimates[347][348] Consolidated Balance Sheets 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 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 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 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 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 The notes provide detailed information on accounting policies, financial instruments, revenue recognition, segment reporting, and other key financial data [Note 1. Organization and Summary