10-K: Annual report pursuant to Section 13 and 15(d)
Published on June 28, 2024
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form 10-K
(Mark One)
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the fiscal year ended
April 30 , 2024
OR
|
|
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
(Exact Name of Registrant as Specified in its Charter)
|
|
|
||||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||
|
|
|
||||
| (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 | ||||||
|
|
|
|
||||||
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
þ No
o
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes o
No
þ
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
þ 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 þ 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.
|
|
þ | Accelerated filer | o | |||||||||||
| Non-accelerated filer | o | Smaller reporting company |
|
|||||||||||
| Emerging growth company |
|
|||||||||||||
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 has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report.
þ
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial
statements of the registrant included in the filing reflect the correction of an error to previously issued
financial statements.
o
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of
incentive-based compensation received by any of the registrant's executive officers during the relevant
recovery period pursuant to §240.10D-1(b). o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
o
No
þ
The
aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates of the
registrant on October 31, 2023, the last business day of the registrant’s most recently completed second
fiscal quarter (assuming that the registrant’s only affiliates are its officers, directors and 10% or
greater stockholders) was approximately $1,753,214
thousand based upon the closing market price of $45.52 on that date of a share of common stock as reported
on the New York Stock Exchange.
The
number of shares outstanding of our common stock as of June 20, 2024 was 51,808 thousand shares.
Documents incorporated by reference
Portions
of the registrant’s definitive proxy statement for its 2024 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
KORN FERRY
Index to Annual Report on Form 10-K for the Fiscal Year Ended April 30,
2024
| Item # | Description | Page | ||||||
|
Item
1C
|
||||||||
|
Item
15
|
||||||||
|
F-1
|
||||||||
PART I.
Item 1. Business
Company Overview
Korn
Ferry (referred to herein as the “Company” or in the first-person notations “we,” “our,” and “us”) is a
leading global organizational consulting firm. We work with our clients to design optimal organization
structures, roles, and responsibilities. We help them hire the right people, focus on the right skills, and
advise them on how to reward, engage and motivate their workforce while developing professionals as they
navigate and advance their careers.
The importance and strength of our brand
A strong
brand fosters familiarity and loyalty, builds trust, cultivates relationships, and has a lasting impact on
sales velocity and growth which is why one of our strategic pillars is to continue to elevate ours.
Originally
known for our leading position in executive search, our brand recognition is growing and evolving to
represent great workplaces and the people – the talent – behind them. Collaboration across our sales,
marketing, research, and business teams has significantly boosted Korn Ferry's market recognition and
strengthened our client connections. By curating our intellectual property, content, and data, and
integrating them with our colleagues' expertise, we inspire and challenge conventional workplace viewpoints.
Career makers and business advisors, the impact we create spans entire organizations, but always starts with
people.
The
inspiration we put out into the world is to Be
More Than.
Be
More Than is
about identifying and unleashing potential. Bring the right opportunity, to the right person, at the right
time and it will change their world. Get people focused, aligned, believing and working together and it can
change the world. The principles behind Be
More Than guide
our thinking and behavior and represent our commitment to our clients and to each other. We help unleash
potential in people to enable thriving, high-performing teams that collectively power sustainable growth and
transform businesses.
Underpinning our strategy with tech-enabled IP, data and content
Korn
Ferry leads the industry with unique intellectual property, content, and data. Powered by one of the world’s
largest and most distinctive talent database and analytics engine, we deliver technology-enabled,
data-informed solutions for people and workplaces that drive growth strategies. With access to nearly 7
billion proprietary data points across 150 countries, we understand what excellence looks like and know how
to achieve it. Our consultants use this data to develop informed talent solutions that provide a competitive
edge, while our suite of tech-enabled talent products ensures implementation at scale with speed.
We have shaped our way of working to align with the ways of work
Focused
on solving our clients' most pressing organization and people challenges, today our services and products
support and work across the entire human capital ecosystem - from assessment and hiring to strategy
implementation, rewards, development, and succession. We are the only firm that has this expanded portfolio
that offers more ways for our consultants to engage with clients and make a lasting impact. This approach is
intentional, builds on the best of our past, and gives us a clear path to the future with focused
initiatives to increase our client and commercial impact. Whether restructuring to reduce costs, bringing in
new leaders, merging or acquiring, or transforming to stay ahead, we help organizations lead through change
and transform for growth.
Relevant solutions for a constant and rapidly changing world
Our
vision is to be the premier organizational consulting firm and we believe that our well-known brand,
intellectual property, content, data, and diversification strategy have positioned us well. Our unique
approach enables us to accelerate and positively impact the performance of thousands of organizations. And
we are poised for growth. The constantly evolving business landscape presents numerous opportunities for
Korn Ferry, making us more relevant than ever. From the shift to remote work due to the pandemic and the
talent challenges posed by the great resignation, to the transformative impact of artificial intelligence
(Gen AI) on workforce needs, these changes highlight opportunities for Korn Ferry to demonstrate our
cutting-edge, tech-enabled products, services, and solutions.
An added
benefit, we leverage what we learn. Less than two years post-launch, Gen AI is changing the way individuals
and organizations work and innovate. It has the fastest adoption rate of any technology in history, as well
as the fastest pace of change and evolution. At Korn Ferry, we are enabling our colleagues to use Gen AI to
gain efficiency, improving delivery and focus on value added work to ensure that the insight we create at
scale is actionable through our products, services, and solutions. We are also leveraging the technology
with our unique data and IP to differentiate our products and services, creating a moat around our business
that protects from disruption.
Our go-to-market approach
As we
drive our strategy, a focal point for us is our Marquee and Regional accounts program (M&R accounts)
which is comprised of about 350 of our top clients that together generate slightly more than 37% of our
year-to-date consolidated fee revenue. These accounts have Global Account Leaders assigned who help to
orchestrate the delivery of core and integrated
1
solutions
and products that cut across multiple lines of business – effectively making more of the Firm’s resources
available as our clients tackle their business and human capital issues. Approximately 84% of these clients
use three or more lines of business and 70% of this year’s top ten M&R accounts were also top ten
clients in the previous two years.
The opportunity upon us
Despite
near-term headwinds, we believe Korn Ferry is poised for continued, long-term growth. We are capitalizing on
the current and growing relevance of our solutions which, in combination with the strong connections amongst
our service offerings and our acquisitive activities, drives top-line synergies that have resulted in double
digit fee revenue growth rates (CAGR) over the past twenty years. Our fiscal 2024 performance reflects the
relevance of our strategy, the top-line synergies created by our end-to-end talent and leadership solutions,
and the increasing reach and relevance of the Korn Ferry brand. Thanks to the passion and performance of our
colleagues, we have concluded the year with strong results, in what was a very challenging macroeconomic
environment.
Our clients
During
fiscal 2024, we worked with almost 15,000 organizations. Our clients include the world’s largest and most
prestigious public and private companies, middle-market and emerging growth companies, and government and
non-profit organizations. We have built strong client loyalty, with more than 85% of our engagements in
fiscal 2024 completed on behalf of clients for whom we had conducted engagements in the previous three
fiscal years. We worked during fiscal 2024 with:
•97%
of the S&P 100, and 86% of the S&P 500
•92%
of the Euronext 100
•85%
of the FTSE 100
•89%
of the S&P Europe 350
•68%
of the S&P Asia 50
•80%
of the S&P Latin America 40
In
addition, we worked during fiscal 2024 with:
•3
in every 4 best companies to work for (Fortune Magazine)
•1
in every 2 of the fastest growing companies in the world (Fortune Magazine)
•80%
of the world’s top performing companies (Drucker Institute)
•96%
of the top 50 world's most admired companies (Fortune Magazine)
Our business and our people
We also
continued to make significant investments across the breadth of our business and in our people. This
commitment includes strategic acquisitions and the innovation and development of our talent platform,
solutions and ways of working. A testament to Korn Ferry’s forward-thinking approach is the acquisition of
our third and fourth Interim hiring firms in the last two fiscal years. This strategic decision has not only
boosted our standing, particularly in the Professional Search and Interim sectors, but we believe also
enables us to capitalize on significant opportunities for growth while effectively responding to prevailing
shifts in the workforce. These shifts include a heightened focus on agility and cost-management, a growing
need for specialized expertise and on-demand skills, as well as the accommodation of evolving employee
preferences and dynamics within the workforce. These investments are intended to expand our offerings to
help us further differentiate ourselves in the marketplace and reflect our continued focus on high-demand
areas emerging in this environment.
We
continue to capitalize on the top-line synergies created by our end-to-end solutions that are designed to
address the many aspects of an employee’s engagement with their employer. This manifests itself in our
ability to continue generating additional fee revenues based on referrals from one line of business to
another, exiting fiscal 2024, generating more than 25% of consolidated fee revenues in the fourth quarter of
fiscal 2024 from referrals.
With
vision, innovation and focus as our guide, we believe we are now a company with a more durable business and
more resilient top-line, with greater and expanding relevance, and with an increasingly sustainable level of
profitability that is poised for further growth in the years to come.
Fiscal 2024 Performance Highlights
Our
results reflect the dedication and hard work of our more than 9,000 talented colleagues. They focus on
creating value for our stakeholders, including our colleagues themselves, our clients, our shareholders, and
the communities in which we operate.
Our
strategic growth reflects a more balanced and sustainable organization.
•Our
performance was solid during what can be described as an uncertain and challenging global economic
environment, generating $2,762.7 million in fee revenue, down only 3% compared to fiscal 2023.
•Net
Income Attributable to Korn Ferry was $169.2 million.
2
•Operating
income and Adjusted EBITDA* were $212.9 million with a margin of 7.7%, and $408.2 million with a margin* of
14.8%, respectively. Adjusted EBITDA margin increased each consecutive quarter in fiscal 2024.
•Diluted
Earnings Per Share was $3.23.
•Consulting
and Digital showed resilient business operations:
◦Consulting
fee revenue grew 2.7% year-over-year with an 11% increase in average bill rate to $420 per hour.
◦Digital
fee revenue grew 3.4% year-over-year with a 9.4% increase in Subscription & License fee revenue growing
to $131.0 million in fiscal 2024.
•During
fiscal 2024, we continued with our balanced approach to capital allocation. For the full year, the Company
invested $46.7 million in capital expenditures (excluding leasehold improvements and furniture &
fixtures), $18.5 million on debt service costs, and returned $52.5 million and $54.4 million to shareholders
in the form of share repurchases and dividends, respectively.
*Consolidated
Adjusted EBITDA and Consolidated Adjusted EBITDA margin are non-GAAP financial measures and have limitations
as analytical tools. See Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations for a
discussion of why management believes the presentation of non-GAAP financial measures provide meaningful
supplemental information regarding Korn Ferry’s performance.
The Korn Ferry Story
Our Strategy
As
described above, our systematic approach to solving business challenges has us uniquely positioned to build
industry leading products, services and solutions that people, teams and organizations need so that business
strategy is implemented, and performance follows. Our approach is focused on the following strategic
priorities to increase our client and commercial impact:
1.Drive
a One Korn Ferry go-to-market strategy through our Marquee and Regional Accounts and integration across
solutions and geographies.
2.Create
the Top-of-Mind Brand in Organizational Consulting - Lead innovation through relevant market offerings and
evolve our thought leadership around talent strategy.
3.Deliver
Client Excellence and Innovation and diversify our offerings into fully integrated, scalable and sustainable
client engagements, enriched and differentiated with our unique IP, content and data.
4.Advance
Korn Ferry as a Premier Career Destination - Attract and retain top talent through continued investment in
building a world-class organization through a capable, motivated, and agile workforce.
5.Pursue
Transformational M&A Opportunities at the Intersection of Talent and Strategy.
Our Core Capabilities
We
continue to integrate, replicate and scale our solutions and to lead innovation in the digitally enabled new
world of work. The depth and breadth of our offerings across the talent lifecycle—from attraction to
assessment to recruitment to development, management, engagement, and reward—place us in a unique position.
We offer end-to-end solutions—a view into an organization’s entire talent ecosystem—to create positive
client outcomes. Our five core capabilities include:
•Organizational Strategy: We map
talent strategy to business strategy, designing operating models and organization structures that help
companies put strategic plans into action.
•Assessment and Succession: Our
assessment and succession solutions help pinpoint clear and actionable opportunities for growth. Leaders and
employees are empowered to take action on their own development, while companies use strategic perspectives
to build stronger plans and make smarter investments today and into the future.
•Talent Acquisition: From
Executive Search, Professional Search & Interim and Recruitment Process Outsourcing ("RPO") covering
single to multi-hire permanent positions and interim contractors, we help organizations attract and retain
the right people across functions, levels and skills.
•Leadership and Professional Development: We map
skills and competencies to business strategy and help develop leaders along each stage of their career with
a spectrum of intensive high-touch and scalable high-tech development experiences.
•Total Rewards: We help
organizations pay their people fairly for doing the right things with rewards they value at a cost that the
organization can afford.
3
Our Integrated Solutions
We also
offer integrated solutions that bring together expertise from across our core capabilities to navigate
broader business challenges. Korn Ferry IP and advanced technology enables our experts to deliver unique,
actionable insights and personalized recommendations accurately and efficiently at scale. These solutions
include:
•Workforce Transformation: We
offer practical and pragmatic solutions to support organizations in re-shaping workforces for the future.
These solutions are designed to enhance workforce productivity, agility, engagement, and alignment with the
organization's strategic goals.
•Cost Optimization: We
work with leaders to manage cost drivers: organization, people and rewards. We help make client
organizations fit for the future by putting in place strategies designed to enable our clients to achieve
cost reductions while maintaining performance and growth.
•Leadership Development and Coaching at Scale:
Businesses need to prepare for the future by creating a culture of learning that helps them quickly adapt to
new trends and demands. Leveraging our Korn Ferry Talent Platform, we combine our expertise in leadership
development with technology to provide quality coaching and development at scale across
organizations.
•M&A Solutions: We use
a framework that helps organizations look beyond balance sheets and focus on people. From the assessment and
selection of leaders to drive the go-forward strategy, to the future organization design and governance, we
help shape the combined purpose, ensure you have the right people in the right roles and craft the
integration and change management activities to maximize the investment. We also help buyers achieve
leadership and culturally accretive acquisitions which drive superior financial results.
•Culture, Change and Communication: We
align organization culture to business strategy to enhance performance and employee engagement, providing
comprehensive support for culture transformation, effective change management, and strategic communication
to ensure meaningful and sustainable change.
•Career Transition and Outplacement: We help
parting colleagues make a fresh start faster. Our career transition services cover personal assessments,
coaching, upskilling courses, branding, interview preparation and even onboarding once they land their new
job.
•Inclusion: We
believe inclusive organizations drive better business performance, attract and retain high-caliber talent,
foster innovation for competitive advantage, and enhance brand reputation. Our expertise in this area runs
deep. We help clients create more inclusive organizations reflective of today's interconnected world.
•Sales Effectiveness:
Today's selling environment is more complex than ever, with sales teams challenged to deliver value. Sellers
need the right tools, training, and approach to be successful. Korn Ferry leverages the KF Sell product and
award-winning Miller-Heiman sales methodology to help organizations achieve their top-line growth
objectives.
Our Digital Technology-Enabled Products
Our
consulting is supported and enabled by data and we have a robust suite of HR Digital technology products to
transform organizations further and faster, at scale. The insights drive actions. In addition, our clients
purchase these products directly from Korn Ferry via subscription licenses. Digital technology products
include:
•Korn Ferry Profile Manager: Defines
what good looks like in a given role using a combination of psychometric criteria and skills. Our success
profiles are the anchor point for our clients for talent acquisition and development.
•Korn Ferry Architect: Provides
organization structure and workforce/talent planning solutions for an agile, future-focused workforce where
everyone has opportunities to develop to their full potential.
•Korn Ferry Assess:
Evaluates and provides insights into an individuals' competencies, traits, drivers, and experiences -
essential for determining current and future leadership capabilities. Tailored to specific business needs
and linking skills to strategies, assessments can range from high-volume, tech-driven self-assessments to
personalized evaluations and help organizations understand their talent landscape, identify skill gaps, and
create development plans to ensure that the right people are in the right roles.
•Korn Ferry Engage: A
comprehensive feedback and survey solution designed to enhance the employee experience within organizations.
We link employee experience and business performance data and apply world-class benchmarks, best-practice
advisory and AI-backed analytics to identify gaps and improve engagement and performance.
•Korn Ferry Pay:
Provides the global benchmarking data and insights needed to inform effective and competitive employee
compensation programs.
4
•Korn Ferry Sell: A
native application within Salesforce and Microsoft that combines world-class Miller Heiman sales methodology
with powerful analytics driven technology to drive seller actions and increase win rates.
Our Businesses
The
Company has eight reportable segments that operate through the following five lines of business, supported
by a corporate center. This structure allows us to bring our resources together to focus on our clients and
partner with them to solve the challenges they face in their businesses. While each line of business is
strong on its own, as discussed above, the real strength is when our colleagues collaborate and our core
solutions that sit in these lines of business are integrated.
1.Consulting aligns
organizational structure, culture, performance, development, and people to drive sustainable growth by
addressing four fundamental organizational and talent needs: Organization Strategy, Assessment and
Succession, Leadership and Professional Development, and Total Rewards. The Consulting teams work across our
core capabilities, architecting integrated solutions and technology products described above to help clients
execute their strategy in a digitally enabled world.
Summary
of financial fiscal 2024 highlights:
•Fee
revenue was $695.0 million, an increase of 2.7% compared to fiscal 2023, representing 25.1% of consolidated
fee revenue.
•Adjusted
EBITDA was $114.3 million and Adjusted EBITDA margin was 16.4%.
•The
number of consulting and execution staff at year-end was 1,678 with an increase in the average bill rate
(fee revenue divided by the number of hours worked by consultants and execution staff) of $42 per hour or
11% compared to fiscal 2023.
Client
Base—During
fiscal 2024, the Consulting segment partnered with over 4,500 clients across the globe, and 28% of
Consulting’s fiscal 2024 fee revenue was referred from Korn Ferry’s other lines of business. Our clients
come from the private, public, and not-for-profit sectors across every major industry and represent diverse
business challenges.
Competition—The
people and organizational consulting market is fragmented, with different companies offering our core
solutions. Our competitors include consulting organizations affiliated with accounting, insurance,
information systems, and strategy consulting firms such as AON, Mercer, McKinsey, Willis Towers Watson and
Deloitte. We also compete with smaller boutique firms specializing in specific regional, industry, or
functional leadership and human resources ("HR") consulting aspects.
2.Digital builds,
sells and delivers our technology products. Our Digital talent technology products enable our clients to
make critical talent decisions in the flow of work across talent acquisition and talent development. This
talent suite encompasses integrated products that leverage Korn Ferry’s IP, talent science, and proprietary
data into powerful offerings that anchor how organizations hire and develop talent. Our clients access these
products via subscription licenses. In addition, our talent products enable our consultants to surface
actionable insights and provide customized recommendations as part of their consulting engagements.
Summary
of financial fiscal 2024 highlights:
•Fee
revenue was $366.7 million, an increase of 3.4% compared to fiscal 2023, representing 13.3% of consolidated
fee revenue.
•Subscription
and License fee revenue was $131.0 million, an increase of 9.4% compared to fiscal 2023.
•Adjusted
EBITDA was $108.7 million and Adjusted EBITDA margin was 29.6%.
Client
Base—During
fiscal 2024, the Digital segment partnered with over 8,000 clients across the globe, and 33% of Digital’s
fiscal 2024 fee revenue was referred from Korn Ferry’s other lines of business, primarily Consulting. Our
clients come from the private, public and not-for-profit sectors, across every major industry and represent
diverse business challenges.
Competition—Again,
competition is fragmented in this sector. We compete with specialist HR technology providers, and boutique
and large consulting companies in each solution area such as AON, Eightfold, Hogan, KPMG, Mercer, Willis
Towers Watson, SHL, and other boutique HR technology firms. One of our advantages is linking our data, IP
and our technology platform across our solutions. This allows us to give organizations an end-to-end view of
talent.
3.Executive Search helps
organizations recruit board-level, chief executive, and other C-suite/senior executive and general
management talent to deliver lasting impact. Our approach to placing talent brings together our
research-based IP, proprietary assessments and behavioral interviewing with our practical experience to
determine the ideal organizational fit. Salary benchmarking then helps us build appropriate frameworks for
5
compensation
and attraction. 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 ("APAC") and Executive Search Latin America).
Summary
of financial fiscal 2024 highlights:
•Fee
revenue was $806.2 million, a decrease of 7.9% compared to fiscal 2023, representing 29.2% of consolidated
fee revenue.
•Adjusted
EBITDA was $171.1 million and Adjusted EBITDA margin was 21.2%.*
•In
fiscal 2024, we opened more than 6,000 new engagements with an average of 572 consultants.
*Executive
Search Adjusted EBITDA and Executive Search Adjusted EBITDA margin are non-GAAP financial measures and have
limitations as analytical tools. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations for a
discussion of why management believes the presentation of these non-GAAP financial measures provide
meaningful supplemental information regarding Korn Ferry's performance.
Consultants
are organized in six broad industry groups and bring an in-depth understanding of the market conditions and
strategic management issues clients face within their industries and geographies. In addition, we regularly
look to expand our specialized expertise through internal development and strategic hiring in targeted
growth areas.
Functional
Expertise — We
also have organized centers of functional expertise. This helps our teams comprehensively grasp the specific
requirements and nuances involved in the role itself. These partners bring a deep understanding of the
functional dynamics–from strategy through to execution-enabling them to identify and place candidates who
possess the necessary skills, knowledge, and experience to excel in the role.
Percentage of Fiscal 2024 Assignments Opened by Functional Expertise
| Board Level/CEO/CFO/Senior Executive and General Management | 80 | % | |||
| Finance and Control | 7 | % | |||
| Information Systems | 4 | % | |||
| Marketing and Sales | 4 | % | |||
| Manufacturing/Engineering/Research and Development/Technology | 3 | % | |||
| Human Resources and Administration | 2 | % | |||
Client
Base—Our
more than 3,700 Executive Search engagement clients in fiscal 2024 include many of the world’s largest and
most prestigious public and private companies.
Competition—Our
Executive Search line of business competes with specialist global executive search firms, such as Egon
Zehnder, Heidrick & Struggles International, Inc., Russell Reynolds Associates and Spencer Stuart. We
also compete with smaller boutique firms specializing in regional, industry, or functional searches. We
believe our brand name, differentiated business model, systematic approach to client service, innovative
technology, unique IP, global network, prestigious clientele, strong specialty practices and high-caliber
colleagues are recognized worldwide. We also believe our long-term incentive compensation arrangements and
other executive benefits distinguish us from most of our competitors and are essential in attracting and
retaining our top consultants.
4.Professional Search & Interim delivers
enterprise talent acquisition solutions for permanent placements at the professional level middle and upper
management, and, for Interim, those same levels plus senior executives. The Company helps clients source
high-quality candidates at speed and scale globally, covering single-hire to multi-hire permanent placements
and interim contractors (that are focused on senior executive, information technology ("IT"), Finance &
Accounting and HR roles).
Summary
of financial fiscal 2024 highlights:
•Fee
revenue was $540.6 million, an increase of 7.4% compared to fiscal 2023, representing 19.6% of consolidated
fee revenue.
•Average
bill rates increased by 10% to $126 per hour in fiscal 2024 from $115 per hour in fiscal 2023. Average bill
rates represent fee revenue from interim services divided by the number of hours worked by consultants
providing those services.
•Adjusted
EBITDA was $101.9 million and Adjusted EBITDA margin was 18.8%.
6
Client
Base—During
fiscal 2024, the Professional Search & Interim segment partnered with more than 3,600 clients across the
globe, and 21% of Professional Search & Interim’s fiscal 2024 fee revenue was referred from Korn Ferry’s
other lines of business.
Competition—We
primarily compete for Professional Search & Interim business with regional contingency and large
national retained recruitment firms such as Robert Half, Michael Page, Harvey Nash, Robert Walters, KForce,
TekSystems and BTG. We believe our competitive advantage is distinct. We are strategic, collaborating with
clients to hire best-fit candidates using our assessment IP, proprietary technology and professional
recruiters. Our Talent Delivery Centers provide our teams with increased scalability, multilingual
capabilities, global reach and functional specialization. We also work under the One Korn Ferry umbrella to
help clients plan for their broader talent acquisition needs as part of their business strategy
planning.
5.RPO offers
scalable recruitment outsourcing and projects solutions leveraging a customized technology enabled service
delivery platform and talent insights. The Company's scalable solutions, built on our IP, science, and data
and powered by best-in-class technology and consulting expertise, enable the Company to act as a strategic
partner in clients’ quest for superior recruitment outcomes and better candidate fit.
Summary
of financial fiscal 2024 highlights:
•Fee
revenue was $354.1 million, a decrease of 16.6% compared to fiscal 2023, representing 12.8% of consolidated
fee revenue.
•Adjusted
EBITDA was $40.4 million and Adjusted EBITDA margin was 11.4%.
Client
Base—During
fiscal 2024, the RPO segment partnered with more than 200 clients across the globe, and 53% of RPO fiscal
2024 fee revenue was referred from Korn Ferry’s other lines of business.
Competition—We
primarily compete for RPO business with other global RPO providers such as Cielo, Alexander Mann Solutions,
IBM, Allegis, WilsonHCG and Randstad.
Finally,
our corporate center manages finance, legal, technology/IT, HR, marketing, and our research arm, the Korn
Ferry Institute.
We help
clients in four geographic markets: North America, EMEA, APAC and Latin America. Our geographic markets
bring together capabilities from across the organization—infusing industry and functional expertise and
skills—to deliver value to our partners.
We
operate in 103 offices in 51 countries, helping us deliver our solutions globally, wherever our clients do
business. We continue our commitment to diversity and inclusion, hiring, promoting, and extending
opportunities to women and underrepresented groups.
As of April 30, 2024, 72% of our
workforce in the U.S.
is female or from an underrepresented group. Broken down further, 64% of our workforce in the U.S. is
female, and 64% of our global workforce is female. Our global age demographic is 54% Millennials (ages
28-43) and 9% Gen Z/Centennials (ages 27 and below). As of April 30, 2024, we had 9,076 full-time
employees:
|
Consultants
and execution staff1
|
Support
staff2
|
Total employees | |||||||||||||||
| Consulting | 1,678 | 310 | 1,988 | ||||||||||||||
| Digital | 267 | 955 | 1,222 | ||||||||||||||
| Executive Search | 542 | 1,119 | 1,661 | ||||||||||||||
| Professional Search & Interim | 457 | 348 | 805 | ||||||||||||||
| RPO | 141 | 3,045 | 3,186 | ||||||||||||||
| Corporate | — | 214 | 214 | ||||||||||||||
| Total | 3,085 | 5,991 | 9,076 | ||||||||||||||
1Consultants
and execution staff, primarily responsible for originating client services
2Support
staff includes associates, researchers, administrative, and support staff
Business Challenges We Solve
Our
judgment and expertise have been built from decades of experience and insight into the business challenges
companies are grappling with across industries. We work to understand the relevant macro trends impacting
society and the future of work. After the reopening that followed the global pandemic, it is evident that
the world of work has permanently changed and with the emergence of technologies like AI, the evolution
continues. We support our clients amid a time of enormous transition and change, with these specific
business challenges:
•Transforming
businesses while delivering robust performance.
7
•Solving
leadership challenges arising from the new landscape of hybrid and remote working.
•Delivering for
people, planet, and profit, and assisting with relevant corporate strategic initiatives.
•Finding the
right talent in a dynamic and dislocated labor market.
•Engaging and
motivating employees so companies can retain and reward their talent.
•Supporting the
work-scape transition from a place of work to collaboration spaces.
•Building work
environments that are inclusive and free from bias.
•Engaging and Reward to
retain top talent.
Our Proprietary Data
We
manage and leverage nearly seven billion data points via our Digital technology products and platform,
including:
•Over
100 million assessments.
•Engagement
data on approximately 36 million employees.
And we
hold:
•Rewards
data on more than 28
million people
covering some 30,000 organizations.
•More
than 10,500 individual success profiles covering over 30,000 job titles.
•Organizational
benchmark data on almost 12,000
entities.
•Culture
surveys on approximately 600 entities and 7.2 million respondents.
•Pay
policy and practice data on more than 150 countries.
Innovation & Intellectual Property
Korn
Ferry is dedicated to developing leading-edge services and leveraging innovation. We have made investments
in technology, learning platforms, virtual coaching, individual learning journeys, data insights, and
intellectual property that permeates all our solutions. With these investments, we are transforming how
clients address their talent management needs. We have evolved from a mono-line business to a multi-faceted
consultancy, giving our consultants more opportunities to engage with clients. The expansion of our business
into larger markets offers higher growth potential and more durable and visible revenue streams.
The Korn Ferry Institute
The Korn
Ferry Institute is our research and analytics arm. The Korn Ferry Institute develops robust research,
innovative IP, and advanced analytics which is embedded in our talent products and leveraged by our
consultants to enable Korn Ferry employees to partner with people and organizations to activate and exceed
their potential.
We have
built the Korn Ferry Institute on three core pillars:
1.Robust Research and Thought Leadership to anticipate and innovate: We
explore trends and define leadership and human and organizational performance for a fast-changing economy.
Some project examples from fiscal 2024 include research around:
•CEO
Outcomes
•Inclusive
Boards
•Change-Ready
Leader
•Menopause
at Work
•AI
in the Workplace
•Evolution
of Diversity, Equity and Inclusion
•Leading
for Impact
2.Differentiated IP development supported by leading-edge science and
enablement: We
develop IP that drives success for our clients. Our work includes research-based frameworks, assessments,
talent development insights, and organization & reward measurement systems that power solutions for
people, teams, and organizations. Examples from fiscal 2024 include IP around:
•Enterprise
Success Framework
•Skills-Based
Hiring
8
•Strategic
Workforce Planning
•AI-Powered
Success Profiles Creation and Improvement
3.Client Advanced Analytics and Data Management to generate
insights: We
leverage data to generate insight-driven results. We continue to strive to prove the value of our IP,
products, and data through demonstrable outcomes and the impact our work has on our clients. During fiscal
2024, we supported the following:
•Talent
Analytics
•Future-Ready
Leadership
•Talent
Benchmarking & Talent Prediction
•Generative
AI-Assisted Text Analytics
•KFI
Knowledge Chatbot
In
the fiscal year ahead, we intend to continue innovating to drive even greater business and societal impact
to:
•Develop
research centers of excellence, expand our partnerships, and further leverage data and insights to drive the
impact, completeness and reach of our thought leadership.
•Extend,
refine, and integrate our IP for seamless go-to-market and delivery across products and solutions.
•Leverage
and monetize the value of our data in providing next-level insight to clients as "One Korn Ferry"; providing
data availability, quality, and scalability.
Global Delivery Capability
We
believe a key differentiator for us is our global delivery capability. This allows us to support the varied
parts of our business to give clients value-added services and solutions across the globe. We believe we can
bring the right people from anywhere in the world to our clients at the right time both in physical and
virtual working environments, which is a capability that is particularly crucial as business needs and
conditions continue to change rapidly.
Competition
Korn
Ferry operates in a rapidly changing global marketplace with a diverse range of organizations that offer
services and solutions like those we offer. However, we believe no other company provides the same full
range of services, enabled by technology and data, uniquely positioning us for success in this highly
fragmented, talent management landscape.
Our Market and Approach
Industry Recognition
Our
company culture and excellent work within the industry are widely recognized. Some highlights from fiscal
2024 include global industry awards and accolades in recognition of performance and achievements:
•Named
America's Number One Executive Recruiter Firm 2024, Forbes
•Named
among the top 20 on Training Industries’ 2024 Top Sales Training & Enablement Companies
•Named
in America's Best Management Consulting Firms list in 2024, Forbes
•Leader
level Carbon Disclosure Project ("CDP") Rating for 2023 response to climate change questionnaire
•Silver
Medal for Sustainability rating from EcoVadis 2023
•Gold
HIRE Vets Medallion Award 2023, US Department of Labor
•Recognized
by Seramount (formerly Working Mother Media) in the best Companies for Parents list 2023, and in the Top 75
Companies for Executive Women list 2023
•Top
Global RPO Provider, RPO Baker's Dozen List 2023, HRO Today
•Recognized
as a Star Performer & Leader in Recruitment Process Outsourcing in Everest Group's PEAK Matrix
Assessment 2023
•Named
Number One HR Consulting Firm in Europe, Middle East and Africa, 2023 Statista
•Gold
Rating, UK’s Leading Recruiters, 2024 Financial Times
•Best
Places to Work for LGBTQ+ Equality, 2024 Human Rights Campaign Foundation
9
Our Go-To-Market Approach
Our
go-to-market strategy brings together Korn Ferry’s core solutions to drive more integrated, scalable client
relationships. Our goal is to drive topline synergies by increasing growth in the crossline of business
referrals. This has been successful as during fiscal 2024, more than 75% of fee revenue came from clients
using multiple lines of our business.
We
intend to continue evolving integrated solutions along industry lines to drive cross-geography and
cross-solution referrals. Our Marquee and Regional Accounts program is a pillar of our growth strategy,
which now comprises more than one-third of our fee revenue, yet only 2% of our clients. Its success has been
realized by using our own IP and by following a disciplined approach to account planning and management with
the addition of Global Account Leaders, resulting in more enduring relationships with clients. We believe
building long-term client relationships of scale delivers less cyclical, more resilient revenue and new
business through structured, programmatic account planning and strategic investments in account management
talent.
Our People
Culture and Workforce
Our
culture has evolved tremendously over the years with a team spirit of working together across different
offices, regions, and practices. We strive to foster a supportive, respectful culture where everyone feels
valued for their contribution, can do their best work and exceed their potential. Our approach to talent
acquisition, development, recognition, engagement and benefits are designed to support this approach. Our
priority is to hire without bias and provide under-represented talent with equal opportunity across the
firm. We work hard to build an environment of recognition by acknowledging others and appreciating their
contributions and achievements. Our global talent promotion process recognizes colleagues for exceptional
dedication and service to clients, embracing our firm's purpose and values, outstanding collaboration and
stretching to meet expectations. We believe diversity drives innovation and connects us to our customers and
communities. We are committed to building strong teams of people with diverse experiences, backgrounds, and
perspectives.
Our Beliefs and Behaviors
Our
culture starts with our values of Inclusion,
Honesty, Knowledge, and Performance. Our
values set the standard for what we expect of all our people. They also reflect the experience we want our
clients to have when they work with us. We seek to embrace people with different points of view. We actively
help our colleagues grow and develop with mentoring and support. We strive to learn, grow, to be better
today than we were yesterday, and always do our best for our clients, colleagues, and shareholders.
As a
global corporation, our commitment is to act ethically, which begins with each of us. This thinking is
embedded in our core values and guides how we work together and with others. We strongly believe in a
radically human approach, striving for empathy, honesty and authenticity across our interactions.
Developing and Rewarding Our People
We focus
on making Korn Ferry a firm that energizes, develops, rewards and empowers people to pursue their passions
and help our business succeed. Our global talent promotion process recognizes colleagues for exceptional
dedication and service to clients. Most years we run promotion cycles twice a year to allow us to appreciate
the contribution of colleagues more frequently. In fiscal 2024, we
promoted over 840 people in our
five lines of business and Corporate.
We offer
competitive benefits across the globe customized to each country we operate in based on market prevalence
and cultural relevance. The Korn Ferry Cares benefits strategy focuses on keeping our colleagues and their
families healthy – physically, emotionally, financially, and socially.
Our progressive benefit offerings in the U.S. helped us earn top recognitions by Seramount (formerly Working
Mother Media) as the best company for Parents 2023, Top Company for Female Professionals 2023, and as one of
the Human Rights Campaign’s Best Places to Work for LGBTQ+ Equality 2024.
We
believe in teaching and mentoring to support our colleagues’ career growth and success. These efforts have
fostered stability and expertise in our workforce. Development happens broadly throughout the organization,
from our formal mentoring program to direct training on our learning management platform, iAcademy. We also
champion a range of career and leadership programs, such as our Mosaic program for diverse high-potentials,
Leadership U for Korn Ferry, and Leadership U PLUS for Korn Ferry colleagues, an internal leadership
development program. We use our Korn Ferry Advance platform, used externally by clients for career coaching
and career development, as an internal development program platform.
We run a
global colleague advisory council that offers feedback to senior leadership on the colleague experience
within Korn Ferry. Also, our internal employee engagement program, the Korn Ferry Founder Awards, recognizes
and celebrates exceptional performance.
Employee Well-being
The
well-being of our employees is a focus. We run a series of initiatives to support employee well-being and
instill an organizational culture of health, including an Employee Assistance program, mental health
awareness campaigns, well-being webinars, flexible work schedules and parental support for distance
learning.
10
Our employee safety
We are
committed to creating a place where people can be successful professionally and personally. In response to
the pandemic, we developed and implemented new practices designed to prioritize the health and safety of our
employees and clients.
Available Information
We file
annual, quarterly, and current reports, proxy statements, and other documents with the Securities and
Exchange Commission (the "SEC"), according to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Our reports, proxy statements, and other documents filed electronically with the SEC are available at
the website maintained by the SEC at https://www.sec.gov.
We also
make available, free of charge on the Investor Relations portion of our website at http://ir.kornferry.com,
those annual, quarterly, and current reports, and, if applicable, amendments to those reports, filed or
furnished under Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such reports with, or furnish them to, the SEC at www.sec.gov.
Our
Corporate Governance Guidelines, Code of Business Conduct and Ethics, and the charters of the Audit
Committee, Compensation and Personnel Committee, and Nominating and Corporate Governance Committee of our
Board of Directors are also posted on the Investor Relations portion of our website at http://ir.kornferry.com.
Stockholders may request copies of these documents by writing to our Corporate Secretary at 1900 Avenue of
the Stars, Suite 1500, Los Angeles, California 90067.
In
addition, we make available on the Investor Relations portion of our website at http://ir.kornferry.com
press releases and related earnings presentations and other essential information, which we encourage you to
review.
Item 1A. Risk Factors
The
discussion below describes the material factors, events, and uncertainties that make an investment in our
securities risky, and these risk factors should be considered carefully together with all other information
in this Annual Report, including the financial statements and notes thereto. It does not address all of the
risks that we face, and additional risks not presently known to us or that we currently deem immaterial may
also arise and impair our business operations. Our business, financial condition or results of operations
could be materially adversely affected by the occurrence of any of these risks.
Risks Related to Our Business
Our inability to successfully recover should we experience a disaster or other
business continuity problem could cause material financial loss, loss of human capital, regulatory actions,
reputational harm or legal liability.
Should
we experience a disaster or other business continuity problem, such as a natural disaster, unusual weather
conditions, terrorist attack, security breach, power loss, telecommunications failure or other man-made
disaster, our continued success will depend, in part, on the availability of our personnel, our office
facilities, and the proper functioning of our computer, telecommunication and other related systems and
operations. In such an event, we could experience near-term operational challenges with regard to particular
areas of our operations. In particular, our ability to recover from any disaster or other business
continuity problem will depend on our ability to protect our technology infrastructure against damage from
business continuity events that could have a significant disruptive effect on our operations. For example, a
large number of our corporate staff are based in California, which has a high level of risk from wildfires
and earthquakes. The impacts of climate change present notable risks, including damage to assets and
technology caused by extreme weather events linked to climate change and may otherwise heighten or
exacerbate the occurrence of such weather events. We could potentially lose client data or experience
material adverse interruptions to our operations or delivery of services to our clients in a disaster. A
disaster on a significant scale or affecting certain of our key operating areas within or across regions, or
our inability to successfully recover should we experience a disaster, pandemic or other business continuity
problem, could materially interrupt our business operations and cause material financial loss, loss of human
capital, regulatory actions, reputational harm, damaged client relationships or legal liability.
We are limited in our ability to recruit candidates from certain of our
clients due to off-limit agreements with those clients and for client relation and marketing purposes. Such
limitations could harm our business.
Either
by agreement with clients, or for client relations or marketing purposes, we are required to or elect to
refrain from, for a specified period of time, recruiting candidates from a client when conducting searches
on behalf of other clients. These off-limit agreements can cause us to lose search opportunities to our
competition. The duration and scope of the off-limit agreement, including whether it covers all operations
of the client and its affiliates or only certain divisions of a client, generally are subject to negotiation
or internal policies and may depend on factors such as the scope, size and complexity of the client’s
business, the length of the client relationship and the frequency with which we have been engaged to perform
executive and professional searches for the client. We cannot ensure that off-limit agreements will not
impede our growth or our ability to attract and serve new clients, or otherwise harm our business.
11
We face significant competition. Competition in our industries could result in
lost market share, reduced demand for our services, and/or require us to charge lower prices for our
services, which could adversely affect our operating results and future growth.
We
continue to face significant competition within each of our services and product offerings. The human
resource consulting market has been traditionally fragmented and a number of large consulting firms, such as
AON, McKinsey, Mercer, Willis Towers Watson and Deloitte have built businesses in human resource consulting
to serve these needs. Our consulting business line has and continues to face competition from human resource
consulting businesses. Many of these competitors are significantly larger than Korn Ferry and have
considerable resources at their disposal, allowing for potentially significant investment to grow their
human resource consulting business. Digital products in the human resource market have been traditionally
fragmented and a number of firms such as AON, Hogan, Mercer, Willis Towers Watson, KPMG, Eightfold, SHL and
other boutique HR technology firms offer competitive products. Competitors in the digital marketplace are a
combination of large, well-capitalized firms and niche players who have received multiple rounds of private
financing. Increased competition, whether as a result of professional and social networking website
providers, traditional executive search firms, sole proprietors and in-house human resource professionals
(as noted above) or larger consulting firms building human resources consulting businesses, may lead to
pricing pressures that could negatively impact our business. For example, increased competition could
require us to charge lower prices, and/or cause us to lose market share, each of which could reduce our fee
revenue.
Our
executive search services face competition from both traditional and non-traditional competitors that
provide job placement services, including other large global executive search firms, smaller specialty firms
and web-based firms. We also face increased competition from sole proprietors and in-house human resource
professionals whose ability to provide job placement services has been enhanced by professional profiles
made available on the internet and enhanced social media-based search tools. The continued growth of the
shared economy and related freelancing platform sites may also negatively impact demand for our services by
allowing employers seeking services to connect with employees in real time and without any significant cost.
Traditional executive search competitors include Egon Zehnder, Heidrick & Struggles International, Inc.,
Russell Reynolds Associates and Spencer Stuart. In each of our markets, one or more of our competitors may
possess greater resources, greater name recognition, lower overhead or other costs and longer operating
histories than we do, which may give them an advantage in obtaining future clients, capitalizing on new
technology and attracting qualified professionals in these markets. Additionally, specialty firms can focus
on regional or functional markets or on particular industries and executive search firms that have a smaller
client base are subject to fewer off-limits arrangements. There are no extensive barriers to entry into the
executive search industry and new recruiting firms continue to enter the market.
We
believe the continuing development and increased availability of information technology will continue to
attract new competitors, especially web-enabled professional and social networking website providers, and
these providers may be facilitating a company’s ability to insource their recruiting capabilities.
Competitors in these fields include SmashFly, iCIMS, Yello, Indeed, Google for Jobs and Jobvite. As these
providers continue to evolve, they may develop offerings similar to or more expansive than ours, thereby
increasing competition for our services or more broadly causing disruption in the executive search industry.
Further, as technology continues to develop and the shared economy continues to grow, we expect that the use
of freelancing platform sites will become more prevalent. As a result, companies may turn to such sites for
their talent needs, which could negatively impact demand for the services we offer.
Our RPO
services primarily compete for business with other RPO providers such as Cielo, Alexander Mann Solutions,
IBM, Allegis, WilsonHCG and Randstad while Professional Search & Interim services compete for mid-level
professional search assignments with regional contingency recruitment firms and large national retained
recruitment firms such as Robert Half, Michael Page, Harvey Nash, Robert Walters, TekSystems, KForce and
BTG. In addition, some organizations have developed or may develop internal solutions to address talent
acquisition that may be competitive with our solutions. This is a highly competitive and developing industry
with numerous specialists. To compete successfully and achieve our growth targets for our talent acquisition
business, we must continue to support and develop assessment and analytics solutions, maintain and grow our
proprietary database, deliver demonstrable return on investment to clients, support our products and
services globally, and continue to provide consulting and training to support our assessment products. Our
failure to compete effectively could adversely affect our operating results and future growth.
Failure to attract and retain qualified and experienced consultants could
result in a loss of clients which in turn could cause a decline in our revenue and harm to our business.
We
compete with other executive, professional search and interim and consulting firms for qualified and
experienced consultants. These other firms may be able to offer greater bonuses, incentives or compensation
and benefits or more attractive lifestyle choices, career paths, office cultures, or geographic locations
than we do. Competition for these consultants typically increases during periods of wage inflation, labor
constraints, and/or low unemployment, and can result in material increases to our costs and stock usage
under authorized employee stock plans, among other impacts.
Attracting
and retaining consultants in our industry is particularly important because, generally, a small number of
consultants have primary responsibility for a client relationship. Because client responsibility is so
concentrated, the loss of key consultants may lead to the loss of client relationships. In fiscal 2024, our
top six consultants generated business equal to approximately 2% of our total fee revenues. Furthermore, our
top ten consultants generated business equal to approximately 3% of our total fee revenues. This risk is
heightened due to the general portability of a consultant’s business:
12
consultants
have in the past, and will in the future, terminate their employment with our Company. Any decrease in the
quality of our reputation, reduction in our compensation levels relative to our peers or modifications of
our compensation program, whether as a result of insufficient revenue, a decline in the market price of our
common stock or for any other reason, could impair our ability to retain existing consultants or attract
additional qualified consultants with the requisite experience, skills and established client relationships.
Our failure to retain our most productive consultants, whether in Executive Search, Consulting, Digital,
Professional Search & Interim or RPO, or maintain the quality of service to which our clients are
accustomed, as well as the ability of a departing consultant to move business to his or her new employer,
could result in a loss of clients, which could in turn cause our fee revenue to decline and our business to
be harmed. We may also lose clients if the departing consultant has widespread name recognition or a
reputation as a specialist in his or her line of business in a specific industry or management function. We
could also lose additional consultants if they choose to join the departing consultant at another executive
search or consulting firm. Failing to limit departing consultants from moving business or recruiting our
consultants to a competitor could adversely affect our business, financial condition and results of
operations.
We are
working to advance culture change through the continued implementation of diversity, equity and inclusion
("DE&I") initiatives throughout our organization. If we do not or are perceived not to successfully
implement these initiatives, our ability to recruit, attract and retain talent may be adversely impacted and
shifts in perspective and expectations about social issues and priorities surrounding DE&I may occur at
a faster pace than we are capable of managing effectively. If we are unable to identify, attract and retain
sufficient talent in key positions, it may prevent us from achieving our strategic vision, disrupt our
business, impact revenues, increase costs, damage employee morale and affect the quality and continuity of
client service. In addition, risks associated with our recent reduction in headcount may be exacerbated if
we are unable to retain qualified personnel.
Failing to maintain our professional reputation and the goodwill associated
with our brand name could seriously harm our business.
We
depend on our overall reputation and brand name recognition to secure new engagements and to hire qualified
professionals. Our success also depends on the individual reputations of our professionals. We obtain a
majority of our new engagements from existing clients or from referrals by those clients. Any client who is
dissatisfied with our services can adversely affect our ability to secure new engagements. If any factor,
including poor performance or negative publicity, whether or not true, hurts our reputation, we may
experience difficulties in competing successfully for both new engagements and qualified consultants, which
could seriously harm our business.
As we develop new services, clients and practices, enter new lines of
business, and focus more of our business on providing a full range of client solutions, the demands on our
business and our operating and legal risks may increase.
As part
of our corporate strategy, we are attempting to leverage our research and consulting services to sell a full
range of services across the life cycle of a policy, program, project or initiative, and we are regularly
searching for ways to provide new services to clients, such as our entry into the Interim business and
strategic acquisitions. This strategy, even if effectively executed, may prove insufficient in light of
changes in market conditions, workforce trends, technology, competitive pressures or other external factors.
In addition, we plan to extend our services to new clients and into new lines of business and geographic
locations. As we focus on developing new services, clients, practice areas and lines of business; acquire or
dispose of business; and engage in business in new geographic locations, our operations are exposed to
additional as well as enhanced risks.
In
particular, our growth efforts place substantial additional demands on our management and staff, as well as
on our information, financial, administrative and operational systems. We may not be able to manage these
demands successfully. Growth may require increased recruiting efforts, opening new offices, increased
business development, selling, marketing and other actions that are expensive and entail increased risk. We
may need to invest more in our people and systems, controls, compliance efforts, policies and procedures
than we anticipate. Therefore, even if we do grow, the demands on our people and systems, controls,
compliance efforts, policies and procedures may exceed the benefits of such growth, and our operating
results may suffer, at least in the short-term, and perhaps in the long-term.
Efforts
involving a different focus and/or new services, clients, practice areas, lines of business, offices and
geographic locations entail inherent risks associated with our inexperience and competition from mature
participants in those areas. Our inexperience may result in costly decisions that could harm our profit and
operating results. In particular, new or improved services often relate to the development, implementation
and improvement of critical infrastructure or operating systems that our clients may view as “mission
critical,” and if we fail to satisfy the needs of our clients in providing these services, our clients could
incur significant costs and losses for which they could seek compensation from us. As our business continues
to evolve and we provide a wider range of services, we will become increasingly dependent upon our
employees, particularly those operating in business environments less familiar to us. Failure to identify,
hire, train and retain talented employees who share our values could have a negative effect on our
reputation and our business.
13
We are subject to potential legal liability from clients, employees,
candidates for employment, stockholders and others. Insurance coverage may not be available to cover all of
our potential liability and available coverage may not be sufficient to cover all claims that we may
incur.
We are
exposed to potential claims with respect to the executive search process and our consulting services, among
numerous other matters. For example, a client could assert a claim for matters such as breach of an
off-limit agreement or recommending a candidate who subsequently proves to be unsuitable for the position
filled. Further, the current employer of a candidate whom we placed could file a claim against us alleging
interference with an employment contract; a candidate could assert an action against us for failure to
maintain the confidentiality of the candidate’s employment search; and a candidate or employee could assert
an action against us for alleged discrimination, violations of labor and employment law or other matters.
Also, in various countries, we are subject to data protection, employment and other laws impacting the
processing of candidate information and other regulatory requirements that could give rise to
liabilities/claims. Client dissatisfaction with the consulting services provided by our consultants may also
lead to claims against us.
Additionally,
as part of our consulting services, we often send a team of leadership consultants to our clients’
workplaces. Such consultants generally have access to client information systems and confidential
information. An inherent risk of such activity includes possible claims of misuse or misappropriation of
client IP, confidential information, funds or other property, as well as harassment, criminal activity,
torts, or other claims. Such claims may result in negative publicity, injunctive relief, criminal
investigations and/or charges, payment by us of monetary damages or fines, or other material adverse effects
on our business.
From
time to time, we may also be subject to legal actions or claims brought by our stockholders, including
securities, derivative and class actions, for a variety of matters related to our operations, such as
significant business transactions, cybersecurity incidents, volatility in our stock, and our responses to
stockholder activism, among others. Such actions or claims and their resolution may result in defense costs,
as well as settlements, fines or judgments against us, some of which are not, or cannot be, covered by
insurance. The payment of any such costs, settlements, fines or judgments that are not insured could have a
material adverse effect on our business. In addition, such matters may affect the availability or cost of
some of our insurance coverage, which could adversely impact our results of operations and expose us to
increased risks that would be uninsured.
We
cannot ensure that our insurance will cover all claims or that insurance coverage will be available at
economically acceptable rates. Our ability to obtain insurance, its coverage levels, deductibles and
premiums, are all dependent on market factors, our loss history and insurers’ perception of our overall risk
profile. Our insurance may also require us to meet a deductible. Significant uninsured liabilities could
have a material adverse effect on our business, financial condition and results of operations.
We are subject to numerous and varied government regulations across the
jurisdictions in which we operate.
Our
business is subject to various federal, state, local, and foreign laws and regulations that are complex,
change frequently and may become more stringent over time. Future legislation, regulatory changes or policy
shifts under the current U.S. administration or other governments could impact our business. Our failure to
comply with applicable laws and regulations could restrict our ability to provide certain services or result
in the imposition of fines and penalties, substantial regulatory and compliance costs, litigation expense,
adverse publicity, and loss of revenue. We incur, and expect to continue to incur, significant expenses in
our attempt to comply with these laws, and our businesses are also subject to an increasing degree of
compliance oversight by regulators and by our clients. In addition, our Digital services and increasing use
of technology in our business expose us to data privacy and cybersecurity laws and regulations that vary and
are evolving across jurisdictions. These and other laws and regulations, as well as laws and regulations in
the various states or in other countries, could limit our ability to pursue business opportunities we might
otherwise consider engaging in, impose additional costs or restrictions on us, result in significant loss of
revenue, impact the value of assets we hold, or otherwise significantly adversely affect our business. Any
failure by us to comply with applicable laws or regulations could also result in significant liability to us
from private legal actions, or may result in the cessation of our operations or portions of our operations
or impositions of fines and restrictions on our ability to carry on or expand our operations. Our operations
could also be negatively affected by changes to laws and regulations and enhanced regulatory oversight of
our clients and us. These changes may compel us to change our prices, may restrict our ability to implement
price increases, and may limit the manner in which we conduct our business or otherwise may have a negative
impact on our ability to generate revenues, earnings, and cash flows. If we are unable to adapt our products
and services to conform to the new laws and regulations, or if these laws and regulations have a negative
impact on our clients, we may experience client losses or increased operating costs, and our business and
results of operations could be negatively affected.
As we
incorporate AI and machine learning into our business there are uncertainties in the legal regulatory regime
relating to AI that may require significant resources to modify and maintain business practices to comply
with U.S. and non-U.S. laws, the nature of which cannot be determined at this time. Several jurisdictions
around the globe, including Europe and certain U.S. States, have already proposed or enacted laws governing
AI. For example, European regulators have proposed stringent AI regulations and laws, and the Company
expects other jurisdictions will adopt similar legislation. Other jurisdictions may decide to adopt similar
or more restrictive legislation that may render the use of such technologies challenging, impossible or
financially prohibitive.
14
Our business and operations are impacted by developing laws and regulations,
as well as evolving investor and customer expectations with regard to, corporate responsibility matters and
reporting, which expose us to numerous risks.
We are
subject to evolving local, state, federal and/or international laws, regulations, and expectations regarding
corporate responsibility matters, including sustainability, the environment, climate change, human capital
management, DE&I, procurement, philanthropy, data privacy and cybersecurity, human rights, business
risks and opportunities, including shifts in market preferences for reporting, more sustainable or socially
responsible products and services, and other actions. These requirements, expectations, and/or frameworks,
which can include assessment and ratings published by third-party firms, are not synchronized and vary by
stakeholder, industry, and geography; as a result, they may: increase the time and cost of our efforts to
monitor and comply with those obligations; limit the extent, frequency, and modality with which our
consultants travel; impact our business opportunities, supplier and customer choices and reputation; and
expose us to heightened scrutiny, liability, and risks that could negatively affect us. We report on our
aspirations, targets, and initiatives related to corporate responsibility matters (both directly and in
response to third-party inquiries), including our Scope 1 and 2 emissions reduction goal for 2025 and our
recently submitted goal to the Science-Based Target initiative. These efforts have also, and may in the
future include, voluntary reporting intended to address certain third-party frameworks, such as the
recommendations of the Sustainability Accounting Standards Board, the Task Force for Climate-Related
Financial Disclosures and other mandatory or voluntary standards or assessments related to corporate
responsibility matters. Our ability to achieve our corporate responsibility aspirations, which may change,
or to meet these evolving expectations is not guaranteed and is subject to numerous risks, including the
existence, cost, and availability of certain technology, methodologies, and processes, the acquisition and
integration of new entities, and trends in demand. Failing to accurately report, progress on, or meet any
such aspirations or expectations (including a perceived failure to do so) on a timely basis or at all could
negatively affect our business, growth, results of operations, and reputation. Meeting or exceeding such
aspirations or expectations also may not result in the benefits initially anticipated.
Within
our own operations, we face additional costs: from rising energy costs, which make it more expensive to
power our corporate offices; and efforts to mitigate or reduce our operations’ impacts from or on the
environment, such as a shift to cloud technology or a leasing preference for buildings that are
LEED-certified. We have also developed and offer corporate responsibility services and products designed to
address customer demand for human capital management, DE&I, and sustainability matters within their own
organizations and workforce, the success of which depends on many factors and may not be fully
realized.
Risks Related to Our Profitability
We may not be able to align our cost structure with our revenue level, which
in turn may require additional financing in the future that may not be available at all or may be available
only on unfavorable terms.
Our
efforts to align our cost structure with the current realities of our markets may not be successful. When
actual or projected fee revenues are negatively impacted by weakening customer demand, we have and may again
find it necessary to take cost cutting measures so that we can minimize the impact on our profitability,
such as the restructuring recently initiated in the first half of fiscal 2024. Failing to maintain a balance
between our cost structure and our revenue could adversely affect our business, financial condition, and
results of operations and lead to negative cash flows, which in turn might require us to obtain additional
financing to meet our capital needs. If we are unable to secure such additional financing on favorable
terms, or at all, our ability to fund our operations could be impaired, which could have a material adverse
effect on our results of operations.
Our financial results could suffer if we are unable to achieve or maintain
adequate utilization and suitable billing rates for our consultants.
Our
profitability depends, to a large extent, on the utilization and billing rates of our professionals.
Utilization of our professionals is affected by a number of factors, including: the number and size of
client engagements; the timing of the commencement, completion and termination of engagements (for example,
the commencement or termination of multiple RPO engagements could have a significant impact on our business,
including significant fluctuations in our fee revenue, since these types of engagements are generally
larger, in terms of both staffing and fee revenue generated, than our other engagements); our ability to
transition our consultants efficiently from completed engagements to new engagements; the hiring of
additional consultants because there is generally a transition period for new consultants that results in a
temporary drop in our utilization rate; unanticipated changes in the scope of client engagements; our
ability to forecast demand for our services and thereby maintain an appropriate level of consultants; and
conditions affecting the industries in which we practice, as well as general economic conditions.
The
billing rates of our consultants that we are able to charge are also affected by a number of factors,
including: our clients’ perception of our ability to add value through our services; the market demand for
the services we provide, which may vary globally or within particular industries that we serve; an increase
in the number of clients in the government sector in the industries we serve; the introduction of new
services by us or our competitors; our competition and the pricing policies of our competitors; and current
economic conditions.
15
If we
are unable to achieve and maintain adequate overall utilization, as well as maintain or increase the billing
rates for our consultants, our financial results could materially suffer. In addition, our consultants
oftentimes perform services at the physical locations of our clients. Natural disasters, pandemics,
disruptions to travel and transportation or problems with communications systems negatively impact our
ability to perform services for, and interact with, our clients at their physical locations, which could
have an adverse effect on our business and results of operations.
The profitability of our fixed-fee engagements with clients may not meet our
expectations if we underestimate the cost of these engagements when pricing them.
When
making proposals for fixed-fee engagements, we estimate the costs and timing for completing the engagements
and these estimates may not be accurate. Any increased or unexpected costs or unanticipated delays in
connection with the performance of fixed-fee engagements, including delays caused by factors outside our
control, could make these contracts less profitable or unprofitable, which would have an adverse effect on
our profit margin. Clients may also delay or cancel engagements, which could cause expected revenues to be
realized at a later time or not at all. For the years ended 2024, 2023, and 2022, fixed-fee engagements
represented 24%, 23%, and 22% of our revenues, respectively.
Inflationary pressure has and may continue to adversely impact our
profitability.
Demand
for our services is affected by global economic conditions and the general level of economic activity in the
geographic regions in which we operate. During periods of slowed economic activity, many companies hire
fewer permanent employees, and our business, financial condition and results of operations may be adversely
affected. If unfavorable changes in regional or global economic conditions occur, our business, financial
condition and results of operations could suffer. Accelerated and pronounced economic pressures, such as the
ongoing inflationary cost pressures and rise in interest rates in the last few years, as well as
geopolitical uncertainty, has and may continue to negatively impact our expense base by increasing our
operating costs, including labor, borrowing, and other costs of doing business. Continued inflationary
pressures may result in increases in operating costs that we may not be able to fully offset by raising
prices for our services because if we do our clients may choose to reduce their business with us, which may
reduce our operating margin.
Risks Related to Accounting and Taxation
Foreign currency exchange rate risks affect our results of operations.
A
material portion of our revenue and expenses are generated by our operations in foreign countries, and we
expect that our foreign operations will account for a material portion of our revenue and expenses in the
future. Most of our international expenses and revenue are denominated in foreign currencies. As a result,
our financial results are affected by changes in foreign currency exchange rates or weak economic conditions
in foreign markets in which we have operations, among other factors. Fluctuations in the value of those
currencies in relation to the U.S. dollar have caused and will continue to cause dollar-translated amounts
to vary from one period to another. Such variations expose us to both adverse as well as beneficial
movements in currency exchange rates. Given the volatility of exchange rates, we are not always able to
manage effectively our currency translation or transaction risks, which has and may continue to adversely
affect our financial condition and results of operations.
We have deferred tax assets that we may not be able to use under certain
circumstances.
If we
are unable to generate sufficient future taxable income in certain jurisdictions, or if there is a
significant change in the time period within which the underlying temporary differences become taxable or
deductible, we could be required to increase our valuation allowances against our deferred tax assets. This
would result in an increase in our effective tax rate, and an adverse effect on our future operating
results. In addition, changes in statutory tax rates may also change our deferred tax assets or liability
balances, with either a favorable or unfavorable impact on our effective tax rate. Our deferred tax assets
may also be impacted by new legislation or regulation.
Risks Related to Our Financing/Indebtedness
Our level of indebtedness could adversely affect our financial condition, our
ability to operate our business, react to changes in the economy or our industry, prevent us from fulfilling
our obligations under our indebtedness and could divert our cash flow from operations for debt
payments.
As of
April 30, 2024, we had approximately $400.0 million in total indebtedness outstanding, and $645.5 million of
availability under our $650.0 million five-year senior secured revolving credit facility (the “Revolver”)
provided for under our Credit Agreement, as amended on June 24, 2022 (the “Amended Credit Agreement”) that
we entered into with a syndicate of banks and Bank of America, National Association as administrative agent.
Subject to the limits contained in the Amended Credit Agreement that govern our Revolver and the indenture
governing our $400.0 million principal amount of the
4.625% Senior Unsecured Notes due 2027 (the “Notes”),
we may be able to incur substantial additional debt from time to time to finance working capital, capital
expenditures, investments or acquisition, or for other purposes. If we do so, the risks related to our debt
could increase.
Specifically,
our level of debt could have important consequences to us, including the following: it may be difficult for
us to satisfy our obligations, including debt service requirements under our outstanding debt; our ability
to obtain additional financing for working capital, capital expenditures, debt service requirements,
acquisitions or other general corporate
16
purposes
may be impaired; requiring a substantial portion of cash flow from operations to be dedicated to the payment
of principal and interest on our indebtedness, including the Notes, therefore reducing our ability to use
our cash flow to fund our operations, capital expenditures, future business opportunities and other
purposes; we are more vulnerable to economic downturns and adverse industry conditions and our flexibility
to plan for, or react to, changes in our business or industry is more limited; our ability to capitalize on
business opportunities and to react to competitive pressures, as compared to our competitors, may be
compromised due to our high level of debt and the restrictive covenants in the Amended Credit Agreement and
the indenture governing our Notes; our ability to borrow additional funds or to refinance debt may be
limited; and it may cause potential or existing customers to not contract with us due to concerns over our
ability to meet our financial obligations, such as insuring against our professional liability risks, under
such contracts. Furthermore, our debt under our Revolver bears interest at variable rates.
Despite our indebtedness levels, we and our subsidiaries may still incur
substantially more debt, which could further exacerbate the risks associated with our substantial
leverage.
We and
our subsidiaries may incur substantial additional indebtedness in the future. The Amended Credit Agreement
and the indenture governing our Notes contain restrictions on the incurrence of additional indebtedness, but
these restrictions are subject to several qualifications and exceptions, and the indebtedness that may be
incurred in compliance with these restrictions could be substantial. If we incur additional debt, the risks
associated with our leverage, including those described above, would increase. Further, the restrictions in
the indenture governing the Notes and the Amended Credit Agreement will not prevent us from incurring
obligations, such as trade payables, that do not constitute indebtedness as defined in such debt
instruments. As of April 30, 2024, we had $645.5 million available to incur additional secured indebtedness
under our Revolver.
Our variable rate indebtedness subjects us to interest rate risk, which could
cause our indebtedness service obligations to increase significantly.
Interest
rates fluctuate. As a result, interest rates on the Revolver or other variable rate debt offerings could be
higher or lower than current levels. When interest rates increase, as they have recently, our debt service
obligations on our variable rate indebtedness, if any, increase even though the amount borrowed remained the
same, and our net income and cash flows, including cash available for servicing our indebtedness,
correspondingly decrease.
We may be unable to service our indebtedness.
Our
ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our
financial and operating performance, which in turn is affected by general and regional economic, financial,
competitive, business and other factors, all of which are beyond our control, including the availability of
financing in the international banking and capital markets. Lower total revenue generally will reduce our
cash flow. We cannot assure you that our business will generate sufficient cash flow from operations or that
future borrowings will be available to us in an amount sufficient to enable us to service our debt, to
refinance our debt or to fund our other liquidity needs.
If we
are unable to meet our debt service obligations or to fund our other liquidity needs, we will need to
restructure or refinance all or a portion of our debt, which could cause us to default on our debt
obligations and impair our liquidity. Our ability to restructure or refinance our debt will depend on the
condition of the capital markets and our financial condition at such time. Any refinancing of our
indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that
could further restrict our business operations.
Moreover,
in the event of a default, the holders of our indebtedness, including the Notes, could elect to declare all
the funds borrowed to be due and payable, together with accrued and unpaid interest, if any. The lenders
under the Revolver could also elect to terminate their commitments thereunder, cease making further loans,
and institute foreclosure proceedings against their collateral, and we could be forced into bankruptcy or
liquidation. If we breach our covenants under the Revolver, we would be in default thereunder. The lenders
could exercise their rights, as described above, and we could be forced into bankruptcy or
liquidation.
The agreements governing our debt impose significant operating and financial
restrictions on us and our subsidiaries, which may prevent us from capitalizing on business
opportunities.
The
Amended Credit Agreement and the indenture governing the Notes impose significant operating and financial
restrictions on us. These restrictions limit our ability and the ability of our subsidiaries to, among other
things: incur or guarantee additional debt or issue capital stock; pay dividends and make other
distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens;
enter into transactions with affiliates; merge or consolidate; enter into agreements that restrict the
ability of subsidiaries to make dividends, distributions or other payments to us or the guarantors; in the
case of the indenture governing our Notes, designate restricted subsidiaries as unrestricted subsidiaries;
and transfer or sell assets.
We and
our subsidiaries are subject to covenants, representations and warranties in respect of the Revolver,
including financial covenants as defined in the Amended Credit Agreement. See “Note 11 –Long-Term
Debt” of our
notes to our consolidated financial statements included in this Annual Report on Form 10-K.
17
As a
result of these restrictions, we are limited as to how we conduct our business, and we may be unable to
raise additional debt or equity financing to compete effectively or to take advantage of new business
opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants.
We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if
we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.
Our
failure to comply with the restrictive covenants described above and/or the terms of any future indebtedness
from time to time could result in an event of default, which, if not cured or waived, could result in our
being required to repay these borrowings before their due date. If we are forced to refinance these
borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and
financial condition could be adversely affected.
A decline in our operating results or available cash could cause us to
experience difficulties in complying with covenants contained in more than one agreement, which could result
in our bankruptcy or liquidation.
If we
sustain a decline in our operating results or available cash, we could experience difficulties in complying
with the financial covenants contained in the Amended Credit Agreement. The failure to comply with such
covenants could result in an event of default under the Revolver and by reason of cross-acceleration or
cross-default provisions, other indebtedness may then become immediately due and payable. In addition,
should an event of default occur, the lenders under our Revolver could elect to terminate their commitments
thereunder, cease making loans and institute foreclosure proceedings against our assets, and we could be
forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to
obtain waivers from the lenders under our Revolver to avoid being in default. If we breach our covenants
under our Revolver and seek a waiver, we may not be able to obtain a waiver from the lenders thereunder. If
this occurs, we would be in default under our Revolver, the lenders could exercise their rights, as
described above, and we could be forced into bankruptcy or liquidation.
Risks Related to Technology, Cybersecurity and Intellectual Property
Use of AI may result in operational challenges, legal liability, reputational
concerns and privacy concerns and competitive risks.
Our
business uses and intends to further rely on AI technology, which introduces certain risks including
dependency on accurate AI performance, potential data privacy and security breaches, challenges in
regulatory compliance, ethical considerations, potential workforce disruption, the risk of intellectual
property infringement, and emerging technology risks. While we have established policies governing the use
of AI technology, and we safeguard our assets, including intellectual property and sensitive information, we
cannot ensure that our employees, contractors or other agents would adhere to those policies. Failure to
address these risks adequately may negatively impact our operations, reputation and financial performance.
Additionally, other unforeseen risks stemming from our use and development of AI tools and technology may
arise in the future that could adversely affect our business, financial condition and results of operations.
Technological advances may significantly disrupt the labor market and weaken
demand for human capital at a rapid rate.
Our
success is directly dependent on our customers’ demands for talent. As technology continues to evolve, more
tasks currently performed by people have been and may continue to be replaced by automation, robotics,
machine learning, artificial intelligence and other technological advances outside of our control. The human
resource industry has been and continues to be impacted by significant technological changes, enabling
companies to offer services competitive with ours. Many of those technological changes may (i) reduce demand
for our services, (ii) enable the development of competitive products or services, or (iii) enable our
current customers to reduce or bypass the use of our services, particularly in lower-skill job categories.
Additionally, rapid changes in AI and generative AI which involves the use of advanced algorithms and
machine learning techniques to create content, generate ideas, or simulate human-like behaviors and block
chain-based technology are increasing the competitiveness landscape. We may not be successful in
anticipating or responding to these changes and demand for our services could be further reduced by advanced
technologies being deployed by our competitors. Technological developments such as these may materially
affect the cost and use of technology by our clients and demand for our services, and if we do not
sufficiently invest in new technology and industry developments, or if we do not make the right strategic
investments to respond to these developments and successfully drive innovation, our services and solutions,
our ability to generate demand for our services, attract and retain clients, and our ability to develop and
achieve a competitive advantage and continue to grow could be negatively affected. If we are unable to keep
pace with the industry changes this could result in an impairment of goodwill or other intangible assets and
would have a negative impact on our profitability and operating results. In some cases, we depend on key
vendors and partners to provide technology and other support. If these third parties fail to perform their
obligations or cease to work with us, including as a result damage or disruption from fire, power loss,
system malfunctions, telecommunications failure, computer viruses, cybersecurity attacks, natural disasters,
acts of war or terrorism, employee errors or malfeasance, or other events beyond our control, our ability to
execute on our strategic initiatives could be adversely affected.
18
We have invested in specialized technology and other IP for which we may fail
to fully recover our investment, or which may become obsolete.
We have
invested in developing specialized technology and IP, including proprietary systems, processes and
methodologies, that we believe provide us a competitive advantage in serving our current clients and winning
new engagements. Many of our service and product offerings rely on specialized technology or IP that is
subject to rapid change, and to the extent that this technology and IP is rendered obsolete and of no
further use to us or our clients, our ability to continue offering these services, and grow our revenues,
has been and may continue to be adversely affected. There is no assurance that we will be able to develop
new, innovative or improved technology or IP or that our technology and IP will effectively compete with the
IP developed by our competitors. If we are unable to develop new technology and IP or if our competitors
develop better technology or IP, our revenues and results of operations could be adversely affected.
We rely heavily on our information systems, and if we lose that technology, or
fail to further develop our technology, our business could be harmed.
Our
success depends in large part upon our ability to store, retrieve, process, manage and protect substantial
amounts of information. Our information systems are subject to the risk of failure, obsolescence and
inadequacy. To achieve our strategic objectives and to remain competitive, we must continue to develop and
enhance our information systems. This may require the acquisition of equipment and software and the
development of new proprietary software, either internally or through independent consultants. If we are
unable to design, develop, implement and utilize, in a cost-effective manner, information systems that
provide the capabilities necessary for us to compete effectively, or for any reason any interruption or loss
of our information processing capabilities occurs, this could harm our business, results of operations and
financial condition. We cannot be sure that our current insurance against the effects of a disaster
regarding our information technology or our disaster recovery procedures will continue to be available at
reasonable prices, cover all our losses or compensate us for the possible loss of clients occurring during
any period that we are unable to provide business services.
We are subject to risk as it relates to software that we license from third
parties.
We
license software from third parties, much of which is integral to our systems and our business. The licenses
are generally terminable if we breach our obligations under the license agreements. If any of these
relationships were terminated or if any of these parties were to cease doing business or cease to support
the applications we currently utilize, we may be forced to spend significant time and money to replace the
licensed software. However, we cannot assure you that the necessary replacements will be available on
reasonable terms, if at all.
We are dependent on third parties for the execution of certain critical
functions.
We do
not maintain all of our technology infrastructure, and we have outsourced certain other critical
applications or business processes to external providers, including cloud-based services. The failure or
inability to perform on the part of one or more of these critical suppliers or partners have caused, and
could in the future cause significant disruptions and increased costs. We are also dependent on security
measures that some of our third-party vendors and customers are taking to protect their own systems and
infrastructures. If our third-party vendors do not maintain adequate security measures, do not require their
sub-contractors to maintain adequate security measures, do not perform as anticipated and in accordance with
contractual requirements, or become targets of cyber-attacks, we may experience operational difficulties and
increased costs, which could materially and adversely affect our business.
Cybersecurity vulnerabilities and incidents have and may again lead to the
improper disclosure of information obtained from our clients, candidates and employees, which could result
in liability and harm to our reputation.
We use
information technology and other computer resources to carry out operational and marketing activities and to
maintain our business records.
We rely
on information technology systems to process, transmit, and store electronic information and to communicate
among our locations around the world and with our clients, partners, and employees. The breadth and
complexity of this infrastructure increases the risk of security incidents resulting in the unauthorized
disclosure of sensitive or confidential information and other adverse consequences that could have a
material adverse impact on our business and results of operations. Our reliance on trained professionals to
configure and operate this infrastructure creates the potential for human error, leading to potential
exposure of sensitive or confidential information.
Our
systems and networks and the vendors who provide us services are vulnerable to incidents, including physical
and electronic break-ins, attacks by hackers, computer viruses, malware, worms, router disruption, sabotage
or espionage, ransomware attacks, supply chain attacks, disruptions from unauthorized access and tampering
(including through social engineering such as phishing attacks), employee error and misconduct,
impersonation of authorized users and coordinated denial-of-service attacks. We have experienced and may
again in the future experience cybersecurity incidents resulting from unauthorized access to our systems,
which to date have not had a material impact on our business or results of operations; however, there is no
assurance that such impacts will not be material in the future. Cyberattacks using AI are increasing,
enabling automated phishing exploits and dynamic malware. These advancements pose challenges for traditional
defense controls, emphasizing the need for new strategies and tools to protect against these threats. We
expect cybersecurity incidents to continue to occur in the future.
19
The
continued occurrence of high-profile data breaches against various entities and organizations provides
evidence of an external environment that is increasingly hostile to information security. This environment
demands that we regularly improve our design and coordination of security controls across our business
groups and geographies in order to protect information that we develop or that is obtained from our clients,
candidates and employees. Despite these efforts, given the ongoing and increasingly sophisticated attempts
to access the information of entities, our security controls over this information, our training of
employees, and other practices we follow have not and may not prevent the improper disclosure of such
information. Our efforts and the costs incurred to bolster our security against attacks cannot provide
absolute assurance that future data breaches will not occur. We depend on our overall reputation and brand
name recognition to secure new engagements. Perceptions that we do not adequately protect the privacy of
information could inhibit attaining new engagements, qualified consultants and could potentially damage
currently existing client relationships.
Further,
unauthorized use or misuse of AI by the Company's employees, vendors or others may result in disclosure of
confidential company and customer data, reputational harm, privacy law violations and legal liability. The
Company's use of AI may also lead to novel and urgent cybersecurity risks, including access to or the misuse
of personal data, all of which may adversely affect its operations and reputation.
Data security, data privacy and data protection laws, such as the European
Union General Data Protection Regulation (“GDPR”), and other evolving regulations and cross-border data
transfer restrictions, may limit the use of our services, increase our costs and adversely affect our
business.
We are
subject to numerous U.S. and foreign jurisdiction laws and regulations designed to protect client,
colleague, supplier and company data, such as the GDPR, which requires companies to meet stringent
requirements regarding the handling of personal data, including its use, protection and transfer and the
ability of persons whose data is stored to correct or delete such data about themselves. Complying with the
enhanced obligations imposed by the GDPR has resulted and may continue to result in additional costs to our
business and has required and may further require us to amend certain of our business practices. Failure to
meet the GDPR requirements could result in significant penalties, including fines up to 4% of annual
worldwide revenue. The GDPR also confers a private right of action on certain individuals and
associations.
Laws and
regulations in this area are evolving and generally becoming more stringent. For example, the New York State
Department of Financial Services has issued cybersecurity regulations that outline a variety of required
security measures for protection of data. Some U.S. states, including California and Virginia, have also
enacted cybersecurity laws requiring certain security measures of regulated entities that are broadly
similar to GDPR requirements, such as the California Consumer Privacy Act, California Privacy Rights Act and
Virginia Consumer Data Protection Act. New privacy laws in Colorado took effect in calendar year 2023, and
we expect that other states will continue to adopt legislation in this area. As these laws continue to
evolve, we may be required to make changes to our services, solutions and/or products so as to enable the
Company and/or our clients to meet the new legal requirements, including by taking on more onerous
obligations in our contracts, limiting our storage, transfer and processing of data and, in some cases,
limiting our service and/or solution offerings in certain locations. Changes in these laws, or the
interpretation and application thereof, may also increase our potential exposure through significantly
higher potential penalties for non-compliance. The costs of compliance with, and other burdens imposed by,
such laws and regulations and client demand in this area may limit the use of, or demand for, our services,
solutions and/or products, make it more difficult and costly to meet client expectations, or lead to
significant fines, penalties or liabilities for noncompliance, any of which could adversely affect our
business, financial condition, and results of operations.
In
addition, due to the uncertainty and potentially conflicting interpretations of these laws, it is possible
that such laws and regulations may be interpreted and applied in a manner that is inconsistent from one
jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure
by us to comply with applicable laws or satisfactorily protect personal information could result in
governmental enforcement actions, litigation, or negative publicity, any of which could inhibit sales of our
services, solutions and/or products.
Further,
enforcement actions and investigations by regulatory authorities related to data security incidents and
privacy violations continue to increase. It is possible that future enactment of more restrictive laws,
rules or regulations and/or future enforcement actions or investigations could have an adverse impact on us
through increased costs or restrictions on our businesses and noncompliance could result in regulatory
penalties and significant legal liability.
Social media platforms present risks and challenges that can cause damage to
our brand and reputation.
The
inappropriate and/or unauthorized use of social media platforms, including blogs, social media websites and
other forms of Internet-based communications, which allow individuals access to a broad audience of
consumers and other interested persons by our clients or employees could increase our costs, cause damage to
our brand, lead to litigation or result in information leakage, including the improper collection and/or
dissemination of personally identifiable information of candidates and clients. In addition, negative or
inaccurate posts or comments about us on any social networking platforms could damage our reputation, brand
image and goodwill.
20
Risks Related to Acquisitions
Acquisitions, or our inability to effect acquisitions, may have an adverse
effect on our business.
We have
completed several strategic acquisitions of businesses in the last several years, including our acquisition
of The Lucas Group and Patina Solutions Group, Inc. in fiscal 2022 and Infinity Consulting Solutions and
Salo LLC in fiscal 2023. Targeted acquisitions have been and continue to be part of our growth strategy, and
we may in the future selectively acquire businesses that are complementary to our existing service
offerings. However, we cannot be certain that we will be able to continue to identify appropriate
acquisition candidates or acquire them on satisfactory terms. Our ability to consummate such acquisitions on
satisfactory terms will depend on the extent to which acquisition opportunities become available; our
success in bidding for the opportunities that do become available; negotiating terms that we believe are
reasonable; and regulatory approval, if required.
Our
ability to make strategic acquisitions may also be conditioned on our ability to fund such acquisitions
through the incurrence of debt or the issuance of equity. Our Amended Credit Agreement limits us from
consummating acquisitions unless we are in pro forma compliance with our financial covenants, and certain
other conditions are met. If we are required to incur substantial indebtedness in connection with an
acquisition, and the results of the acquisition are not favorable, the increased indebtedness could decrease
the value of our equity. In addition, if we need to issue additional equity to consummate an acquisition,
doing so would cause dilution to existing stockholders.
If we
are unable to make strategic acquisitions, or the acquisitions we do make are not on terms favorable to us
or not effected in a timely manner, it may impede the growth of our business, which could adversely impact
our profitability and our stock price.
As a result of our acquisitions, we have substantial amounts of goodwill and
intangible assets, and changes in business conditions could cause these assets to become impaired, requiring
write-downs that would adversely affect our operating results.
All of
our acquisitions have been accounted for as purchases and involved purchase prices well in excess of
tangible net asset values, resulting in the creation of a significant amount of goodwill and other
intangible assets.
As of April 30, 2024, goodwill and purchased intangibles accounted for approximately 25% and
2%, respectively, of our total assets. We review goodwill and intangible assets annually (or more
frequently, if impairment indicators arise) for impairment. Future events or changes in circumstances that
result in an impairment of goodwill or other intangible assets would have a negative impact on our
profitability and operating results.
An impairment in the carrying value of goodwill and other intangible assets
could negatively impact our consolidated results of operations and net worth.
Goodwill
is initially recorded as the excess of amounts paid over the fair value of net assets acquired. While
goodwill is not amortized, it is reviewed for impairment at least annually or more frequently, if impairment
indicators are present. In assessing the carrying value of goodwill, we make qualitative and quantitative
assumptions and estimates about revenues, operating margins, growth rates and discount rates based on our
business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent
uncertainties related to these factors and management’s judgment in applying these factors. Goodwill
valuations have been calculated using an income approach based on the present value of future cash flows of
each reporting unit and a market approach. We could be required to evaluate the carrying value of goodwill
prior to the annual assessment if we experience unexpected, significant declines in operating results or
sustained market capitalization declines. These types of events and the resulting analyses could result in
goodwill impairment charges in the future and therefore impact the value of assets we hold, or otherwise
significantly adversely affect our business, which could limit our financial flexibility and
liquidity.
Risks Related to Global Operations
We are a cyclical company whose performance is tied to local and global
economic conditions.
Demand
for our services is affected by global economic conditions, including recessions, inflation, interest rates,
tax rates and economic uncertainty, and the general level of economic activity in the geographic regions and
industries in which we operate. When conditions in the global economy, including the credit markets,
deteriorate, or economic activity slows, many companies hire fewer permanent employees and some companies,
as a cost-saving measure, choose to rely on their own human resources departments rather than third-party
search firms to find talent, and under these conditions, companies have cut back on human resource
initiatives, all of which negatively affects our financial condition and results of operations. We also
experience more competitive pricing pressure during periods of economic decline. If the geopolitical
uncertainties result in a reduction in business confidence, when the national or global economy or credit
market conditions in general deteriorate, the unemployment rate increases or any changes occur in U.S. trade
policy (including any increases in tariffs that result in a trade war), such uncertainty or changes put
negative pressure on demand for our services and our pricing, resulting in lower cash flows and a negative
effect on our business, financial condition and results of operations. In addition, some of our clients
experience reduced access to credit and lower revenues, resulting in their inability to meet their payment
obligations to us.
21
We face risks associated with social and political instability, legal
requirements and economic conditions in our international operations.
We
operate in 51 countries and, during the year ended April 30, 2024, generated 45% of our fee revenue from
operations outside of the U.S. We are exposed to the risk of changes in social, political, legal and
economic conditions inherent in international operations. Examples of risks inherent in transacting business
worldwide that we are exposed to include:
▪changes
in and compliance with applicable laws and regulatory requirements, including U.S. laws affecting the
activities of U.S. companies abroad, including the Foreign Corrupt Practices Act of 1977 and sanctions
programs administered by the U.S. Department of the Treasury Office of Foreign Assets Control, and similar
foreign laws such as the U.K. Bribery Act, as well as the fact that many countries have legal systems, local
laws and trade practices that are unsettled and evolving, and/or commercial laws that are vague and/or
inconsistently applied;
▪difficulties
in staffing and managing global operations, which could impact our ability to maintain an effective system
of internal control;
▪difficulties
in building and maintaining a competitive presence in existing and new markets;
▪social,
economic and political instability, including the repercussions of the ongoing conflict between Russia and
Ukraine and the cessation of our business in Russia;
▪differences
in cultures and business practices;
▪statutory
equity requirements;
▪differences
in accounting and reporting requirements;
▪repatriation
controls;
▪differences
in labor and market conditions;
▪potential
adverse tax consequences;
▪multiple
regulations concerning immigration, pay rates, benefits, vacation, statutory holiday pay, workers’
compensation, union membership, termination pay, the termination of employment, and other employment laws;
and
▪the
introduction of greater uncertainty with respect to trade policies, tariffs, disputes or disruptions, the
termination or suspension of treaties, boycotts and government regulation affecting trade between the U.S.
and other countries.
One or
more of these factors has and may in the future harm our business, financial condition or results of
operations.
Risks Related to Our Dividend Policy
You may not receive the level of dividends provided for in the dividend policy
our Board of Directors has adopted or any dividends at all.
We are
not obligated to pay dividends on our common stock. Despite our history of paying dividends, the declaration
and payment of all future dividends to holders of our common stock are subject to the discretion of our
Board of Directors, which may amend, revoke or suspend our dividend policy at any time and for any reason,
including earnings, capital requirements, financial conditions and other factors our Board of Directors may
deem relevant. The terms of our indebtedness may also restrict us from paying cash dividends on our common
stock under certain circumstances. See below “—Our ability to pay dividends is restricted by agreements
governing our debt, including our Amended Credit Agreement and indenture governing our Notes, and by
Delaware law.”
Over
time, our capital and other cash needs may change significantly from our current needs, which could affect
whether we pay dividends and the level of any dividends we may pay in the future. If we were to use
borrowings under our Revolver to fund our payment of dividends, we would have less cash and/or borrowing
capacity available for future dividends and other purposes, which could negatively affect our financial
condition, our results of operations, our liquidity and our ability to maintain and expand our business.
Accordingly, you may not receive dividends in the intended amounts, or at all. Any reduction or elimination
of dividends may negatively affect the market price of our common stock.
Our ability to pay dividends is restricted by agreements governing our debt,
including our Amended Credit Agreement and indenture governing our Notes, and by Delaware law.
Both our
Amended Credit Agreement and the indenture governing our Notes restrict our ability to pay dividends. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources,” where we describe the terms of our indebtedness, including provisions limiting our ability to
declare and pay dividends. As a result of such restrictions, we may be limited in our ability to pay
dividends unless we redeem our Notes and amend our Amended Credit Agreement or otherwise obtain a waiver
from our lenders. In addition, as a result of general
22
economic
conditions, conditions in the lending markets, the results of our business or for any other reason, we may
elect or be required to amend or refinance our Revolver, at or prior to maturity, or enter into additional
agreements for indebtedness. Any such amendment, refinancing or additional agreement may contain covenants
that could limit in a significant manner or entirely our ability to pay dividends to you. Additionally,
under the Delaware General Corporation Law (“DGCL”), our Board of Directors may not authorize payment of a
dividend unless it is either paid out of surplus, as calculated in accordance with the DGCL, or if we do not
have a surplus, out of net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. If, as a result of these restrictions, we are required to reduce or eliminate the
payment of dividends, a decline in the market price or liquidity, or both, of our common stock could result.
This may in turn result in losses for you.
Our dividend policy may limit our ability to pursue growth
opportunities.
If we
pay dividends at the level currently anticipated under our dividend policy, we may not retain a sufficient
amount of cash to finance growth opportunities, meet any large unanticipated liquidity requirements or fund
our operations in the event of a significant business downturn. In addition, because a portion of cash
available will be distributed to holders of our common stock under our dividend policy, our ability to
pursue any material expansion of our business, including through acquisitions, increased capital spending or
other increases of our expenditures, will depend more than it otherwise would on our ability to obtain third
party financing. We cannot assure you that such financing will be available to us at all, or at an
acceptable cost. If we are unable to take timely advantage of growth opportunities, our future financial
condition and competitive position may be harmed, which in turn may adversely affect the market price of our
common stock.
Risks Related to Our Stockholders
We have provisions that make an acquisition of us more difficult and
expensive.
Anti-takeover
provisions in our Certificate of Incorporation, our Bylaws and under Delaware law make it more difficult and
expensive for us to be acquired in a transaction that is not approved by our Board of Directors. Some of the
provisions in our Certificate of Incorporation and Bylaws include: limitations on stockholder actions;
advance notification requirements for director nominations and actions to be taken at stockholder meetings;
and the ability to issue one or more series of preferred stock by action of our Board of Directors.
These
provisions could discourage an acquisition attempt or other transaction in which stockholders could receive
a premium over the current market price for the common stock.
General Risk Factors
Failing to retain our executive officers and key personnel or integrate new
members of our senior management who are critical to our business may prevent us from successfully managing
our business in the future.
Our
future success depends upon the continued service of our executive officers and other key management
personnel. Competition for qualified personnel is intense, and we may compete with other companies that have
greater financial and other resources than we do. If we lose the services of one or more of our executives
or key employees, or if one or more of them decides to join a competitor or otherwise compete directly or
indirectly with us, or if we are unable to integrate new members of our senior management who are critical
to our business, we may not be able to successfully manage our business or achieve our business
objectives.
Changes in our accounting estimates and assumptions and other financial
reporting standards could negatively affect our financial position and results of operations.
We
prepare our consolidated financial statements in accordance with U.S. GAAP. These accounting principles
require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of our financial statements. We are also
required to make certain judgments that affect the reported amounts of revenues and expenses during each
reporting period. We periodically evaluate our estimates and assumptions. Our consolidated financial
statements also reflect estimates of the impact of the macroeconomic environment, including the impact of
inflation, foreign exchange rate fluctuations and other conditions which have led to disruptions in commerce
and price stability. Actual results could differ from the estimates we make based on historical experience
and various assumptions believed to be reasonable based on specific circumstances, and changes in accounting
standards could have an adverse impact on our future financial position and results of operations.
Unfavorable tax laws, tax law changes and tax authority rulings may adversely
affect results.
We are
subject to income taxes in the U.S. and in various foreign jurisdictions. Domestic and international tax
liabilities are subject to the allocation of income among various tax jurisdictions. Our effective tax rate
could be adversely affected by changes in the mix of earnings among countries with differing statutory tax
rates or changes in tax laws. Further changes in tax laws of jurisdictions in which we operate could arise
under the two-pillar Base Erosion and Profit Shifting framework set forth by the Organization for Economic
Cooperation and Development, including the Pillar Two global minimum tax. The amount of our income taxes and
other taxes are subject to audits by U.S. federal, state and local tax authorities and by non-U.S.
authorities. If these audits result in assessments different from estimated amounts recorded, future
financial results may include unfavorable tax adjustments.
23
Future
changes in tax laws, treaties or regulations, and their interpretations or enforcement, may be
unpredictable, particularly as taxing jurisdictions face an increasing number of political, budgetary and
other fiscal challenges. Tax rates in the jurisdictions in which we operate may change as a result of
macroeconomic and other factors outside of our control, making it increasingly difficult for multinational
corporations like ourselves to operate with certainty about taxation in many jurisdictions.
As a
result, we have been and may again be materially adversely affected by future changes in tax law or policy
(or in their interpretation or enforcement) in the jurisdictions where we operate, including the U.S., which
could have a material adverse effect on our business, cash flow, results of operations, financial condition,
as well as our effective income tax rate.
Limited protection of our IP could harm our business, and we face the risk
that our services or products may infringe upon the IP rights of others.
We
cannot guarantee that trade secrets, trademark and copyright law protections are adequate to deter
misappropriation of our IP (which has become an important part of our business). Existing laws of some
countries in which we provide services or products may offer only limited protection of our IP rights.
Redressing infringements may consume significant management time and financial resources. Also, we cannot
detect all unauthorized use of our IP and take the necessary steps to enforce our rights, which may have a
material adverse impact on our business, financial condition or results of operations. We cannot be sure
that our services and products, or the products of others that we offer to our clients, do not infringe on
the IP rights of third parties, and we may have infringement claims asserted against us or our clients.
These claims may harm our reputation, result in financial liability and prevent us from offering some
services or products.
We may not be able to successfully integrate or realize the expected benefits
from our acquisitions.
Our
future success depends in part on our ability to complete the integration of acquisition targets
successfully into our operations. The process of integrating an acquired business subjects us to a number of
risks, including:
▪diversion
of management attention;
▪amortization
of intangible assets, adversely affecting our reported results of operations;
▪inability
to retain and/or integrate the management, key personnel and other employees of the acquired
business;
▪inability
to properly integrate businesses resulting in operating inefficiencies;
▪inability
to establish uniform standards, disclosure controls and procedures, internal control over financial
reporting and other systems, procedures and policies in a timely manner;
▪inability
to retain the acquired company’s clients;
▪exposure
to legal claims for activities of the acquired business prior to acquisition; and
▪incurrence
of additional expenses in connection with the integration process.
If our
acquisitions are not successfully integrated, our business, financial condition and results of operations,
as well as our professional reputation, could be materially adversely affected.
Further,
we cannot assure you that acquisitions will result in the financial, operational or other benefits that we
anticipate. Some acquisitions may not be immediately accretive to earnings and some expansion may result in
significant expenditures.
Businesses we acquire may have liabilities or adverse operating issues that
could harm our operating results.
Businesses
we acquire may have liabilities or adverse operating issues, or both, that we either fail to discover
through due diligence or underestimate prior to the consummation of the acquisition. These liabilities
and/or issues may include the acquired business’ failure to comply with, or other violations of, applicable
laws, rules or regulations or contractual or other obligations or liabilities. As the successor owner, we
may be financially responsible for, and may suffer harm to our reputation or otherwise be adversely affected
by, such liabilities and/or issues. An acquired business also may have problems with internal controls over
financial reporting, which could in turn cause us to have significant deficiencies or material weaknesses in
our own internal controls over financial reporting. These and any other costs, liabilities, issues, and/or
disruptions associated with any past or future acquisitions, and the related integration, could harm our
operating results.
We may be subject to the actions of activist stockholders, which could disrupt
our business.
We value
constructive input from investors and regularly engage in dialogue with our stockholders regarding strategy
and performance. Activist stockholders who disagree with the composition of the Board of Directors, our
strategy or the way the Company is managed may seek to effect change through various strategies and
channels, such as through commencing a proxy contest, making public statements critical of our performance
or business or engaging in other similar activities. Responding to stockholder activism can be costly and
time-consuming, disrupt our operations, and divert the attention of management and our employees from our
strategic initiatives. Activist campaigns can create perceived uncertainties as to our future direction,
strategy, or leadership and may result in the loss of potential business opportunities, harm our ability to
attract new employees, investors, and customers, and cause our stock price to experience periods of
volatility or stagnation.
24
We face various risks related to health epidemics, pandemics, and similar
outbreaks that negatively impact our operations and financial performance and those of the clients we serve.
The ultimate magnitude of any future pandemics or similar outbreaks depends on numerous factors, the full
extent of which we may not be capable of predicting.
Our
business and financial results have been, and could be in the future, adversely affected by health
epidemics, pandemics, and similar outbreaks. Pandemics can cause a global slowdown in economic activity, a
decrease in demand for a broad variety of goods and services, disruptions in global supply chains, and
significant volatility and disruption of financial markets. Because the severity, magnitude and duration of
a pandemic and its economic consequences are uncertain and vary by region, its full impact on our operations
and financial performance is uncertain and difficult to predict. Further, a pandemic’s ultimate impact
depends in part on many factors not within our control, including (1) restrictive governmental and business
actions (including travel restrictions, vaccine mandates, testing requirements, and other workforce
limitations), (2) economic stimulus, funding and relief programs and other governmental economic responses,
(3) the effectiveness of governmental actions, (4) economic uncertainty in key global markets and financial
market volatility, (5) levels of economic contraction or growth, (6) the impact of the pandemic on health
and safety and (7) the availability and effectiveness of vaccines and booster shots.
In
addition, pandemics can subject our operations and financial performance to a number of risks, including
operational challenges, such as heightened attention to employee health and safety, workplace disruptions or
shutdowns, cybersecurity risks, supplier disruptions or delays, and travel restrictions, as well as
client-related risks, as clients may experience similar disruptions, fluctuations, and restrictions that may
impact our ability to provide products and services to our clients (or for clients to pay for such products
and services) and may reduce demand for our products and services.
Bank failures or other events affecting financial institutions could have a
material adverse effect on our business, results of operations or financial condition, or have other adverse
consequences.
The
failure of a bank that we use, or events involving limited liquidity, non-performance or other adverse
conditions in the financial or credit markets impacting financial institutions at which we maintain
balances, or concerns or rumors about such events, may lead to disruptions in access to our cash balances,
adversely impact our liquidity, including our ability to borrow under our credit facility, or limit our
ability to process transactions related to our clients. In the events of a failure of a bank or other
financial institution that holds our cash deposits, there can be no assurance that our deposits in excess of
the FDIC or other comparable insurance limits will be recoverable or, even if ultimately recoverable, there
may be significant delays in our ability to access those funds. Furthermore, bank failures, non-performance,
or other adverse developments that affect financial institutions could impair the ability of one or more of
the banks participating in our credit facility from honoring their commitments. Such events could have a
material adverse effect on our financial condition or results of operations.
Item 1B. Unresolved Staff Comments
Not
applicable.
Item 1C. Cybersecurity
Risk Management and Strategy
We have
an established cybersecurity risk management program designed to identify, assess, manage, mitigate, and
respond to cybersecurity threats. Our cyber risk management program is designed to protect the
confidentiality, integrity and availability of our systems and the data of our clients, candidates and
company. This program and its processes are an integral component of our enterprise risk management ("ERM")
program.
Our
cybersecurity program leverages several industry and regulatory frameworks, including the National Institute
of Standards and Technology ("NIST") Cybersecurity Framework, International Organization for Standardization
Information Security Management Systems ("ISO 27001"), and the Center for Internet Security Critical
Security Controls. Our approach to protecting our systems uses the concept of defense in depth, providing
multiple layers of defense, monitoring, and controls. It is a mutually supporting environment of
fit-for-purpose technology, established processes, trained security and operations personnel, and supporting
external services.
As of
the date of this report, we have not experienced a cybersecurity incident that has materially affected us,
including our business strategy, results of operations or financial condition. While we have not experienced
any material cybersecurity threats or incidents, there can be no guarantee that we will not be the subject
of future successful attacks, threats or incidents. Risks from cybersecurity threats, including as a result
of any previous cybersecurity incidents, have not materially affected us, including our business strategy,
results of operations, or financial condition, but we face certain ongoing risks from cybersecurity threats
that, if realized, are reasonably likely to have such an effect. Additional information on cybersecurity
risks we face can be found in Item 1A “Risk
Factors” under
the heading “Risks Related to Technology, Cybersecurity and Intellectual Property,” which should be read in
conjunction with the foregoing information.
People
Our
global security team is led by our Global Vice President Security who reports to the Chief Information
Officer. Our Chief Information Officer has more than three decades of technology, security and leadership
experience across both the public
25
and
private sector. The Global Vice President Security leads the strategy and execution of our cybersecurity
program, has more than two decades of dedicated security experience, and holds multiple security
qualifications including Certified Information Systems Security Professional ("CISSP"). He leads an
experienced security team, organized and geographically structured with the goal of maximizing
responsiveness and coverage for our global enterprise. The team is additionally supported through external
services and on demand incident response capabilities. These capabilities include pre-established
relationships with industry leading providers for incident containment, forensic analysis, systems recovery,
legal advice, and external communications assistance.
Technology
Korn
Ferry has invested in a spectrum of security tools and capabilities designed to prevent compromise of our
systems and data. These solutions are selected from well recognized industry leaders and encompass a wide
range of security capabilities including, among other things, threat detection, prevention, system
monitoring, logging, vulnerability assessment, incident and event management, system and cloud configuration
and permission management. To validate the effectiveness of our security capabilities and our supporting
environment we assess them across multiple dimensions. This includes the use of independent external
third-party security firms to conduct external and internal penetration tests, vulnerability assessments,
and audits.
Process
We
leverage a structured process framework based on ISO 27001 to minimize cyber risks and facilitate continuous
improvement. We adhere to the principle of least privilege when provisioning access to systems, seeking to
limit potential abuse of system privileges by internal or external threats. We train our employees annually
in cybersecurity awareness and responsibilities and we engage them throughout the year with phishing
awareness exercises, additional focused training, and messaging about current and persistent threats.
Employees with privileged access to systems are further trained in security-by-design principles, centered
on best practices for securely developing and managing software systems.
Our
software development processes are governed by a structured systems development lifecycle process that is
designed to review new features and system changes for adherence to security requirements prior to
deployment. Our systems are further protected via a regular cadence of patching and prioritized
vulnerability remediation. Lastly, the use of third-party software in our environment is governed by our
third-party risk management (“TPRM”) program, which is designed to assess and remediate cyber and business
risks associated with vendor-provided software and services.
Integral
to our cybersecurity processes is our Security Incident Response Plan ("SIRP"), designed to facilitate the
timely and accurate reporting of any material cybersecurity incident. The incident management process is
designed so that incidents are appropriately categorized and escalated to the Security Incident Response
Team ("SIRT") for action and materiality determination. Our SIRT is comprised of senior executives including
the Chief Financial Officer, Chief Information Officer, Global Vice President Security, Co-Chief Privacy
Officers, General Counsel and other members as required depending on the nature of the incident. In addition
to managing escalated incidents, the SIRT conducts tabletop exercises to simulate various threat scenarios,
and outcomes are used to build experience and to refine the SIRP and response approaches. Korn Ferry has
also maintained cyber insurance for more than a decade.
Korn
Ferry has been certified by the British Standards Institute (BSI) to ISO/IEC 27001 and ISO/IEC 27018 for our
key technology platforms and processes across global operations.
Governance
Board
of Directors Oversight
Our
Board is responsible for the oversight of the Company's overall ERM program, which includes cybersecurity
risks. The Board is briefed at least annually by the Chief Information Officer on the readiness and efficacy
of the cybersecurity program. These briefs include a review of the Company’s cybersecurity initiatives, key
security metrics, business continuity and disaster recovery plans and updates on evolving cyber threats and
mitigation plans. These briefs also review significant updates to procedures, policies, and controls used to
identify, manage, and mitigate cybersecurity risks. The Board is supported in this oversight by the Audit
Committee, which receives regular updates from members of the executive leadership team including the Chief
Financial Officer, General Counsel, Chief Information Officer, and the Senior Vice President Internal Audit
on emerging cybersecurity risks and issues.
Management
Oversight
Management
regularly assesses and identifies potential cybersecurity risks as a key component of the Company’s ERM
program. The Company's cyber risks are reviewed and prioritized as part of the annual Enterprise Risk
Assessment and ongoing quarterly reviews. Changes in these risks are communicated at least quarterly to the
Audit Committee. Management further enables regular reviews of systemic, emerging, and ongoing security and
data privacy risks through a standing body, the Privacy and Security Executive Committee ("PEC/SEC") which
meets quarterly and whose reporting is used to inform the Audit Committee and annual reporting to the Board
of Directors. The PEC/SEC is comprised of senior management including the Chief Financial Officer, Chief
Information Officer, Global Vice President Security, Co-Chief Privacy Officers, Chief Human Resources
Officer, General Counsel and other senior leaders as required.
26
Item 2. Properties
Our
corporate office is in Los Angeles, California. We lease our corporate office as well as an additional 102
offices through which we conduct business that are located in North America, EMEA, Asia Pacific and Latin
America, all of which are used by all of our business segments. As of April 30, 2024, we leased an aggregate
of approximately 0.9 million square feet of office space. The leases generally have remaining terms of 1 to
13 years and contain customary terms and conditions. We believe that our facilities are adequate for our
current needs, and we do not anticipate any significant difficulty replacing such facilities or locating
additional facilities to accommodate any future growth.
Item 3. Legal Proceedings
From
time to time, we are involved in litigation both as a plaintiff and a defendant, relating to claims arising
out of our operations. As of the date of this report, we are not engaged in any legal proceedings that are
expected, individually or in the aggregate, to have a material adverse effect on our business, financial
condition or results of operations.
Item 4. Mine Safety Disclosures
Not
applicable.
Information about our Executive Officers
| Name |
Age
as of April 30, 2024
|
Position | ||||||
| Gary D. Burnison | 63 | President and Chief Executive Officer | ||||||
| Robert P. Rozek | 63 | Executive Vice President, Chief Financial Officer and Chief Corporate Officer | ||||||
| Mark Arian | 63 | Chief Executive Officer, Consulting | ||||||
| Michael Distefano | 54 | Chief Executive Officer, Professional Search & Interim | ||||||
|
Jeanne
MacDonald
|
55 |
Chief
Executive Officer, RPO
|
||||||
Our
executive officers serve at the discretion of our Board of Directors. There is no family relationship
between any executive officer or director. The following information sets forth the business experience for
at least the past five years for each of our executive officers.
Gary
D. Burnison has
been President and Chief Executive Officer of the Company since July 2007. He was the Executive Vice
President and Chief Financial Officer of the Company from March 2002 until June 30, 2007, and Chief
Operating Officer from October 2003 until June 30, 2007. Prior to joining Korn Ferry, Mr. Burnison was
Principal and Chief Financial Officer of Guidance Solutions, a privately held consulting firm, from 1999 to
2001. Prior to that, he served as an executive officer and a member of the board of directors of Jefferies
and Company, Inc., the principal operating subsidiary of Jefferies Group, Inc. from 1995 to 1999. Earlier,
Mr. Burnison was a Partner at KPMG Peat Marwick. Mr. Burnison earned a bachelor’s degree in business
administration from the University of Southern California.
Robert
P. Rozek joined
the Company in February 2012 as our Executive Vice President and Chief Financial Officer and, in December
2015, also became our Chief Corporate Officer. Prior to joining Korn Ferry, he served as Executive Vice
President and Chief Financial Officer of Cushman & Wakefield, Inc., a privately held commercial real
estate services firm, from June 2008 to February 2012. Prior to joining Cushman & Wakefield, Inc., Mr.
Rozek served as Senior Vice President and Chief Financial Officer of Las Vegas Sands Corp., a leading global
developer of destination properties (integrated resorts) that feature premium accommodations, world-class
gaming and entertainment, convention and exhibition facilities and many other amenities, from 2006 to 2008.
Prior to that, Mr. Rozek held senior leadership positions at Eastman Kodak, and spent five years as a
Partner with PricewaterhouseCoopers LLP. Mr. Rozek is a graduate of Canisius College in New York with a
bachelor’s degree in accounting.
Mark
Arian joined
the Company as Chief Executive Officer of Korn Ferry’s Advisory segment in April 2017 and is now the Chief
Executive Officer of Consulting. Prior to Korn Ferry, Mr. Arian served as a Managing Principal at Ernst
& Young LLP, a multinational professional services firm that provides audit, tax, business risk,
technology and security risk services, and human capital services worldwide, from March 2014 until March of
2017. In that capacity, he led the People Advisory Services—Financial Services Sector, and his
responsibilities included commercial, people and key account leadership. Between 2008 and 2014, Mr. Arian
held various leadership positions at AON and AON Hewitt, a provider of insurance, reinsurance, human capital
and management consulting services, serving as an Executive Vice President and leading its strategic Mergers
and Acquisitions (“M&A”) and business transformation offering globally. Mr. Arian has also held various
leadership positions at Towers Perrin (now Wills Towers Watson) including serving as the Global M&A and
Global Change Management leader, and Hewitt Associates, where Mr. Arian built and led the Corporate
Restructuring and Change Practice. Mr. Arian is a graduate of Duke University and holds a juris doctorate
from Columbia University.
27
Michael
Distefano has been
the Chief Executive Officer of Professional Search & Interim and President of Search Innovation and
Delivery Team since December 2020. Mr. Distefano joined the Company over 20 years ago in March of 2001 and
served in various capacities since that time, including President of Korn Ferry Asia Pacific from May 2018
until April 2021 and prior to that as the Chief Marketing Officer from 2007 to 2021 and President of the
Korn Ferry Institute. Prior to Korn Ferry, Mr. Distefano held leadership positions at GetSmart.com and
Benefits Consulting, Inc. Mr. Distefano is a graduate of Bloomsburg University of Pennsylvania.
Jeanne
MacDonald has
been the Chief Executive Officer of RPO since July 2023. Ms. MacDonald joined the Company in 1998 and worked
in a variety of roles at Korn Ferry including Senior Recruiter, Business Development Director for North
America RPO prior to moving into various leadership positions with the Company, including General Manager of
North America RPO, Chief Sales Officer, Global Operating Executive and President of Global RPO, a role she
held from 2021 to 2023, prior to her appointment as Chief Executive Officer of RPO, where she was
responsible for oversight of Korn Ferry's RPO businesses. Prior to Korn Ferry, Ms. MacDonald began her
career in 1990 working in the Supply Chain industry for what is now, UPS Supply Chain Solutions. She then
worked for American Telephone & Telegraph (AT&T) working in both Marketing and Sales leadership
roles for voice, data and Web-related services. Ms. MacDonald holds a bachelor's degree with majors in both
International Relations and French from the University of Virginia.
28
PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Common Stock
Our
common stock is listed on the New York Stock Exchange under the symbol KFY. On June 20, 2024, there were
approximately 39,591 stockholders of record of the Company’s common stock.
Performance Graph
We have
presented below a graph comparing the cumulative total stockholder return of the Company’s shares with the
cumulative total stockholder return on (1) the Standard & Poor’s 500 Stock Index and (2) the
company-established peer group. Cumulative total return for each of the periods shown in the performance
graph is measured assuming an initial investment of $100 on April 30, 2019 and the reinvestment of any
dividends paid by the Company and any company in the peer group on the date the dividends were paid.
Our peer
group is comprised of a broad number of publicly traded companies, which are principally or in significant
part involved in professional services. The peer group is comprised of the following 11 companies: ASGN Inc.
(ASGN), Cushman & Wakefield Plc. (CWK), FTI Consulting Inc. (FCN), Heidrick & Struggles
International Inc. (HSII), Huron Consulting Group Inc. (HURN), ICF International Inc. (ICFI), Insperity Inc.
(NSP), Jones Lang Lasalle Inc. (JLL), ManpowerGroup Inc. (MAN), PageGroup Plc. (MPGPF) and Robert Half
International Inc. (RHI). We believe this group of professional services firms is reflective of similar
sized companies in terms of our market capitalization, with significant global exposure that mirrors our
global footprint and therefore provides a meaningful comparison of stock performance. The returns of each
company have been weighted according to their respective stock market capitalization at the beginning of
each measurement period for the purpose of arriving at a peer group average.
The
stock price performance depicted in this graph is not necessarily indicative of future price performance.
This graph will not be deemed to be incorporated by reference by any general statement incorporating this
Annual Report on Form 10-K into any filing by us under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent we specifically incorporate this information by reference and shall not
otherwise be deemed soliciting material or deemed filed under the Securities Act of 1933 or the Securities
Exchange Act of 1934.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
(*)
Among
Korn Ferry, the S&P 500 Index, and a Peer Group
Copyright©
2024 Standard & Poor's, a division of S&P Global. All rights reserved.
_______________________________
(*)$100
invested on April 30, 2019 in stock or index, including reinvestment of dividends. Fiscal year ended April
30, 2024.
Capital Allocation Approach
The
Company and its Board of Directors endorse a balanced approach to capital allocation. The Company’s
long-term priority is to invest in growth initiatives, such as the hiring of consultants, the continued
development of IP and derivative products and services, and the investment in synergistic, accretive M&A
transactions that are expected to earn a return superior to the Company's cost of capital. Next, the
Company’s capital allocation approach contemplates the return of a
29
portion
of excess capital to stockholders, in the form of a regular quarterly dividend, subject to the factors
discussed below under “Dividends” and in more detail in the “Risk Factors” section of this Annual Report on
Form 10-K. Additionally, the Company considers share repurchases on an opportunistic basis and subject to
the terms of our indebtedness, as well as using excess cash to repay the Notes. See Note 11— Long
Term Debt for a
description of the Amended Credit Agreement and indenture governing the Notes.
Dividends
On
December 8, 2014, the Board of Directors adopted a dividend policy to distribute to our stockholders a
regular quarterly cash dividend of $0.10 per share. Every quarter since the adoption of the dividend policy,
the Company has declared a quarterly dividend. On June 21, 2021 and 2022, the Board of Directors increased
the quarterly dividend to $0.12 per share and $0.15 per share, respectively. On June 26, 2023, the Board of
Directors of the Company approved an increase of 20% in our quarterly dividend, which increased the
quarterly dividend to $0.18 per share. On December 5, 2023, the Board of Directors approved an increase of
83% in the quarterly dividend, which increased the quarterly dividend to $0.33 per share. On June 12, 2024,
the Board of Directors approved an increase in our quarterly dividend, which increased the quarterly
dividend to $0.37 per share.
The
declaration and payment of future dividends under the quarterly dividend policy will be at the discretion of
the Board of Directors and will depend upon many factors, including the Company’s earnings, capital
requirements, financial conditions, the terms of the Company’s indebtedness and other factors that the Board
of Directors may deem to be relevant. The Board of Directors may, however, amend, revoke or suspend the
dividend policy at any time and for any reason.
Stock Repurchase Program
On June
21, 2022, the Board of Directors approved an increase in the Company’s stock repurchase program of
approximately $300 million, which brought our available capacity to repurchase shares in the open market or
privately negotiated transactions to $318 million. Common stock may be repurchased from time to time in the
open market or privately negotiated transactions at the Company’s discretion subject to market conditions
and other factors. The Company repurchased approximately $52.5 million, $93.9 million and $98.8 million of
the Company’s common stock during fiscal 2024, 2023 and 2022, respectively. Any decision to execute on our
stock repurchase program will depend on our earnings, capital requirements, financial condition and other
factors considered relevant by our Board of Directors. The Amended Credit Agreement permits us to pay
dividends to our stockholders and make share repurchases so long as there is no default under the Amended
Credit Agreement, the Company’s total funded debt to adjusted EBITDA ratio (as set forth in the Amended
Credit Agreement, the “consolidated net leverage ratio”) is no greater than 5.00 to 1.00, and we are in pro
forma compliance with our financial covenant. Furthermore, our Notes allow the Company to pay $25.0 million
of dividends per fiscal year with no restrictions plus an unlimited amount of dividends so long as the
Company’s consolidated total leverage ratio is not greater than 3.50 to 1.00 and the Company is not in
default under the indenture governing the Notes.
Issuer Purchases of Equity Securities
The
following table summarizes common stock repurchased by us during the fourth quarter of fiscal 2024:
|
Total
Number of
Shares
Purchased
(1)
|
Average
Price
Paid
Per
Share
|
Total
Number of
Shares
Purchased
as
Part of
Publicly-
Announced
Programs
|
Approximate
Dollar
Value of
Shares
that
May
Yet be
Purchased
under
the
Programs(2)
|
||||||||||||||||||||
| February 1, 2024 - February 29, 2024 | 150,000 | $ | 60.51 | 150,000 | $196.5 million | ||||||||||||||||||
| March 1, 2024 - March 31, 2024 | 106,911 | $ | 65.26 | 105,000 | $189.7 million | ||||||||||||||||||
| April 1, 2024 - April 30, 2024 | 110,000 | $ | 63.11 | 110,000 | $182.7 million | ||||||||||||||||||
| Total | 366,911 | $ | 62.67 | 365,000 | |||||||||||||||||||
_______________________________
(1)Represents
withholding of 1,911 shares to cover taxes on vested restricted shares, in addition to shares purchased as
part of a publicly announced program.
(2)On
June 21, 2022, our Board of Directors approved an increase to the share repurchase program of $300 million.
The shares can be repurchased in open market transactions or privately negotiated transactions at the
Company's discretion. The share repurchase program has no expiration date. We repurchased approximately
$22.9 million of the Company's common stock under the program during the fourth quarter of fiscal
2024.
Item 6. Reserved
30
Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
This
Annual Report on Form 10-K may contain certain statements that we believe are, or may be considered to be,
“forward-looking” statements, within the meaning of Section 27A of the Securities Act of 1933, as amended
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These
forward-looking statements generally can be identified by use of statements that include phrases such as
“believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “may,” “will,” “likely,” “estimates,”
“potential,” “continue” or other similar words or phrases. Similarly, statements that describe our
objectives, plans or goals, including the timing and anticipated impacts of our business strategy, expected
demand for and relevance of our products and services, and expected results of our business diversification
strategy, are also forward-looking statements. These forward-looking statements are subject to risks and
uncertainties that could cause our actual results to differ materially from those contemplated by the
relevant forward-looking statement. The principal risk factors that could cause actual performance and
future actions to differ materially from the forward-looking statements include, but are not limited to,
those relating to global and local political and or economic developments in or affecting countries where we
have operations, such as inflation, global slowdowns, or recessions, competition, geopolitical tensions,
shifts in global trade patterns, changes in demand for our services as a result of automation, dependence on
and costs of attracting and retaining qualified and experienced consultants, impact of inflationary
pressures on our profitability, maintaining our relationships with customers and suppliers and retaining key
employees, maintaining our brand name and professional reputation, potential legal liability and regulatory
developments, portability of client relationships, consolidation of or within the industries we serve,
changes and developments in governmental laws and regulations, evolving investor and customer expectations
with regard to environmental, social and governance matters, currency fluctuations in our international
operations, risks related to growth, alignment of our cost structure, including as a result of recent
workforce, real estate, and other restructuring initiatives, restrictions imposed by off-limits agreements,
reliance on information processing systems, cybersecurity vulnerabilities or events, changes to data
security, data privacy, and data protection laws, dependence on third parties for the execution of critical
functions, limited protection of our intellectual property (“IP”), our ability to enhance and develop new
technology, including artificial intelligence ("AI"), our ability to successfully recover from a disaster or
other business continuity problems, employment liability risk, an impairment in the carrying value of
goodwill and other intangible assets, treaties, or regulations on our business and our Company, deferred tax
assets that we may not be able to use, our ability to develop new products and services, changes in our
accounting estimates and assumptions, the utilization and billing rates of our consultants, seasonality, the
expansion of social media platforms, the ability to effect acquisitions and integrate acquired businesses,
resulting organizational changes, our indebtedness, the ultimate magnitude and duration of any future
pandemics or similar outbreaks, and related restrictions and operational requirements that apply to our
business and the businesses of our clients, and any related negative impacts on our business, employees,
customers and our ability to provide services in affected regions, and the matters disclosed under the
heading “Risk Factors” in the Company’s Exchange Act reports, including Item 1A included in this Annual
Report on Form 10-K. Readers are urged to consider these factors carefully in evaluating the forward-looking
statements. The forward-looking statements included in this Annual Report on Form 10-K are made only as of
the date of this Annual Report on Form 10-K and we undertake no obligation to publicly update these
forward-looking statements to reflect subsequent events or circumstances.
The
following presentation of management’s discussion and analysis of our financial condition and results of
operations should be read together with our consolidated financial statements and related notes included in
this Annual Report on Form 10-K. We also make available on the Investor Relations portion of our website
earnings slides and other important information, which we encourage you to review.
Executive Summary
Korn
Ferry (referred to herein as the “Company” or in the first-person notations “we,” “our,” and “us”) is a
leading global organizational consulting firm. We help clients synchronize strategy, operations and talent
to drive superior business performance. We work with organizations to design their structures, roles and
responsibilities. We help them hire the right people to bring their strategy to life. And we advise them on
how to reward, develop and motivate their people.
We
are pursuing a strategy to help Korn Ferry increase its focus on clients and collaborate intensively across
the organization. This approach is intended to build on the best of our past and give us a clear path to the
future with focused initiatives to increase our client and commercial impact. Korn Ferry is transforming how
clients address their talent management needs. We have evolved from a mono-line business to a multi-faceted
consultancy business, giving our consultants more frequent and expanded opportunities to engage with
clients.
The
Company services its clients with a core set of solutions that are anchored around talent and talent
management – touching nearly every aspect of an employer’s engagement with their employees. Our five core
solutions are as follows: Organizational Strategy, Assessment and Succession, Leadership and Professional
Development, Total Rewards, and Talent Acquisition. Our colleagues engage with our clients through the
delivery of one of our core solutions as a point solution sale or through combining component parts of our
core solutions into an integrated solution. In either case, we are helping to solve our clients’ most
challenging business and human capital issues.
Further
differentiating our service offerings from our competitors is the unique combination of IP, content, and
data sets that we have, which permeate throughout our solution areas. For many years, we have been
accumulating data around
31
assessments
of executives and professionals, pay, success profiles, organizational engagement and design, job
architecture, and candidates. Integrating this unique collection of data into our service offerings provides
our colleagues with differentiated points of view and solutions, as well as the ability to demonstrate the
efficacy of all of our offerings.
Our
vision remains unchanged to become the premier organizational consulting firm. We believe our household
brand, unparalleled IP, and diversification strategy will continue to positively influence our performance
and accelerate the trajectory of thousands of organizations. Indeed, Korn Ferry is uniquely positioned as a
firm relentlessly focused on synchronizing strategy, operations and talent and a firm that offers
increasingly relevant solutions in a rapidly changing world. The continual advancement of technologies like
generative AI creates a constant demand for workers to be upskilled or reskilled. We expect these changes
and disruptions will lead to opportunities for Korn Ferry and make us more relevant than at any time in our
history.
Leveraging
the strong connection between our various service offering and our lines of business, we have an integrated
go-to-market strategy. As we drive this strategy, a focal point for us is our Marquee and Regional account
program which is comprised of about 350 of our top clients. These accounts have Global Account Leaders
assigned who help to orchestrate the delivery of core and integrated solutions that cut across multiple
lines of business – effectively making all of the Firm’s resources available as our clients tackle their
business and human capital issues. Despite near-term headwinds, such as economic uncertainty, we believe
Korn Ferry is poised for continued growth. We are capitalizing on the current and growing relevance of our
core and integrated solutions which, in combination with the strong connections amongst our service
offerings and our acquisitive activities, drives top-line synergies that have resulted in double digit fee
revenue growth rates (CAGR) over the past twenty years.
Our
eight reportable segments operate through the following five lines of business:
1.Consulting aligns
organizational structure, culture, performance, development and people to drive sustainable growth by
addressing four fundamental organizational and talent needs: Organizational Strategy, Assessment and
Succession, Leadership and Professional Development, and Total Rewards. The Consulting teams work across our
core capabilities, architecting integrated solutions and technology products to help clients execute their
strategy in a digitally enabled world.
2.Digital
develops IP and science-based talent technology products that empower our clients. Our talent products and
talent platform support our clients in making critical talent decisions across the continuum from talent
acquisition to talent development.
3.Executive Search helps
organizations recruit board level, chief executive and other C-suite/senior executive and general management
talent to deliver lasting impact. Our approach to placing talent brings together our research-based IP,
proprietary assessments and behavioral interviewing with our practical experience to determine the ideal
organizational fit. Salary benchmarking then helps us build appropriate frameworks for compensation and
attraction. 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 ("APAC"), and Executive Search Latin America).
4.Professional Search & Interim delivers
enterprise talent acquisition solutions for permanent placements at the professional level middle and upper
management, and, for interim, those same levels plus senior executives. We help clients source high-quality
candidates at speed and scale globally, covering single-hire to multi-hire permanent placements and interim
contractors (that are focused on senior executive, information technology ("IT"), Finance & Accounting
and HR roles).
5.Recruitment Process Outsourcing ("RPO") offers
scalable recruitment outsourcing and project solutions leveraging a customized technology enabled service
delivery platform and talent insights. Our scalable solutions, built on our IP, science, and data 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.
Highlights
of our performance in fiscal 2024 include:
▪Approximately
80% of the executive searches we performed in fiscal 2024 were for board level, chief executive and other
senior executive and general management positions. Our more than 3,700 search engagement clients in fiscal
2024 included many of the world’s largest and most prestigious public and private companies.
▪We
have built strong client loyalty, with more than 85% of the assignments performed during fiscal 2024 having
been on behalf of clients for whom we had conducted assignments in the previous three fiscal years.
▪More
than 75% of our revenues were generated from clients that have utilized multiple lines of our
business.
▪Operating
income in fiscal 2024 was $212.9
million
with an operating margin of 7.7%.
▪Fiscal
2024 Adjusted EBITDA was $408.2 million with an Adjusted EBITDA margin of 14.8%.
32
▪Our
fiscal 2024 Marquee and Regional Account fee revenue generated slightly more than 37% of our consolidated
fee revenue and grew 3% compared to fiscal year 2023.
▪Consulting
and Digital continued to show resilient business operations:
•Consulting
fee revenue grew 3% in fiscal 2024.
•Digital
fee revenue grew 3% in fiscal 2024 compared to fiscal 2023 with a 9% increase in Subscription & License
fee revenue growing to $131.0 million in fiscal 2024.
Performance
Highlights
In light
of the challenging macroeconomic business environment arising from persistent inflationary pressures, rising
interest rates, and global economic and geopolitical uncertainty, which we expected to result in near-term
slowing or declines in fee revenue, on October 23, 2023, we initiated a plan (the "Plan") intended to align
our workforce with our current business realities through position eliminations, which affected
approximately eight percent of the Company's employees. The Plan resulted in restructuring charges, net of
$68.6 million during fiscal 2024.
The
Company evaluates performance and allocates resources based on the chief operating decision maker’s review
of (1) fee revenue and (2) adjusted earnings before interest, taxes, depreciation and amortization
(“Adjusted EBITDA”). To the extent that such charges occur, Adjusted EBITDA excludes restructuring charges,
integration/acquisition costs, certain separation costs and certain non-cash charges (goodwill, intangible
asset and other impairments charges). For fiscal 2024, Adjusted EBITDA excluded $68.6 million of
restructuring charges, net, $14.9 million of integration/acquisition costs, $1.6 million impairment of
right-of-use assets and $1.6 million impairment of fixed assets. For fiscal 2023, Adjusted EBITDA excluded
$42.6 million of restructuring charges, net, $14.9 million of integration/acquisition costs, $5.5 million
impairment of right-of-use assets and $4.4 million impairment of fixed assets. For fiscal 2022, Adjusted
EBITDA excluded $7.9 million of integration/acquisition costs, $7.4 million impairment of right-of-use
assets and $1.9 million impairment of fixed assets.
Consolidated
and the subtotals of Executive Search Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial
measures and have limitations as analytical tools. They should not be viewed as a substitute for financial
information determined in accordance with United States (“U.S.”) generally accepted accounting principles
(“GAAP”) and should not be considered in isolation or as a substitute for analysis of the Company’s results
as reported under GAAP. In addition, they may not necessarily be comparable to non-GAAP performance measures
that may be presented by other companies.
Management
believes the presentation of these non-GAAP financial measures provides meaningful supplemental information
regarding Korn Ferry’s performance by excluding certain charges, items of income and other items that may
not be indicative of Korn Ferry’s ongoing operating results. The use of these non-GAAP financial measures
facilitates comparisons to Korn Ferry’s historical performance and the identification of operating trends
that may otherwise be distorted by the factors discussed above. Korn Ferry includes these non-GAAP financial
measures because management believes it is useful to investors in allowing for greater transparency with
respect to supplemental information used by management in its evaluation of Korn Ferry’s ongoing operations
and financial and operational decision-making. The accounting policies for the reportable segments are the
same as those described in the summary of significant accounting policies in the accompanying consolidated
financial statements, except that the above noted items are excluded to arrive at Adjusted EBITDA.
Management further believes that Adjusted EBITDA is useful to investors because it is frequently used by
investors and other interested parties to measure operating performance among companies with different
capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can
vary substantially from company to company.
Critical Accounting Policies
The
following discussion and analysis of our financial condition and results of operations are based on our
consolidated financial statements. Preparation of our periodic filings requires us to make estimates and
assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets
and liabilities at the date of our financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates and assumptions and changes in
the estimates are reported in current operations as new information is learned or upon the amounts becoming
fixed and determinable. In preparing our consolidated financial statements and accounting for the underlying
transactions and balances, we apply our accounting policies as disclosed in the notes to our consolidated
financial statements. We consider the policies discussed below as critical to an understanding of our
consolidated financial statements because their application places the most significant demands on
management’s judgment and estimates. Specific risks for these critical accounting policies are described in
the following paragraphs. Senior management has discussed the development, selection and key assumptions of
the critical accounting estimates with the Audit Committee of the Board of Directors.
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, interim services and RPO, either
stand-alone
or as part of a solution.
33
Revenue
is recognized when control of the goods and services are transferred to the customer in an amount that
reflects the consideration that we expect 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 Standard
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 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, we accrue or defer revenue as
appropriate.
Digital
fee revenue is generated from IP based software products enabling large-scale 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 we have a legally enforceable
right to payment. Revenue also comes from the sale of our product 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, we estimate 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. We generally recognize such
revenue over the course of a search and when we are 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. We recognize 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 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.
Carrying
Values.
Valuations are required under GAAP to determine the carrying value of various assets. Goodwill is our most
significant asset for which management is required to prepare a valuation. Management must identify whether
events have occurred that may impact the carrying value of goodwill and make assumptions regarding future
events, such as cash flows and profitability. Differences between the assumptions used to prepare these
valuations and actual results could materially impact the carrying amount of these assets and our operating
results.
Fair
value of goodwill for purposes of the goodwill impairment test when performing the quantitative test is
determined utilizing (1) a discounted cash flow analysis based on forecasted cash flows (including estimated
underlying revenue and operating income growth rates) discounted using an estimated weighted-average cost of
capital for market participants and (2) a market approach, utilizing observable market data such as
comparable companies in similar lines of business that are publicly traded or which are part of a public or
private transaction (to the extent available). We also reconcile the results of these analyses to its market
capitalization. If the carrying amount of a reporting unit exceeds its estimated fair value, goodwill is
considered potentially impaired and further tests are performed to measure the amount of impairment loss, if
any.
As of
January 31, 2024, we completed our annual qualitative test which did not indicate any impairment. During the
fourth quarter, we voluntarily changed the date of the annual impairment test from January 31 to February 1.
This voluntary change is preferable under the circumstances as it results in better alignment with our
annual operating plan process. This voluntary change in accounting principle related to the annual
impairment testing date was applied prospectively and did not delay, accelerate or avoid an impairment
charge. The quantitative test performed on February 1, 2024 did not indicate any impairment and as a result,
no impairment charge was recognized. While historical performance and current expectations have resulted in
fair values of goodwill in excess of carrying values, if our assumptions are not realized, it is possible
that in the future an impairment charge may need to be recorded. However, it is not possible at this time to
determine if an impairment charge would result or if such a charge would be material. Fair value
determinations require considerable judgment and are sensitive to changes in underlying assumptions and
factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the
annual goodwill impairment test will prove to be accurate
34
predictions
of the future. There was no indication of potential impairment through April 30, 2024 that would have
required further testing.
Examples
of events or circumstances that could reasonably be expected to negatively affect the underlying key
assumptions and ultimately impact the estimated fair value of the reporting units may include such items as
follows:
▪A
prolonged downturn in the business environment in which the reporting units operate including a longer than
anticipated public health crisis;
▪An
economic climate that significantly differs from our future profitability assumptions in timing or degree;
▪The
deterioration of the labor markets;
▪Volatility
in equity and debt markets;
▪Competition
and disruption in our core business; and
▪Technological
advances such as artificial intelligence that impact labor markets and can diminish the value of our
IP.
Results of Operations
The
following table summarizes the results of our operations as a percentage of fee revenue:
(Numbers
may not total exactly due to rounding)
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Fee revenue | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||
| Reimbursed out-of-pocket engagement expenses | 1.2 | 1.0 | 0.6 | ||||||||||||||
| Total revenue | 101.2 | 101.0 | 100.6 | ||||||||||||||
| Compensation and benefits | 66.8 | 67.1 | 66.3 | ||||||||||||||
| General and administrative expenses | 9.4 | 9.5 | 9.0 | ||||||||||||||
| Reimbursed expenses | 1.2 | 1.0 | 0.6 | ||||||||||||||
| Cost of services | 10.9 | 8.4 | 4.4 | ||||||||||||||
| Depreciation and amortization | 2.8 | 2.4 | 2.4 | ||||||||||||||
| Restructuring charges, net | 2.5 | 1.5 | — | ||||||||||||||
| Operating income | 7.7 | 11.2 | 17.9 | ||||||||||||||
| Net income | 6.2 | % | 7.5 | % | 12.6 | % | |||||||||||
| Net income attributable to Korn Ferry | 6.1 | % | 7.4 | % | 12.4 | % | |||||||||||
35
The
following tables summarize the results of our operations:
(Numbers
may not total exactly due to rounding)
| Year Ended April 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||||||||||||||||||||
| Dollars | % | Dollars | % | Dollars | % | ||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Fee revenue | |||||||||||||||||||||||||||||||||||
| Consulting | $ | 695,007 | 25.1 | % | $ | 677,001 | 23.9 | % | $ | 650,204 | 24.8 | % | |||||||||||||||||||||||
| Digital | 366,699 | 13.3 | 354,651 | 12.5 | 349,025 | 13.3 | |||||||||||||||||||||||||||||
| Executive Search: | |||||||||||||||||||||||||||||||||||
| North America | 506,927 | 18.4 | 562,139 | 19.8 | 605,704 | 23.1 | |||||||||||||||||||||||||||||
| EMEA | 184,516 | 6.7 | 187,014 | 6.6 | 182,192 | 6.9 | |||||||||||||||||||||||||||||
| Asia Pacific | 85,863 | 3.1 | 95,598 | 3.4 | 118,596 | 4.5 | |||||||||||||||||||||||||||||
| Latin America | 28,937 | 1.0 | 31,047 | 1.1 | 29,069 | 1.1 | |||||||||||||||||||||||||||||
| Total Executive Search | 806,243 | 29.2 | 875,798 | 30.9 | 935,561 | 35.6 | |||||||||||||||||||||||||||||
| Professional Search & Interim | 540,615 | 19.6 | 503,395 | 17.7 | 297,096 | 11.3 | |||||||||||||||||||||||||||||
| RPO | 354,107 | 12.8 | 424,563 | 15.0 | 394,832 | 15.0 | |||||||||||||||||||||||||||||
| Total fee revenue | 2,762,671 | 100.0 | % | 2,835,408 | 100.0 | % | 2,626,718 | 100.0 | % | ||||||||||||||||||||||||||
| Reimbursed out-of-pocket engagement expense | 32,834 | 28,428 | 16,737 | ||||||||||||||||||||||||||||||||
| Total revenue | $ | 2,795,505 | $ | 2,863,836 | $ | 2,643,455 | |||||||||||||||||||||||||||||
In the
tables that follow, the Company presents a subtotal for Executive Search Adjusted EBITDA and a single
percentage for Executive Search Adjusted EBITDA margin, which reflects the aggregate of all of the
individual Executive Search Regions. These figures are non-GAAP financial measures and are presented as they
are consistent with the Company’s lines of business and are financial metrics used by the Company’s investor
base.
| Year Ended April 30, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Consolidated | ||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Fee revenue | $ | 2,762,671 | $ | 2,835,408 | $ | 2,626,718 | ||||||||||||||
| Total revenue | $ | 2,795,505 | $ | 2,863,836 | $ | 2,643,455 | ||||||||||||||
| Net income attributable to Korn Ferry | $ | 169,154 | $ | 209,529 | $ | 326,360 | ||||||||||||||
| Net income attributable to noncontrolling interest | 3,407 | 3,525 | 4,485 | |||||||||||||||||
| Other (income) loss, net | (30,681) | (5,261) | 11,880 | |||||||||||||||||
| Interest expense, net | 20,968 | 25,864 | 25,293 | |||||||||||||||||
| Income tax provision | 50,081 | 82,683 | 102,056 | |||||||||||||||||
| Operating income | 212,929 | 316,340 | 470,074 | |||||||||||||||||
| Depreciation and amortization | 77,966 | 68,335 | 63,521 | |||||||||||||||||
| Other income (loss), net | 30,681 | 5,261 | (11,880) | |||||||||||||||||
| Integration/acquisition costs | 14,866 | 14,922 | 7,906 | |||||||||||||||||
| Impairment of fixed assets | 1,575 | 4,375 | 1,915 | |||||||||||||||||
| Impairment of right of use assets | 1,629 | 5,471 | 7,392 | |||||||||||||||||
| Restructuring charges, net | 68,558 | 42,573 | — | |||||||||||||||||
| Adjusted EBITDA | $ | 408,204 | $ | 457,277 | $ | 538,928 | ||||||||||||||
| Adjusted EBITDA margin | 14.8 | % | 16.1 | % | 20.5 | % | ||||||||||||||
36
| Year Ended April 30, 2024 | ||||||||||||||||||||||||||
| Fee revenue | Total revenue | Adjusted EBITDA | Adjusted EBITDA margin | |||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||
| Consulting | $ | 695,007 | $ | 706,805 | $ | 114,260 | 16.4 | % | ||||||||||||||||||
| Digital | 366,699 | 366,924 | 108,669 | 29.6 | % | |||||||||||||||||||||
| Executive Search: | ||||||||||||||||||||||||||
| North America | 506,927 | 513,545 | 120,710 | 23.8 | % | |||||||||||||||||||||
| EMEA | 184,516 | 185,552 | 25,902 | 14.0 | % | |||||||||||||||||||||
| Asia Pacific | 85,863 | 86,273 | 18,923 | 22.0 | % | |||||||||||||||||||||
| Latin America | 28,937 | 28,956 | 5,571 | 19.3 | % | |||||||||||||||||||||
| Total Executive Search | 806,243 | 814,326 | 171,106 | 21.2 | % | |||||||||||||||||||||
| Professional Search & Interim | 540,615 | 544,453 | 101,868 | 18.8 | % | |||||||||||||||||||||
| RPO | 354,107 | 362,997 | 40,399 | 11.4 | % | |||||||||||||||||||||
| Corporate | — | — | (128,098) | |||||||||||||||||||||||
| Consolidated | $ | 2,762,671 | $ | 2,795,505 | $ | 408,204 | 14.8 | % | ||||||||||||||||||
| Year Ended April 30, 2023 | ||||||||||||||||||||||||||
| Fee revenue | Total revenue | Adjusted EBITDA | Adjusted EBITDA margin | |||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||
| Consulting | $ | 677,001 | $ | 686,979 | $ | 108,502 | 16.0 | % | ||||||||||||||||||
| Digital | 354,651 | 354,967 | 97,458 | 27.5 | % | |||||||||||||||||||||
| Executive Search: | ||||||||||||||||||||||||||
| North America | 562,139 | 568,212 | 140,850 | 25.1 | % | |||||||||||||||||||||
| EMEA | 187,014 | 188,114 | 31,380 | 16.8 | % | |||||||||||||||||||||
| Asia Pacific | 95,598 | 95,956 | 24,222 | 25.3 | % | |||||||||||||||||||||
| Latin America | 31,047 | 31,054 | 9,370 | 30.2 | % | |||||||||||||||||||||
| Total Executive Search | 875,798 | 883,336 | 205,822 | 23.5 | % | |||||||||||||||||||||
| Professional Search & Interim | 503,395 | 507,058 | 110,879 | 22.0 | % | |||||||||||||||||||||
| RPO | 424,563 | 431,496 | 52,588 | 12.4 | % | |||||||||||||||||||||
| Corporate | — | — | (117,972) | |||||||||||||||||||||||
| Consolidated | $ | 2,835,408 | $ | 2,863,836 | $ | 457,277 | 16.1 | % | ||||||||||||||||||
37
| Year Ended April 30, 2022 | ||||||||||||||||||||||||||
| Fee revenue | Total revenue | Adjusted EBITDA | Adjusted EBITDA margin | |||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||
| Consulting | $ | 650,204 | $ | 654,199 | $ | 116,108 | 17.9 | % | ||||||||||||||||||
| Digital | 349,025 | 349,437 | 110,050 | 31.5 | % | |||||||||||||||||||||
| Executive Search: | ||||||||||||||||||||||||||
| North America | 605,704 | 609,258 | 181,615 | 30.0 | % | |||||||||||||||||||||
| EMEA | 182,192 | 182,866 | 31,804 | 17.5 | % | |||||||||||||||||||||
| Asia Pacific | 118,596 | 118,705 | 35,105 | 29.6 | % | |||||||||||||||||||||
| Latin America | 29,069 | 29,079 | 9,089 | 31.3 | % | |||||||||||||||||||||
| Total Executive Search | 935,561 | 939,908 | 257,613 | 27.5 | % | |||||||||||||||||||||
| Professional Search & Interim | 297,096 | 297,974 | 106,015 | 35.7 | % | |||||||||||||||||||||
| RPO | 394,832 | 401,937 | 59,126 | 15.0 | % | |||||||||||||||||||||
| Corporate | — | — | (109,984) | |||||||||||||||||||||||
| Consolidated | $ | 2,626,718 | $ | 2,643,455 | $ | 538,928 | 20.5 | % | ||||||||||||||||||
Our
Annual Report on Form 10-K for the year ended April 30, 2023 includes a discussion and analysis of our
financial condition and results of operations for fiscal 2023 compared to fiscal 2022 in Item 7 of Part II,
"Management's Discussion and Analysis of Financial Condition and Results of Operations."
Fiscal 2024 Compared to Fiscal 2023
Fee Revenue
Fee
Revenue. Fee
revenue decreased by $72.7 million, or 3%, to $2,762.7 million in fiscal 2024 compared to $2,835.4 million
in fiscal 2023. Exchange rates favorably impacted fee revenue by $13.5 million in fiscal 2024 compared to
fiscal 2023. Fee revenue decreased primarily due to decreases in demand for our permanent placement talent
acquisition offerings, which include Executive Search, Professional Search Permanent Placement and RPO. This
decrease was primarily due to a decline in demand driven by the challenging global economic environment.
This was partially offset by the increase in fee revenue in the interim portion of the Professional Search
& Interim, resulting from the acquisitions of Infinity Consulting Solutions and Salo (collectively " the
Acquired Companies"), which were effective on August 1, 2022 and February 1, 2023, respectively, and
increases in Consulting and Digital fee revenue.
Consulting.
Consulting
reported fee revenue of $695.0 million in fiscal 2024, an increase of $18.0 million, or 3%, compared to
$677.0 million in fiscal 2023. The increase in fee revenue was mainly driven by increases in demand for our
organizational strategy offering and assessment & succession solutions. Exchange rates favorably
impacted fee revenue by $2.1 million, compared to fiscal 2023.
Digital.
Digital
reported fee revenue of $366.7 million in fiscal 2024, an increase of $12.0 million, or 3%, compared to
$354.7 million in fiscal 2023. The increase in fee revenue was mainly driven by increases in demand for
organizational strategy, leadership and professional development, and sales of total rewards. Exchange rates
favorably impacted fee revenue by $0.8 million, compared to fiscal 2023.
Executive
Search North America.
Executive Search North America reported fee revenue of $506.9 million in fiscal 2024, a decrease of $55.2
million, or 10%, compared to $562.1 million in fiscal 2023. Exchange rates unfavorably impacted fee revenue
by $0.6 million in fiscal 2024 compared to fiscal 2023. North America’s fee revenue decreased due to an 11%
decrease in the number of engagements billed, driven by a decline in demand for executive searches as a
result of clients being affected by the challenging economic environment, partially offset by a 1% increase
in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2024 compared
to fiscal 2023.
Executive
Search EMEA.
Executive Search EMEA reported fee revenue of $184.5 million in fiscal 2024, a decrease of $2.5 million, or
1%, compared to $187.0 million in fiscal 2023. Exchange rates favorably impacted fee revenue by $7.0
million, or 4%, in fiscal 2024 compared to fiscal 2023. The decrease in fee revenue was primarily due to a
7% decrease in the number of engagements billed, partially offset by a 2% increase in the weighted-average
fees billed per engagement (calculated using local currency) in fiscal 2024 compared to fiscal 2023.
Executive
Search Asia Pacific.
Executive Search Asia Pacific reported fee revenue of $85.9 million in fiscal 2024, a decrease of $9.7
million, or 10%, compared to $95.6 million in fiscal 2023. Exchange rates unfavorably impacted fee revenue
by $2.2 million, or 2%, in fiscal 2024 compared to fiscal 2023. The decrease in fee revenue was due to a 15%
decrease in the number of engagements billed, partially offset by an 8% increase in the weighted-average
fees billed per engagement (calculated using local currency) in fiscal 2024 compared to fiscal 2023.
38
Executive
Search Latin America.
Executive Search Latin America reported fee revenue of $28.9 million in fiscal 2024, a decrease of $2.1
million, or 7%, compared to $31.0 million in fiscal 2023. Exchange rates favorably impacted fee revenue by
$1.5 million, or 5%, in fiscal 2024 compared to fiscal 2023. The decrease in fee revenue was due to a 16%
decrease in the number of engagements billed, partially offset by a 5% increase in the weighted-average fees
billed per engagement (calculated using local currency) in fiscal 2024 compared to fiscal 2023.
Professional
Search & Interim. Professional
Search & Interim reported fee revenue of $540.6 million in fiscal 2024, an increase of $37.2 million, or
7%, compared to $503.4 million in fiscal 2023. Exchange rates favorably impacted fee revenue by $1.5 million
in fiscal 2024 compared to fiscal 2023. The increase in fee revenue was due to an increase in interim fee
revenue of $94.8 million, mainly driven by the Acquired Companies. This increase was partially offset by a
decrease in permanent placement fee revenue of $57.6 million.
RPO.
RPO
reported fee revenue of $354.1 million in fiscal 2024, a decrease of $70.5 million, or 17%, compared to
$424.6 million in fiscal 2023. Exchange rates favorably impacted fee revenue by $3.4 million, or 1%, in
fiscal 2024 compared to fiscal 2023. The decrease in fee revenue was primarily due to a decline in the
number of placements being requested by existing clients as a result of clients being affected by the
challenging economic environment as well as clients "labor hoarding" during fiscal 2024.
Compensation and Benefits
Compensation
and benefits expense decreased by $57.0 million, or 3%, to $1,844.2 million in fiscal 2024 from $1,901.2
million in fiscal 2023. Exchange rates unfavorably impacted compensation and benefits by $11.8 million, or
1%, in fiscal 2024 compared to fiscal 2023. The decrease in compensation and benefits expense was primarily
due to a decrease in salaries and related payroll taxes of $85.8 million driven by an 8% decrease in average
headcount in fiscal 2024 compared to fiscal 2023. Also contributing to the decrease was a $19.4 million
decrease in performance-related bonus expense due to lower fee revenues in fiscal 2024 compared to fiscal
2023. The decrease was partially offset by higher deferred compensation expenses of $29.7 million as a
result of an increase in the fair value of participants' accounts, a $9.2 million increase in severance due
to lay-offs that took place during the year, $5.7 million more in integration and acquisition costs and an
increase in the amortization of long-term awards of $4.4 million in fiscal 2024 compared to fiscal
2023.
Consulting
compensation and benefits expense increased by $6.0 million, or 1%, to $484.5 million in fiscal 2024 from
$478.5 million in fiscal 2023. Exchange rates unfavorably impacted compensation and benefits by $2.6
million, or 1%, in fiscal 2024 compared to fiscal 2023. The increase in compensation and benefits expense
was primarily due to increases in deferred compensation of $4.3 million as a result of increases in the fair
value of participants' accounts and a $1.8 million increase in severance due to more lay-offs in fiscal 2024
compared to fiscal 2023.
Digital
compensation and benefits expense decreased by $1.2 million, or 1%, to $187.9 million in fiscal 2024 from
$189.1 million in fiscal 2023. Exchange rates unfavorably impacted compensation and benefits by $0.9 million
in fiscal 2024 compared to fiscal 2023. The decrease in compensation and benefits expense was primarily due
to a decrease in salaries and related payroll taxes of $9.0 million driven by a 2% decrease in average
headcount and a decrease in restricted stock compensation expense of $2.5 million, partially offset by
increases in performance-related bonus expense of $5.8 million and commission expense of $3.3 million driven
by the segment revenue growth in fiscal 2024 compared to fiscal 2023, and a $1.7 million increase in the
amortization of long-term awards.
Executive
Search North America compensation and benefits expense decreased by $14.9 million, or 4%, to $371.2 million
in fiscal 2024 compared to $386.1 million in fiscal 2023. Exchange rates favorably impacted compensation and
benefits by $0.3 million in fiscal 2024 compared to fiscal 2023. The decrease in compensation and benefits
expense was primarily due to decreases in performance-related bonus expense of $28.1 million due to lower
segment fee revenue and salaries and related payroll taxes of $5.8 million driven by a 4% decrease in
average headcount. The decrease in compensation and benefits expense was partially offset by a higher
deferred compensation expense of $21.0 million as a result of increases in the fair value of participants'
accounts in fiscal 2024 compared to 2023.
Executive
Search EMEA compensation and benefits expense increased by $1.2 million, or 1%, to $141.7 million in fiscal
2024 compared to $140.5 million in fiscal 2023. Exchange rates unfavorably impacted compensation and
benefits by $4.4 million, or 3%, in fiscal 2024 compared to fiscal 2023. The increase in compensation and
benefits expense was primarily due to an increase in severance expense of $4.4 million due to the lay-offs
that took place in fiscal 2024 compared to fiscal 2023. The increase was partially offset by a decrease in
performance-related bonus expense of $2.3 million due to lower segment fee revenue and a $1.0 million
decrease in salaries and related payroll taxes driven by a 1% decrease in average headcount.
Executive
Search Asia Pacific compensation and benefits expense decreased by $3.1 million, or 5%, to $58.8 million in
fiscal 2024 compared to $61.9 million in fiscal 2023. Exchange rates favorably impacted compensation and
benefits by $1.1 million, or 2%, in fiscal 2024 compared to fiscal 2023. The decrease in compensation and
benefits expense was primarily due to a decrease in performance-related bonus expense of $1.9 million in
fiscal 2024 compared to fiscal 2023 due to lower segment fee revenue and a decrease in salaries and related
payroll taxes of $0.7 million driven by a 5% decrease in average headcount.
39
Executive
Search Latin America compensation and benefits expense decreased by $1.7 million, or 8%, to $18.7 million in
fiscal 2024 compared to $20.4 million in fiscal 2023. Exchange rates unfavorably impacted compensation and
benefits by $1.0 million, or 5%, in fiscal 2024 compared to fiscal 2023. The decrease in compensation and
benefits expense was primarily due to a decrease in performance-related bonus expense of $1.5 million in
fiscal 2024 compared to fiscal 2023 due to lower segment fee revenue.
Professional
Search & Interim compensation and benefits expense increased by $1.1 million to $224.4 million in fiscal
2024 compared to $223.3 million in fiscal 2023. Exchange rates unfavorably impacted compensation and
benefits by $0.8 million in fiscal 2024 compared to fiscal 2023. The increase in compensation and benefits
expense was primarily due to increases in integration/acquisition costs of $5.7 million due to the
acquisitions of the Acquired Companies and higher deferred compensation expense of $2.2 million as a result
of increases in the fair value of participants' accounts. Further contributing to the increase in
compensation and benefits expense were increases in employee insurance of $1.7 million and
performance-related bonus expense of $1.4 million, partially offset by lower salaries and related payroll
taxes of $5.7 million due to a 3% reduction in average headcount and a decrease in commission expense of
$4.4 million in fiscal 2024 compared to fiscal 2023.
RPO
compensation and benefits expense decreased by $54.7 million, or 16%, to $284.3 million in fiscal 2024 from
$339.0 million in fiscal 2023. Exchange rates unfavorably impacted compensation and benefits by $3.4
million, or 1%, in fiscal 2024 compared to fiscal 2023. The decrease in compensation and benefits expense
was primarily due to a decrease in salaries and related payroll taxes of $56.0 million driven by a 15%
decrease in average headcount in fiscal 2024 compared to fiscal 2023. Average headcount declined due to cost
reduction actions and attrition.
Corporate
compensation and benefits expense increased by $10.2 million, or 16%, to $72.6 million in fiscal 2024 from
$62.4 million in fiscal 2023. The increase was primarily due to increases in restricted stock compensation
expense of $4.9 million and higher deferred compensation expense of $2.1 million due to an increase in the
fair value of participants' accounts in fiscal 2024 compared to fiscal 2023. Also contributing to the
increase in compensation and benefits expense was a decrease in the cash surrender value (“CSV”) of
company-owned life insurance (“COLI”) of $1.8 million as a result of less death benefits recorded in fiscal
2024 compared to fiscal 2023.
General and Administrative Expenses
General
and administrative expenses decreased by $9.5 million, or 4%, to $259.0 million in fiscal 2024 compared to
$268.5 million in fiscal 2023. Exchange rates favorably impacted general and administrative expenses by $0.8
million in fiscal 2024 compared to fiscal 2023. The decrease in general and administrative expenses was
primarily due to decreases in impairment of fixed and right-of-use assets of $6.6 million,
integration/acquisition costs of $5.8 million and legal and professional expenses of $4.5 million in the
fiscal 2024 compared to fiscal 2023. The decrease was partially offset by higher marketing and business
development expenses of $4.5 million and an increase in foreign exchange loss of $2.5 million in fiscal 2024
compared to fiscal 2023.
Consulting
general and administrative expenses decreased by $3.2 million, or 6%, to $54.7 million in fiscal 2024
compared to $57.9 million in fiscal 2023. The decrease in general and administrative expenses was primarily
due to a decrease in impairment of fixed and right-of-use assets of $5.4 million, partially offset by higher
bad debt expense of $1.9 million in fiscal 2024 compared to fiscal 2023.
Digital
general and administrative expenses decreased by $0.7 million, or 2%, to $39.9 million in fiscal 2024
compared to $40.6 million in fiscal 2023.
Executive
Search North America general and administrative expenses decreased by $0.2 million, or 1%, to $32.2 million
in fiscal 2024 from $32.4 million in fiscal 2023.
Executive
Search EMEA general and administrative expenses increased by $2.1 million, or 14%, to $16.8 million in
fiscal 2024 from $14.7 million in fiscal 2023. The increase in general and administrative expenses was
primarily due to an increase in premise and office expense of $1.0 million, of which $0.4 million is related
to the impairment of right-of-use assets associated with the reduction of the Company's real estate
footprint. Also contributing to the increase was a foreign exchange loss of $0.2 million in fiscal 2024
compared to a foreign exchange gain of $0.4 million in fiscal 2023.
Executive
Search Asia Pacific general and administrative expenses decreased by $0.9 million, or 9%, to $8.8 million in
fiscal 2024 from $9.7 million in fiscal 2023.
Executive
Search Latin America general and administrative expenses increased by $3.4 million, or 243%, to $4.8 million
in fiscal 2024 from $1.4 million in fiscal 2023. The increase in general and administrative expenses was
primarily due to a foreign exchange loss of $0.8 million in fiscal 2024 compared to a foreign exchange gain
of $1.4 million in fiscal 2023.
Professional
Search & Interim general and administrative expenses decreased by $6.0 million, or 20%, to $24.3 million
in fiscal 2024 from $30.3 million in fiscal 2023. The decrease in general and administrative expenses was
primarily due to decreases in bad debt expense of $2.6 million and integration/acquisition costs of $2.1
million in fiscal 2024 compared to fiscal 2023 and impairment of fixed and right-of-use assets of $0.6
million incurred in fiscal 2023.
40
RPO
general and administrative expenses decreased by $2.5 million, or 12%, to $18.8 million in fiscal 2024 from
$21.3 million in fiscal 2023. The decrease in general and administrative expenses was primarily due to a
foreign exchange gain of $0.1 million in fiscal 2024 compared to a foreign exchange loss of $1.2 million in
fiscal 2023 and a decrease in premise and office expense of $0.9 million.
Corporate
general and administrative expenses decreased by $1.3 million, or 2%, to $58.8 million in fiscal 2024
compared to $60.1 million in fiscal 2023. The decrease was primarily due to lower legal and other
professional fees of $5.3 million and a decrease in integration/acquisition costs of $3.6 million, partially
offset by increases in marketing and business development expenses of $4.0 million and computer license
expense of $1.7 million and a decrease in foreign exchange gain of $1.8 million in fiscal 2024 compared to
fiscal 2023.
Cost of Services Expense
Cost of
services expense consists of contractor and product costs related to the delivery of various services and
products through Consulting, Digital, Professional Search & Interim and RPO. Cost of services expense
was $300.0 million in fiscal 2024, an increase of $61.5 million, or 26%, compared to $238.5 million in
fiscal 2023. Professional Search & Interim accounts for $54.8 million of the increase primarily due to
the Acquired Companies, which perform a significant amount of interim services. Interim services have a
higher cost of service expense as compared to the Company's other segments. The rest of the increase was
from the Consulting and Digital segments due to an increase in fee revenue in the segments. Cost of services
expense, as a percentage of fee revenue, was 11% and 8% in fiscal 2024 and fiscal 2023, respectively.
Depreciation and Amortization Expenses
Depreciation
and amortization expenses were $78.0 million in fiscal 2024, an increase of $9.7 million, or 14%, compared
to $68.3 million in fiscal 2023. The increase was primarily due to technology investments made in the
current and prior year, and an increase in amortization of intangible assets due to the Acquired
Companies.
Restructuring Charges, Net
During
the second quarter of fiscal 2024, we implemented the Plan to eliminate excess capacity resulting from a
challenging and uncertain macroeconomic business environment. As a result, in fiscal 2024, the Company
recorded restructuring charges, net of $68.6 million. In fiscal 2023, the Company implemented a
separate restructuring plan to eliminate excess capacity resulting from the challenging macroeconomic
business environment impacting demand and to realign our workforce with our business needs and objectives
and as a result recorded restructuring charges, net of $42.6 million.
Net Income Attributable to Korn Ferry
Net
income attributable to Korn Ferry was $169.2 million in fiscal 2024, a decrease of $40.3 million, or 19%,
compared to $209.5 million in fiscal 2023. The decrease in net income attributable to Korn Ferry was
primarily due to a decrease in fee revenue combined with an increase in cost of services as a result of the
Acquired Companies. Further contributing to the decrease in net income attributable to Korn Ferry was an
increase in the restructuring charges, net recorded during fiscal 2024 in order to align our workforce to
the challenging macroeconomic business environment. The decrease in net income was partially offset by
decreases in compensation and benefits expenses, income tax provision and general and administrative
expenses and an increase in other income, net due to greater gains from the increase in the fair value of
our marketable securities that are held in trust for the settlement of the Company's obligation under the
ECAP in fiscal 2024 compared to fiscal 2023. Net income attributable to Korn Ferry, as a percentage of fee
revenue, was 6% in fiscal 2024 compared to 7% in fiscal 2023.
Adjusted EBITDA
Adjusted
EBITDA was $408.2 million in fiscal 2024, a decrease of $49.1 million, or 11%, compared to $457.3 million in
fiscal 2023. The decrease in Adjusted EBITDA was driven by a decrease in fee revenue combined with an
increase in cost of services, partially offset by decreases in compensation and benefits expense (excluding
integration/acquisition costs), and an increase in other income driven by the increases in the value of our
marketable securities (that are held in trust to satisfy obligations under our deferred compensation plan)
due to market movements in fiscal 2024 compared to fiscal 2023. Adjusted EBITDA, as a percentage of fee
revenue, was 15% in fiscal 2024 compared to 16% in fiscal 2023.
Consulting
Adjusted EBITDA was $114.3 million in fiscal 2024, an increase of $5.8 million, or 5%, compared to $108.5
million in fiscal 2023. The increase in Adjusted EBITDA was driven by an increase in fee revenue, partially
offset by increases in compensation and benefits expense and cost of services expense in fiscal 2024
compared to fiscal 2023. Consulting Adjusted EBITDA, as a percentage of fee revenue, was 16% in both fiscal
2024 and fiscal 2023.
Digital
Adjusted EBITDA was $108.7 million in fiscal 2024, an increase of $11.2 million, or 11%, compared to $97.5
million in fiscal 2023. The increase in Adjusted EBITDA was mainly driven by an increase in fee revenue
combined with a decrease in compensation and benefits expense, partially offset by an increase in cost of
services expense in fiscal 2024 compared to fiscal 2023. Digital Adjusted EBITDA, as a percentage of fee
revenue, was 30% in fiscal 2024 compared to 27% in fiscal 2023.
41
Executive
Search North America Adjusted EBITDA decreased by $20.2 million, or 14%, to $120.7 million in fiscal 2024
compared to $140.9 million in fiscal 2023. The decrease in Adjusted EBITDA was primarily driven by a
decrease in the segment fee revenue, partially offset by a decrease in compensation and benefits expense and
an increase in other income driven by the increases in the value of our marketable securities (that are held
in trust to satisfy obligations under our deferred compensation plan) due to market movements in fiscal 2024
compared to fiscal 2023. Executive Search North America Adjusted EBITDA, as a percentage of fee revenue, was
24% in fiscal 2024 compared to 25% in fiscal 2023.
Executive
Search EMEA Adjusted EBITDA decreased by $5.5 million, or 18%, to $25.9 million in fiscal 2024 compared to
$31.4 million in fiscal 2023. The decrease in Adjusted EBITDA was driven by lower fee revenue in the segment
coupled with increases in compensation and benefits expense and general and administrative expenses
(excluding impairment charges) in fiscal 2024 compared to fiscal 2023. Executive Search EMEA Adjusted
EBITDA, as a percentage of fee revenue, was 14% in fiscal 2024 compared to 17% in fiscal 2023.
Executive
Search Asia Pacific Adjusted EBITDA decreased by $5.3 million, or 22%, to $18.9 million in fiscal 2024
compared to $24.2 million in fiscal 2023. The decrease in Adjusted EBITDA was primarily driven by lower fee
revenue in the segment, partially offset by decreases in compensation and benefits expense and general and
administrative expenses in fiscal 2024 compared to fiscal 2023. Executive Search Asia Pacific Adjusted
EBITDA, as a percentage of fee revenue, was 22% in fiscal 2024 compared to 25% in fiscal 2023.
Executive
Search Latin America Adjusted EBITDA decreased by $3.8 million, or 40%, to $5.6 million in fiscal 2024
compared to $9.4 million in fiscal 2023. The decrease in Adjusted EBITDA was driven by lower fee revenue in
the segment and an increase in general and administrative expenses, partially offset by a decrease in
compensation and benefits expense in fiscal 2024 compared to fiscal 2023. Executive Search Latin America
Adjusted EBITDA, as a percentage of fee revenue, was 19% in fiscal 2024 compared to 30% in fiscal
2023.
Professional
Search & Interim Adjusted EBITDA was $101.9 million in fiscal 2024, a decrease of $9.0 million, or 8%,
compared to $110.9 million in fiscal 2023. The decrease in Adjusted EBITDA was mainly driven by higher cost
of services expense, partially offset by higher fee revenue in the segment driven by the Acquired Companies
and decreases in compensation and benefits expense (excluding integration/acquisition costs) and general and
administrative expenses (excluding impairment charges and integration/acquisition costs). Professional
Search & Interim Adjusted EBITDA, as a percentage of fee revenue, was 19% in fiscal 2024 compared to 22%
in fiscal 2023.
RPO
Adjusted EBITDA was $40.4 million in fiscal 2024, a decrease of $12.2 million, or 23%, compared to $52.6
million in fiscal 2023. The decrease in Adjusted EBITDA was mainly driven by lower fee revenue in the
segment, partially offset by decreases in compensation and benefits expense and general and administrative
expenses (excluding impairment charges) in fiscal 2024 compared to fiscal 2023. RPO Adjusted EBITDA, as a
percentage of fee revenue, was 11% in fiscal 2024 compared to 12% in fiscal 2023.
Other Income, Net
Other
income, net was $30.7 million in fiscal 2024 compared to $5.3 million in fiscal 2023. The difference was
primarily due to greater gains from the increase in the fair value of our marketable securities that are
held in trust for the settlement of the Company's obligation under the ECAP in fiscal 2024 compared to
fiscal 2023.
Interest Expense, Net
Interest
expense, net primarily relates to our Notes issued in December 2019, borrowings under our COLI policies and
interest cost related to our deferred compensation plans, which are partially offset by interest earned on
cash and cash equivalent balances. Interest expense, net was $21.0 million in fiscal 2024 compared to $25.9
million in fiscal 2023. Interest expense, net decreased due to an increase in interest income earned on cash
and cash equivalent balances as a result of higher interest rates in fiscal 2024 compared to fiscal
2023.
Income Tax Provision
The
provision for income tax was $50.1 million in fiscal 2024 compared to $82.7 million in fiscal 2023. This
reflects a 22.5% effective tax rate for fiscal 2024 compared to a 28.0% effective tax rate for fiscal 2023.
In addition to the impact of U.S. state income taxes and jurisdictional mix of earnings, which generally
create variability in our effective tax rate over time, the lower effective tax rate in fiscal 2024 was
primarily due to a $9.7 million non-recurring tax benefit from actions taken in connection with the
worldwide minimum tax that resulted in the release of a valuation allowance. The fiscal 2023 effective tax
rate was higher due to a tax expense recorded for withholding taxes that were not eligible for
credit.
Net Income Attributable to Noncontrolling Interest
Net
income attributable to noncontrolling interest represents the portion of a subsidiary’s net earnings that
are attributable to shares of such subsidiary not held by Korn Ferry that are included in the consolidated
results of income. Net income attributable to noncontrolling interest was $3.4 million and
$3.5 million in fiscal 2024 and fiscal 2023, respectively.
42
Liquidity and Capital Resources
The
Company and its Board of Directors endorse a balanced approach to capital allocation. The Company’s
long-term priority is to invest in growth initiatives, such as the hiring of consultants, the continued
development of IP and derivative products and services and the investment in synergistic, accretive merger
and acquisition transactions that are expected to earn a return that is superior to the Company's cost of
capital. Next, the Company’s capital allocation approach contemplates the return of a portion of excess
capital to stockholders, in the form of a regular quarterly dividend, subject to the factors discussed below
and in the “Risk Factors” section of this Annual Report on Form 10-K. Additionally, the Company considers
share repurchases on an opportunistic basis and subject to the terms of our Amended Credit Agreement
(defined below) and Notes, as well as using excess cash to repay the Notes.
On
December 16, 2019, we completed a private placement of the Notes with a $400.0 million principal amount
pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The Notes were issued
with a $4.5 million discount and will mature December 15, 2027, with interest payable semi-annually in
arrears on June 15 and December 15 of each year, that commenced on June 15, 2020. The Notes represent senior
unsecured obligations that rank equally in right of payment to all existing and future senior unsecured
indebtedness. We may
redeem the Notes prior to maturity, subject to certain limitations and premiums defined in the indenture
governing the Notes. The Notes are guaranteed by each of our existing and future wholly owned domestic
subsidiaries to the extent such subsidiaries guarantee our obligations under the Credit Agreement (defined
below). The indenture governing the Notes requires that, upon the occurrence of both a Change of Control and
a Rating Decline (each as defined in the indenture), we shall make an offer to purchase all of the Notes at
101% of their principal amount, and accrued and unpaid interest. We
used the proceeds from the offering of the Notes to repay $276.9 million outstanding under our prior
revolving credit facility and to pay expenses and fees in connection therewith. As of
April 30, 2024,
the fair value of the Notes was $380.5 million, which is based on borrowing rates currently required of
notes with similar terms, maturity and credit risk.
On June
24, 2022, we entered into an amendment (the "Amendment") to our December 16, 2019 Credit Agreement (the
"Credit Agreement"; as amended by the Amendment, the “Amended Credit Agreement”) with the lenders party
thereto and Bank of America, National Association as administrative agent, to, among other things (i) extend
the existing maturity date of the revolving facility to June 24, 2027, (ii) provide for a new delayed draw
term loan facility as described below, (iii) replace
the London interbank offered rate with Term SOFR, and (iv) replace the existing financial covenants with
financial covenants described below. The
Amended Credit Agreement provides for five-year senior secured credit facilities in an aggregate amount of
$1,150.0 million comprised of a $650.0 million revolving credit facility (the "Revolver") and a $500.0
million delayed draw term loan facility with the delayed draw having an expiration date of June 23, 2023
(the "Delayed Draw Facility", and together with the Revolver, the "Credit Facilities"). The Amended Credit
Agreement also provides that, under certain circumstances, the Company may incur term loans or increase the
aggregate principal amount of revolving commitments by an aggregate amount of up to $250 million plus an
unlimited amount subject to a consolidated secured net leverage ratio of 3.25 to 1.00. See Note 11
—Long-Term
Debt for a
further description of the Amended Credit Agreement. The Company has a total of $645.5 million and $1,145.4
million available under the Credit Facilities after $4.5 million and $4.6 million of standby letters of
credit have been issued as of April 30, 2024 and 2023, respectively. Of the amount available under the
Credit Facilities as of April 30, 2023, $500.0 million was under the Delayed Draw Facility that expired on
June 24, 2023. The Company had a total of $13.2 million and $11.5 million of standby letters with other
financial institutions as of April 30, 2024 and 2023, respectively. The standby letters of credit were
generally issued as a result of entering into office premise leases.
On
December 8, 2014, the Board of Directors adopted a dividend policy to distribute to our stockholders a
regular quarterly cash dividend of $0.10 per share. Every quarter since the adoption of the dividend policy,
the Company has declared a quarterly dividend. On June 21, 2021 and 2022, the Board of Directors increased
the quarterly dividend to $0.12 per share and $0.15 per share, respectively. On June 26, 2023, the Board of
Directors approved an increase of 20% in the quarterly dividend, which increased the quarterly dividend to
$0.18 per share. On December 5, 2023, the Board of Directors approved an increase of 83% in the quarterly
dividend, which increased the quarterly dividend to $0.33 per share. On June 12, 2024, the Board of
Directors approved an increase in the quarterly dividend to $0.37 per share. The Amended Credit Agreement
permits us to pay dividends to our stockholders and make share repurchases so long as there is no default
under the Amended Credit Agreement, our total funded debt to adjusted EBITDA ratio (as set forth in the
Amended Credit Agreement, the “consolidated net leverage ratio”) is no greater than 5.00 to 1.00, and we are
in pro forma compliance with our financial covenant. Furthermore, our Notes allow us to pay $25.0 million of
dividends per fiscal year with no restrictions plus an unlimited amount of dividends so long as our
consolidated total leverage ratio is not greater than 3.50 to 1.00, and there is no default under the
indenture governing the Notes. The declaration and payment of future dividends under the quarterly dividend
program will be at the discretion of the Board of Directors and will depend upon many factors, including our
earnings, capital requirements, financial conditions, the terms of our indebtedness and other factors our
Board of Directors may deem to be relevant. Our Board of Directors may, however, amend, revoke or suspend
our dividend policy at any time and for any reason.
On June
21, 2022, our Board of Directors approved an increase to the share repurchase program of approximately $300
million, which at the time brought our available capacity to repurchase shares in the open market or
privately negotiated transactions to $318.0 million. The Company repurchased approximately
$52.5 million and $93.9 million of the Company’s stock during fiscal 2024 and fiscal 2023,
respectively. As of April 30, 2024, $182.7 million remained available for common
43
stock
repurchases under our share repurchase program. Any decision to continue to execute our currently
outstanding share repurchase program will depend on our earnings, capital requirements, financial condition
and other factors considered relevant by our Board of Directors.
Our
primary source of liquidity is the fee revenue generated from our operations, supplemented by our borrowing
capacity under our Amended Credit Agreement. Our performance is subject to the general level of economic
activity in the geographic regions and the industries we service. We believe, based on current economic
conditions, that our cash on hand and funds from operations and the Amended Credit Agreement will be
sufficient to meet anticipated working capital, capital expenditures, general corporate requirements, debt
repayments, share repurchases and dividend payments under our dividend policy during the next 12 months and
thereafter for the foreseeable future. However, if the national or global economy, credit market conditions
and/or labor markets were to deteriorate in the future, including as a result of ongoing macroeconomic
uncertainty due to inflation and a potential recession, such changes have and could put further negative
pressure on demand for our services and affect our operating cash flows. If these conditions were to persist
over an extended period of time, we may incur negative cash flows and it might require us to access
additional borrowings under the Amended Credit Agreement to meet our capital needs and/or discontinue our
share repurchases and dividend policy.
Cash and
cash equivalents and marketable securities were $1,195.4 million and $1,067.9 million as of April 30,
2024 and 2023, respectively. Net of amounts held in trust for deferred compensation plans and accrued
bonuses, cash and cash equivalents and marketable securities were $606.4 million and $488.2 million at
April 30, 2024 and 2023, respectively. As of April 30, 2024 and 2023, we held $393.8 million and
$395.2 million, respectively of cash and cash equivalents in foreign locations, net of amounts held in trust
for deferred compensation plans and to pay accrued bonuses.
Cash and
cash equivalents consist of cash and highly liquid investments purchased with original maturities of three
months or less. Marketable securities consist of mutual funds and investments in commercial paper, corporate
notes/bonds and U.S. Treasury and Agency securities. The primary objectives of our investment in mutual
funds are to meet the obligations under certain of our deferred compensation plans, while the commercial
paper, corporate notes/bonds and U.S. Treasury and Agency securities are available for general corporate
purposes.
As of
April 30, 2024 and 2023, marketable securities of $254.4 million and $223.9 million, respectively,
included equity securities of $219.9 million (net of gross unrealized gains of $27.0 million and gross
unrealized losses of $1.2 million) and $187.8 million (net of gross unrealized gains of $9.5 million and
gross unrealized losses of $8.7 million), respectively, and were held in trust for settlement of our
obligations under certain deferred compensation plans, of which $202.5 million and $176.1 million,
respectively, are classified as non-current. These marketable securities were held to satisfy vested
obligations totaling $198.6 million and $172.2 million as of April 30, 2024 and 2023, respectively.
Unvested obligations under the deferred compensation plans totaled $22.4 million and $21.9 million as of
April 30, 2024 and 2023, respectively.
The net
increase in our working capital of $77.2 million as of April 30, 2024 compared to April 30, 2023
is primarily attributable to an increase in cash and cash equivalents. The increase in cash and cash
equivalents was primarily due to cash from operations, partially offset by payments of annual bonuses earned
in fiscal 2023 and paid during the first quarter of fiscal 2024, purchase of property and equipment,
dividends paid to shareholders and repurchases of common stock. Cash provided by operating activities was
$284.0 million in fiscal 2024, a decrease of $59.9 million, compared to $343.9 million in fiscal
2023.
Cash
used in investing activities was $53.8 million in fiscal 2024 compared to $323.5 million in fiscal 2023. The
decrease in cash used in investing activities was primarily due to $254.8 million in cash paid for
acquisitions in fiscal 2023 compared to no acquisition in fiscal 2024. Also contributing to a decrease in
cash used in investing activities was a decrease in the purchase of property and equipment of $15.2 million
and an increase of $11.9 million the amount received from our life insurance policies, partially offset by
$12.1 million less in proceeds net of purchases in our marketable securities in fiscal 2024 compared to
fiscal 2023.
Cash
used in financing activities was $116.3 million in fiscal 2024 compared to $152.2 million in fiscal 2023.
The decrease in cash used in financing activities was primarily due to decreases in repurchases of the
Company's common stock and payments of tax withholdings on restricted stock of $42.3 million and $11.5
million, respectively in fiscal 2024 compared to fiscal 2023, partially offset by an increase of $21.4
million in dividends paid to shareholders.
Off-Balance Sheet Arrangements
We have
no off-balance sheet arrangements and have not entered into any transactions involving unconsolidated,
special purpose entities.
44
Contractual Obligations
Contractual
obligations represent future cash commitments and liabilities under agreements with third parties and
exclude contingent liabilities for which we cannot reasonably predict future payment. The following table
represents our contractual obligations as of April 30, 2024:
| Payments Due in: | |||||||||||||||||||||||||||||||||||
|
Note
(1)
|
Total |
Less
Than
1
Year
|
1-3 Years | 3-5 Years |
More
Than
5
Years
|
||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Operating lease commitments | 15 | $ | 233,481 | $ | 43,068 | $ | 67,321 | $ | 40,043 | $ | 83,049 | ||||||||||||||||||||||||
| Finance lease commitments | 15 | 4,056 | 1,580 | 1,960 | 516 | — | |||||||||||||||||||||||||||||
| Accrued restructuring charges | 13 | 3,904 | 3,904 | — | — | — | |||||||||||||||||||||||||||||
|
Interest
payments on COLI loans (2)
|
11 | 30,295 | 4,501 | 8,999 | 8,379 | 8,416 | |||||||||||||||||||||||||||||
| Long-term debt | 11 | 400,000 | — | — | 400,000 | — | |||||||||||||||||||||||||||||
|
Estimated
interest on long-term debt (3)
|
11 | 74,000 | 18,500 | 37,000 | 18,500 | — | |||||||||||||||||||||||||||||
| Total | $ | 745,736 | $ | 71,553 | $ | 115,280 | $ | 467,438 | $ | 91,465 | |||||||||||||||||||||||||
_______________________________
(1)See
the corresponding Note in the accompanying consolidated financial statements in Item 15.
(2)Assumes
COLI loans remain outstanding until receipt of death benefits on COLI policies and applies current interest
rates on COLI loans ranging from 4.76% to 8.00% with total death benefits payable, net of loans under COLI
contracts of $447.3 million at April 30, 2024.
(3)Interest
on the Notes payable semi-annually in arrears on June 15 and December 15 of each year, commenced on June 15,
2020.
In
addition to the contractual obligations above, we have liabilities related to certain employee benefit
plans. These liabilities are recorded in our consolidated balance sheets. The obligations related to these
employee benefit plans are described in Note 6—Deferred
Compensation and Retirement Plans, in the
Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K.
Lastly,
we have contingent commitments under certain employment agreements that are payable upon involuntary
termination without cause, as described in Note 17—Commitments
and Contingencies, in the
Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K.
Cash Surrender Value of Company Owned Life Insurance Policies, Net of
Loans
We
purchased COLI policies or contracts insuring the lives of certain employees eligible to participate in the
deferred compensation and pension plans as a means of funding benefits under such plans. As of
April 30, 2024 and 2023, we held contracts with gross cash surrender value of $295.9 million and $275.1
million, respectively. Total outstanding borrowings against the CSV of COLI contracts were
$77.0 million and $77.1 million as of April 30, 2024 and 2023, respectively. Such borrowings do
not require annual principal repayments, bear interest primarily at variable rates and are secured by the
CSV of COLI contracts. At April 30, 2024 and 2023, the net cash value of these policies was $219.0
million and $198.0 million, respectively. Total death benefits payable, net of loans under COLI contracts,
were $447.3 million and $444.1 million at April 30, 2024 and 2023, respectively.
Other
than the factors discussed in this section, we are not aware of any other trends, demands or commitments
that would materially affect liquidity or those that relate to our resources as of April 30,
2024.
Accounting Developments
Recently Adopted Accounting Standards
In
October 2021, the Financial Accounting Standard Board 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 became
effective in fiscal years beginning after December 15, 2022 and is to be applied prospectively to business
combinations that occur after the effective date. We adopted this guidance in our fiscal year beginning May
1, 2023 and the adoption of this guidance did not have a material impact on the consolidated financial
statements.
Recent Accounting Standards - Not Yet Adopted
In
November 2023, the Financial Accounting Standards Board issued an amendment in accounting update for all
public entities that are required to report segment information in accordance with Topic 280, Segment
Reporting. The amendment in this update improves reportable segment disclosure requirements, primarily
through enhanced disclosures about significant segment expense. The amendment in this update is effective
for fiscal years beginning after December 15, 2023, and interim periods with fiscal years beginning after
December 15, 2024. We will adopt this guidance in the fiscal year
45
beginning
May 1, 2024. The adoption of this guidance is not anticipated to have a material impact on the consolidated
financial statements.
In
December 2023, the Financial Accounting Standards Board issued an amendment in accounting update for income
taxes disclosures. The new amendment provides improvements to income tax disclosures by requiring specific
categories in the rate reconciliation and disaggregated information for income taxes paid. The amendment of
this update is effective for annual periods beginning after December 15, 2024, and should be applied on a
prospective basis. We will adopt this guidance in our fiscal year beginning May 1, 2025. The adoption of
this guidance is not anticipated to have a material impact on the consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a
result of our global operating activities, we are exposed to certain market risks, including foreign
currency exchange fluctuations and fluctuations in interest rates. We manage our exposure to these risks in
the normal course of our business as described below.
Foreign Currency Risk
Substantially
all our foreign subsidiaries’ operations are measured in their local currencies. Assets and liabilities are
translated into U.S. dollars at the rates of exchange in effect at the end of each reporting period and
revenue and expenses are translated at daily rates of exchange during the reporting period. Resulting
translation adjustments are reported as a component of accumulated other comprehensive loss, net on our
consolidated balance sheets.
Transactions
denominated in a currency other than the reporting entity’s functional currency may give rise to foreign
currency gains or losses that impact our results of operations. Historically, we have not realized
significant foreign currency gains or losses on such transactions. During fiscal 2024, 2023 and 2022, we
recorded foreign currency losses of $4.5 million, $2.0 million and $1.2 million, respectively, in general
and administrative expenses in the consolidated statements of income.
Our
exposure to foreign currency exchange rates is primarily driven by fluctuations involving the following
currencies — U.S. Dollar, Canadian Dollar, Pound Sterling, Euro, Polish Zloty, Danish Krone, Swiss Franc,
Swedish Krona, South African Rand, Singapore Dollar, South Korean Won, Japanese Yen, and Mexican Peso. Based
on balances exposed to fluctuation in exchange rates between these currencies as of April 30, 2024, a
10% increase or decrease in the value of these currencies could result in a foreign exchange gain or loss of
$11.9 million. We have a program that primarily utilizes foreign currency forward contracts to offset the
risks associated with the effects of certain foreign currency exposures. 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.
Interest Rate Risk
Our
exposure to interest rate risk is limited to our Credit Facilities, borrowings against the CSV of COLI
contracts and to a lesser extent, our fixed income debt securities. As of April 30, 2024, there were no
amounts outstanding under the Credit Facilities. At our option, loans issued under the Amended Credit
Agreement bear interest at either Term Secured Overnight Financing Rate ("SOFR") or an alternate base rate,
in each case plus the applicable interest rate margin. The interest rate applicable to loans outstanding
under the Amended Credit Agreement may fluctuate between Term SOFR plus a SOFR adjustment of 0.10%, plus
1.125% per annum to 2.00% per annum, in the case of Term SOFR borrowings (or between the alternate base rate
plus 0.125% per annum and the alternate base rate plus 1.00% per annum, in the alternative), based upon our
total funded debt to adjusted EBITDA ratio (as set forth in the Amended Credit Agreement, the “consolidated
net leverage ratio”) at such time. In addition, we are required to pay the lenders a quarterly commitment
fee ranging from 0.175% to 0.300% per annum on the average daily unused amount of the Revolver, based upon
our consolidated net leverage ratio at such time, and fees relating to the issuance of letters of credit.
We had
$77.0 million and $77.1 million of borrowings against the CSV of COLI contracts as of April 30, 2024
and 2023, respectively, bearing interest primarily at variable rates. We have sought to minimize the risk of
fluctuations in these variable rates by the fact that we receive a corresponding adjustment to our borrowed
funds crediting rate, which has the effect of increasing the CSV on our COLI contracts.
Item 8. Financial Statements and Supplementary Data
See
Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not
applicable.
46
Item 9A. Controls and Procedures
a)Evaluation
of Disclosure Controls and Procedures.
As of
the end of the period covered by this Annual Report on Form 10-K, management, our Chief Executive Officer
and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure
controls and procedures and internal controls over financial reporting. Based on their evaluation of our
disclosure controls and procedures conducted as of the end of the period covered by this Annual Report on
Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934 (the
“Exchange Act”)) were effective as of April 30, 2024.
b)Changes
in Internal Control over Financial Reporting.
There
were no changes in our internal control over financial reporting during the fourth fiscal quarter that have
materially affected or are reasonably likely to materially affect our internal control over financial
reporting. See Management’s Report on Internal Control Over Financial Reporting and Report of Independent
Registered Public Accounting Firm on Internal Control Over Financial Reporting on pages F-2 and F-3,
respectively.
Item 9B. Other Information
Trading
Plans
Our
directors and Section 16 officers may from time to time enter into plans or other arrangements for the
purchase or sale of our shares that are intended to satisfy the affirmative defense conditions of Rule
10b5-1(c) or may represent a non-Rule 10b5-1 trading arrangement under the Exchange Act. During the quarter
ended April 30, 2024, no director or Section 16 officer
adopted
or
terminated
any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case,
as defined in Item 408(a) of Regulation S-K).
Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent
Inspections
Not
applicable.
47
PART III.
Item 10. Directors, Executive Officers and Corporate Governance
The
information required by this Item will be included under the captions “The Board of Directors,” "Culture of
Integrity and Code of Business Conduct and Ethics," "Board Committees," and, when applicable, “Delinquent
Section 16(a) Reports” in our 2024 Proxy Statement and is incorporated herein by reference. The information
under the heading “Information about our Executive Officers” in Part I of this Annual Report on Form 10-K is
also incorporated by reference in this section.
We have
adopted a “Code of Business Conduct and Ethics” that applies to all of our
directors, officers and employees, including our principal executive officer (who is our Chief Executive
Officer), principal financial officer, and principal accounting officer (who is our Chief Financial Officer)
and senior financial officers, or persons performing similar functions. The Code of Business Conduct and
Ethics is available on the Investor Relations portion of our website at http://ir.kornferry.com. If, or
when, applicable we will disclose amendments to certain provisions of the Code of Business Conduct and
Ethics and waivers of the Code of Business Conduct and Ethics granted to executive officers and directors on
our website within four business days following the date of the amendment or waiver.
Item 11. Executive Compensation
The
information required by this Item will be included under the captions “Compensation Discussion and
Analysis,” “Compensation of Executive Officers and Directors,” and "Assessment of Risk Related to
Compensation Programs," and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The
information required by this Item will be included under the captions “Security Ownership of Certain
Beneficial Owners and Management” and "Equity Compensation Plan Information" and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director
Independence
The
information required by this Item will be included under the captions “Certain Relationships and Related
Transactions," "Related Person Transaction Approval Policy," "Director Independence," and "Board
Committees," and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The
information required by this Item will be included under the captions “Fees Paid to Ernst & Young” and
“Audit Committee Pre-Approval Policies and Procedures” and is incorporated herein by reference.
48
PART IV.
Item 15. Exhibits and Financial Statement Schedules
Financial Statements.
a)The
following documents are filed as part of this report:
| 1. |
Index
to Financial Statements:
|
Page | ||||||
| See Consolidated Financial Statements included as part of this Annual Report on Form 10-K. |
F-1
|
|||||||
| 2. | Index to Financial Statement Schedules: | |||||||
| All schedules have been omitted because the required information is included in the financial statements or notes thereto, or because it is not required. | _ | |||||||
| 3. | Index to Exhibits: | |||||||
| See exhibits listed under Part (b) below. | ||||||||
b)Exhibits:
|
Exhibit Number |
Description | |||||||
| 2.1+ | ||||||||
| 2.2+ | ||||||||
| 2.3+ | ||||||||
| 3.1+ | ||||||||
| 3.2+ | ||||||||
| 4.1+ | ||||||||
| 4.2+ | ||||||||
| 4.3+ | ||||||||
| 10.1*+ | ||||||||
| 10.2*+ | ||||||||
| 10.3*+ | ||||||||
| 10.4*+ | ||||||||
| 10.5*+ | ||||||||
| 10.6*+ | ||||||||
| 10.7*+ | ||||||||
| 10.8*+ | ||||||||
| 10.9*+ | ||||||||
49
| 10.10*+ | ||||||||
| 10.11*+ | ||||||||
| 10.12*+ | ||||||||
| 10.13*+ | ||||||||
| 10.14*+ | ||||||||
| 10.15*+ | ||||||||
| 10.16*+ | ||||||||
| 10.17*+ | ||||||||
| 10.18*+ | ||||||||
| 10.19*+ | ||||||||
| 10.20*+ | ||||||||
| 10.21*+ | ||||||||
| 10.22*+ | ||||||||
| 10.23*+ | ||||||||
| 10.24*+ | ||||||||
| 10.25*+ | ||||||||
| 10.26*+ | ||||||||
| 10.27*+ | ||||||||
| 10.28*+ | ||||||||
| 10.29*+ | ||||||||
| 10.30*+ | ||||||||
| 10.31*+ | ||||||||
| 10.32*+ | ||||||||
| 10.33+ | ||||||||
| 10.34*+ | ||||||||
| 10.35*+ | ||||||||
50
| 10.36*+ | ||||||||
| 10.37*+ | ||||||||
| 10.38*+ | ||||||||
| 10.39*+ | ||||||||
| 10.40*+ | ||||||||
| 10.41*+ | ||||||||
| 10.42*+ | ||||||||
| 10.43+ | ||||||||
| 10.44*+ | ||||||||
| 10.45*+ | ||||||||
| 10.46*+ | ||||||||
| 10.47*+ | ||||||||
| 10.48*+ | ||||||||
| 10.49*+ | ||||||||
| 10.50*+ | ||||||||
|
10.51*+
|
||||||||
|
10.52*
|
||||||||
|
10.53*
|
||||||||
| 19.1 | ||||||||
| 21.1 | ||||||||
| 23.1 | ||||||||
| 24.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 97.1 | ||||||||
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
51
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 |
This
cover page from the Company’s Annual Report on Form 10-K for the year ended April 30,
2024, had been formatted in Inline XBRL and included as Exhibit 101.
|
|||||||
_______________________________
* Management
contract, compensatory plan or arrangement.
+ Incorporated
herein by reference.
Item 16. Form 10-K Summary
None
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
| Korn Ferry | |||||
| By: | /s/ Robert P. Rozek | ||||
| Robert P. Rozek | |||||
| Executive Vice President, Chief Financial Officer and Chief Corporate Officer | |||||
Date:
June 28, 2024
POWER OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that each of the undersigned officers and directors of the registrant hereby
constitutes and appoints Jonathan M. Kuai and Gary D. Burnison, and each of them, as lawful attorney-in-fact
and agent for each of the undersigned (with full power of substitution and resubstitution, for and in the
name, place and stead of each of the undersigned officers and directors), to sign and file with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, any and all
amendments, supplements and exhibits to this report and any and all other documents in connection therewith,
hereby granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform
each and every act and thing necessary or desirable to be done in order to effectuate the same as fully and
to all intents and purposes as each of the undersigned might or could do if personally present, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or any of their
substitutes, may do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||||||||||||
| /s/ JERRY P. LEAMON | Chairman of the Board and Director | June 28, 2024 | ||||||||||||
| Jerry P. Leamon | ||||||||||||||
| /s/ GARY D. BURNISON |
President
& Chief Executive Officer
(Principal
Executive Officer) and Director
|
June 28, 2024 | ||||||||||||
| Gary D. Burnison | ||||||||||||||
| /s/ ROBERT P. ROZEK |
Executive
Vice President, Chief Financial Officer and
Chief
Corporate Officer
(Principal
Financial Officer and Principal Accounting Officer)
|
June 28, 2024 | ||||||||||||
| Robert P. Rozek | ||||||||||||||
| /s/ DOYLE N. BENEBY | Director | June 28, 2024 | ||||||||||||
| Doyle N. Beneby | ||||||||||||||
| /s/ LAURA M. BISHOP | Director | June 28, 2024 | ||||||||||||
| Laura M. Bishop | ||||||||||||||
|
/s/
MATTHEW J. ESPE
|
Director | June 28, 2024 | ||||||||||||
|
Matthew
J. Espe
|
||||||||||||||
| /s/ CHARLES L. HARRINGTON | Director | June 28, 2024 | ||||||||||||
| Charles L. Harrington | ||||||||||||||
| /s/ ANGEL R. MARTINEZ | Director | June 28, 2024 | ||||||||||||
| Angel R. Martinez | ||||||||||||||
| /s/ DEBRA J. PERRY | Director | June 28, 2024 | ||||||||||||
| Debra J. Perry | ||||||||||||||
| /s/ LORI J. ROBINSON | Director | June 28, 2024 | ||||||||||||
| Lori J. Robinson | ||||||||||||||
53
KORN FERRY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024
F-1
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
of Korn Ferry (the “Company”) is responsible for establishing and maintaining adequate internal control over
financial reporting and for the assessment of the effectiveness of internal control over financial
reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting
is a process designed by, or supervised by, the issuer’s principal executive and principal financial
officers, and effected by the issuer’s board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally accepted accounting principles.
The
Company’s internal control over financial reporting is supported by written policies and procedures, that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of the Company’s management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In
connection with the preparation of the Company’s annual financial statements, management of the Company has
undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as
of April 30, 2024 based on criteria established in Internal
Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an
evaluation of the design of the Company’s internal control over financial reporting and testing of the
operational effectiveness of the Company’s internal control over financial reporting.
Based on
this assessment, management did not identify any material weakness in the Company’s internal control over
financial reporting, and management has concluded that the Company’s internal control over financial
reporting was effective as of April 30, 2024.
Ernst
& Young LLP, the independent registered public accounting firm that audited the Company’s financial
statements for the year ended April 30, 2024 included in this Annual Report on Form 10-K, has issued an
audit report on the effectiveness of the Company’s internal control over financial reporting as of April 30,
2024, a copy of which is included in this Annual Report on Form 10-K.
June 28,
2024
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and the Board of Directors of Korn Ferry
Opinion on Internal Control over Financial Reporting
We have
audited Korn Ferry and subsidiaries’ internal control over financial reporting as of April 30, 2024, based
on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Korn Ferry
and subsidiaries (the Company) maintained, in all material respects, effective internal control over
financial reporting as of April 30, 2024, based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company
as of
April 30, 2024 and 2023, the related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for each of the three years in the period ended April 30, 2024, and the related notes
and our report dated June 28, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The
Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects.
Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A
company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/
Ernst & Young LLP
June 28,
2024
F-3
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Stockholders and the Board of Directors of Korn Ferry
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of Korn Ferry and subsidiaries (the Company) as of
April 30, 2024 and 2023, the related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for each of the three years in the period ended April 30, 2024, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at
April 30, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in
the period ended April 30, 2024, in conformity with U.S. generally accepted accounting principles.
We also
have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of April 30, 2024, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework), and our report dated June 28, 2024 expressed an
unqualified opinion thereon.
Basis for Opinion
These
financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks
of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our
opinion.
Critical Audit Matter
The
critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates
to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective or complex judgments. The communication of the critical audit matter does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
| Revenue recognition | |||||
| Description of the Matter |
As
described in Note 1 to the consolidated financial statements, the Company recognizes
revenue when control of the goods and services are transferred to the customer. Revenue
recognition includes management estimates of uptick fee variable consideration for
Search engagements and estimates of the total hours at completion used to recognize
revenue as services are rendered under Consulting contracts.
Auditing
revenue recognition was complex due to the volume of transactions within the various
revenue streams with each revenue stream representing a different pattern of revenue
recognition. Auditing revenue recognition also incorporates testing the underlying data
supporting management estimates mentioned above that are used in recognizing revenues
under Search and Consulting contracts.
|
||||
F-4
| How We Addressed the Matter in Our Audit |
We
obtained an understanding, evaluated the design and tested the operating effectiveness
of the Company’s processes and controls related to the recognition of each revenue
stream, including, among others, controls over management review of contractual terms,
management’s determination of when control of goods and services are transferred to
customers as well as management’s review of the accuracy and completeness of underlying
data used in the estimates mentioned above.
Our
audit procedures included, among others, testing a sample of contracts to determine
whether terms that may affect revenue recognition were identified and properly
considered, performance obligations were appropriately identified in the Company’s
evaluation of the accounting for the contracts and revenue was recognized when control
of the goods or services is transferred to the customer. In addition, we tested
management estimates mentioned above. For Search contracts, we compared the estimates of
uptick fee revenues to historical actual data for a portfolio of similar contracts. For
Consulting contracts, we compared the data used in the estimate of the total hours at
completion to time reports for work completed to date, recalculated the percentage of
completion and assessed the reasonableness of management’s estimates to complete based
on an understanding of the current status of the contracts. We also performed analysis
over contracts completed during the year to determine whether there are significant
changes in the estimate from initiation to completion of contracts.
|
||||
/s/
Ernst & Young LLP
We have
served as the Company’s auditor since 2002.
Los
Angeles, California
June
28, 2024
F-5
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands, except per share data) | |||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
|||||||
| Marketable securities |
|
|
|||||||||
|
Receivables
due from clients, net of allowance for doubtful accounts of $
|
|
|
|||||||||
| Income taxes and other receivables |
|
|
|||||||||
| Unearned compensation |
|
|
|||||||||
| Prepaid expenses and other assets |
|
|
|||||||||
| Total current assets |
|
|
|||||||||
| Marketable securities, non-current |
|
|
|||||||||
| Property and equipment, net |
|
|
|||||||||
| Operating lease right-of-use assets, net |
|
|
|||||||||
| Cash surrender value of company-owned life insurance policies, net of loans |
|
|
|||||||||
| Deferred income taxes |
|
|
|||||||||
| Goodwill |
|
|
|||||||||
| Intangible assets, net |
|
|
|||||||||
| Unearned compensation, non-current |
|
|
|||||||||
| Investments and other assets |
|
|
|||||||||
| Total assets | $ |
|
$ |
|
|||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Accounts payable | $ |
|
$ |
|
|||||||
| Income taxes payable |
|
|
|||||||||
| Compensation and benefits payable |
|
|
|||||||||
| Operating lease liability, current |
|
|
|||||||||
| Other accrued liabilities |
|
|
|||||||||
| Total current liabilities |
|
|
|||||||||
| Deferred compensation and other retirement plans |
|
|
|||||||||
| Operating lease liability, non-current |
|
|
|||||||||
| Long-term debt |
|
|
|||||||||
| Deferred tax liabilities |
|
|
|||||||||
| Other liabilities |
|
|
|||||||||
| Total liabilities |
|
|
|||||||||
| Commitments and contingencies |
|
|
|||||||||
| Stockholders' equity | |||||||||||
|
Common
stock: $
|
|
|
|||||||||
| Retained earnings |
|
|
|||||||||
| Accumulated other comprehensive loss, net |
(
|
(
|
|||||||||
| Total Korn Ferry stockholders' equity |
|
|
|||||||||
| Noncontrolling interest |
|
|
|||||||||
| Total stockholders' equity |
|
|
|||||||||
| Total liabilities and stockholders' equity | $ |
|
$ |
|
|||||||
The
accompanying notes are an integral part of these consolidated financial statements.
F-6
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||
| Fee revenue | $ |
|
$ |
|
$ |
|
|||||||||||
| Reimbursed out-of-pocket engagement expenses |
|
|
|
||||||||||||||
| Total revenue |
|
|
|
||||||||||||||
| Compensation and benefits |
|
|
|
||||||||||||||
| General and administrative expenses |
|
|
|
||||||||||||||
| Reimbursed expenses |
|
|
|
||||||||||||||
| Cost of services |
|
|
|
||||||||||||||
| Depreciation and amortization |
|
|
|
||||||||||||||
| Restructuring charges, net |
|
|
|
||||||||||||||
| Total operating expenses |
|
|
|
||||||||||||||
| Operating income |
|
|
|
||||||||||||||
| Other income (loss), net |
|
|
(
|
||||||||||||||
| Interest expense, net |
(
|
(
|
(
|
||||||||||||||
| Income before provision for income taxes |
|
|
|
||||||||||||||
| Income tax provision |
|
|
|
||||||||||||||
| Net income |
|
|
|
||||||||||||||
| Net income attributable to noncontrolling interest |
(
|
(
|
(
|
||||||||||||||
| Net income attributable to Korn Ferry | $ |
|
$ |
|
$ |
|
|||||||||||
| Earnings per common share attributable to Korn Ferry: | |||||||||||||||||
| Basic | $ |
|
$ |
|
$ |
|
|||||||||||
| Diluted | $ |
|
$ |
|
$ |
|
|||||||||||
| Weighted-average common shares outstanding: | |||||||||||||||||
| Basic |
|
|
|
||||||||||||||
| Diluted |
|
|
|
||||||||||||||
| Cash dividends declared per share: | $ |
|
$ |
|
$ |
|
|||||||||||
The
accompanying notes are an integral part of these consolidated financial statements.
F-7
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Net income | $ |
|
$ |
|
$ |
|
|||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||
| Foreign currency translation adjustments |
(
|
(
|
(
|
||||||||||||||
| Deferred compensation and pension plan adjustments, net of tax |
|
|
|
||||||||||||||
| Net unrealized gain (loss) on marketable securities, net of tax |
|
|
(
|
||||||||||||||
| Comprehensive income |
|
|
|
||||||||||||||
| Less: comprehensive income attributable to noncontrolling interest |
(
|
(
|
(
|
||||||||||||||
| Comprehensive income attributable to Korn Ferry | $ |
|
$ |
|
$ |
|
|||||||||||
The
accompanying notes are an integral part of these consolidated financial statements.
F-8
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Common Stock | Retained
Earnings |
Accumulated
Other Comprehensive Loss, Net |
Total
Korn Ferry Stockholders' Equity |
Noncontrolling
Interest |
Total
Stockholders' Equity |
||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Balance at May 1, 2021 |
|
$ |
|
$ |
|
$ | (
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||
| Net income | — | — |
|
— |
|
|
|
||||||||||||||||||||||||||||||||||
|
Other
comprehensive loss
|
— | — | — |
(
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||
| Dividends paid to shareholders | — | — |
(
|
— |
(
|
— |
(
|
||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interest | — | — | — | — | — | (
|
(
|
||||||||||||||||||||||||||||||||||
| Purchase of stock | (
|
(
|
— | — |
(
|
— |
(
|
||||||||||||||||||||||||||||||||||
| Issuance of stock |
|
|
— | — |
|
— |
|
||||||||||||||||||||||||||||||||||
| Stock-based compensation | — |
|
— | — |
|
— |
|
||||||||||||||||||||||||||||||||||
| Balance at April 30, 2022 |
|
|
|
(
|
|
|
|
||||||||||||||||||||||||||||||||||
| Net income | — | — |
|
— |
|
|
|
||||||||||||||||||||||||||||||||||
|
Other
comprehensive (loss) income
|
— | — | — | (
|
(
|
|
|
||||||||||||||||||||||||||||||||||
| Dividends paid to shareholders | — | — |
(
|
— |
(
|
— |
(
|
||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interest | — | — | — | — | — | (
|
(
|
||||||||||||||||||||||||||||||||||
| Purchase of stock | (
|
(
|
— | — |
(
|
— |
(
|
||||||||||||||||||||||||||||||||||
| Issuance of stock |
|
|
— | — |
|
— |
|
||||||||||||||||||||||||||||||||||
| Stock-based compensation | — |
|
— | — |
|
— |
|
||||||||||||||||||||||||||||||||||
| Balance at April 30, 2023 |
|
|
|
(
|
|
|
|
||||||||||||||||||||||||||||||||||
| Net income | — | — |
|
— |
|
|
|
||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income | — | — | — | (
|
(
|
|
(
|
||||||||||||||||||||||||||||||||||
| Dividends paid to shareholders | — | — |
(
|
— |
(
|
— |
(
|
||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interest | — | — | — | — | — | (
|
(
|
||||||||||||||||||||||||||||||||||
| Purchase of stock | (
|
(
|
— | — |
(
|
— |
(
|
||||||||||||||||||||||||||||||||||
| Issuance of stock |
|
|
— | — |
|
— |
|
||||||||||||||||||||||||||||||||||
| Stock-based compensation | — |
|
— | — |
|
— |
|
||||||||||||||||||||||||||||||||||
| Balance at April 30, 2024 |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||
The
accompanying notes are an integral part of these consolidated financial statements.
F-9
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ |
|
$ |
|
$ |
|
|||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization |
|
|
|
||||||||||||||
| Stock-based compensation expense |
|
|
|
||||||||||||||
| Impairment of right-of-use assets |
|
|
|
||||||||||||||
| Impairment of fixed assets |
|
|
|
||||||||||||||
| Provision for doubtful accounts |
|
|
|
||||||||||||||
| Gain on cash surrender value of life insurance policies |
(
|
(
|
(
|
||||||||||||||
| (Gain) loss on marketable securities |
(
|
(
|
|
||||||||||||||
| Deferred income taxes |
(
|
(
|
(
|
||||||||||||||
| Change in other assets and liabilities: | |||||||||||||||||
| Deferred compensation |
|
|
|
||||||||||||||
| Receivables due from clients |
|
|
(
|
||||||||||||||
| Income taxes and other receivables |
|
(
|
|
||||||||||||||
| Prepaid expenses and other assets |
(
|
(
|
(
|
||||||||||||||
| Unearned compensation |
|
|
(
|
||||||||||||||
| Income taxes payable |
|
(
|
|
||||||||||||||
| Accounts payable and accrued liabilities |
(
|
(
|
|
||||||||||||||
| Other |
(
|
(
|
(
|
||||||||||||||
| Net cash provided by operating activities |
|
|
|
||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Purchase of property and equipment |
(
|
(
|
(
|
||||||||||||||
| Purchase of marketable securities |
(
|
(
|
(
|
||||||||||||||
| Proceeds from sales/maturities of marketable securities |
|
|
|
||||||||||||||
| Proceeds from life insurance policies |
|
|
|
||||||||||||||
| Premium on company-owned life insurance policies |
(
|
(
|
(
|
||||||||||||||
| Cash paid for acquisitions, net of cash acquired |
|
(
|
(
|
||||||||||||||
| Dividends received from unconsolidated subsidiaries |
|
|
|
||||||||||||||
| Net cash used in investing activities |
(
|
(
|
(
|
||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Dividends paid to shareholders |
(
|
(
|
(
|
||||||||||||||
| Repurchases of common stock |
(
|
(
|
(
|
||||||||||||||
| Payments of tax withholdings on restricted stock |
(
|
(
|
(
|
||||||||||||||
|
Proceeds
from issuance of common stock in connection with an employee stock purchase plan
|
|
|
|
||||||||||||||
| Dividends paid to noncontrolling interest |
(
|
(
|
(
|
||||||||||||||
| Principal payments on finance leases |
(
|
(
|
(
|
||||||||||||||
| Payments on life insurance policy loans |
(
|
(
|
(
|
||||||||||||||
| Net cash used in financing activities |
(
|
(
|
(
|
||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents |
(
|
(
|
(
|
||||||||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
|
(
|
|
||||||||||||||
| Cash and cash equivalents at beginning of year |
|
|
|
||||||||||||||
| Cash and cash equivalents at end of the year | $ |
|
$ |
|
$ |
|
|||||||||||
| Supplemental cash flow information: | |||||||||||||||||
| Cash used to pay interest | $ |
|
$ |
|
$ |
|
|||||||||||
| Cash used to pay income taxes, net of refunds | $ |
|
$ |
|
$ |
|
|||||||||||
The
accompanying notes are an integral part of these consolidated financial statements.
F-10
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024
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 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.
The
Company services its clients with a core set of solutions that are anchored around talent and talent
management – touching nearly every aspect of an employer’s engagement with their employees. Our
five core solutions are as
follows: Organizational Strategy, Assessment and Succession, Leadership and Professional Development,
Total Rewards, and Talent Acquisition. Our colleagues engage with our clients through the delivery of
one of our core solutions as a point solution sale or through combining component parts of our core
solutions into an integrated solution. In either case, we are helping solve our clients’ most
challenging business and human capital issues.
The
Company has eight
reportable segments that operate through the following five lines of business:
1.Consulting
aligns organizational structure, culture, performance, development and people to drive sustainable
growth by addressing four fundamental organizational and talent needs: Organizational Strategy,
Assessment and Succession, Leadership and Professional Development, and Total Rewards. The Consulting
teams work across our core capabilities, architecting integrated solutions and technology products to
help clients execute their strategy in a digitally enabled world.
2.Digital
develops intellectual property ("IP") and science-based talent technology products that empower our
clients. Our talent products and talent platform support our clients in making critical talent decisions
across the continuum from talent acquisition to talent development.
3.Executive Search
helps organizations recruit board level, chief executive and other C-suite/senior executive and general
management talent to deliver lasting impact. The Company’s approach to placing talent brings together
research-based IP, proprietary assessments and behavioral interviewing with practical experience to
determine ideal organizational fit. Salary benchmarking then helps the Company to build appropriate
frameworks for compensation and attraction. 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 permanent placements at the professional level middle and
upper management, and, for interim, those same levels plus senior executives. The Company helps clients
source high-quality candidates at speed and scale globally, covering single-hire to multi-hire permanent
placements and interim contractors (that are focused on senior executive, information technology,
Finance & Accounting roles).
5.Recruitment Process Outsourcing ("RPO") offers
scalable recruitment outsourcing and project solutions leveraging a customized technology enabled
service delivery platform and talent insights. The Company's scalable solutions, built on our IP,
science, and data and powered by best-in-class technology and consulting expertise, enable the Company
to act as a strategic partner in clients’ quest for superior recruitment outcomes and better candidate
fit.
Basis of Consolidation and Presentation
The
consolidated financial statements include the accounts of 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 the Company's industry.
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.
F-11
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
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
materially 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.
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, interim services 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 based software products enabling large-scale 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 product 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.
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.
F-12
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
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 the 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 April 30, 2024 and 2023, the Company’s
investments in cash equivalents consisted of money market funds, and as of April 30, 2024 also
consisted of commercial paper with initial maturity of less than 90 days for which market prices are
readily available. The Company maintains its cash and cash equivalents in bank accounts that exceed
federally insured FDIC limits. The Company has not experienced any losses in such accounts.
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
income (loss), net.
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, 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.
F-13
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
▪Level 3:
Unobservable inputs that reflect the reporting entity’s own assumptions.
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 in 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.
Property and Equipment, Net
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
F-14
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
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
fiscal 2024, the Company reduced its real estate footprint and as a result, the Company recognized
an impairment charge of ROU assets of $
1.6 million and an impairment of leasehold improvements and furniture and
fixtures of $0.1 million, both recorded in the consolidated statements of
income in general and administrative expenses. During fiscal 2024, the Company also recognized a $
1.5 million software impairment in the Digital segment, which
was recorded in the consolidated statements of income in general administrative expenses. During
fiscal 2023, the Company reduced its real estate footprint and as a result, the Company recognized
an impairment charge of ROU assets of $
5.5 million and an impairment of leasehold improvements and furniture and
fixtures of $4.4 million, both recorded in the consolidated statements of
income in general and administrative expenses. During fiscal 2022, the Company reduced its real
estate footprint and as a result, the Company recognized 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. As of January 31, 2024, the Company
completed the annual qualitative test which did not indicate any impairment. During the fourth
quarter, the Company voluntarily changed the date of the annual impairment test from January 31 to
February 1. This voluntary change is preferable under the circumstances as it results in better
alignment with the Company’s annual operating plan process. This voluntary change in accounting
principle related to the annual impairment testing date was applied prospectively and did not delay,
accelerate or avoid an impairment charge. As of February 1, 2024, the Company performed a
quantitative test. As part of the quantitative impairment test, the fair value of each of the
Company’s reporting units is determined using a combination of valuation techniques, including a
discounted cash flow methodology. To corroborate the discounted cash flow analysis performed at each
reporting unit, a market approach is utilized using observable market data such as comparable
companies in similar lines of business that are publicly traded or which are part of a public or
private transaction (to the extent available). Results of the annual quantitative impairment test
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 in fiscal 2024. As of April 30, 2024, there were no indicators of potential impairment with respect to the
Company's goodwill that would require further testing.
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 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 did
not
identify any impairment as of April 30, 2024, 2023 and 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,
F-15
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
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 not been significant and are recorded
in current operations in the period in which they are determined. The performance-related bonus
expense was $
390.0 million, $409.4 million and $447.6 million for the
years ended April 30, 2024, 2023 and 2022, respectively, included in compensation and benefits
expense in the consolidated statements of income.
Deferred Compensation and Pension Plans
The
Company estimates the present value of the future benefits payable under the deferred compensation
and pension plans as of the estimated payment commencement date. The Company also estimates the
remaining number of years a participant will be employed by the Company. Then, each year during the
period of estimated employment, the Company accrues a liability and recognizes expense for a portion
of the future benefit using the unit credit cost method for the Senior Executive Incentive Plan
(“SEIP”), Wealth Accumulation Plan (“WAP”), Enhanced Wealth Accumulation Plan (“EWAP”) and Worldwide
Executive Benefit Plan (“WEB”) and the pension plan acquired under Hay Group, while the medical and
life insurance plan and Long Term Performance Unit Plan (“LTPU Plan”) uses the projected unit credit
cost method. The amounts charged to operations are made up of service and interest costs and the
expected return on plan assets. Actuarial gains and losses are initially recorded in accumulated
other comprehensive loss. The actuarial gains/losses included in accumulated other comprehensive
loss are amortized to the consolidated statements of income, if at the beginning of the year, the
amount exceeds 10 % of the greater of
the projected benefit obligation and market-related plan assets. The amortization included in
periodic benefit cost is divided by the average remaining service of inactive plan participants, or
the period for which benefits will be paid, if shorter. The expected return on plan assets takes
into account the current fair value of plan assets and reflects the Company’s estimate for trust
asset returns given the current asset allocation and any expected changes to the asset allocation
and current and future market conditions.
In
calculating the accrual for future benefit payments, management has made assumptions regarding
employee turnover, participant vesting, violation of non-competition provisions and the discount
rate. Management periodically reevaluates all assumptions. If assumptions change in future reporting
periods, the changes may impact the measurement and recognition of benefit liabilities and related
compensation expense.
Executive Capital Accumulation Plan
The
Company, under the ECAP, makes discretionary contributions and such contributions may be granted to
key employees annually based on the employee’s performance. Certain key management may also receive
Company contributions upon commencement of employment. The Company amortizes these contributions on
a straight-line basis as they vest, generally over a five-year period. The amounts that are
expected to be paid to employees over the next 12 months are classified as a current liability
included in compensation and benefits payable in the accompanying consolidated balance
sheets.
The
ECAP is accounted for whereby the changes in the fair value of the vested amounts owed to the
participants are adjusted with a corresponding charge (or credit) to compensation and benefits
costs.
Cash Surrender Value of Life Insurance
The
Company purchased COLI policies or contracts insuring the lives of certain employees eligible to
participate in certain of the deferred compensation and pension plans as a means of funding benefits
under such plans. The Company purchased both fixed and variable life insurance contracts and does
not purchase “split-dollar” life insurance policy contracts. The CSV of these COLI contracts are
carried at the amounts that would be realized if the contract were surrendered at the balance sheet
date, net of the outstanding loans from the insurer. The Company has the intention and ability to
continue to hold these COLI policies and contracts. Additionally, the loans secured by the policies
do not have any scheduled payment terms and the Company also does not intend to repay the loans
outstanding on these policies until death benefits under the policy have been realized. Accordingly,
the investment in COLI is classified as long-term in the accompanying consolidated balance sheets.
The
change in the CSV of COLI contracts, net of insurance premiums paid and gains realized, is reported
net in compensation and benefits expense. As of April 30, 2024 and 2023, the Company held
contracts with net CSV of
F-16
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
Restructuring Charges, Net
The
Company accounts for its restructuring charges as a liability when the obligations are incurred and
records such charges at fair value. Changes in the estimates of the restructuring charges are
recorded in the period the change is determined.
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.
Stock-Based Compensation
Translation of Foreign Currencies
Income Taxes
There
are two components of income tax expense: current and deferred. Current income tax expense (benefit)
approximates taxes to be paid or refunded for the current period. Deferred income tax expense
(benefit) results from changes in deferred tax assets and liabilities between periods. These gross
deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in
the future because of future reversals of temporary differences in the basis of assets and
liabilities as measured by tax laws and their basis as reported in the consolidated financial
statements. Deferred tax assets are also recognized for tax attributes such as net operating loss
carryforwards and tax credit carryforwards. Deferred tax assets and deferred tax liabilities are
presented net on the consolidated balance sheets by tax jurisdiction. Valuation allowances are then
recorded to reduce deferred tax assets to the amounts management concludes are more likely than not
to be realized.
Income
tax benefits are recognized and measured based upon a two-step model: (1) a tax position must be
more-likely-than-not to be sustained based solely on its technical merits in order to be recognized
and (2) the benefit is measured as the largest dollar amount of that position that is
more-likely-than-not to be sustained upon settlement. The difference between the benefit recognized
for a position and the tax benefit claimed on a tax return is referred to as an unrecognized tax
benefit. The Company records income tax-related interest and penalties within income tax
expense.
F-17
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist
principally of cash, cash equivalents, investments, foreign currency forward contracts, receivables
due from clients and net CSV due from insurance companies, which are discussed above. Cash
equivalents include investments in money market securities and may include commercial papers and
U.S. Treasury and Agency securities, while investments include mutual funds, commercial papers,
corporate notes/bonds and may include U.S. Treasury and Agency securities. Investments are
diversified throughout many industries and geographic regions. The Company maintains its cash and
cash equivalents in bank accounts that exceed federally insured FDIC limits. The Company has not
experienced any losses in such accounts. The Company conducts periodic reviews of its customers’
financial condition and customer payment practices to minimize collection risk on accounts
receivable. As of April 30, 2024 and 2023, the Company had no other significant credit
concentrations.
Recently Adopted Accounting Standards
In
October 2021, the Financial Accounting Standards Board 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 became effective for fiscal years beginning after December 15, 2022 and
is to be applied prospectively to business combinations that occur after the effective date. The
Company adopted this guidance in its fiscal year beginning May 1, 2023 and the adoption of this
guidance did not have a material impact on the consolidated financial statements.
Recent Accounting Standards - Not Yet Adopted
In
November 2023, the Financial Accounting Standards Board issued an amendment in accounting update for
all public entities that are required to report segment information in accordance with Topic 280,
Segment Reporting. The amendment in this update improves reportable segment disclosure requirements,
primarily through enhanced disclosures about significant segment expense. The amendment in this
update is effective for fiscal years beginning after December 15, 2023, and interim periods with
fiscal years beginning after December 15, 2024. The Company will adopt this guidance in its fiscal
year beginning May 1, 2024. The adoption of this guidance is not anticipated to have a material
impact on the consolidated financial statements.
In
December 2023, the Financial Accounting Standards Board issued an amendment in accounting update for
income taxes disclosures. The new amendment provides improvements to income tax disclosures by
requiring specific categories in the rate reconciliation and disaggregated information for income
taxes paid. The amendment of this update is effective for annual periods beginning after December
15, 2024, and should be applied on a prospective basis. The Company will adopt this guidance in its
fiscal year beginning May 1, 2025. The adoption of this guidance is not anticipated to have a
material impact on the consolidated financial statements.
F-18
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
2. Basic and Diluted Earnings Per Share
The
following table summarizes basic and diluted earnings per common share attributable to common
stockholders:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||
| Net income attributable to Korn Ferry | $ |
|
$ |
|
$ |
|
|||||||||||
| Less: distributed and undistributed earnings to nonvested restricted stockholders |
|
|
|
||||||||||||||
| Basic net earnings attributable to common stockholders |
|
|
|
||||||||||||||
| Add: undistributed earnings to nonvested restricted stockholders |
|
|
|
||||||||||||||
| Less: reallocation of undistributed earnings to nonvested restricted stockholders |
|
|
|
||||||||||||||
| Diluted net earnings attributable to common stockholders | $ |
|
$ |
|
$ |
|
|||||||||||
| Weighted-average common shares outstanding: | |||||||||||||||||
| Basic weighted-average number of common shares outstanding |
|
|
|
||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||
| Restricted stock |
|
|
|
||||||||||||||
| ESPP |
|
|
|
||||||||||||||
| Diluted weighted-average number of common shares outstanding |
|
|
|
||||||||||||||
| Net earnings per common share: | |||||||||||||||||
| Basic earnings per share | $ |
|
$ |
|
$ |
|
|||||||||||
| Diluted earnings per share | $ |
|
$ |
|
$ |
|
|||||||||||
During
fiscal 2024, 2023 and 2022, restricted stock awards of 1.0 million shares,
1.2 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.
F-19
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
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:
| April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Foreign currency translation adjustments | $ |
(
|
$ |
(
|
|||||||
| Deferred compensation and pension plan adjustments, net of taxes |
|
|
|||||||||
|
Marketable
securities unrealized loss, net of tax
|
(
|
(
|
|||||||||
| Accumulated other comprehensive loss, net | $ |
(
|
$ |
(
|
|||||||
The
following table summarizes the changes in each component of accumulated other comprehensive loss,
net:
| Foreign
Currency Translation |
Deferred
Compensation
and
Pension
Plan
(1)
|
Unrealized
(Losses)
Gains
on Marketable
Securities
(2)
|
Accumulated
Other Comprehensive Loss |
||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Balance as of May 1, 2021 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
|
Unrealized
(losses) gains arising during the period
|
(
|
|
(
|
(
|
|||||||||||||||||||
| Reclassification of realized net losses to net income |
|
|
|
|
|||||||||||||||||||
| Balance as of April 30, 2022 |
(
|
|
(
|
(
|
|||||||||||||||||||
| Unrealized (losses) gains arising during the period |
(
|
|
|
(
|
|||||||||||||||||||
| Reclassification of realized net losses to net income |
|
|
|
|
|||||||||||||||||||
| Balance as of April 30, 2023 |
(
|
|
(
|
(
|
|||||||||||||||||||
| Unrealized (losses) gains arising during the period |
(
|
|
|
(
|
|||||||||||||||||||
| Reclassification of realized net losses to net income |
|
|
|
|
|||||||||||||||||||
| Balance as of April 30, 2024 | $ |
(
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
_______________________________
(1)The
tax effects on unrealized gains were $1.3 million, $1.1 million and $
6.0 million as of
April 30, 2024, 2023 and 2022, respectively. The tax effects on reclassifications of realized
net losses were $0.1 million, $0.1 million and $
0.5 million as of
April 30, 2024, 2023 and 2022, respectively.
(2)The
tax effects on unrealized gains (losses) were $0.1 million, $0.1 million and $(
0.1 ) million as of April 30, 2024, 2023 and 2022,
respectively.
F-20
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
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:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Restricted stock | $ |
|
$ |
|
$ |
|
|||||||||||
| ESPP |
|
|
|
||||||||||||||
| Total stock-based compensation expense | $ |
|
$ |
|
$ |
|
|||||||||||
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 that
generally vest 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 is summarized below:
| April 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||||||||||||||||||||
| Shares | Weighted-
Average Grant Date Fair Value |
Shares | Weighted-
Average Grant Date Fair Value |
Shares | Weighted-
Average Grant Date Fair Value |
||||||||||||||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||||||||||||||
| Non-vested, beginning of year |
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||||||||||||||||||
| Granted |
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||||||||||||||||||
| Vested |
(
|
$ |
|
(
|
$ |
|
(
|
$ |
|
||||||||||||||||||||||||||
| Forfeited |
(
|
$ |
|
(
|
$ |
|
(
|
$ |
|
||||||||||||||||||||||||||
| Non-vested, end of year |
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||||||||||||||||||
As
of April 30, 2024, there were 0.7 million shares
outstanding relating to market-based restricted stock units with total unrecognized compensation
totaling $18.9 million.
F-21
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
As
of April 30, 2024, there was $61.0 million of total
unrecognized compensation cost related to all non-vested awards of restricted stock, which is expected
to be recognized over a weighted-average period of 2.2 years. During fiscal 2024 and 2023,
212,204 shares and 372,556 shares of restricted
stock totaling $10.7 million and $22.2 million, respectively, were repurchased by the Company,
at the option of the employee, to pay for taxes related to the vesting of restricted stock.
Employee Stock Purchase Plan
The
Company has an ESPP that, in accordance with Section 423 of the Internal Revenue Code, allows eligible
employees to authorize payroll deductions of up to 15 % of their salary to purchase shares of the Company’s
common stock. On June 3, 2020, the Company amended the plan so that the purchase price of the shares
purchased could not be less than 85 % or more than 100 % of the fair market price of the common stock on the last
day of the enrollment period. This amendment became effective July 1, 2020. At the Company's 2022 Annual
Meeting of Stockholders, held on September 22, 2022, the Company's stockholders approved the Korn Ferry
Amended and Restated Employee Stock Purchase Plan, which, among other things, increased the total number
of shares of the Company's common stock that may be purchased thereunder by 1,500,000 shares. Employees may
not purchase more than $25,000 in stock during any
calendar year. The maximum number of shares that may be issued under the ESPP is 4.5 million shares. During
fiscal 2024, 2023, and 2022, employees purchased 173,671 shares at an average
price of $48.06
per share, 154,720 shares at an average price of $49.16
per share and 103,826 shares at an average price of $66.64
per share, respectively. As of April 30, 2024, the ESPP had approximately
1.6 million shares remaining
available for future issuance.
Common Stock
During
fiscal 2024, 2023 and 2022, the Company repurchased (on the open market or privately negotiated
transactions) 930,000
shares of the Company’s common stock for $52.5 million, 1,709,867 shares for $
93.9 million and 1,470,983 shares for $98.8 million, respectively.
F-22
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
5.
Financial Instruments
The
following tables show the Company’s financial instruments and balance sheet classification as of
April 30, 2024 and 2023:
| April 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurement | Balance Sheet Classification | ||||||||||||||||||||||||||||||||||||||||||||||
| Cost | Unrealized
Gains |
Unrealized
Losses |
Fair
Value |
Cash
and Cash Equivalents |
Marketable
Securities, Current |
Marketable
Securities, Non-current |
Other
Accrued Liabilities
|
||||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Changes in Fair Value Recorded in | |||||||||||||||||||||||||||||||||||||||||||||||
|
Other
Comprehensive Loss
|
|||||||||||||||||||||||||||||||||||||||||||||||
| Level 2: | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial paper | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Corporate notes/bonds |
|
|
(
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| U.S. Treasury and Agency Securities |
|
|
(
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Total debt investments | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Changes in Fair Value Recorded in | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | |||||||||||||||||||||||||||||||||||||||||||||||
| Level 1: | |||||||||||||||||||||||||||||||||||||||||||||||
|
Mutual
funds (1)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||
| Total equity investments | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||
| Cash | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||
| Money market funds |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Level 2: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward contracts |
(
|
|
|
|
(
|
||||||||||||||||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||||||||||||||||||||||||
F-23
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
| April 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurement | Balance Sheet Classification | ||||||||||||||||||||||||||||||||||||||||||||||
| Cost | Unrealized
Gains |
Unrealized
Losses |
Fair
Value |
Cash
and Cash Equivalents |
Marketable
Securities, Current |
Marketable
Securities, Non-current |
Income
Taxes & Other
Receivables
|
||||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Changes in Fair Value Recorded in | |||||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Level 2: | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial paper | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Corporate notes/bonds |
|
|
(
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Total debt investments | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Changes in Fair Value Recorded in | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | |||||||||||||||||||||||||||||||||||||||||||||||
| Level 1: | |||||||||||||||||||||||||||||||||||||||||||||||
|
Mutual
funds (1)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||
| Total equity investments | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||
| Cash | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||
| Money market funds |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Level 2: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward contracts |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||
_______________________________
(1)These
investments are held in trust for settlement of the Company’s vested obligations of $
198.6 million and $
172.2 million as of
April 30, 2024 and 2023, respectively, under the ECAP (see Note 6 —
Deferred Compensation and Retirement Plans).
Unvested obligations under the deferred compensation plans totaled $22.4 million and $21.9 million as of
April 30, 2024 and 2023, respectively. During fiscal 2024 and 2023, the fair value of the
investments increased; therefore, the Company recognized income of $29.8 million and $
2.9 million, respectively, which was recorded in other income
(loss), net. During fiscal 2022, the fair value of the investments decreased; therefore, the
Company recognized a loss of $12.0 million which was recorded in other income (loss),
net.
Investments
in marketable securities classified as available-for-sale securities are made based on the Company’s
investment policy, which restricts the types of investments that can be made. As of April 30, 2024
and 2023 marketable securities classified as available-for-sale consisted of commercial paper and
corporate notes/bonds, and also included U.S. Treasury and Agency securities as of April 30, 2024,
for which market prices for similar assets are readily available. Investments that have an original
maturity of 90 days or less and are considered highly liquid investments are classified as cash
equivalents. As of April 30, 2024, available-for-sale marketable securities had remaining
maturities ranging from less than 1
month to 23
months. During fiscal 2024, 2023 and 2022, there were $38.1 million, $58.6 million and $79.3 million in sales/maturities of available-for-sale
marketable securities, respectively. Investments in marketable securities that are held in trust for
settlement of the Company’s vested obligations under the ECAP are equity securities and are based upon
the investment selections the employee elects from a pre-determined set of securities in the ECAP and
the Company invests in equity securities to mirror these elections. As of April 30, 2024 and 2023,
the Company’s investments in equity securities consisted of mutual funds for which market prices are
readily available. Unrealized gains that relate to equity securities still held as of April 30,
2024 was $
25.1 million, while unrealized losses that relate to equity securities held as of
April 30, 2023, and 2022 were $
3.8 million and $
27.3 million, respectively.
F-24
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
Foreign Currency Forward Contracts Not Designated as Hedges
The
fair value of derivatives not designated as hedge instruments are as follows:
| April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Derivative assets: | |||||||||||
| Foreign currency forward contracts | $ |
|
$ |
|
|||||||
| Derivative liabilities: | |||||||||||
| Foreign currency forward contracts | $ |
|
$ |
|
|||||||
As
of April 30, 2024, the total notional amounts of the forward contracts purchased and sold were $
82.9 million and $34.0 million, respectively. As of
April 30, 2023, the total notional amounts of the forward contracts purchased and sold were $
112.7 million and $
41.1 million, respectively. The
Company recognizes forward contracts as a net asset or net liability on the consolidated balance sheets
as such contracts are covered by master netting agreements. During fiscal 2024 and 2023, the Company
incurred gains of $0.6 million and $2.1 million, respectively,
related to forward contracts which is recorded in general and administrative expenses in the
accompanying consolidated statements of income. During fiscal 2022, the Company incurred losses of $
0.2 million, related to forward
contracts which is recorded in general and administrative expenses in the accompanying consolidated
statements of income. These foreign currency gains/losses offset foreign currency losses/gains that
result from transactions denominated in a currency other than the Company’s functional currency. The
cash flows related to foreign currency forward contracts are included in cash flows from operating
activities.
6. Deferred Compensation and Retirement Plans
The
Company has several deferred compensation and retirement plans for eligible consultants and vice
presidents that provide defined benefits to participants based on the deferral of current compensation
or contributions made by the Company subject to vesting and retirement or termination provisions.
The
total benefit obligations for these plans were as follows:
| Year Ended April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Deferred compensation and pension plans | $ |
|
$ |
|
|||||||
| Medical and Life Insurance plan |
|
|
|||||||||
| International retirement plans |
|
|
|||||||||
| Executive Capital Accumulation Plan |
|
|
|||||||||
| Total benefit obligation |
|
|
|||||||||
|
Less:
current portion of benefit obligation (1)
|
(
|
(
|
|||||||||
| Non-current benefit obligation | $ |
|
$ |
|
|||||||
_______________________________
(1)Current
portion of benefit obligation is included in Compensation and benefits payable in the consolidated
balance sheet.
Deferred Compensation and Pension Plans
The
EWAP was established in fiscal 1994, which replaced the WAP. Certain vice presidents elected to
participate in a “deferral unit” that required the participant to contribute a portion of their
compensation for an eight year period, or in some cases, make an after-tax contribution, in
return for defined benefit payments from the Company over a fifteen year period at retirement age of 65
or later. Participants were able to acquire additional “deferral units” every five years . Vice presidents who did not choose to roll over their WAP
units into the EWAP continue to be covered under the earlier version in which participants generally
vest and commence receipt of benefit payments at retirement age of 65. In June 2003, the Company amended
the EWAP and WAP, so as not to allow new participants or the purchase of additional deferral units by
existing participants.
F-25
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
In
conjunction with the acquisition of Hay Group, the Company acquired multiple pension and savings plans
covering certain of its employees worldwide. Among these plans is a defined benefit pension plan for
certain employees in the U.S. The assets of this plan are held separately from the assets of the
sponsors in self-administered funds.
On
July 8, 2016, the Company established the LTPU Plan in order to promote the success of the Company by
providing a select group of management and highly compensated employees with nonqualified supplemental
retirement benefits as an additional means to attract, motivate and retain such employees. A unit award
has a base value of either $25,000 or $50,000 for the purpose of determining the payment that would
be made upon early termination for a partially vested unit award. The units vest 25
% on each anniversary date with the unit becoming fully vested on the fourth
anniversary of the grant date, subject to the participant’s continued service as of each anniversary
date. Each vested unit award will pay out an annual benefit of either $10,000 , $12,500 or $25,000 for each of five years commencing on the seventh
anniversary of the grant date.
F-26
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
Deferred Compensation and Pension Plans
The
following tables reconcile the benefit obligation for the deferred compensation and pension
plans:
| Year Ended April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Change in benefit obligation: | |||||||||||
| Benefit obligation, beginning of year | $ |
|
$ |
|
|||||||
| Service cost |
|
|
|||||||||
| Interest cost |
|
|
|||||||||
| Actuarial gain |
(
|
(
|
|||||||||
| Administrative expenses paid |
(
|
(
|
|||||||||
| Benefits paid from plan assets |
(
|
(
|
|||||||||
| Benefits paid from cash |
(
|
(
|
|||||||||
| Benefit obligation, end of year |
|
|
|||||||||
| Change in fair value of plan assets: | |||||||||||
| Fair value of plan assets, beginning of year |
|
|
|||||||||
| Actual return on plan assets |
|
(
|
|||||||||
| Benefits paid from plan assets |
(
|
(
|
|||||||||
| Administrative expenses paid |
(
|
(
|
|||||||||
| Employer contributions |
|
|
|||||||||
| Fair value of plan assets, end of year |
|
|
|||||||||
|
Funded
status and balance, end of year (1)
|
$ |
(
|
$ |
(
|
|||||||
| Current liability | $ |
|
$ |
|
|||||||
| Non-current liability |
|
|
|||||||||
| Total liability | $ |
|
$ |
|
|||||||
| Plan Assets - weighted-average asset allocation: | |||||||||||
| Debt securities |
|
% |
|
% | |||||||
| Equity securities |
|
% |
|
% | |||||||
| Other |
|
% |
|
% | |||||||
| Total |
|
% |
|
% | |||||||
_______________________________
(1)The
Company purchased COLI contracts insuring the lives of certain employees eligible to participate in
the deferred compensation and pension plans as a means of funding benefits under such plans. As the
COLI contracts are held in trust and are not separated from our general corporate assets, they are
not included in the funded status. As of April 30, 2024 and 2023, the Company held contracts
with gross CSV of $295.9 million and $275.1 million, offset by outstanding policy loans of $
77.0 million and $
77.1 million,
respectively.
The
pension obligation in fiscal 2024 increased compared to fiscal 2023 due to the ongoing accruals for the
LTPU Plan for additional awards issued in fiscal 2024. Additionally, the actual return on plan assets
was lower than the expected return and this caused our funded position to decrease. The increase in
pension benefit obligations was partially offset by the actuarial
F-27
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
gain
which was primarily due to an increase in discount rates. The fair value measurements of the defined benefit plan assets fall within the
following levels of the fair value hierarchy as of April 30, 2024 and 2023:
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| April 30, 2024: | |||||||||||||||||||||||
| Mutual funds | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Money market funds |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| April 30, 2023: | |||||||||||||||||||||||
| Mutual funds | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Money market funds |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
Plan
assets are invested in various asset classes that are expected to produce a sufficient level of
diversification and investment return over the long term. The investment goal is a return on assets that
is at least equal to the assumed actuarial rate of return over the long term within reasonable and
prudent levels of risk. Investment policies reflect the unique circumstances of the respective plans and
include requirements designed to mitigate risk including quality and diversification standards. Asset
allocation targets are reviewed periodically with investment advisors to determine the appropriate
investment strategies for acceptable risk levels. Our target allocation ranges are as follows: equity
securities 40
% to 60
% and debt securities 40 % to 60 %. We establish our estimated long‑term return on plan assets
considering various factors, including the targeted asset allocation percentages, historic returns and
expected future returns.
The
components of net periodic benefits costs are as follows:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
|||||||||||
| Interest cost |
|
|
|
||||||||||||||
| Amortization of actuarial loss |
|
|
|
||||||||||||||
| Net prior service credit amortization |
(
|
(
|
(
|
||||||||||||||
| Expected return on plan assets |
(
|
(
|
(
|
||||||||||||||
|
Net
periodic benefit cost (1)
|
$ |
|
$ |
|
$ |
|
|||||||||||
_______________________________
(1)The
service cost, interest cost and other components of net periodic benefit costs are included in
compensation and benefits expense, interest expense, net and other income (loss), net, respectively,
on the consolidated statements of income.
The
weighted-average assumptions used in calculating the benefit obligations were as follows:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Discount rate, beginning of year |
|
% |
|
% |
|
% | |||||||||||
| Discount rate, end of year |
|
% |
|
% |
|
% | |||||||||||
| Rate of compensation increase |
|
% |
|
% |
|
% | |||||||||||
| Expected long-term rates of return on plan assets |
|
% |
|
% |
|
% | |||||||||||
F-28
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
Benefit
payments, which reflect expected future service, as appropriate, are expected to be paid over the
next ten years as follows:
| Year Ending April 30, | Deferred Retirement Plans | |||||||
| (in thousands) | ||||||||
| 2025 | $ |
|
||||||
| 2026 |
|
|||||||
| 2027 |
|
|||||||
| 2028 |
|
|||||||
| 2029 |
|
|||||||
| 2030-2034 |
|
|||||||
Medical and Life Insurance Plan
In
conjunction with the acquisition of Hay Group, the Company inherited a benefit plan which offers medical
and life insurance coverage to 101
retired participants. The medical and life insurance benefit plan is closed to new entrants and is
unfunded.
The
following table reconciles the benefit obligation for the medical and life insurance plan:
| Year End April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Change in benefit obligation: | |||||||||||
| Benefit obligation, beginning of year | $ |
|
$ |
|
|||||||
| Interest cost |
|
|
|||||||||
| Actuarial gain |
(
|
(
|
|||||||||
| Benefits paid |
(
|
(
|
|||||||||
| Benefit obligation, end of year | $ |
|
$ |
|
|||||||
| Current liability | $ |
|
$ |
|
|||||||
| Non-current liability |
|
|
|||||||||
| Total liability | $ |
|
$ |
|
|||||||
The
components of net periodic benefits costs are as follows:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
|||||||||||
| Interest cost |
|
|
|
||||||||||||||
|
Net
prior service credit amortization
|
(
|
(
|
(
|
||||||||||||||
| Amortization of actuarial gain |
(
|
(
|
|
||||||||||||||
|
Net
periodic benefit cost (1)
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||
_______________________________
(1)The
service cost, interest cost and the other components of net periodic benefit costs are included in
compensation and benefits expense, interest expense, net and other income (loss), net, respectively,
on the consolidated statements of income.
F-29
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
The
weighted-average assumptions used in calculating the medical and life insurance plan were as
follows:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Discount rate, beginning of year |
|
% |
|
% |
|
% | |||||||||||
| Discount rate, end of year |
|
% |
|
% |
|
% | |||||||||||
| Healthcare care cost trend rate |
|
% |
|
% |
|
% | |||||||||||
Benefit
payments, which reflect expected future service, as appropriate, are expected to be paid over the
next ten years as follows:
| Year Ending April 30, | Medical and Life Insurance | |||||||
| (in thousands) | ||||||||
| 2025 | $ |
|
||||||
| 2026 |
|
|||||||
| 2027 |
|
|||||||
| 2028 |
|
|||||||
| 2029 |
|
|||||||
| 2030-2034 |
|
|||||||
International Retirement Plans
The
Company also maintains various retirement plans and other miscellaneous deferred compensation
arrangements in 25 foreign
jurisdictions. The aggregate of the long-term benefit obligation accrued at April 30, 2024 and 2023
is $12.6 million for 3,752 participants and $
13.6 million for 4,058 participants,
respectively. The Company’s contribution to these plans was $17.2 million and $
16.4 million in fiscal 2024 and
2023, respectively.
Executive Capital Accumulation Plan
The
Company’s ECAP is intended to provide certain employees an opportunity to defer their salary and/or
bonus on a pre-tax basis. In addition, the Company, as part of its compensation philosophy, makes
discretionary contributions into the ECAP and such contributions may be granted to key employees
annually based on the employee’s performance. Certain key management may also receive Company ECAP
contributions upon commencement of employment. The Company amortizes these contributions on a
straight-line basis over the service period, generally a five-year period. Participants have the
ability to allocate their deferrals among a number of investment options and may receive their benefits
at termination, retirement or ‘in service’ either in a lump sum or in quarterly installments over -to-15 years. The ECAP amounts that are expected to be paid to employees
over the next 12 months are classified as a current liability included in compensation and benefits
payable on the accompanying consolidated balance sheets.
The
Company issued ECAP awards during fiscal 2024, 2023 and 2022 of $7.1 million, $6.5 million and $7.5 million, respectively.
The
ECAP is accounted for whereby the changes in the fair value of the vested amounts owed to the
participants are adjusted with a corresponding charge (or credit) to compensation and benefits costs.
During fiscal 2024 and 2023, the deferred compensation liability increased; therefore, the Company
recognized a compensation expense of $29.5 million and $
3.5 million, respectively.
Offsetting the increase in compensation and benefits expense in fiscal 2024 and 2023 was an increase in
the fair value of marketable securities (held in trust to satisfy obligations of the ECAP liabilities)
of $29.8
million and $2.9
million in fiscal 2024 and 2023, respectively, recorded in other income (loss),
net on the consolidated statements of income. During fiscal 2022, deferred compensation liability
decreased; therefore, the Company recognized a reduction in compensation expense of $10.6 million. Offsetting
the decrease in compensation and benefits expense in fiscal 2022 was a decrease in the fair value of
marketable securities (held in trust to satisfy obligations of the ECAP liabilities) of $12.0 million in fiscal
2022, recorded in other income (loss), net on the consolidated statement of income.
F-30
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
Changes
in ECAP liability were as follows:
| Year Ended April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Balance, beginning of year | $ |
|
$ |
|
|||||||
| Employee contributions |
|
|
|||||||||
| Amortization of employer contributions |
|
|
|||||||||
|
Gain
on investment
|
|
|
|||||||||
| Employee distributions |
(
|
(
|
|||||||||
| Exchange rate fluctuations |
(
|
(
|
|||||||||
| Balance, end of year |
|
|
|||||||||
| Less: current portion |
(
|
(
|
|||||||||
| Non-current portion | $ |
|
$ |
|
|||||||
As
of April 30, 2024 and 2023, the unamortized portion of the Company contributions to the ECAP was $
16.4 million and $
16.1 million,
respectively.
Defined Contribution Plan
The
Company has a defined contribution plan (“401(k) plan”) for eligible employees. Participants may
contribute up to 50 % of their base compensation as defined in the plan agreement. In
addition, the Company has the option to make matching contributions. Beginning in fiscal 2022, the
Company began to match 10 % of the employee contributions each pay period up to the IRS limit
(excluding catch-up contributions) and then making an additional discretionary match after the fiscal
year. The Company made $3.5 million in matching
contributions during fiscal 2024. In addition, the Company intends to make an additional matching
contribution relating to fiscal 2024 of $3.2 million in fiscal 2025,
which are accrued in compensation and benefits payable on the consolidated balance sheet. The Company
made $3.5 million matching
contributions during fiscal 2023 and an additional $3.1 million matching
contribution in fiscal 2024 related to contributions made by employees in fiscal 2023. The Company made
$2.1 million matching
contributions during fiscal 2022 and an additional $2.7 million matching
contribution in fiscal 2023 related to contributions made by employees in fiscal 2022.
Company Owned Life Insurance
7. Fee Revenue
Contract Balances
A
contract asset (unbilled receivables) is recorded when the Company transfers control of products or
services before there is an unconditional right to payment. A contract liability (deferred revenue) is
recorded when cash is received in advance of performance of the obligation. Deferred revenue represents
the future performance obligations to transfer control of products or services for which we have already
received consideration. Deferred revenue is presented in other accrued liabilities on the consolidated
balance sheets.
F-31
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
The
following table outlines the Company’s contract
asset and liability balances as of April 30,
2024
and 2023:
| April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Contract assets-unbilled receivables | $ |
|
$ |
|
|||||||
| Contract liabilities-deferred revenue | $ |
|
$ |
|
|||||||
During
fiscal 2024, 2023, and 2022 we recognized revenue of $195.2 million, $181.7 million and $131.3 million, respectively,
that were included in the contract liabilities balance at the beginning of the period.
Performance Obligations
The
Company has elected to apply the practical expedient to exclude the value of unsatisfied performance
obligations for contracts with a duration of one year or less, which applies to all executive search,
professional search and to most of the fee revenue from the interim business. As of April 30, 2024,
the aggregate transaction price allocated to the performance obligations that are unsatisfied for
contracts with an expected duration of greater than one year at inception was $1,013.8 million. Of the $
1,013.8 million of remaining performance obligations, the Company
expects to recognize approximately $545.8 million in fiscal 2025, $288.3 million in fiscal 2026, $
131.6 million in fiscal 2027 and the remaining $48.1 million in fiscal 2028 and
thereafter. However, this amount should not be considered an indication of the Company’s future revenue
as contracts with an initial term of one year or less are not included. Further, our contract terms and
conditions allow for clients to increase or decrease the scope of services and such changes do not
increase or decrease a performance obligation until the Company has an enforceable right to
payment.
Disaggregation of Revenue
The
Company disaggregates its revenue by line of business and further by region for Executive Search. This
information is presented in Note 12—Segments.
The
following table provides further disaggregation of fee revenue by industry:
| Year Ended April 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||||||||||||||||||||
| Dollars | % | Dollars | % | Dollars | % | ||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Industrial | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | |||||||||||||||||||||||
| Financial Services |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Life Sciences/Healthcare |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Technology |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Consumer Goods |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Education/Non–Profit/General |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Fee Revenue | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | |||||||||||||||||||||||
F-32
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
8. Credit
Losses
The
activity in the allowance for credit losses on the Company's trade receivables is as follows:
| (in thousands) | |||||
| Balance at May 1, 2021 | $ |
|
|||
| Provision for credit losses |
|
||||
| Write-offs |
(
|
||||
| Recoveries of amounts previously written off |
|
||||
| Foreign currency translation |
(
|
||||
| Balance at April 30, 2022 |
|
||||
| Provision for credit losses |
|
||||
| Write-offs |
(
|
||||
| Recoveries of amounts previously written off |
|
||||
| Foreign currency translation |
|
||||
| Balance at April 30, 2023 |
|
||||
| Provision for credit losses |
|
||||
| Write-offs |
(
|
||||
| Recoveries of amounts previously written off |
|
||||
| Foreign currency translation |
(
|
||||
| Balance at April 30, 2024 | $ |
|
|||
The
fair value and unrealized losses on available for sale debt securities, aggregated by investment
category and the length of time the security has been in an unrealized loss position as of
April 30, 2024 and 2023, are as follows:
| Less Than 12 Months | 12 Months or longer | Balance Sheet Classification | |||||||||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Cash
and Cash Equivalents |
Marketable Securities, Current | Marketable Securities, Non-Current | |||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Balance at April 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Commercial paper | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Corporate notes/bonds | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Balance at April 30, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Commercial paper | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Corporate notes/bonds | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| U.S. Treasury and Agency Securities | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
The
Company only purchases high grade bonds that have a maturity from the date of purchase of no more than
two years . The Company monitors the creditworthiness of its investments
on a quarterly basis. The Company does not intend to sell the investments and does not believe it will
be required to sell the investments before the investments mature and therefore recover the amortized
cost basis.
F-33
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
9. Income Taxes
Income
from continuing operations before provision for income taxes was as follows:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Domestic | $ |
|
$ |
|
$ |
|
|||||||||||
| Foreign |
|
|
|
||||||||||||||
| Income before provision for income taxes | $ |
|
$ |
|
$ |
|
|||||||||||
The
provision for domestic and foreign income taxes was as follows:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Current income taxes: | |||||||||||||||||
| Federal | $ |
|
$ |
|
$ |
|
|||||||||||
| State |
|
|
|
||||||||||||||
| Foreign |
|
|
|
||||||||||||||
| Current provision for income taxes |
|
|
|
||||||||||||||
| Deferred income taxes: | |||||||||||||||||
| Federal |
(
|
(
|
(
|
||||||||||||||
| State |
(
|
(
|
(
|
||||||||||||||
| Foreign |
(
|
|
|
||||||||||||||
| Deferred benefit for income taxes |
(
|
(
|
(
|
||||||||||||||
| Total provision for income taxes | $ |
|
$ |
|
$ |
|
|||||||||||
The
reconciliation of the statutory federal income tax rate to the effective consolidated tax rate is as
follows:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| U.S. federal statutory income tax rate |
|
% |
|
% |
|
% | |||||||||||
| State tax, net of federal effect |
|
|
|
||||||||||||||
| Foreign tax rates differential |
|
|
|
||||||||||||||
| Non-deductible officer's compensation |
|
|
|
||||||||||||||
| Change in valuation allowance |
(
|
|
(
|
||||||||||||||
| Change in uncertain tax positions |
|
|
|
||||||||||||||
| Foreign-derived intangible income deduction |
(
|
(
|
(
|
||||||||||||||
| Repatriation of earnings of foreign subsidiaries |
|
|
|
||||||||||||||
| R&D tax credit |
(
|
(
|
(
|
||||||||||||||
| Other |
(
|
(
|
(
|
||||||||||||||
| Effective income tax rate |
|
% |
|
% |
|
% | |||||||||||
F-34
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
Components
of deferred tax assets and liabilities were as follows:
| April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Deferred compensation | $ |
|
$ |
|
|||||||
| Operating lease liability |
|
|
|||||||||
| Loss carryforwards |
|
|
|||||||||
| Reserves and accruals |
|
|
|||||||||
| Allowance for doubtful accounts |
|
|
|||||||||
| Deferred revenue |
|
|
|||||||||
| Gross deferred tax assets |
|
|
|||||||||
| Deferred tax liabilities: | |||||||||||
| Operating lease, right-of-use, assets |
(
|
(
|
|||||||||
| Intangibles and goodwill |
(
|
(
|
|||||||||
| Property and equipment |
(
|
(
|
|||||||||
| Prepaid expenses |
(
|
(
|
|||||||||
|
Unrealized
gain on marketable securities
|
(
|
(
|
|||||||||
| Other |
(
|
(
|
|||||||||
| Gross deferred tax liabilities |
(
|
(
|
|||||||||
| Valuation allowances |
(
|
(
|
|||||||||
| Net deferred tax asset | $ |
|
$ |
|
|||||||
Deferred
tax assets are reduced by a valuation allowance if it is more-likely-than-not that some portion or all
of the deferred tax assets will not be realized. Management believes uncertainty exists regarding the
realizability of certain deferred tax assets and has, therefore, established a valuation allowance
offsetting deferred tax assets that are not more-likely-than-not to be realized. Realization of the
deferred tax asset is dependent on the Company generating enough taxable income of the appropriate
nature in future years. Although realization is not assured, management believes that it is
more-likely-than-not that the net deferred tax assets will be realized. In fiscal 2024, the Company’s
valuation allowance decreased by $12.7 million primarily due to (i) the release of a $
9.7 million valuation allowance
in the third quarter as a result of actions taken in connection with the global minimum tax, and (ii)
other releases of valuation allowances against deferred tax assets, primarily net operating loss
carryforwards, in certain foreign jurisdictions that were now more-likely-than-not to be realized. The
global minimum tax, which is also known as Pilar Two under the Organization for Economic Cooperation and
Development framework on Base Erosion and Profit Shifting, is first applicable to Korn Ferry in fiscal
2025. In fiscal 2023 and 2022, the Company’s valuation allowance increased by $1.2 million and decreased by $1.1 million, respectively, primarily due to changes in
deferred tax asset balances, including net operating loss carryforwards in certain foreign jurisdictions
that were not more-likely-than-not to be realized. Deferred tax assets and deferred tax liabilities are
presented net on the consolidated balance sheets by tax jurisdiction.
As
of April 30, 2024, the Company had U.S. federal net operating loss carryforwards of $
4.3 million, which if
unutilized, will begin to expire in fiscal 2036. The Company has state net operating loss carryforwards
of $41.5
million, which, if unutilized, will begin to expire in fiscal 2025. The Company also
has foreign net operating loss carryforwards of $103.3 million, which, if unutilized, will begin to expire in fiscal
2025.
The
Company continues to consider approximately $795.1 million of undistributed earnings of foreign
subsidiaries to be indefinitely reinvested, and accordingly, have provided no state, local or foreign
withholding income taxes on such earnings. While the Company does not anticipate the need to repatriate
funds to the U.S. to satisfy domestic liquidity needs, it reviews cash positions regularly and, to the
extent that it is determined that all or a portion of foreign earnings are not indefinitely reinvested,
the Company will provide additional state, local and foreign withholding income taxes. Under current
U.S. federal tax law, the Company does not expect to incur a U.S. federal income tax liability on the
undistributed earnings in the event they are repatriated to the United States.
F-35
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
The
Company elected to treat taxes due on future U.S. inclusions in taxable income related to Global
Intangible Low-Taxed Income as an expense when incurred (the “period cost method”) as opposed to
factoring such amounts in the Company’s measurement of its deferred taxes (the “deferred
method”).
The
Company and its subsidiaries file federal and state income tax returns in the U.S. as well as in foreign
jurisdictions. These income tax returns are subject to audit by the Internal Revenue Service (the “IRS”)
and various state and foreign tax authorities. Currently, income tax returns of the Company’s
subsidiaries are under audit in Germany, Saudi Arabia, Switzerland, Japan, India, United Kingdom and
United States. The Company’s income tax returns are not otherwise under examination in any material
jurisdictions. The statute of limitations varies by jurisdiction in which the Company operates. With few
exceptions, however, the Company’s tax returns for years prior to fiscal 2018 are no longer open to
examination by tax authorities (including U.S. federal, state and foreign).
Unrecognized
tax benefits are the differences between the amount of benefits of tax positions taken, or expected to
be taken, on a tax return and the amount of benefits recognized for financial reporting purposes. As of
April 30, 2024, the Company had a liability of $14.0 million for unrecognized tax benefits. A reconciliation of the beginning and ending
balances of the unrecognized tax benefits is as follows:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Unrecognized tax benefits, beginning of year | $ |
|
$ |
|
$ |
|
|||||||||||
| Additions based on tax positions related to the current year |
|
|
|
||||||||||||||
| Additions based on tax positions related to prior years |
|
|
|
||||||||||||||
| Settlement with tax authority |
|
(
|
|
||||||||||||||
| Lapse of applicable statute of limitations |
(
|
(
|
|
||||||||||||||
| Unrecognized tax benefits, end of year | $ |
|
$ |
|
$ |
|
|||||||||||
The
full amount of unrecognized tax benefits would impact the effective tax rate if recognized. In the next
12 months, it is reasonably possible that the Company’s unrecognized tax benefits could change due to
the resolution of certain tax matters either because the tax positions are sustained on audit or the
Company agrees to their disallowance. These resolutions could reduce the Company’s liability for
unrecognized tax benefits by approximately $5.0 million.
The
Company classifies interest and penalties related to unrecognized tax benefits as a component of the
provision for income taxes. The Company had accruals of $2.1 million, $1.8 million and $1.4 million for interest related
to unrecognized tax benefits as of April 30, 2024, 2023 and 2022 respectively. The Company had an
accrual of $0.2 million and $0.5 million as of April 30,
2024 and 2023, respectively, for penalties related to unrecognized tax benefits. The Company recognized
tax expense $0.4 million and $0.4 million for interest and
penalties related to unrecognized tax benefits during fiscal 2023 and 2022, respectively. The Company
did not recognize a tax expense for interest and penalties related to
unrecognized tax benefits during fiscal 2024.
F-36
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
10. Property and Equipment, Net
Property
and equipment include the following:
| April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
|
Computer
equipment and software (1)
|
$ |
|
$ |
|
|||||||
| Leasehold improvements |
|
|
|||||||||
| Furniture and fixtures |
|
|
|||||||||
| Automobiles |
|
|
|||||||||
|
|
|
||||||||||
| Less: accumulated depreciation and amortization |
(
|
(
|
|||||||||
| Property and equipment, net | $ |
|
$ |
|
|||||||
_______________________________
(1)Depreciation
expense for capitalized software was $36.5 million, $29.3 million and $
28.0 million during fiscal 2024, 2023 and 2022, respectively. The
net book value of the Company’s computer software costs included in property and equipment, net was
$127.3 million and $121.9 million as of April 30, 2024 and 2023,
respectively.
11. Long-Term Debt
On
December 16, 2019, the Company completed a private placement of 4.625 % Senior Unsecured Notes due 2027 (the “Notes”) with a
$400 million principal amount
pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The Notes were
issued with a $
4.5 million discount and will mature December 15, 2027, with interest payable
semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2020. The
Notes represent senior unsecured obligations that rank equally in right of payment to all existing and
future senior unsecured indebtedness. The Company may redeem the Notes prior to maturity, subject to
certain limitations and premiums defined in the indenture governing the Notes. The Company may redeem the Notes at the applicable redemption
prices set forth in the table below, plus accrued and unpaid interest, if redeemed during the
12-month period beginning on December 15 of each of the years indicated:
| Year | Percentage | ||||
| 2022 |
|
||||
| 2023 |
|
||||
| 2024 and thereafter |
|
||||
The
Notes allow the Company to pay $25
million of dividends per fiscal year with no restrictions, plus an unlimited amount of
dividends so long as the Company’s consolidated total leverage ratio is not greater than 3.50 to 1.00, and the Company is not in default under the indenture
governing the Notes. The Notes are guaranteed by each of the Company's existing and future wholly owned
domestic subsidiaries to the extent such subsidiaries guarantee the Company's credit facilities. The
indenture governing the Notes requires that, upon the occurrence of both a Change of Control and a
Rating Decline (each as defined in the indenture), the Company shall make an offer to purchase all of
the Notes at 101 % of their principal amount, and accrued and unpaid interest. The
Company used the proceeds from the offering of the Notes to repay $276.9 million outstanding under the Company’s prior revolving
credit facility and to pay expenses and fees in connection therewith. The remainder of the proceeds were
used for general corporate requirements. The effective interest rate on the Notes was 4.86
% as of April 30, 2024. As
of April 30, 2024 and 2023, the fair value of the Notes was $380.5 million and $381.5 million, respectively, based on borrowing rates then
required of notes with similar terms, maturity and credit risk. The fair value of the Notes was
classified as a Level 2 measurement in the fair value hierarchy.
F-37
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
Long-term
debt, at amortized cost, consisted of the following:
| In thousands | April 30, 2024 | April 30, 2023 | ||||||||||||
| Senior Unsecured Notes | $ |
|
$ |
|
||||||||||
| Less: Unamortized discount and issuance costs |
(
|
(
|
||||||||||||
| Long-term borrowings, net of unamortized discount and debt issuance costs | $ |
|
$ |
|
||||||||||
Credit Facilities
On
June 24, 2022, the Company entered into an amendment (the “Amendment”) to its December 16, 2019
Credit Agreement (the “Credit Agreement”; as amended by the Amendment, the “Amended Credit Agreement”)
with a syndicate of banks and Bank of America, National Association as administrative agent, to, among
other things, (i) extend the existing maturity date of the revolving facility to June 24, 2027,
(ii) provide for a new delayed draw term loan facility as described below, (iii) replace the London
interbank offered rate with forward-looking Secured Overnight Financing Rate (" SOFR") term rate (“Term
SOFR”) as described below, and (iv) replace the existing financial covenants with the financial covenant
described below. The Amended Credit Agreement provides for five-year
senior secured credit facilities in an aggregate amount of $1,150.0 million comprised of a $
650.0 million revolving credit facility (the “Revolver”) and a $
500.0 million delayed draw term loan facility (the “Delayed Draw
Facility”, and together with the Revolver, the “Credit Facilities”). The Delayed Draw Facility expired
on June 24, 2023. The Amended Credit Agreement also provides that, under certain circumstances, the
Company may incur term loans or increase the aggregate principal amount of revolving commitments by an
aggregate amount up to $250.0 million plus an unlimited amount subject to a
consolidated secured net leverage ratio of 3.25
to 1.00.
The
Amended Credit Agreement contains certain customary affirmative and negative covenants that, among other
things, restrict the Company’s ability to incur additional indebtedness, grant liens and make certain
acquisitions, investments, asset dispositions and restricted payments. In addition, the Amended Credit
Agreement contains a covenant that requires the Company to maintain a maximum consolidated secured
leverage ratio of 3.50 to 1.00 (which
may be temporarily increased to 4.00
following certain material acquisitions under certain circumstances) (the “Financial
Covenant”).
The
principal balance of the Revolver, if any, is due at maturity. The Credit Facilities mature on
June 24, 2027 and any unpaid principal balance is payable on this date. The Credit Facilities may
also be prepaid and terminated early by the Company at any time without premium or penalty (subject to
customary breakage fees).
Amounts
outstanding under the Amended Credit Agreement will bear interest at a rate equal to, at the Company’s
election, either Term SOFR plus a SOFR adjustment of 0.10
%, plus an interest rate margin between 1.125 % per annum and 2.00 % per annum, depending on the Company’s consolidated net leverage
ratio, or base rate plus an interest rate margin between 0.125 % per annum and 1.00 % per annum depending on the Company’s consolidated net leverage
ratio. In addition, the Company will be required to pay to the lenders a quarterly commitment fee
ranging from
0.175 % to
0.300 % per annum on the actual daily unused amount of the Revolver, based upon the
Company’s consolidated net leverage ratio at such time, and fees relating to the issuance of letters of
credit.
As
of April 30, 2024 and 2023, there was
no
outstanding liability under the Credit Facilities. The unamortized debt issuance costs
associated with the Amended Credit Agreement was $3.2 million and $4.2 million as of April 30, 2024 and 2023, respectively. The debt
issuance costs were included in other current assets and other non-current assets on the consolidated
balance sheets. As of April 30, 2024, the Company was in compliance with its debt covenants.
The
Company has a total of $645.5 million and $1,145.4 million available under
the Credit Facilities as of April 30, 2024 and 2023, respectively, after $4.5 million and $4.6 million of standby letters
of credit were issued as of April 30, 2024 and 2023, respectively. Of the amount available under
the Credit Facilities as of April 30, 2023, $500.0 million was under the
Delayed Draw Facility that expired on June 24, 2023. The Company had a total of $13.2 million and $
11.5 million of standby letters with other financial institutions as of
April 30, 2024 and 2023, respectively. The standby letters of credit were generally issued as a
result of entering into office premise leases.
The
Company has outstanding borrowings against the CSV of COLI contracts of $77.0 million and $77.1 million at April 30, 2024 and 2023, respectively.
CSV reflected in the accompanying consolidated balance sheets is net of the outstanding borrowings,
which are secured by the CSV of the life insurance policies. Principal payments are not scheduled and
interest is payable at least annually at various fixed and variable rates ranging from 4.76
% to 8.00
%.
F-38
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
12.
Segments
The
Company has eight
reportable segments: Consulting, Digital, Executive Search North America, Executive
Search EMEA, Executive Search Asia Pacific, Executive Search Latin America, Professional Search &
Interim and RPO.
The
Company’s eight
reportable segments operate through the following five lines of business:
1.Consulting
aligns organizational structure, culture, performance, development, and people to drive sustainable
growth by addressing four fundamental organizational and talent needs: Organizational Strategy,
Assessment and Succession, Leadership and Professional Development and Total Rewards. The Consulting
teams work across our core capabilities, architecting integrated solutions and technology products to
help clients execute their strategy in a digitally enabled world.
2.Digital
develops IP and science-based talent technology products that empower our clients. Our talent products
and talent platform support our clients in making critical talent decisions across the continuum from
talent acquisition to talent development.
3.Executive Search
helps organizations recruit board level, chief executive and other C-suite/senior executive and general
management talent to deliver lasting impact. The Company’s approach to placing talent brings together
research-based IP, proprietary assessments and behavioral interviewing with practical experience to
determine the ideal organizational fit. Salary benchmarking then helps the Company build appropriate
frameworks for compensation and attraction. 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 EMEA, Executive Search Asia Pacific and Executive Search Latin America).
4.Professional Search & Interim delivers
enterprise talent acquisition solutions for permanent placements at the professional level middle and
upper management, and, for interim, those same levels plus senior executives. The Company helps clients
source high-quality candidates at speed and scale globally, covering single-hire to multi-hire permanent
placements and interim contractors (that are focused on senior executive, information technology Finance
& Accounting and HR roles).
5.RPO offers
scalable recruitment outsourcing and projects solutions leveraging a customized technology enabled
service delivery platform and talent insights. The Company's scalable solutions, built on our IP,
science, and data and powered by best-in-class technology and consulting expertise, enables the Company
to act as a strategic partner in clients’ quest for superior recruitment outcomes and better candidate
fit.
Executive
Search is managed by geographic regional leaders. Worldwide operations for Consulting, Professional
Search & Interim and RPO are managed by their Chief Executive Officers. Beginning in the second
quarter of fiscal 2024, Digital is led by the President of Technology. The Executive Search geographic
regional leaders, the Chief Executive Officers of Consulting, Professional Search & Interim and RPO
and the President of Technology report directly to the Chief Executive Officer of the Company. The
Company also operates Corporate to record global expenses.
The
Company evaluates performance and allocates resources based on the Company’s chief operating decision
maker ("CODM") review of 1) fee revenue and 2) adjusted earnings before interest, taxes, depreciation
and amortization (“Adjusted EBITDA”). To the extent that such costs or charges occur, Adjusted EBITDA
excludes restructuring charges, integration/acquisition costs, certain separation costs and certain
non-cash charges (goodwill, intangible asset and other impairment charges). The CODM is not provided
asset information by reportable segment.
F-39
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
Financial
highlights are as follow:
| Year Ended April 30, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Consolidated | ||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Fee revenue | $ |
|
$ |
|
$ |
|
||||||||||||||
| Total revenue | $ |
|
$ |
|
$ |
|
||||||||||||||
| Net income attributable to Korn Ferry | $ |
|
$ |
|
$ |
|
||||||||||||||
| Net income attributable to noncontrolling interest |
|
|
|
|||||||||||||||||
| Other (income) loss, net |
(
|
(
|
|
|||||||||||||||||
| Interest expense, net |
|
|
|
|||||||||||||||||
| Income tax provision |
|
|
|
|||||||||||||||||
| Operating income |
|
|
|
|||||||||||||||||
| Depreciation and amortization |
|
|
|
|||||||||||||||||
| Other income (loss), net |
|
|
(
|
|||||||||||||||||
| Integration/acquisition costs |
|
|
|
|||||||||||||||||
| Impairment of fixed assets |
|
|
|
|||||||||||||||||
|
Impairment
of right-of-use assets
|
|
|
|
|||||||||||||||||
| Restructuring charges, net |
|
|
|
|||||||||||||||||
|
Adjusted
EBITDA(1)
|
$ |
|
$ |
|
$ |
|
||||||||||||||
_______________________________
(1)Adjusted
EBITDA refers to earnings before interest, taxes, depreciation and amortization and further excludes
integration/acquisition costs, impairment of fixed assets, impairment of right-of-use assets, and
restructuring charges, net.
Financial
highlights by reportable segments are as follows:
| Year Ended April 30, 2024 | ||||||||||||||||||||
| Fee revenue | Total revenue |
Adjusted
EBITDA(1)
|
||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Consulting | $ |
|
$ |
|
$ |
|
||||||||||||||
| Digital |
|
|
|
|||||||||||||||||
| Executive Search: | ||||||||||||||||||||
| North America |
|
|
|
|||||||||||||||||
| EMEA |
|
|
|
|||||||||||||||||
| Asia Pacific |
|
|
|
|||||||||||||||||
| Latin America |
|
|
|
|||||||||||||||||
| Professional Search & Interim |
|
|
|
|||||||||||||||||
| RPO |
|
|
|
|||||||||||||||||
| Corporate |
|
|
(
|
|||||||||||||||||
| Consolidated | $ |
|
$ |
|
$ |
|
||||||||||||||
_______________________________
(1)Adjusted
EBITDA refers to earnings before interest, taxes, depreciation and amortization and further excludes
integration/acquisition costs, impairment of fixed assets, impairment of right-of-use assets, and
restructuring charges, net.
F-40
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
| Year Ended April 30, 2023 | ||||||||||||||||||||
| Fee revenue | Total revenue |
Adjusted
EBITDA(1)
|
||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Consulting | $ |
|
$ |
|
$ |
|
||||||||||||||
| Digital |
|
|
|
|||||||||||||||||
| Executive Search: | ||||||||||||||||||||
| North America |
|
|
|
|||||||||||||||||
| EMEA |
|
|
|
|||||||||||||||||
| Asia Pacific |
|
|
|
|||||||||||||||||
| Latin America |
|
|
|
|||||||||||||||||
| Professional Search & Interim |
|
|
|
|||||||||||||||||
| RPO |
|
|
|
|||||||||||||||||
| Corporate |
|
|
(
|
|||||||||||||||||
| Consolidated | $ |
|
$ |
|
$ |
|
||||||||||||||
______________________________
(1)Adjusted
EBITDA refers to earnings before interest, taxes, depreciation and amortization and further excludes
integration/acquisition costs, impairment of fixed assets and impairment of right-of-use assets, and
restructuring charges, net.
| Year Ended April 30, 2022 | ||||||||||||||||||||
| Fee revenue | Total revenue |
Adjusted
EBITDA(1)
|
||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Consulting | $ |
|
$ |
|
$ |
|
||||||||||||||
| Digital |
|
|
|
|||||||||||||||||
| Executive Search: | ||||||||||||||||||||
| North America |
|
|
|
|||||||||||||||||
| EMEA |
|
|
|
|||||||||||||||||
| Asia Pacific |
|
|
|
|||||||||||||||||
| Latin America |
|
|
|
|||||||||||||||||
| Professional Search & Interim |
|
|
|
|||||||||||||||||
| RPO |
|
|
|
|||||||||||||||||
| Corporate |
|
|
(
|
|||||||||||||||||
| Consolidated | $ |
|
$ |
|
$ |
|
||||||||||||||
_______________________________
(1)Adjusted
EBITDA refers to earnings before interest, taxes, depreciation and amortization and further
excludes, integration/acquisition costs, impairment of fixed assets and impairment of right of-use
assets.
F-41
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
Fee
revenue attributed to an individual customer or country, other than the U.S. in fiscal year 2024, 2023
and 2022, did not account for more than
10
% of the total fee revenue in those fiscal years. Fee revenue classified by country in which the Company derives
revenues are as follows:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| U.S. | $ |
|
$ |
|
$ |
|
|||||||||||
| Other countries |
|
|
|
||||||||||||||
| Total fee revenue | $ |
|
$ |
|
$ |
|
|||||||||||
Other
than the U.S. and United Kingdom in fiscal 2024, and the U.S. in fiscal 2023 and 2022, no single country
had over
10
% of the total long-lived assets, excluding financial instruments and tax assets.
Long-lived assets, excluding financial instruments
and tax assets, classified by location of the controlling statutory country are as follows:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands) | |||||||||||||||||
|
U.S.(1)
|
$ |
|
$ |
|
$ |
|
|||||||||||
| United Kingdom |
|
|
|
||||||||||||||
| Other countries |
|
|
|
||||||||||||||
| Total long-lived assets | $ |
|
$ |
|
$ |
|
|||||||||||
_______________________________
(1)Includes
Corporate long-lived assets
13. Restructuring Charges, Net
In
fiscal 2024, in light of the challenging macroeconomic business environment arising from persistent
inflationary pressures, rising interest rates and global economic and geopolitical uncertainty, on
October 23, 2023, the Company initiated a plan (the “Plan”) intended to align its workforce with its
current business realities through position eliminations. Due to the implementation of the Plan, the
Company recorded restructuring charges of $68.6 million during fiscal 2024 across all lines of business related to
severance for positions that were eliminated.
In
fiscal 2023, in light of the Company’s evolution to an organization that is selling larger integrated
solutions in a world where there are shifts in global trade lanes and persistent inflationary pressures,
on January 11, 2023, the Company implemented a separate restructuring plan intended to realign its
workforce with its business needs and objectives, namely, to invest in areas of potential growth and
implement reductions where there is excess capacity. Due to the implementation of the plan, the Company
recorded restructuring charges of $42.6
million during fiscal 2023 across all lines of business related to severance for
positions that were eliminated. There were no
restructuring charges in fiscal 2022.
F-42
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
Changes
in the restructuring liability were as follows:
| Restructuring Liability | |||||
| (in thousands) | |||||
| As of May 1, 2021 | $ |
|
|||
| Reductions for cash payments |
(
|
||||
| Exchange rate fluctuations |
(
|
||||
| As of April 30, 2022 |
|
||||
| Restructuring charges, net |
|
||||
| Reductions for cash payments |
(
|
||||
| Non-cash payments |
(
|
||||
| Exchange rate fluctuations |
(
|
||||
| As of April 30, 2023 |
|
||||
| Restructuring charges, net |
|
||||
| Reductions for cash payments |
(
|
||||
| Non-cash payments |
(
|
||||
| Exchange rate fluctuations |
|
||||
| As of April 30, 2024 | $ |
|
|||
As
of April 30, 2024 and 2023, the restructuring liability is included in the current portion of other
accrued liabilities on the consolidated balance sheets.
Restructuring
charges incurred by segment were as follows:
| Year Ended April 30 | ||||||||||||||||||||
|
2024
|
2023
|
2022
|
||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Consulting | $ |
|
$ |
|
$ |
|
||||||||||||||
| Digital |
|
|
|
|||||||||||||||||
| Executive Search: | ||||||||||||||||||||
| North America |
|
|
|
|||||||||||||||||
| EMEA |
|
|
|
|||||||||||||||||
| Asia Pacific |
|
|
|
|||||||||||||||||
| Latin America |
|
|
|
|||||||||||||||||
| Professional Search & Interim |
|
|
|
|||||||||||||||||
| RPO |
|
|
|
|||||||||||||||||
| Corporate |
|
|
|
|||||||||||||||||
| Consolidated | $ |
|
$ |
|
$ |
|
||||||||||||||
F-43
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
14. Goodwill and Intangible Assets
Changes
in the carrying value of goodwill by reportable segment were as follows:
| Consulting | Digital | Executive Search |
Professional
Search
& Interim
|
RPO
|
Consolidated | ||||||||||||||||||||||||||||||||||||||||||
|
North America |
EMEA |
Asia Pacific |
|||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
|
Balance
as of May 1, 2022
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
|
Additions
(1)
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Exchange rate fluctuations |
|
|
(
|
(
|
|
|
|
(
|
|||||||||||||||||||||||||||||||||||||||
|
Balance
as of April 30, 2023
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Exchange rate fluctuations |
(
|
(
|
(
|
(
|
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||
|
Balance
as of April 30, 2024
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
_______________________________
(1)Additions
to goodwill in fiscal 2023 were due to $68.3 million and $116.2 million from
the acquisitions of Infinity Consulting Solutions ("ICS") and Salo LLC ("Salo"),
respectively.
Tax
deductible goodwill from acquisitions were as follows:
| April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
|
PIVOT
Leadership
|
$ |
|
$ |
|
|||||||
|
Miller
Heiman
|
|
|
|||||||||
|
ICS
|
|
|
|||||||||
|
Salo
|
|
|
|||||||||
|
Total
tax deductible goodwill from acquisitions
|
$ |
|
$ |
|
|||||||
Intangible
assets include the following:
| April 30, 2024 | April 30, 2023 | ||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Amortized intangible assets: | Gross |
Accumulated Amortization |
Net | Gross |
Accumulated Amortization |
Net | |||||||||||||||||||||||||||||
| Customer lists | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
| Intellectual property |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Trademarks |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Proprietary databases |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Non-compete agreements |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
|
Total
(1)
|
$ |
|
$ |
(
|
|
$ |
|
$ |
(
|
|
|||||||||||||||||||||||||
| Exchange rate fluctuations |
(
|
(
|
|||||||||||||||||||||||||||||||||
| Total Intangible assets | $ |
|
$ |
|
|||||||||||||||||||||||||||||||
_______________________________
Acquisition-related
intangible assets acquired in fiscal 2023 consists of
customer relationships and tradenames of $
45.3 million
and $
3.1 million,
respectively, with weighted-average useful lives from the date of purchase of seven years and two years , respectively.
F-44
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
Amortization
expense for amortized intangible assets was $25.6 million, $23.7 million and $
20.3 million during fiscal 2024, 2023 and 2022, respectively.
Estimated annual amortization expense related
to amortizing intangible assets is as follows:
| Year Ending April 30, |
Estimated Annual Amortization Expense |
|||||||
| (in thousands) | ||||||||
| 2025 | $ |
|
||||||
| 2026 |
|
|||||||
| 2027 |
|
|||||||
| 2028 |
|
|||||||
| 2029 |
|
|||||||
| Thereafter |
|
|||||||
| $ |
|
|||||||
All
amortizable intangible assets will be fully amortized by the end of fiscal
2032.
15.
Leases
The
Company’s lease portfolio is comprised of operating leases for office space and equipment and
finance leases for equipment. Equipment leases are comprised of vehicles and office equipment.
The majority of the Company’s leases include both lease and non-lease components. Non-lease
components primarily include maintenance, insurance, taxes and other utilities. The Company
combines fixed payments for non-lease components with its lease payments and accounts for them
as a single lease component, which increases its ROU assets and lease liabilities. Some of the
leases include one or more options to renew or terminate the lease at the Company’s discretion.
Generally, the renewal and termination options are not included in the ROU assets and lease
liabilities as they are not reasonably certain of exercise. The Company has elected not to
recognize a ROU asset or lease liability for leases with an initial term of 12 months or
less.
As
most of the Company’s leases do not provide an implicit rate, the Company uses its incremental
borrowing rate based on the information available at commencement date in determining the
present value of the future minimum lease payments. The Company applies the portfolio approach
when determining the incremental borrowing rate since it has a centrally managed treasury
function. The Company’s incremental borrowing rate is estimated to approximate the interest rate
on a collateralized basis with similar terms and payments in a similar economic
environment.
Operating
leases contain both office and equipment leases and have remaining terms that range from less
than one year to thirteen years , some of which also
include options to extend or terminate the lease. Finance leases are comprised of equipment
leases and have remaining terms that range from less than one
year to
five years . Finance lease assets are included in property and equipment, net
while finance lease liabilities are included in other accrued liabilities and other
liabilities.
During
fiscal 2024, 2023 and 2022, the Company reduced its real estate footprint and as a result
recorded an impairment charge of the ROU assets of $1.6 million, $
5.5 million and $7.4 million,
respectively, in the consolidated statements of income.
In
fiscal 2023, the Company acquired ICS and Salo and as a result recognized ROU assets of $
0.8 million and $2.1 million,
respectively, with corresponding liabilities of $1.0 million and $
2.9 million, respectively. In these acquisitions, the ROU assets were
adjusted to reflect unfavorable lease terms when compared with current market rates.
F-45
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
The
components of lease expense were as follows:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Finance lease cost | |||||||||||||||||
| Amortization of ROU assets | $ |
|
$ |
|
$ |
|
|||||||||||
| Interest on lease liabilities |
|
|
|
||||||||||||||
|
|
|
|
|||||||||||||||
| Operating lease cost |
|
|
|
||||||||||||||
| Short-term lease cost |
|
|
|
||||||||||||||
| Variable lease cost |
|
|
|
||||||||||||||
| Lease impairment cost |
|
|
|
||||||||||||||
| Sublease income |
(
|
(
|
(
|
||||||||||||||
| Total lease cost | $ |
|
$ |
|
$ |
|
|||||||||||
Supplemental
cash flow information related to leases was as follows:
| Year Ended April 30, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ |
|
$ |
|
$ |
|
|||||||||||
| Financing cash flows from finance leases | $ |
|
$ |
|
$ |
|
|||||||||||
| ROU assets obtained in exchange for lease obligations: | |||||||||||||||||
| Operating leases | $ |
|
$ |
|
$ |
|
|||||||||||
| Finance leases | $ |
|
$ |
|
$ |
|
|||||||||||
F-46
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
Supplemental
balance sheet information related to leases was as follows:
| Year Ended April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Finance Leases: | |||||||||||
| Property and equipment, at cost | $ |
|
$ |
|
|||||||
| Accumulated depreciation |
(
|
(
|
|||||||||
| $ |
|
$ |
|
||||||||
| $ |
|
$ |
|
||||||||
|
|
|
||||||||||
| Total finance lease liabilities | $ |
|
$ |
|
|||||||
| Weighted average remaining lease terms: | |||||||||||
| Operating leases |
|
|
|||||||||
| Finance leases |
|
|
|||||||||
| Weighted average discount rate: | |||||||||||
| Operating leases |
|
% |
|
% | |||||||
| Finance leases |
|
% |
|
% | |||||||
Maturities
of lease liabilities are as follows:
| Year Ending April 30, | Operating | Financing | ||||||||||||
| (in thousands) | ||||||||||||||
| 2025 | $ |
|
$ |
|
||||||||||
| 2026 |
|
|
||||||||||||
| 2027 |
|
|
||||||||||||
| 2028 |
|
|
||||||||||||
| 2029 |
|
|
||||||||||||
| Thereafter |
|
|
||||||||||||
| Total lease payments |
|
|
||||||||||||
| Less: imputed interest |
|
|
||||||||||||
| Total | $ |
|
$ |
|
||||||||||
F-47
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
16.
Acquisition
The
following table provides a summary of the net assets acquired in the periods indicated (no
acquisitions were completed in fiscal 2024).
| Year Ended April 30 | |||||||||||
|
2023
(2)
|
2022
(3)
|
||||||||||
| (in thousands) | |||||||||||
|
Current
assets (1)
|
$ |
|
$ |
|
|||||||
| Long-term assets |
|
|
|||||||||
| Intangible assets |
|
|
|||||||||
| Current liabilities |
|
|
|||||||||
| Long-term liabilities |
|
|
|||||||||
| Net assets acquired |
|
|
|||||||||
| Purchase price |
|
|
|||||||||
| Goodwill | $ |
|
$ |
|
|||||||
_______________________________
(1)Included
in current assets is acquired receivables in the amount of $35.3 million and $
24.5 million for
acquisitions completed in fiscal 2023 and 2022, respectively.
(2)On
February 1, 2023, the Company completed its acquisition of Salo for $155.4 million, net of cash acquired. Salo was a leading
provider of finance, accounting and HR interim talent, with a strong focus on serving organizations
in healthcare, among other industries. Actual results of operations of Salo are included in the
Company's consolidated financial statements from February 1, 2023, the effective date of the
acquisition.
On
August 1, 2022, the Company completed its acquisition of ICS for $99.3 million, net of cash
acquired. ICS contributed interim professional placement offerings and expertise that are highly
relevant for the new world of work where more workplaces are hybrid or virtual. ICS was a highly
regarded provider of senior-level IT interim professional solutions with additional expertise in the
areas of compliance and legal, accounting and finance, and human resources. Actual results of
operations of ICS are included in the Company's consolidated financial statements from August 1,
2022, the effective date of the acquisition.
(3)On
April 1, 2022, the Company completed its acquisition of Patina for $42.9 million, net of cash acquired. Patina brought the
Company interim executive solutions expertise across multiple industry verticals as well as offers
ideal solutions for today’s nomadic labor market. Patina’s vast network of C-suite, top-tier, and
professional interim talent spanned functional areas of expertise such as finance, operations,
legal, human resources, IT and more. Actual results of operations of Patina are included in the
Company’s consolidated financial statement from April 1, 2022, the effective date of the
acquisition.
We
believe the above acquisitions echo the commitment to scale the Company's solutions and further increase
the Company's focus at the intersection of talent and strategy-wherever and however the needs of
organizations evolve-and present real, tangible opportunities for Korn Ferry and our clients, looking
for the right talent, that is highly agile, with specialized skills and expertise, to drive superior
performance, including on an interim basis. The addition of these acquisitions to Korn Ferry’s broader
talent acquisition portfolio–spanning Executive Search, RPO, Professional Search and Interim
services–has accelerated Korn Ferry’s ability to capture additional shares of this significant market.
All of the acquisitions in fiscal 2023 and 2022 are included in the Professional Search & Interim
segment.
For
each acquisition, the aggregate purchase price was allocated on a preliminary basis to the assets
acquired and liabilities assumed on their estimated fair values at the date of acquisition. The
measurement period for purchase price allocation ends as soon as information on the facts and
circumstances become available, not to exceed 12 months. As of April 30, 2024, the measurement period
has ended and no adjustments were made during the period.
F-48
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2024 (continued)
17. Commitments and Contingencies
Employment Agreements
The
Company has a policy of entering into offer letters of employment or letters of promotion with vice
presidents, which provide for an annual base salary and discretionary and incentive bonus payments.
Certain key vice presidents who typically have been employed by the Company for several years may also
have a standard form employment agreement. Upon termination without cause, the Company is required to
pay the amount of severance due under the employment agreement, if any. The Company also requires its
vice presidents to agree in their employment letters and their employment agreement, if applicable, not
to compete with the Company during the term of their employment and for a certain period after
their employment ends.
Litigation
From
time to time, the Company has been and is involved in litigation incidental to its business. The Company
is currently not a party to any litigation which, if resolved adversely against the Company, would, in
the opinion of management, after consultation with legal counsel, have a material adverse effect on the
Company’s business, financial position or results of operations.
18. Subsequent Event
Quarterly Dividend Declaration
On
June 12, 2024, the Board of Directors of the Company approved an increase in the Company's
quarterly dividend policy to $0.37 per share
and declared a cash dividend of $0.37 per share
with a payment date of July 31, 2024 to holders of the Company’s common stock of record at the
close of business on July 3, 2024. The declaration and payment of future dividends under the
quarterly dividend policy will be at the discretion of the Board of Directors and will depend upon many
factors, including the Company’s earnings, capital requirements, financial condition, the terms of the
Company’s indebtedness and other factors that the Board of Directors may deem to be relevant. The Board
of Directors may amend, revoke or suspend the dividend policy at any time and for any reason.
F-49