kfy-20221031

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


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)


Delaware						95-2623879
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

1900 Avenue of the Stars, Suite 1500, Los Angeles, California 90067

(Address of principal executive offices) (Zip Code)

(310) 552-1834

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	KFY	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


			Large Accelerated Filer ☑			Accelerated filer o

			Non-accelerated filer o			Smaller reporting company o
						Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares outstanding of our common stock as of December 2, 2022 was 52,709,950 shares.

KORN FERRY

Table of Contents


Item #	Description	Page

	Part I. Financial Information

Item 1.	Consolidated Financial Statements

	Consolidated Balance Sheets as of October 31, 2022 (unaudited) and April 30, 2022	1

	Consolidated Statements of Income (unaudited) for the three and si x months ended October 31, 2022 and 2021	2

	Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended October 31, 2022 and 2021	3

	Consolidated Statements of Stockholders’ Equity (unaudited) for three and six months ended October 31, 2022 and 2021	4

	Consolidated Statements of Cash Flows (unaudited) for the six months ended October 31, 2022 and 2021	5

	Notes to Consolidated Unaudited Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48

Item 4.	Controls and Procedures	49

	Part II. Other Information

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 6.	Exhibits	51

	Signatures	52

Item 1. Consolidated Financial Statements

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	October 31, 2022		April 30, 2022
	(unaudited)
	(in thousands, except per share data)
ASSETS
Cash and cash equivalents	$	593,900	$	978,070
Marketable securities	59,188		57,244
Receivables due from clients, net of allowance for doubtful accounts of $40,959 and $36,384 at October 31, 2022 and April 30, 2022, respectively	670,408		590,260
Income taxes and other receivables	48,070		31,884
Unearned compensation	62,411		60,749
Prepaid expenses and other assets	46,388		41,763
Total current assets	1,480,365		1,759,970

Marketable securities, non-current	178,565		175,783
Property and equipment, net	153,041		138,172
Operating lease right-of-use assets, net	151,537		167,734
Cash surrender value of company-owned life insurance policies, net of loans	184,230		183,308
Deferred income taxes	83,899		84,712
Goodwill	790,063		725,592
Intangible assets, net	94,408		89,770
Unearned compensation, non-current	122,361		118,238
Investments and other assets	23,266		21,267
Total assets	$	3,261,735	$	3,464,546
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	48,623	$	50,932
Income taxes payable	26,094		34,450
Compensation and benefits payable	327,949		547,826
Operating lease liability, current	49,039		48,609
Other accrued liabilities	303,470		302,408
Total current liabilities	755,175		984,225

Deferred compensation and other retirement plans	369,960		357,175
Operating lease liability, non-current	127,886		151,212
Long-term debt	395,831		395,477
Deferred tax liabilities	2,776		2,715
Other liabilities	27,387		24,153
Total liabilities	1,679,015		1,914,957

Stockholders' equity
Common stock: $0.01 par value, 150,000 shares authorized, 76,622 and 75,409 shares issued and 52,909 and 53,190 shares outstanding at October 31, 2022 and April 30, 2022, respectively	446,280		502,008
Retained earnings	1,268,437		1,134,523
Accumulated other comprehensive loss, net	(136,665)		(92,185)
Total Korn Ferry stockholders' equity	1,578,052		1,544,346
Noncontrolling interest	4,668		5,243
Total stockholders' equity	1,582,720		1,549,589
Total liabilities and stockholders' equity	$	3,261,735	$	3,464,546

The accompanying notes are an integral part of these consolidated financial statements.

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	Three Months Ended October 31,				Six Months Ended October 31,
	2022		2021		2022		2021
	(in thousands, except per share data)
Fee revenue	$	727,849	$	639,443	$	1,423,752	$	1,224,838
Reimbursed out-of-pocket engagement expenses	7,870		3,955		15,115		6,658
Total revenue	735,719		643,398		1,438,867		1,231,496

Compensation and benefits	464,766		431,640		930,392		827,876
General and administrative expenses	65,086		64,065		129,543		114,332
Reimbursed expenses	7,870		3,955		15,115		6,658
Cost of services	61,257		24,329		99,249		46,322
Depreciation and amortization	17,093		15,633		33,322		31,277
Total operating expenses	616,072		539,622		1,207,621		1,026,465

Operating income	119,647		103,776		231,246		205,031
Other (loss) income, net	(9,048)		5,066		(8,273)		9,513
Interest expense, net	(7,098)		(6,365)		(14,710)		(11,791)
Income before provision for income taxes	103,501		102,477		208,263		202,753
Income tax provision	28,886		26,145		55,112		50,024
Net income	74,615		76,332		153,151		152,729
Net income attributable to noncontrolling interest	(1,074)		(560)		(2,363)		(2,134)
Net income attributable to Korn Ferry	$	73,541	$	75,772	$	150,788	$	150,595

Earnings per common share attributable to Korn Ferry:
Basic	$	1.39	$	1.40	$	2.85	$	2.78
Diluted	$	1.38	$	1.38	$	2.83	$	2.75

Weighted-average common shares outstanding:
Basic	51,868		53,114		51,820		52,937
Diluted	52,005		53,568		52,143		53,494

Cash dividends declared per share:	$	0.15	$	0.12	$	0.30	$	0.24

The accompanying notes are an integral part of these consolidated financial statements.

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended October 31,				Six Months Ended October 31,
	2022		2021		2022		2021
	(in thousands)
Net income	$	74,615	$	76,332	$	153,151	$	152,729

Other comprehensive (loss) income:
Foreign currency translation adjustments	(27,774)		(7,195)		(44,079)		(15,539)
Deferred compensation and pension plan adjustments, net of tax	54		351		105		692
Net unrealized loss on marketable securities, net of tax	(258)		(21)		(311)		(17)
Comprehensive income	46,637		69,467		108,866		137,865
Less: comprehensive income attributable to noncontrolling interest	(1,317)		(382)		(2,558)		(1,980)
Comprehensive income attributable to Korn Ferry	$	45,320	$	69,085	$	106,308	$	135,885

The accompanying notes are an integral part of these consolidated financial statements.

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)


	Common Stock			Retained Earnings		Accumulated Other Comprehensive Loss, Net		Total Korn Ferry Stockholders' Equity		Noncontrolling Interest		Total Stockholder's Equity
	Shares	Amount
	(in thousands)
Balance as of April 30, 2022	53,190	$	502,008	$	1,134,523	$	(92,185)	$	1,544,346	$	5,243	$	1,549,589
Net income	—	—		77,247		—		77,247		1,289		78,536
Other comprehensive loss	—	—		—		(16,259)		(16,259)		(48)		(16,307)
Dividends paid to shareholders	—	—		(8,703)		—		(8,703)		—		(8,703)
Purchase of stock	(735)	(44,276)		—		—		(44,276)		—		(44,276)
Issuance of stock	1,047	4,857		—		—		4,857		—		4,857
Stock-based compensation	—	7,538		—		—		7,538		—		7,538
Balance as of July 31, 2022	53,502	470,127		1,203,067		(108,444)		1,564,750		6,484		1,571,234
Net income	—	—		73,541		—		73,541		1,074		74,615
Other comprehensive loss	—	—		—		(28,221)		(28,221)		243		(27,978)
Dividends paid to shareholders	—	—		(8,171)		—		(8,171)		—		(8,171)
Dividends paid to noncontrolling interest	—	—		—		—		—		(3,133)		(3,133)
Purchase of stock	(627)	(33,286)		—		—		(33,286)		—		(33,286)
Issuance of stock	34	—		—		—		—		—		—
Stock-based compensation	—	9,439		—		—		9,439		—		9,439
Balance as of October 31, 2022	52,909	$	446,280	$	1,268,437	$	(136,665)	$	1,578,052	$	4,668	$	1,582,720


	Common Stock			Retained Earnings		Accumulated Other Comprehensive Loss, Net		Total Korn Ferry Stockholders' Equity		Noncontrolling Interest		Total Stockholder's Equity
	Shares	Amount
	(in thousands)
Balance as of April 30, 2021	54,008	$	583,260	$	834,949	$	(51,820)	$	1,366,389	$	2,386	$	1,368,775
Net income	—	—		74,823		—		74,823		1,574		76,397
Other comprehensive loss	—	—		—		(8,023)		(8,023)		24		(7,999)
Dividends paid to shareholders	—	—		(6,866)		—		(6,866)		—		(6,866)
Purchase of stock	(297)	(20,091)		—		—		(20,091)		—		(20,091)
Issuance of stock	795	3,992		—		—		3,992		—		3,992
Stock-based compensation	—	6,962		—		—		6,962		—		6,962
Balance as of July 31, 2021	54,506	574,123		902,906		(59,843)		1,417,186		3,984		1,421,170
Net income	—	—		75,772		—		75,772		560		76,332
Other comprehensive loss	—	—		—		(6,687)		(6,687)		(178)		(6,865)
Dividends paid to shareholders	—	—		(6,683)		—		(6,683)		—		(6,683)
Purchase of stock	(99)	(7,353)		—		—		(7,353)		—		(7,353)
Issuance of stock	59	—		—		—		—		—		—
Stock-based compensation	—	7,288		—		—		7,288		—		7,288
Balance as of October 31, 2021	54,466	$	574,058	$	971,995	$	(66,530)	$	1,479,523	$	4,366	$	1,483,889

The accompanying notes are an integral part of these consolidated financial statements.

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six Months Ended October 31,
	2022		2021
	(in thousands)
Cash flows from operating activities:
Net income	$	153,151	$	152,729
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization	33,322		31,277
Stock-based compensation expense	17,426		14,649
Impairment of right of use assets	—		7,392
Impairment of fixed assets	—		1,915
Provision for doubtful accounts	11,018		9,629
Gain on cash surrender value of life insurance policies	(4,890)		(2,184)
Loss (gain) on marketable securities	9,691		(10,041)
Deferred income taxes	(817)		3,006
Change in other assets and liabilities:
Deferred compensation	18,871		30,339
Receivables due from clients	(71,747)		(169,037)
Income taxes and other receivables	(12,220)		(1,588)
Prepaid expenses and other assets	(4,209)		(6,330)
Unearned compensation	(5,785)		(44,955)
Income taxes payable	(6,582)		(1,832)
Accounts payable and accrued liabilities	(235,729)		(56,852)
Other	(218)		(641)
Net cash used in operating activities	(98,718)		(42,524)
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired	(99,322)		—
Purchase of marketable securities	(52,085)		(54,070)
Proceeds from sales/maturities of marketable securities	37,186		38,725
Purchase of property and equipment	(36,867)		(18,988)
Proceeds from life insurance policies	1,050		3,163
Premium on company-owned life insurance policies	(289)		(295)
Dividends received from unconsolidated subsidiaries	150		195
Net cash used in investing activities	(150,177)		(31,270)
Cash flows from financing activities:
Repurchases of common stock	(56,891)		(9,386)
Payments of tax withholdings on restricted stock	(22,060)		(18,058)
Proceeds from issuance of common stock upon exercise of employee stock options and in connection with an employee stock purchase plan	4,371		3,593
Dividends paid to shareholders	(16,874)		(13,549)
Dividends - noncontrolling interest	(3,133)		—
Principal payments on finance leases	(814)		(592)
Payments on life insurance policy loans	(662)		(64)
Net cash used in financing activities	(96,063)		(38,056)
Effect of exchange rate changes on cash and cash equivalents	(39,212)		(13,537)
Net decrease in cash and cash equivalents	(384,170)		(125,387)
Cash and cash equivalents at beginning of period	978,070		850,778
Cash and cash equivalents at end of the period	$	593,900	$	725,391

The accompanying notes are an integral part of these consolidated financial statements.


			KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS October 31, 2022

1. Organization and Summary of Significant Accounting Policies

Nature of Business

Korn Ferry, a Delaware corporation, and its subsidiaries (the “Company”) is a global organizational consulting firm. The Company helps clients synchronize strategy and talent to drive superior performance. The Company works with organizations to design their structures, roles and responsibilities. The Company helps organizations hire the right people to bring their strategy to life and advise them on how to reward, develop and motivate their people.

The Company is pursuing a strategy designed to help Korn Ferry to focus on clients and collaborate intensively across the organization. This approach is intended to build on the best of the Company’s past and give the Company a clear path to the future with focused initiatives to increase its client and commercial impact. Korn Ferry is transforming how clients address their talent management needs. The Company has evolved from a mono-line to a diversified business, giving its consultants more frequent and expanded opportunities to engage with clients. In the past year, the Company has acquired companies that have added critical mass to our existing professional search and interim executive operations, as described in Note 10. This provided us with the opportunity to reassess how we manage our Recruitment Process Outsourcing (“RPO”) & Professional Search segment. Therefore, beginning in fiscal 2023, we separated RPO & Professional Search into two segments to align with the Company’s strategy and the decisions of the Company’s chief operating decision maker, who has begun to regularly make separate resource allocation decisions and assess performance separately between Professional Search & Interim and RPO.

The Company now has eight reportable segments that operate through the following five lines of business:

1.Consulting aligns organization structure, culture, performance and people to drive sustainable growth by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership and Professional Development, and Total Rewards. This work is supported by a comprehensive range of some of the world’s leading intellectual property (“lP”) and data. The Consulting teams employ an integrated approach across core solutions each one strengthening our work and thinking of the next, to help clients execute their strategy in a digitally enabled world.

2.Digital delivers scalable tech-enabled solutions that identify the best structures, roles, capabilities and behaviors to drive businesses forward. Powered by the Korn Ferry Intelligence Cloud, the end-to-end system combines Korn Ferry proprietary data, client data and external market data to deliver clear insights with the training and tools needed to align organizational structure with business strategy.

3.Executive Search helps organizations recruit board level, chief executive and other senior executive and general management talent to deliver lasting impact. Korn Ferry’s approach to placing talent brings together our research-based IP, proprietary assessments and behavioral interviewing with our practical experience to determine ideal organizational fit. Salary benchmarking then builds appropriate frameworks for compensation and retention. This business is managed and reported on a geographic basis and represents four of the Company’s reportable segments (Executive Search North America, Executive Search Europe, the Middle East and Africa (“EMEA”), Executive Search Asia Pacific and Executive Search Latin America).

4.Professional Search & Interim delivers enterprise talent acquisition solutions for professional level middle and upper management. The Company helps clients source high-quality candidates at speed and at scale globally, covering single hire to multi hire permanent placements and interim contractors.

5.RPO offers scalable recruitment outsourcing solutions leveraging customized technology and talent insights. Our scalable solutions, built on science and powered by best-in-class technology and consulting expertise, enable us to act as a strategic partner in clients’ quest for superior recruitment outcomes and better candidate fit.

Basis of Consolidation and Presentation

The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended April 30, 2022 for the Company and its wholly and majority owned/controlled domestic and international subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The preparation of the consolidated financial statements conform with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and prevailing practice within our different industries. The consolidated financial statements include all adjustments, consisting of normal recurring accruals and any other adjustments that management considers necessary for a fair presentation of the results for these periods. The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year.


			KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS October 31, 2022 (continued)

The Company has control of a Mexican subsidiary and consolidates the operations of this subsidiary. Noncontrolling interest, which represents the Mexican partners’ 51% interest in the Mexican subsidiary, is reflected on the Company’s consolidated financial statements.

The Company considers events or transactions that occur after the balance sheet date but before the consolidated financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.

Use of Estimates and Uncertainties

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates, and changes in estimates are reported in current operations as new information is learned or upon the amounts becoming fixed or determinable. The most significant areas that require management’s judgment are revenue recognition, deferred compensation, annual performance-related bonuses, evaluation of the carrying value of receivables, goodwill and other intangible assets, share-based payments, leases and the recoverability of deferred income taxes.

Revenue Recognition

Substantially all fee revenue is derived from talent and organizational consulting services and digital sales, stand-alone or as part of a solution, fees for professional services related to executive and professional recruitment performed on a retained basis and RPO, either stand-alone or as part of a solution.

Revenue is recognized when control of the goods and services are transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services. Revenue contracts with customers are evaluated based on the five-step model outlined in Accounting Standards Codification (“ASC”) 606 (“ASC 606”), Revenue from Contracts with Customers: 1) identify the contract with a customer; 2) identify the performance obligation(s) in the contract; 3) determine the transaction price; 4) allocate the transaction price to the separate performance obligation(s); and 5) recognize revenue when (or as) each performance obligation is satisfied.

Consulting fee revenue is primarily recognized as services are rendered, measured by total hours incurred as a percentage of the total estimated hours at completion. It is possible that updated estimates for consulting engagements may vary from initial estimates with such updates being recognized in the period of determination. Depending on the timing of billings and services rendered, the Company accrues or defers revenue as appropriate.

Digital fee revenue is generated from IP platforms enabling large-scale, technology-based talent programs for pay, talent development, engagement, and assessment and is consumed directly by an end user or indirectly through a consulting engagement. Revenue is recognized as services are delivered and the Company has a legally enforceable right to payment. Revenue also comes from the sale of the Company’s proprietary IP subscriptions, which are considered symbolic IP due to the dynamic nature of the content. As a result, revenue is recognized over the term of the contract. Functional IP licenses grant customers the right to use IP content via the delivery of a flat file. Because the IP content license has significant stand-alone functionality, revenue is recognized upon delivery and when an enforceable right to payment exists. Revenue for tangible and digital products sold by the Company, such as books and digital files, is recognized when these products are shipped.

Fee revenue from executive and professional search activities is generally one-third of the estimated first-year cash compensation of the placed candidate, plus a percentage of the fee to cover indirect engagement-related expenses. In addition to the search retainer, an uptick fee is billed when the actual compensation awarded by the client for a placement is higher than the estimated compensation. In the aggregate, upticks have been a relatively consistent percentage of the original estimated fee; therefore, the Company estimates upticks using the expected value method based on historical data on a portfolio basis. In a standard search engagement, there is one performance obligation, which is the promise to undertake a search. The Company generally recognizes such revenue over the course of a search and when it is legally entitled to payment as outlined in the billing terms of the contract. Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved, as this is when control is transferred to the customer. These assumptions determine the timing of revenue recognition for the reported period. In addition to talent acquisition for permanent placement roles, the Professional Search & Interim segment also offers recruitment services for interim roles. Interim roles are short term in duration, generally less than 12 months. Generally, each interim role is a separate performance obligation. The Company recognizes fee revenue over the duration that the interim resources’ services are provided which also aligns to the contracted invoicing plan and enforceable right to payment.

RPO fee revenue is generated through two distinct phases: 1) the implementation phase and 2) the post-implementation recruitment phase. The fees associated with the implementation phase are recognized over the period that the related


			KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS October 31, 2022 (continued)

implementation services are provided. The post-implementation recruitment phase represents end-to-end recruiting services to clients for which there are both fixed and variable fees, which are recognized over the period that the related recruiting services are performed.

Reimbursements

The Company incurs certain out-of-pocket expenses that are reimbursed by its clients, which are accounted for as revenue in the consolidated statements of income.

Allowance for Doubtful Accounts

An allowance is established for doubtful accounts by taking a charge to general and administrative expenses. The Company’s expected credit loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers’ trade accounts receivable. Due to the short-term nature of such receivables, the estimate of amount of accounts receivable that may not be collected is primarily based on historical loss-rate experience. When required, the Company adjusts the loss-rate methodology to account for current conditions and reasonable and supportable expectations of future economic and market conditions. The Company generally assesses future economic condition for a period of sixty to ninety days, which corresponds with the contractual life of its accounts receivables. After the Company exhausts all collection efforts, the amount of the allowance is reduced for balances written off as uncollectible.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. As of October 31, 2022 and April 30, 2022, the Company’s investments in cash equivalents consisted of money market funds, and as of April 30, 2022 also consisted of commercial paper with initial maturity of less than 90 days for which market prices are readily available.

Marketable Securities

The Company currently has investments in marketable securities and mutual funds that are classified as either equity securities or available-for-sale debt securities. The classification of the investments in these marketable securities and mutual funds is assessed upon purchase and reassessed at each reporting period. These investments are recorded at fair value and are classified as marketable securities in the accompanying consolidated balance sheets. The investments that the Company may sell within the next 12 months are carried as current assets.

The Company invests in mutual funds (for which market prices are readily available) that are held in trust to satisfy obligations under the Company’s deferred compensation plans. Such investments are classified as equity securities and mirror the employees’ investment elections in their deemed accounts in the Executive Capital Accumulation Plan and similar plans in Asia Pacific and Canada (“ECAP”) from a pre-determined set of securities. Realized gains (losses) on marketable securities are determined by specific identification. Interest is recognized on an accrual basis; dividends are recorded as earned on the ex-dividend date. Interest, dividend income and the changes in fair value in marketable securities are recorded in the accompanying consolidated statements of income in other (loss) income, net.

The Company also invests cash in excess of its daily operating requirements and capital needs primarily in marketable fixed income (debt) securities in accordance with the Company’s investment policy, which restricts the type of investments that can be made. The Company’s investment portfolio includes commercial paper, corporate notes/bonds and US Treasury and Agency securities. These marketable fixed income (debt) securities are classified as available-for-sale securities based on management’s decision, at the date such securities are acquired, not to hold these securities to maturity or actively trade them. The Company carries these marketable debt securities at fair value based on the market prices for these marketable debt securities or similar debt securities whose prices are readily available. The changes in fair values, net of applicable taxes, are recorded as unrealized gains or losses as a component of comprehensive income unless the change is due to credit loss. A credit loss is recorded in the statements of income in other (loss) income, net; any amount in excess of the credit loss is recorded as unrealized losses as a component of comprehensive income. Generally, the amount of the loss is the difference between the cost or amortized cost and its then current fair value; a credit loss is the difference between the discounted expected future cash flows to be collected from the debt security and the cost or amortized cost of the debt security. During the three and six months ended October 31, 2022 and 2021, no amount was recognized as a credit loss for the Company’s available for sales debt securities.

Fair Value of Financial Instruments

Fair value is the price the Company would receive to sell an asset or transfer a liability (exit price) in an orderly transaction between market participants. For those assets and liabilities recorded or disclosed at fair value, the Company determines the fair value based upon the quoted market price, if available. If a quoted market price is not available for identical assets,


			KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS October 31, 2022 (continued)

the fair value is based upon the quoted market price of similar assets. The fair values are assigned a level within the fair value hierarchy as defined below:

•Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

As of October 31, 2022 and April 30, 2022, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included cash, cash equivalents, accounts receivable, marketable securities and foreign currency forward contracts. The carrying amount of cash, cash equivalents and accounts receivable approximates fair value due to the short-term maturity of these instruments. The fair values of marketable securities classified as equity securities are obtained from quoted market prices, and the fair values of marketable securities classified as available-for-sale and foreign currency forward contracts are obtained from a third party, which are based on quoted prices or market prices for similar assets and financial instruments.

Foreign Currency Forward Contracts Not Designated as Hedges

The Company has established a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures primarily originating from intercompany balances due to cross border work performed in the ordinary course of business. These foreign currency forward contracts are neither used for trading purposes nor are they designated as hedging instruments pursuant to ASC 815, Derivatives and Hedging. Accordingly, the fair value of these contracts is recorded as of the end of the reporting period in the accompanying consolidated balance sheets, while the change in fair value is recorded to the accompanying consolidated statements of income.

Business Acquisitions

Business acquisitions are accounted for under the acquisition method. The acquisition method requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity, and recognize and measure goodwill or a gain from the purchase. The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill, or if the fair value of the assets acquired exceeds the purchase price consideration, a bargain purchase gain is recorded. Adjustments to fair value assessments are generally recorded to goodwill over the measurement period (not longer than 12 months). The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense as committed and requires the Company to recognize and measure certain assets and liabilities including those arising from contingencies and contingent consideration in a business combination.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and current and non-current operating lease liability, in the consolidated balance sheets. Finance leases are included in property and equipment, net, other accrued liabilities and other liabilities in the consolidated balance sheets.

ROU assets represent the Company's right to use an underlying asset for the lease term, and the lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term on the commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the periods in which they are incurred.

The Company has lease agreements with lease and non-lease components. For all leases with non-lease components the Company accounts for the lease and non-lease components as a single lease component.


			KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS October 31, 2022 (continued)

Impairment of Long-Lived Assets

Long-lived assets include property, equipment, ROU assets and software developed or obtained for internal use. In accordance with ASC 360, Property, Plant and Equipment, management reviews the Company’s recorded long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company determines the extent to which an asset may be impaired based upon its expectation of the asset’s future usability, as well as on a reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. During the three and six months ended October 31, 2022 there were no impairment charges recorded. During the three and six months ended October 31, 2021, the Company reduced its real estate footprint and as a result, the Company took an impairment charge of ROU assets of $7.4 million and an impairment of leasehold improvements and furniture and fixtures of $1.9 million, both recorded in the consolidated statements of income in general and administrative expenses.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of assets acquired. Goodwill is tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Results of the annual qualitative impairment test performed as of January 31, 2022, indicated that the fair value of each of the reporting units exceeded its carrying amount and no reporting units were at risk of failing the impairment test. As a result, no impairment charge was recognized. As of October 31, 2022 and April 30, 2022, there were no indicators of impairment with respect to the Company’s goodwill.

Intangible assets primarily consist of customer lists, non-compete agreements, proprietary databases and IP. Intangible assets are recorded at their estimated fair value at the date of acquisition and are amortized in a pattern in which the asset is consumed, if that pattern can be reliably determined, or using the straight-line method over their estimated useful lives, which range from one to 24 years. For intangible assets subject to amortization, an impairment loss is recognized if the carrying amount of the intangible assets is not recoverable and exceeds fair value. The carrying amount of the intangible assets is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from use of the asset. The Company reviewed its intangible assets and noted no impairment as of October 31, 2022 and April 30, 2022.

Compensation and Benefits Expense

Compensation and benefits expense in the accompanying consolidated statements of income consist of compensation and benefits paid to consultants (employees who originate business), executive officers and administrative and support personnel. The most significant portions of this expense are salaries and the amounts paid under the annual performance-related bonus plan to employees. The portion of the expense applicable to salaries is comprised of amounts earned by employees during a reporting period. The portion of the expenses applicable to annual performance-related bonuses refers to the Company’s annual employee performance-related bonus with respect to a fiscal year, the amount of which is communicated and paid to each eligible employee following the completion of the fiscal year.

Each quarter, management makes its best estimate of its annual performance-related bonuses, which requires management to, among other things, project annual consultant productivity (as measured by engagement fees billed and collected by Executive Search and Professional Search consultants and revenue and other performance/profitability metrics for Consulting, Digital, Interim and RPO consultants), the level of engagements referred by a consultant in one line of business to a different line of business, and Company performance, including profitability, competitive forces and future economic conditions and their impact on the Company’s results. At the end of each fiscal year, annual performance-related bonuses take into account final individual consultant productivity (including referred work), Company/line of business results, including profitability, the achievement of strategic objectives, the results of individual performance appraisals and the current economic landscape. Accordingly, each quarter the Company reevaluates the assumptions used to estimate annual performance-related bonus liability and adjusts the carrying amount of the liability recorded on the consolidated balance sheet and reports any changes in the estimate in current operations.

Because annual performance-based bonuses are communicated and paid only after the Company reports its full fiscal year results, actual performance-based bonus payments may differ from the prior year’s estimate. Such changes in the bonus estimate historically have been immaterial and are recorded in current operations in the period in which they are determined. The performance-related bonus expense was $99.8 million and $201.6 million during the three and six months ended October 31, 2022, respectively, included in compensation and benefits expense in the consolidated statements of income. The performance-related bonus expense was $119.2 million and $215.2 million during the three and six months ended October 31, 2021, respectively, included in compensation and benefits expense in the consolidated statements of income.


			KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS October 31, 2022 (continued)

Other expenses included in compensation and benefits expense are due to changes in deferred compensation and pension plan liabilities, changes in cash surrender value (“CSV”) of company-owned life insurance (“COLI”) contracts, amortization of stock-based compensation awards, commissions, payroll taxes and employee insurance benefits. Unearned compensation on the consolidated balance sheets includes long-term retention awards that are generally amortized over four-to-five years.

Stock-Based Compensation

The Company has employee compensation plans under which various types of stock-based instruments are granted. These instruments principally include restricted stock units, restricted stock and an Employee Stock Purchase Plan (“ESPP”). The Company recognizes compensation expense related to restricted stock units, restricted stock and the estimated fair value of stock purchases under the ESPP on a straight-line basis over the service period for the entire award.

Reclassifications

Certain reclassifications have been made to the amounts in the prior periods in order to conform to the current period’s presentation.

Recently Proposed Accounting Standards - Not Yet Adopted

In October 2021, the Financial Accounting Standards Board (“FASB”) issued an amendment in accounting for contract assets and contract liabilities from contracts with customers, which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. The amendment of this standard becomes effective in fiscal years beginning after December 15, 2022. The amendment should be applied prospectively to business combinations that occur after the effective date. The Company will adopt this guidance in its fiscal year beginning May 1, 2023. The Company is currently evaluating the impact of this accounting guidance but does not anticipate that it will have a material impact on the consolidated financial statements.

2. Basic and Diluted Earnings Per Share

ASC 260, Earnings Per Share, requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends prior to vesting as a separate class of securities in calculating earnings per share. The Company has granted and expects to continue to grant to certain employees under its restricted stock agreements, grants that contain non-forfeitable rights to dividends. Such grants are considered participating securities. Therefore, the Company is required to apply the two-class method in calculating earnings per share. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. The dilutive effect of participating securities is calculated using the more dilutive of the treasury method or the two-class method.

Basic earnings per common share was computed using the two-class method by dividing basic net earnings attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per common share was computed using the two-class method by dividing diluted net earnings attributable to common stockholders by the weighted-average number of common shares outstanding plus dilutive common equivalent shares. Dilutive common equivalent shares include all in-the-money outstanding options or other contracts to issue common stock as if they were exercised or converted. Financial instruments that are not in the form of common stock, but when converted into common stock increase earnings per share, are anti-dilutive and are not included in the computation of diluted earnings per share.

During the three and six months ended October 31, 2022, restricted stock awards of 1.6 million shares and 1.2 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive. During the three and six months ended October 31, 2021, restricted stock awards of 1.2 million shares and 1.3 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.


			KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS October 31, 2022 (continued)

The following table summarizes basic and diluted earnings per common share attributable to common stockholders:


	Three Months Ended October 31,				Six Months Ended October 31,
	2022		2021		2022		2021
	(in thousands, except per share data)
Net income attributable to Korn Ferry	$	73,541	$	75,772	$	150,788	$	150,595
Less: distributed and undistributed earnings to nonvested restricted stockholders	1,615		1,654		3,295		3,321
Basic net earnings attributable to common stockholders	71,926		74,118		147,493		147,274
Add: undistributed earnings to nonvested restricted stockholders	1,436		1,510		2,945		3,005
Less: reallocation of undistributed earnings to nonvested restricted stockholders	1,432		1,497		2,927		2,974
Diluted net earnings attributable to common stockholders	$	71,930	$	74,131	$	147,511	$	147,305

Weighted-average common shares outstanding:
Basic weighted-average number of common shares outstanding	51,868		53,114		51,820		52,937
Effect of dilutive securities:
Restricted stock	134		453		319		555
ESPP	3		1		4		2
Diluted weighted-average number of common shares outstanding	52,005		53,568		52,143		53,494

Net earnings per common share:
Basic earnings per share	$	1.39	$	1.40	$	2.85	$	2.78
Diluted earnings per share	$	1.38	$	1.38	$	2.83	$	2.75

3. Comprehensive Income

Comprehensive income is comprised of net income and all changes to stockholders’ equity, except those changes resulting from investments by stockholders (changes in paid in capital) and distributions to stockholders (dividends) and is reported in the accompanying consolidated statements of comprehensive income. Accumulated other comprehensive loss, net of taxes, is recorded as a component of stockholders’ equity.

The components of accumulated other comprehensive loss, net were as follows:


	October 31, 2022		April 30, 2022
	(in thousands)
Foreign currency translation adjustments	$	(136,991)	$	(92,717)
Deferred compensation and pension plan adjustments, net of tax	1,066		961
Marketable securities unrealized loss, net of tax	(740)		(429)
Accumulated other comprehensive loss, net	$	(136,665)	$	(92,185)


			KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS October 31, 2022 (continued)

The following table summarizes the changes in each component of accumulated other comprehensive loss, net for the three months ended October 31, 2022:


	Foreign Currency Translation		Deferred Compensation and Pension Plan		Unrealized Losses on Marketable Securities (2)		Accumulated Other Comprehensive Loss
	(in thousands)
Balance as of July 31, 2022	$	(108,974)	$	1,012	$	(482)	$	(108,444)
Unrealized losses arising during the period	(28,017)		—		(258)		(28,275)
Reclassification of realized net losses to net income	—		54		—		54
Balance as of October 31, 2022	$	(136,991)	$	1,066	$	(740)	$	(136,665)

The following table summarizes the changes in each component of accumulated other comprehensive loss, net for the six months ended October 31, 2022:


	Foreign Currency Translation		Deferred Compensation and Pension Plan (1)		Unrealized Losses on Marketable Securities (2)		Accumulated Other Comprehensive Loss
	(in thousands)
Balance as of April 30, 2022	$	(92,717)	$	961	$	(429)	$	(92,185)
Unrealized losses arising during the period	(44,274)		—		(311)		(44,585)
Reclassification of realized net losses to net income	—		105		—		105
Balance as of October 31, 2022	$	(136,991)	$	1,066	$	(740)	$	(136,665)

___________________


(1)			The tax effect on the reclassifications of realized net losses was $0.1 million for the six months ended October 31, 2022.
(2)			The tax effect on the unrealized losses were $0.1 million and $0.1 million for the three and six months ended October 31, 2022.

The following table summarizes the changes in each component of accumulated other comprehensive loss, net for the three months ended October 31, 2021:


	Foreign Currency Translation		Deferred Compensation and Pension Plan (1)		Unrealized Losses on Marketable Securities		Accumulated Other Comprehensive Loss
	(in thousands)
Balance as of July 31, 2021	$	(42,034)	$	(17,794)	$	(15)	$	(59,843)
Unrealized (losses) gains arising during the period	(7,017)		15		(21)		(7,023)
Reclassification of realized net losses to net income	—		336		—		336
Balance as of October 31, 2021	$	(49,051)	$	(17,443)	$	(36)	$	(66,530)

The following table summarizes the changes in each component of accumulated other comprehensive loss, net for the six months ended October 31, 2021:


	Foreign Currency Translation		Deferred Compensation and Pension Plan (1)		Unrealized Losses on Marketable Securities		Accumulated Other Comprehensive Loss
	(in thousands)
Balance as of April 30, 2021	$	(33,666)	$	(18,135)	$	(19)	$	(51,820)
Unrealized (losses) gains arising during the period	(15,385)		15		(18)		(15,388)
Reclassification of realized net losses to net income	—		677		1		678
Balance as of October 31, 2021	$	(49,051)	$	(17,443)	$	(36)	$	(66,530)

___________________


			KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS October 31, 2022 (continued)

(1)

The tax effect on the reclassifications of realized net losses was $0.1 million and $0.2 million for the three and six months ended October 31, 2021.

4. Employee Stock Plans

Stock-Based Compensation

The following table summarizes the components of stock-based compensation expense recognized in the Company’s consolidated statements of income for the periods indicated:


	Three Months Ended October 31,				Six Months Ended October 31,
	2022		2021		2022		2021
	(in thousands)
Restricted stock	$	9,439	$	7,288	$	16,977	$	14,250
ESPP	230		203		449		399
Total stock-based compensation expense	$	9,669	$	7,491	$	17,426	$	14,649

Stock Incentive Plan

At the Company’s 2022 Annual Meeting of Stockholders, held on September 22, 2022, the Company’s stockholders approved the Korn Ferry 2022 Stock Incentive Plan (the "2022 Plan"), which, among other things, increased the total number of shares of the Company’s common stock available for stock-based awards by 1,700,000 shares, leaving 2,248,284 shares available for issuance, subject to certain changes in the Company’s capital structure and other extraordinary events. The 2022 Plan requires a minimum one-year vesting for all future awards, and provides for the grant of awards to eligible participants, designated as either nonqualified or incentive stock options, restricted stock and restricted stock units, any of which are market-based, and incentive bonuses, which may be paid in cash or stock or a combination thereof.

Restricted Stock

The Company grants time-based restricted stock awards to executive officers and other senior employees generally vesting over a four-year period. In addition, certain key management members typically receive time-based restricted stock awards upon commencement of employment and may receive them annually in conjunction with the Company’s performance review. Time-based restricted stock awards are granted at a price equal to fair value, which is determined based on the closing price of the Company’s common stock on the grant date. The Company recognizes compensation expense for time-based restricted stock awards on a straight-line basis over the vesting period.

The Company also grants market-based restricted stock units to executive officers and other senior employees. The market-based units vest after three years depending upon the Company’s total stockholder return over the three-year performance period relative to other companies in its selected peer group. The fair value of these market-based restricted stock units are determined by using extensive market data that is based on historical Company and peer group information. The Company recognizes compensation expense for market-based restricted stock units on a straight-line basis over the vesting period.

Restricted stock activity during the six months ended October 31, 2022 is summarized below:


	Shares	Weighted- Average Grant Date Fair Value
	(in thousands, except per share data)
Non-vested, April 30, 2022	1,980	$	40.32
Granted	1,116	$	49.12
Vested	(997)	$