Korn Ferry Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Segments

Segments

12 Months Ended

Apr. 30, 2020

11. Segments

Over the past year the Company invested in its digital business in order to digitize and harmonize the structure of its IP content and data and to build a technology platform for the efficient delivery of these assets directly to an end consumer or indirectly through a consulting engagement. These investments combined with the recent acquisition of the Acquired Companies resulted in reassessing how the Company manages its Advisory business. Given the Company’s strategy and development of financial and operational metrics for the Consulting and Digital businesses the Company’s chief operating decision maker (“CODM”) had begun to make resource allocation decisions and assess performance separately between Consulting and Digital. Therefore, on November 1, 2019, the Company changed the composition of its global segments, and under the new reporting format, the Advisory segment was separated into two segments, Consulting and Digital. Revenues are directly attributed to a segment and expenses not directly associated with a specific segment are allocated based on the most relevant measures applicable, including revenues, headcount and other factors. Due to this change, the Company completed a qualitative assessment for any potential goodwill impairment both prior and immediately subsequent to the aforementioned change and determined that no impairment indicators were present. Operating results by segment prior to November 1, 2019 have been recast to conform to the new segment reporting.

The Company operates through four global segments:

Consulting helps clients synchronize their strategy and their talent by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership and Professional Development, and Rewards and Benefits. This work is supported and underpinned by a comprehensive range of some of the world’s leading lP and data.

Digital leverages an artificial intelligence powered platform to identify structure, roles, capabilities and behaviours needed to drive business forward. This end to end system gives clients one enterprise-wide talent framework and delivers an achievable blueprint for success along with the guidance and tools to deliver it.

Executive Search helps organizations recruit board level, chief executive and other senior executive and general management talent. Behavioral interviewing and proprietary assessments are used to determine ideal organizational fit, and salary benchmarking builds appropriate frameworks for compensation and retention.

RPO and Professional Search combines people, process expertise and IP-enabled technology to deliver enterprise talent acquisition solutions to clients. Transaction sizes range from single professional searches to team, department and line of business projects, and global outsource recruiting solutions.

Executive Search is managed by geographic regional leaders. Worldwide operations for Consulting, Digital, and RPO and Professional Search are managed by their Chief Executive Officers. The Executive Search geographic regional leaders and the Chief Executive Officers of Consulting, Digital, and RPO & Professional Search report directly to the Chief Executive Officer of the Company. The Company also operates a Corporate segment to record global expenses.

The Company evaluates performance and allocates resources based on the CODM 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 than temporary impairment). The accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies in Note 1—Organization and Summary of Significant Accounting Policies, except the items described above are excluded from EBITDA to arrive at Adjusted EBITDA. The CODM is not provided asset information by reportable segment.

Financial highlights by operating segment are as follows:

	Year Ended April 30, 2020
					Executive Search
	Consulting		Digital		North America			EMEA		Asia Pacific		Latin America		Subtotal			RPO & Professional Search		Corporate			Consolidated
	(in thousands)
Fee revenue	$	543,095	$	292,366	$	434,624		$	170,314	$	98,132	$	29,400	$	732,470		$	364,801	$	—		$	1,932,732
Total revenue	$	557,255	$	294,261	$	447,528		$	172,978	$	99,209	$	29,493	$	749,208		$	376,606	$	—		$	1,977,330

Net income attributable to Korn Ferry																						$	104,946
Net income attributable to noncontrolling interest																							2,071
Other loss, net																							2,879
Interest expense, net																							22,184
Income tax provision																							43,945
Operating income (loss)	$	17,695	$	46,909	$	113,080		$	21,085	$	17,914	$	4,860	$	156,939		$	50,438	$	(95,956	)	$	176,025
Depreciation and amortization		17,567		19,261		3,452			1,713		1,311		1,182		7,658			3,906		6,919			55,311
Other income (loss), net		1,326		485		(3,051	)		139		11		51		(2,850	)		82		(1,922	)		(2,879	)
EBITDA		36,588		66,655		113,481			22,937		19,236		6,093		161,747			54,426		(90,959	)		228,457
Integration/acquisition costs		—		5,937		—			—		—		—		—			—		6,215			12,152
Restructuring charges, net		24,504		10,481		7,244			6,347		3,649		309		17,549			5,742		283			58,559
Separation costs		—		—		—			1,783		—		—		1,783			—		—			1,783
Adjusted EBITDA	$	61,092	$	83,073	$	120,725		$	31,067	$	22,885	$	6,402	$	181,079		$	60,168	$	(84,461	)	$	300,951

	Year Ended April 30, 2019
						Executive Search
	Consulting			Digital		North America		EMEA		Asia Pacific		Latin America		Subtotal		RPO & Professional Search		Corporate			Consolidated
	(in thousands)
Fee revenue	$	568,321		$	252,727	$	455,826	$	182,829	$	104,291	$	31,896	$	774,842	$	330,143	$	—		$	1,926,033
Total revenue	$	585,893		$	252,727	$	469,743	$	186,131	$	105,543	$	31,960	$	793,377	$	341,865	$	—		$	1,973,862

Net income attributable to Korn Ferry																					$	102,651
Net income attributable to noncontrolling interest																						2,145
Other income, net																						(10,405	)
Interest expense, net																						16,891
Income tax provision																						29,544
Operating (loss) income	$	(34,115	)	$	39,732	$	120,754	$	29,974	$	24,364	$	3,998	$	179,090	$	50,884	$	(94,765	)	$	140,826
Depreciation and amortization		16,172			12,885		3,890		1,254		1,428		410		6,982		3,255		7,195			46,489
Other income (loss), net		2,203			995		6,699		432		281		322		7,734		268		(795	)		10,405
EBITDA		(15,740	)		53,612		131,343		31,660		26,073		4,730		193,806		54,407		(88,365	)		197,720
Integration/acquisition costs		5,304			1,255		—		—		—		—		—		—		187			6,746
Tradename write-offs		76,967			29,588		—		—		—		—		—		—		—			106,555
Adjusted EBITDA	$	66,531		$	84,455	$	131,343	$	31,660	$	26,073	$	4,730	$	193,806	$	54,407	$	(88,178	)	$	311,021

	Year Ended April 30, 2018
							Executive Search
	Consulting			Digital			North America		EMEA		Asia Pacific		Latin America		Subtotal		RPO & Professional Search		Corporate			Consolidated
	(in thousands)
Fee revenue	$	540,529		$	244,484		$	408,098	$	173,725	$	96,595	$	30,624	$	709,042	$	273,162	$	—		$	1,767,217
Total revenue	$	556,521		$	244,484		$	421,260	$	177,234	$	98,062	$	30,717	$	727,273	$	291,241	$	—		$	1,819,519

Net income attributable to Korn Ferry																						$	133,779
Net income attributable to noncontrolling interest																							2,118
Other income, net																							(11,416	)
Interest expense, net																							13,832
Income tax provision																							70,133
Operating income (loss)	$	22,408		$	78,127		$	100,397	$	26,768	$	18,425	$	4,022	$	149,612	$	39,396	$	(81,097	)	$	208,446
Depreciation and amortization		18,954			12,573			3,930		1,689		1,408		455		7,482		3,054		6,525			48,588
Other income, net		2,127			374			1,142		168		373		181		1,864		152		6,899			11,416
EBITDA		43,489			91,074			105,469		28,625		20,206		4,658		158,958		42,602		(67,673	)		268,450
Restructuring (recoveries) charges, net		(122	)		(119	)		—		—		313		—		313		6		—			78
Integration/acquisition costs		7,724			1,427			—		—		—		—		—		—		279			9,430
Adjusted EBITDA	$	51,091		$	92,382		$	105,469	$	28,625	$	20,519	$	4,658	$	159,271	$	42,608	$	(67,394	)	$	277,958

Fee revenue attributed to an individual customer or country, other than the U.S. and United Kingdom, did not account for more than 10% of the total fee revenue in fiscal 2020, 2019 or 2018. Fee revenue classified by country in which the Company derives revenues are as follows:

	Year Ended April 30,
	2020		2019		2018
	(in thousands)
U.S.	$	875,605	$	859,969	$	778,470
United Kingdom		204,271		202,055		176,091
Other countries		852,856		864,009		812,656
Total fee revenue	$	1,932,732	$	1,926,033	$	1,767,217

Other than the U.S. and United Kingdom, 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,
	2020		2019		2018
	(in thousands)
U.S. (1)	$	169,928	$	98,455	$	80,424
United Kingdom		35,739		6,466		7,792
Other countries		132,138		26,584		31,685
Total long-lived assets	$	337,805	$	131,505	$	119,901

(1)	Includes Corporate long-lived assets