KORN FERRY 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, as well as the magnitude and duration of the impact
of the global ("COVID-19") pandemic on our business, employees, customers and
our ability to provide services in affected regions constitute 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 the ultimate magnitude and duration of COVID-19 and 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, global and local political and
or economic developments in or affecting countries where we have operations,
competition, changes in demand for our services as a result of automation,
dependence on and costs of attracting and retaining qualified and experienced
consultants, inflationary pressures 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
matters, currency fluctuations in our international operations, risks related to
growth, alignment of our cost structure, restrictions imposed by off-limits
agreements, reliance on information processing systems, cyber security
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, 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, our indebtedness, the phase-out
of LIBOR, 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 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 that will help Korn Ferry to focus on clients and
collaborate intensively across the organization. This approach 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. 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.
Our seven reportable segments operate through the following four lines of business:
1. Consulting aligns organization structure, culture, performance and people to
drive sustainable growth by addressing four fundamental needs:
Organizational Strategy, Assessment and Succession, Leadership and
comprehensive range of some of the world's leading lP and data. The
Consulting teams employ an integrated approach across core solutions,
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each one intended to strengthen our work and thinking in the next, to help
clients execute their strategy in a digitally enabled world.
2. Digital delivers scalable tech-enabled solutions designed to identify thebest structures, roles, capabilities and behaviors to drive businesses
forward. Our digital products give clients direct access to our proprietary
data, client data and analytics to deliver clear insights with the training
tools needed to align organizational structure with business strategy.
3. Executive Search helps organizations recruit board level, chief executive
and other senior executive and general management talent to deliver lasting
impact. Our approach to placing talent that brings together our
research-based IP, proprietary assessments, and behavioral interviewing with
our practical experience to determine the ideal organizational fit. Salary
benchmarking then builds appropriate frameworks for compensation and
retention. This business is managed and reported on a geographic basis and
represents four of the Company's reportable segments (Executive Search North
America, Executive Search EMEA, Executive Search Asia Pacific, and Executive
Search Latin America ).
4. RPO and Professional Search focuses on delivering enterprise talentacquisition solutions to our clients, at the professional level. We leverage
the power of people, process expertise, IP-enabled technology, and
compensation information to do this. Transaction sizes range from single
professional searches to team, department, line of business projects, and
global outsource recruiting solutions.
The Company has seven reportable segments: Consulting, Digital, Executive Search
North America , Executive Search EMEA, Executive Search Asia Pacific, Executive
Search Latin America and RPO & Professional Search.
Highlights of our performance in fiscal 2022 include:
? Approximately 76% of the executive searches we performed in fiscal 2022 were
for board level, chief executive and other senior executive and general
management positions. Our more than 4,300 search engagement clients in fiscal
2022 included many of the world's largest and most prestigious public and
private companies.
? We have built strong client loyalty, with nearly 90% of the assignments
performed during fiscal 2022 having been on behalf of clients for whom we had
conducted assignments in the previous three fiscal years.
? Approximately 70% of our revenues were generated from clients that have
utilized multiple lines of our business.
? In fiscal 2022, we acquired
professional search and interim placement expertise to
enhanced our industry-leading search portfolio. We also recently acquired
bring access to a vast network of C-suite, top-tier, and professional interim
talent.
Performance Highlights
On November 1, 2021 , we completed the acquisition of The Lucas Group for $90.9
million , net of cash acquired. The Lucas Group contributes a substantial
professional search and interim expertise that has enhance our search portfolio.
The Lucas Group is a professional search and interim staffing firm, targeting
middle market businesses. The addition of The Lucas Group to Korn Ferry's
broader talent acquisition portfolio - spanning Executive Search and RPO &
Professional Search - is expected to accelerate our ability to capture
additional share of this significant market. The Lucas Group is included in the
RPO & Professional Search segment.
On April 1, 2022 , we completed the acquisition of Patina Solutions Group for
$42.9 million , net of cash acquired. Patina contributes a substantial interim
executive solutions expertise across multiple industry verticals. Patina's vast
network of C-suite, top-tier, and professional interim talent spans functional
area of expertise such as finance, operations, legal, human resources, IT and
more. We believe this combination presents real, tangible opportunity for Korn
Ferry and our clients looking for the right talent, who are highly agile, with
specialized skills and expertise, to help them drive superior performance,
including on an interim basis. Patina offers solutions for today's nomadic labor
market. Patina Solutions Group is included in the RPO & Professional Search
segment.
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 impairment charges). For
fiscal 2022, Adjusted EBITDA excluded $7.9 million of integration/acquisition
costs, a $7.4 million impairment of right-of-use assets and a $1.9 million
impairment of fixed assets. For fiscal 2021, Adjusted EBITDA excluded $30.7
million of restructuring charges and $0.7 million of integration/acquisition
costs. For fiscal 2020, Adjusted EBITDA excluded $58.6 million of restructuring
charges, $12.2 million of integration/acquisition costs and $1.8 million of
separation costs.
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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 withUnited 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 regardingKorn Ferry's performance by excluding certain charges, items of income and other items that may not be indicative ofKorn Ferry's ongoing operating results. The use of these non-GAAP financial measures facilitates comparisons toKorn 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 ofKorn 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. Fee revenue was$2,626.7 million during fiscal 2022, an increase of$816.7 million , or 45.1%, compared to$1,810.0 million in fiscal 2021, with increases in fee revenue across all lines of business primarily due to the increasing relevance of the Company's solutions and the acquisition of companies in the RPO and Professional Search Segment. Exchange rates unfavorably impacted fee revenue by$2.8 million during fiscal 2022 compared to fiscal 2021. Net income attributable toKorn Ferry increased by$211.9 million during fiscal 2022 to$326.4 million from$114.5 million in fiscal 2021. Adjusted EBITDA was$538.9 million , an increase of$252.6 million during fiscal 2022, from Adjusted EBITDA of$286.3 million in fiscal 2021. During fiscal 2022, the Executive Search, RPO & Professional, Consulting, and Digital lines of business contributed$257.6 million ,$165.1 million ,$116.1 million , and$110.1 million , respectively, offset by Corporate expenses net of other income of$110.0 million . Our cash, cash equivalents and marketable securities increased by$114.0 million to$1,211.1 million atApril 30, 2022 , compared to$1,097.1 million atApril 30, 2021 . This increase was mainly due to cash flows from operations as a result of cost savings initiatives that were put in place in fiscal 2021, partially offset by cash paid for the acquisitions ofThe Lucas Group and Patina Solutions net of cash acquired, repurchases of our common stock in the open market, the negative effect of exchange rate changes on cash and cash equivalents, purchases of property and equipment, interest payments on the 4.625% Senior Unsecured Notes due 2027 (the "Notes") and dividends paid to stockholders during fiscal 2022. As ofApril 30, 2022 , we held marketable securities to settle obligations under our Executive Capital Accumulation Plan ("ECAP") with a cost value of$164.2 million and a fair value of$168.7 million . Our vested obligations for which these assets were held in trust totaled$160.8 million as ofApril 30, 2022 and our unvested obligations totaled$24.0 million . Our working capital increased by$38.6 million to$775.7 million in fiscal 2022. We believe that cash on hand and funds from operations and other forms of liquidity will be sufficient to meet our anticipated working capital, capital expenditures, general corporate requirements, repayment of our debt obligations and dividend payments under our dividend policy in the next twelve months. We had$645.3 million and$646.0 million available for borrowing under our Revolver (as defined herein) atApril 30, 2022 and 2021, respectively. As ofApril 30, 2022 and 2021, there was$4.7 million and$4.0 million of standby letters of credit issued, respectively, under our long-term debt arrangements. We had a total of$10.0 million and$11.0 million of standby letters of credits with other financial institutions as ofApril 30, 2022 and 2021, respectively. Our Annual Report on Form 10-K for the year endedApril 30,2021 includes a discussion and analysis of our financial condition and results of operations for the year endedApril 30, 2021 in Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
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
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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 and RPO, either stand-alone or as part
of a solution.
Revenue is recognized when control of the goods and services is 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 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 revenue is generated from IP platforms enabling large-scale,
technology-based talent programs for pay, talent development, engagement, and
assessment and is consumed directly by an end user or indirectly through a
consulting engagement. Revenue is recognized as services are delivered and we
have a legally enforceable right to payment. Revenue also comes from the sale of
our proprietary IP subscriptions, which are considered symbolic IP due to the
dynamic nature of the content. As a result, revenue is recognized over the term
of the contract. Functional IP licenses grant customers the right to use IP
content via the delivery of a flat file. Because the IP content license has
significant stand-alone functionality, revenue is recognized upon delivery and
when an enforceable right to payment exists. Revenue for tangible and digital
products sold by the Company, such as books and digital files, is recognized
when these products are shipped.
Fee revenue from Executive Search and Professional Search activities is
generally one-third of the estimated first year 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 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.
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.
Annual Performance-Related Bonuses. 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 consultants and revenue
and other performance/profitability metrics for Consulting, Digital and RPO &
Professional Search consultants), the level of engagements referred by a
consultant in one line of business to a different line of business, our
performance including profitability, competitive forces and future economic
conditions and their impact on our results. At the end of each fiscal year,
annual performance-related bonuses take into account final individual consultant
productivity (including referred work), Company/line of business results
including profitability, the achievement of strategic objectives, the results of
individual performance appraisals, and the current economic landscape.
Accordingly, each quarter we reevaluate the assumptions used to estimate annual
performance-related bonus liability and adjust the carrying amount of the
liability recorded on the consolidated balance sheets and report any changes in
the estimate in current operations. Because annual performance-based bonuses are
communicated and paid only after we report our full fiscal year results, actual
performance-based bonus payments may differ from the prior year's estimate. Such
changes in the bonus estimate historically have been immaterial and are recorded
in current operations in the period in which they are determined.
Deferred Compensation. Estimating deferred compensation requires assumptions
regarding the timing and probability of payments of benefits to participants and
the discount rate. Changes in these assumptions could
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significantly impact the liability and related cost on our consolidated balance sheets and statements of income, respectively. For certain deferred compensation plans, management engages an independent actuary to periodically review these assumptions in order to confirm that they reflect the population and economics of our deferred compensation plans in all material respects and to assist us in estimating our deferred compensation liability and the related cost. The actuarial assumptions we use may differ from actual results due to changing market conditions or changes in the participant population. These differences could have a significant impact on our deferred compensation liability and the related cost. Carrying Values. Valuations are required under GAAP to determine the carrying value of various assets. Our most significant assets for which management is required to prepare valuations are carrying value of receivables, goodwill, other intangible assets, share-based payments, leases and recoverability of deferred income taxes. Management must identify whether events have occurred that may impact the carrying value of these assets 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. Of the assets mentioned above, goodwill is the largest asset requiring a valuation. 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. We perform an annual impairment test each year as ofJanuary 31 , or more frequently if impairment indicators arise. The qualitative test performed as ofJanuary 31, 2022 did not indicate any impairment, and therefore there was no need to perform a quantitative test. 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 predictions of the future. As of our testing date, the fair value of each reporting unit exceeded its carrying amount and as a result, no impairment charge was recognized. There was no indication of potential impairment throughApril 30, 2022 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; and
? Competition and disruption in our core business.
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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,
2022 2021 2020
Fee revenue 100.0 % 100.0 % 100.0 %
Reimbursed out-of-pocket engagement expenses 0.6 0.5 2.3
Total revenue 100.6 100.5 102.3
Compensation and benefits 66.3 71.7 67.2
General and administrative expenses 9.0 10.6 13.4
Reimbursed expenses 0.6 0.5 2.3
Cost of services 4.4 4.0 4.4
Depreciation and amortization 2.4 3.4 2.9
Restructuring charges, net - 1.7 3.0
Operating income 17.9 8.6 9.1
Net income 12.6 % 6.4 % 5.5 %
Net income attributable to Korn Ferry 12.4 % 6.3 % 5.4 %
The following tables summarize the results of our operations: (Numbers may not total exactly due to rounding)
Year Ended April 30,
2022 2021 2020
Dollars % Dollars % Dollars %
(dollars in thousands)
Fee revenue
Consulting $ 650,204 24.8 % $ 515,844 28.5 % 543,095 28.1 %
Digital 349,025 13.3 287,306 15.9 292,366 15.1
Executive Search:
North America 605,704 23.1 397,275 21.9 434,624 22.5
EMEA 182,192 6.9 138,954 7.7 170,314 8.8
Asia Pacific 118,596 4.5 83,306 4.6 98,132 5.1
Latin America 29,069 1.1 17,500 1.0 29,400 1.5
Total Executive Search 935,561 35.6 637,035 35.2 732,470 37.9
RPO & Professional Search 691,928 26.3 369,862 20.4 364,801 18.9
Total fee revenue 2,626,718 100.0 % 1,810,047 100.0 % 1,932,732 100.0 %
Reimbursed out-of-pocket
engagement expense 16,737 9,899 44,598
Total revenue $ 2,643,455 $ 1,819,946 $ 1,977,330
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.
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Year Ended April 30, 2022
Executive Search
RPO &
North Latin Professional
Consulting Digital America EMEA Asia Pacific America Subtotal Search
Corporate Consolidated
(in thousands)
Fee revenue $ 650,204 $ 349,025 $ 605,704 $ 182,192 $ 118,596 $ 29,069 $ 935,561 $ 691,928 $ - $ 2,626,718
Total revenue $ 654,199 $ 349,437 $ 609,258 $ 182,866 $ 118,705 $ 29,079 $ 939,908 $ 699,911 $ - $ 2,643,455
Net income attributable to
Korn Ferry $ 326,360
Net income attributable to
noncontrolling interest 4,485
Other loss, net 11,880
Interest expense, net 25,293
Income tax provision 102,056
Operating income $ 470,074
Depreciation and amortization 63,521
Other loss, net (11,880 )Integration/acquisition costs 7,906 Impairment of fixed assets 1,915 Impairment of right of use assets 7,392 Adjusted EBITDA$ 116,108 $ 110,050 $ 181,615 $ 31,804 $ 35,105 $ 9,089 $ 257,613 $ 165,141 $ (109,984 ) $ 538,928 Adjusted EBITDA margin 17.9 % 31.5 % 30.0 % 17.5 % 29.6 % 31.3 % 27.5 % 23.9 % 20.5 % Year Ended April 30, 2021 Executive Search RPO & North Latin Professional Consulting Digital America
EMEA
(in thousands)
Fee revenue $ 515,844 $ 287,306 $ 397,275 $ 138,954 $ 83,306 $ 17,500 $ 637,035 $ 369,862 $ - $ 1,810,047
Total revenue $ 517,046 $ 287,780 $ 399,104 $ 139,213 $ 83,463 $ 17,500 $ 639,280 $ 375,840 $ - $ 1,819,946
Net income attributable to
Korn Ferry $ 114,454
Net income attributable to
noncontrolling interest 1,108
Other income, net (37,194 )
Interest expense, net 29,278
Income tax provision 48,138
Operating income $ 155,784
Depreciation and amortization 61,845
Other income, net 37,194
Integration/acquisition costs 737
Restructuring charges, net 30,732
Adjusted EBITDA $ 81,522 $ 86,095 $ 98,099
15.8 % 30.0 % 24.7 % 8.5 % 20.0 % 7.4 % 20.1 % 18.8 % 15.8 %
Year Ended April 30, 2020
Executive Search
RPO &
North Asia Latin Professional
Consulting Digital America EMEA Pacific America Subtotal 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 $ 176,025
Depreciation and amortization 55,311
Other loss, net (2,879 )
Integration/acquisition costs 12,152
Restructuring charges, net 58,559
Separation costs 1,783
Adjusted EBITDA $ 61,092 $ 83,073 $ 120,725
11.2 % 28.4 % 27.8 % 18.2 % 23.3 % 21.8 % 24.7 % 16.5 % 15.6 %
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Fiscal 2022 Compared to Fiscal 2021
Fee Revenue
Fee Revenue. Fee revenue increased by$816.7 million , or 45.1%, to$2,626.7 million in fiscal 2022 compared to$1,810.0 million in fiscal 2021. Exchange rates unfavorably impacted fee revenue by$2.8 million , in fiscal 2022 compared to fiscal 2021. The higher fee revenue was attributable to increases in all lines of business primarily due to an increase in new business driven by the increased relevance of the Company's solutions and the acquisition of companies in the RPO & Professional Search. Further, COVID-19 had adversely impacted demand for the Company's services on a worldwide basis in fiscal 2021. Consulting. Consulting reported fee revenue of$650.2 million in fiscal 2022, an increase of$134.4 million , or 26%, compared to$515.8 million in fiscal 2021. The increase in fee revenue was partially driven by our Organizational Strategy work in organization and job redesign, people strategy and culture transformation. In addition, our diversity, equity & inclusion ("DE&I") business remained strong in fiscal 2022 as we helped clients move the needle on their diversity efforts. Also, greater expectations for organizations to be a force for good in society more broadly has been increasing demand for our environmental and social governance ("ESG") and sustainability offerings.Leadership Development continues to focus on the importance of increasing employee engagement through coaching and structured leadership workshops. Assessment and Succession increased as clients rely onKorn Ferry's robust data, science and IP to fuel leadership and scaled workforce transformations. Finally, growth in Total Rewards was fueled by global compensation and retention challenges associated with labor market dislocation; merger & acquisition and IPO activity; and increased focus on executive pay and governance issues, all of which increased pressure to offer higher and more competitive compensation. Exchange rates unfavorably impacted fee revenue by$2.8 million , or 1%, compared to fiscal 2021. Digital. Digital reported fee revenue of$349.0 million in fiscal 2022, an increase of$61.7 million , or 21%, compared to$287.3 million in fiscal 2021. The increase in fee revenue was primarily due toProfessional Development where we targeted new offerings and partnerships in fiscal 2022 to meet the growing need of companies focusing on sales effectiveness. We had double digit increases in fee revenue across our other solutions focusing on assessment, total rewards and organizational strategy as companies focused on retaining and rewarding key talent to reduce levels of attrition from dislocation in the labor markets. Exchange rates unfavorably impacted fee revenue by$1.8 million , or 1%, compared to fiscal 2021.Executive Search North America .Executive Search North America reported fee revenue of$605.7 million in fiscal 2022, an increase of$208.4 million , or 52%, compared to$397.3 million in fiscal 2021. Exchange rates favorably impacted fee revenue by$1.3 million in fiscal 2022 compared to fiscal 2021.North America's fee revenue was higher due to a 35% increase in the number of engagements billed and a 12% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2022 compared to fiscal 2021. Executive Search EMEA. Executive Search EMEA reported fee revenue of$182.2 million in fiscal 2022, an increase of$43.2 million , or 31%, compared to$139.0 million in fiscal 2021. Exchange rates unfavorably impacted fee revenue by$0.5 million in fiscal 2022 compared to fiscal 2021. The increase in fee revenue was due to a 15% increase in the number of engagements billed and a 14% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2022 compared to fiscal 2021. The performance in theUnited Kingdom ,France , theUnited Arab Emirates andBelgium were the primary contributors to the increase in fee revenue in fiscal 2022 compared to fiscal 2021, driving$31.0 million of increased revenue. Executive Search Asia Pacific. Executive Search Asia Pacific reported fee revenue of$118.6 million in fiscal 2022, an increase of$35.3 million , or 42%, compared to$83.3 million in fiscal 2021. Exchange rates favorably impacted fee revenue by$0.6 million , or 1%, in fiscal 2022 compared to fiscal 2021. The increase in fee revenue was due to a 27% increase in the number of engagements billed and an 11% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2022 compared to fiscal 2021. The performance inAustralia ,India ,China andSingapore were the primary contributors to the increase in fee revenue in fiscal 2022 compared to fiscal 2021, contributing$28.8 million of increased fee revenue. Executive Search Latin America. Executive Search Latin America reported fee revenue of$29.1 million in fiscal 2022, an increase of$11.6 million , or 66%, compared to$17.5 million in fiscal 2021. Exchange rates favorably impacted fee revenue by$0.2 million , or 1%, in fiscal 2022 compared to fiscal 2021. The increase in fee revenue was due to a 34% increase in the number of engagements billed and a 22% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2022 compared to fiscal 2021. The performance inMexico ,Brazil andChile were the primary contributors to the increase in fee revenue in fiscal 2022 compared to fiscal 2021, driving$9.4 million of increased revenue. RPO & Professional Search. RPO & Professional Search reported fee revenue of$691.9 million in fiscal 2022, an increase of$322.0 million , or 87%, compared to$369.9 million in fiscal 2021. Exchange rates favorably impacted fee revenue by$0.2 million compared to fiscal 2021. The increase in fee revenue was due to higher fee revenue in 35
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Professional Search of$166.2 million and RPO of$155.8 million due to wider adoption of RPO services in the market. The increase in Professional Search is due to an 86% increase in engagements billed and a 21% increase in the weighted-average fees billed per engagement in fiscal 2022 compared to fiscal 2021. The increase in Professional Search was also due to the acquisition ofThe Lucas Group andPatina Solutions Group ("Acquisitions"), which contributed$69.3 million and$4.1 million of fee revenue, respectively.
Compensation and Benefits
Compensation and benefits expense increased$443.6 million , or 34% to$1,741.5 million in fiscal 2022 from$1,297.9 million in fiscal 2021. Exchange rates favorably impacted compensation and benefits by$0.3 million in fiscal 2022 compared to fiscal 2021. The increase in compensation and benefits expense was primarily due to increases in salaries and related payroll taxes of$230.4 million , performance-related bonus expense of$160.3 million , amortization of long-term incentive awards of$16.4 million , employer insurance of$13.8 million and the use of outside contractors of$9.3 million . These increases were due to the increase in fee revenue combined with increases in overall profitability and average headcount. Also contributing to higher compensation and benefit expense was an increase in commission expense of$28.5 million due to the Acquisitions, partially offset by a decrease in deferred compensation expenses of$30.7 million as a result of decreases in the fair value of participants' accounts in fiscal 2022 compared to fiscal 2021. Compensation and benefits expense, as a percentage of fee revenue, decreased to 66% in fiscal 2022 from 72% in fiscal 2021. Consulting compensation and benefits expense increased by$90.5 million , or 25%, to$450.9 million in fiscal 2022 from$360.4 million in fiscal 2021. Exchange rates favorably impacted compensation and benefits by$1.2 million in fiscal 2022 compared to fiscal 2021. The increase in compensation and benefits expense was primarily due to increases in salaries and related payroll taxes of$48.9 million , performance-related bonus expense of$24.5 million , amortization of long-term incentive awards of$5.0 million and employer insurance of$2.7 million due to an increase in fee revenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021. Consulting compensation and benefits expense, as a percentage of fee revenue, decreased to 69% in fiscal 2022 from 70% in fiscal 2021. Digital compensation and benefits expense increased by$31.1 million , or 21%, to$177.8 million in fiscal 2022 from$146.7 million in fiscal 2021. The impact of exchange rates was essentially flat in fiscal 2022 compared to fiscal 2021. The increase in compensation and benefits expense was primarily due to increases in performance-related bonus expense of$11.4 million , salaries and related payroll taxes of$7.9 million and commission expenses of$5.8 million in fiscal 2022 compared to fiscal 2021 as a result of an increase in fee revenue combined with increases in overall profitability and average headcount. Digital compensation and benefits expense, as a percentage of fee revenue, was 51% in both fiscal 2022 and fiscal 2021.Executive Search North America compensation and benefits expense increased by$77.6 million , or 26%, to$377.1 million in fiscal 2022 compared to$299.5 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by$0.7 million in fiscal 2022 compared to fiscal 2021. The increase was primarily due to increases in performance-related bonus expense of$82.6 million and salaries and related payroll taxes of$24.6 million due to the increase in fee revenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021. The increases in compensation and benefit expense was partially offset by a decrease in the amounts owed under certain deferred compensation and retirement plans$35.4 million due to a decrease in the fair market value of the participants' accounts in fiscal 2022 compared to fiscal 2021.Executive Search North America compensation and benefits expense, as a percentage of fee revenue, decreased to 62% in fiscal 2022 from 75% in fiscal 2021. Executive Search EMEA compensation and benefits expense increased by$22.0 million , or 20%, to$133.1 million in fiscal 2022 compared to$111.1 million in fiscal 2021. Exchange rates favorably impacted compensation and benefits by$0.5 million in fiscal 2022 compared to fiscal 2021. The increase was primarily due to higher salaries and related payroll taxes of$12.6 million and performance-related bonus expense of$8.2 million in fiscal 2022 compared to fiscal 2021 due to the increase in fee revenue combined with an increase in overall profitability. Executive Search EMEA compensation and benefits expense, as a percentage of fee revenue, decreased to 73% in fiscal 2022 from 80% in fiscal 2021. Executive Search Asia Pacific compensation and benefits expense increased by$14.0 million , or 24%, to$72.3 million in fiscal 2022 compared to$58.3 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by$0.4 million , or 1%, in fiscal 2022 compared to fiscal 2021. The increase was primarily due to increases in performance-related bonus expense of$10.2 million and salaries and related payroll taxes of$6.2 million in fiscal 2022 compared to fiscal 2021 due to an increase in fee revenue combined with an increase overall profitability. Executive Search Asia Pacific compensation and benefits expense, as a percentage of fee revenue, decreased to 61% in fiscal 2022 from 70% in fiscal 2021. 36
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Executive Search Latin America compensation and benefits expense increased by$4.3 million , or 30%, to$18.4 million in fiscal 2022 compared to$14.1 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by$0.3 million , or 2%, in fiscal 2022 compared to fiscal 2021. The increase was primarily due to higher salaries and related payroll taxes of$2.0 million and performance-related bonus expense of$1.4 million in fiscal 2022 compared to fiscal 2021 due to an increase in fee revenue combined with an increase in overall profitability. Executive Search Latin America compensation and benefits expense, as a percentage of fee revenue, decreased to 63% in fiscal 2022 from 80% in fiscal 2021. RPO & Professional Search compensation and benefits expense increased by$187.4 million , or 71%, to$452.0 million in fiscal 2022 from$264.6 million in fiscal 2021. The impact of exchange rates was essentially flat in fiscal 2022 compared to fiscal 2021. The increase was due to higher salaries and related payroll taxes of$122.1 million , performance-related bonus expense of$17.6 million , employer insurance of$8.4 million and the use of outside contractors of$5.0 million due to the increase in fee revenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021. Also contributing to the increase in compensation and benefit was an increase in commission expenses of$22.7 million and integration and acquisition costs of$1.9 million driven by the Acquisitions. RPO & Professional Search compensation and benefits expense, as a percentage of fee revenue, decreased to 65% in fiscal 2022 from 72% in fiscal 2021. Corporate compensation and benefits expense increased by$16.5 million , or 38%, to$59.7 million in fiscal 2022 from$43.2 million in fiscal 2021. The increase of$7.2 million was due to the changes in cash surrender value ("CSV") of the company-owned life insurance ("COLI") contracts due to lower death benefits recognized in fiscal 2022 compared to fiscal 2021. Also contributing to the increase was higher salaries and related payroll taxes of$6.0 million and performance-related bonus expense of$4.2 million due to an increase in consolidated fee revenue, combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021.
General and Administrative Expenses
General and administrative expenses increased$45.5 million , or 24%, to$237.3 million in fiscal 2022 compared to$191.8 million in fiscal 2021. Exchange rates favorably impacted general and administrative expenses by$0.9 million in fiscal 2022 compared to fiscal 2021. The increase in general and administrative expenses was primarily due to higher marketing and business development expenses of$14.0 million , which contributed to the increase in fee revenue and new business in fiscal 2022, as well as an increase in premise and office expense of$6.9 million , bad debt expense of$5.8 million and legal and other professional fees of$5.3 million . In addition the Company recorded impairment charges associated with the reduction of the Company's real estate footprint of$9.3 million and integration and acquisition costs of$6.0 million incurred with the acquisition ofThe Lucas Group that closed onNovember 1, 2021 andPatina Solutions Group that closed onApril 1, 2022 . General and administrative expenses, as a percentage of fee revenue, decreased to 9% in fiscal 2022 from 11% in fiscal 2021. Consulting general and administrative expenses increased by$2.9 million , or 6%, to$51.5 million in fiscal 2022 compared to$48.6 million in fiscal 2021. The increase in general and administrative expenses was primarily due to impairment charges associated with the reduction of the Company's real estate footprint of$2.8 million in fiscal 2022. Consulting general and administrative expenses, as a percentage of fee revenue, decreased to 8% in fiscal 2022 from 9% in fiscal 2021. Digital general and administrative expenses increased by$1.9 million , or 7%, to$31.0 million in fiscal 2022 compared to$29.1 million in fiscal 2021. The increase in general and administrative expenses was primarily due to impairment charges associated with the reduction of the Company's real estate footprint of$1.5 million in fiscal 2022. Digital general and administrative expenses, as a percentage of fee revenue, decreased to 9% in fiscal 2022 from 10% in fiscal 2021.Executive Search North America general and administrative expenses increased by$3.9 million , or 14%, to$30.8 million in fiscal 2022 from$26.9 million in fiscal 2021. The increase in general and administrative expenses was primarily due to increases in business development expenses of$2.4 million and bad debt expense of$0.7 million .Executive Search North America general and administrative expenses, as a percentage of fee revenue, was 5% in fiscal 2022 compared to 7% in fiscal 2021. Executive Search EMEA general and administrative expenses increased by$2.0 million , or 13%, to$18.0 million in fiscal 2022 from$16.0 million in fiscal 2021. The increase in general and administrative expenses was primarily due to impairment charges associated with the reduction of the Company's real estate footprint of$1.1 million and the impact of foreign currency with foreign exchange losses of$0.7 million in fiscal 2022 compared to foreign currency gains of$0.3 million in fiscal 2021. Executive Search EMEA general and administrative expenses, as a percentage of fee revenue was 10% in fiscal 2022 compared to 12% in fiscal 2021. Executive Search Asia Pacific general and administrative expenses increased by$2.4 million , or 28%, to$11.0 million in fiscal 2022 from$8.6 million in fiscal 2021. The increase in general and administrative expenses was primarily due to higher bad debt expense of$1.0 million in fiscal 2022 compared to fiscal 2021. Executive Search 37
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Executive Search Latin America general and administrative expenses decreased by$1.3 million , or 59%, to$0.9 million in fiscal 2022 from$2.2 million in fiscal 2021. The decrease in general and administrative expenses was primarily due to lower premise and office expenses of$1.4 million in fiscal 2022 compared to fiscal 2021. Executive Search Latin America general and administrative expenses, as a percentage of fee revenue, was 3% in fiscal 2022 compared to 12% in fiscal 2021. RPO & Professional Search general and administrative expenses increased by$15.8 million , or 64%, to$40.6 million in fiscal 2022 from$24.8 million in fiscal 2021. The increase in general and administrative expenses was primarily due to an increase in premise and office expense$5.3 million , higher bad debt expense of$3.7 million , impairment charges associated with the reduction of the Company's real estate footprint of$3.9 million and integration and acquisition costs associated with the Acquisitions of$1.8 million . RPO & Professional Search general and administrative expenses, as a percentage of fee revenue, was 6% in fiscal 2022 compared to 7% in fiscal 2021. Corporate general and administrative expenses increased by$18.0 million , or 51%, to$53.5 million in fiscal 2022 compared to$35.5 million in fiscal 2021. The increase in general and administrative expenses was primarily due to higher marketing expense of$7.2 million , integration and acquisition costs of$4.2 million incurred with the Acquisitions in fiscal 2022, legal and other professional fees of$3.8 million and an increase of$1.5 million in charitable contributions in fiscal 2022 compared to fiscal 2021.
Cost of Services Expense
Cost of services expense consists primarily of contractor and product costs related to the delivery of various services and products, primarily in RPO & Professional Search, Consulting and Digital. Cost of services expense was$114.4 million in fiscal 2022 compared to$72.0 million in fiscal 2021. The increase was due to an increase in fee revenue and the Acquisitions. Cost of services expense, as a percentage of fee revenue, was 4% in both fiscal 2022 and fiscal 2021.
Depreciation and Amortization Expenses
Depreciation and amortization expenses were$63.5 million in fiscal 2022, an increase of$1.7 million , or 3%, compared to$61.8 million in fiscal 2021. The increase was primarily due to the technology investments made in the current and prior year in software for our Digital business and the Acquisitions.
Restructuring Charges, Net
There were no restructuring charges, net during fiscal 2022. InApril 2020 , we implemented a restructuring plan in response to the uncertainty caused by COVID-19 that resulted in reductions in our workforce in the fourth quarter of fiscal 2020. We continued the implementation of this plan in fiscal 2021 and as a result recorded restructuring charges, net of$30.7 million of severance costs in fiscal 2021.
Net Income Attributable to
Net income attributable toKorn Ferry increased by$211.9 million to$326.4 million in fiscal 2022 compared to$114.5 million in fiscal 2021. The increase in net income attributable toKorn Ferry was driven by the increase in fee revenue of$816.7 million , which was driven by the factors discussed above, and restructuring charges, net of$30.7 million incurred in fiscal 2021. This was partially offset by increases in compensation and benefits expense of$443.6 million , cost of services expense of$42.4 million associated with the higher levels of business demand, a higher income tax provision of$54.0 million and general and an increase in administrative expenses of$45.5 million . The rest of the change is due to other loss, net of$11.9 million in fiscal 2022 compared to other income, net of$37.2 million in fiscal 2021. Net income attributable toKorn Ferry , as a percentage of fee revenue, was 12% in fiscal 2022 as compared to 6% in fiscal 2021. Adjusted EBITDA Adjusted EBITDA increased by$252.6 million to$538.9 million in fiscal 2022 compared to$286.3 million in fiscal 2021. The increase in Adjusted EBITDA was driven by the increase in fee revenue, partially offset by increases in compensation and benefits expense (excluding integration/acquisition costs), cost of services expense, and general and administrative expenses (excluding integration/acquisition costs and impairment charges). Adjusted EBITDA, as a percentage of fee revenue, was 21% and 16% in fiscal 2022 and 2021. Consulting Adjusted EBITDA was$116.1 million in fiscal 2022, an increase of$34.6 million , or 42%, compared to$81.5 million in fiscal 2021. The increase in Adjusted EBITDA was driven by higher fee revenue in the segment, as well as cost savings realized from work being conducted virtually. These changes were partially offset by increases in compensation and benefits expense and cost of services expense. Consulting Adjusted EBITDA, as a percentage of fee revenue, was 18% in fiscal 2022 compared to 16% in fiscal 2021. 38
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Digital Adjusted EBITDA was$110.1 million in fiscal 2022, an increase of$24.0 million , or 28%, compared to$86.1 million in fiscal 2021. The increase in Adjusted EBITDA was mainly driven by the increase in fee revenue in the segment, as well as cost savings realized from work being conducted virtually. These changes were partially offset by increases in compensation and benefits expense (excluding integration/acquisition costs) and cost of services expense in fiscal 2022 compared to fiscal 2021. Digital Adjusted EBITDA, as a percentage of fee revenue, was 32% in fiscal 2022 as compared to 30% in fiscal 2021. Executive Search North America Adjusted EBITDA increased by$83.5 million , or 85%, to$181.6 million in fiscal 2022 compared to$98.1 million in fiscal 2021. The increase was driven by higher fee revenue in the segment, partially offset by an increase in compensation and benefits expense and general and administrative expenses. Executive Search North America Adjusted EBITDA, as a percentage of fee revenue, was 30% in fiscal 2022 compared to 25% in fiscal 2021. Executive Search EMEA Adjusted EBITDA increased by$20.1 million , or 172%, to$31.8 million in fiscal 2022 compared to$11.7 million in fiscal 2021. The increase in Adjusted EBITDA was driven by higher fee revenue in the segment, partially offset by increases in compensation and benefits expense and general and administrative expenses (excluding impairment charges). Executive Search EMEA Adjusted EBITDA, as a percentage of fee revenue, was 17% in fiscal 2022 compared to 8% in fiscal 2021. Executive Search Asia Pacific Adjusted EBITDA increased by$18.4 million , or 110%, to$35.1 million in fiscal 2022 compared to$16.7 million in fiscal 2021. The increase in Adjusted EBITDA was driven by higher fee revenue in the segment, partially offset by increases in the compensation and benefits expense and general and administrative expenses. Executive Search Asia Pacific Adjusted EBITDA, as a percentage of fee revenue, was 30% in fiscal 2022 compared to 20% in fiscal 2021. Executive Search Latin America Adjusted EBITDA increased by$7.8 million to$9.1 million in fiscal 2022 compared to$1.3 million in fiscal 2021. The increase in Adjusted EBITDA was driven by higher fee revenue in the segment, partially offset by an increase in compensation and benefit expense. Executive Search Latin America Adjusted EBITDA, as a percentage of fee revenue, was 31% in fiscal 2022 compared to 7% in fiscal 2021. RPO & Professional Search Adjusted EBITDA was$165.1 million in fiscal 2022, an increase of$95.7 million , or 138%, compared to$69.4 million in fiscal 2021. The increase in Adjusted EBITDA was mainly driven by higher fee revenue in the segment, partially offset by increases in compensation and benefits expense (excluding integration/acquisition costs), cost of services expense, and general and administrative expenses (excluding impairment charges and integration and acquisition costs). RPO & Professional Search Adjusted EBITDA, as a percentage of fee revenue, was 24% in fiscal 2022 compared to 19% in fiscal 2021.
Other (Loss) Income Net,
Other loss, net was$11.9 million in fiscal 2022 compared to other income, net of$37.2 million in fiscal 2021. The difference was primarily due to losses from the fair value of our marketable securities in fiscal 2022 compared to gains in fiscal 2021. Interest Expense, Net Interest expense, net primarily relates to our Notes issued inDecember 2019 and borrowings under our COLI policies, which are partially offset by interest earned on cash and cash equivalent balances. Interest expense, net was$25.3 million in fiscal 2022 compared to$29.3 million in fiscal 2021. Interest expense, net decreased due to interest income earned on the death benefits received from our COLI policies in fiscal 2022 and lower interest expense on borrowings under our COLI policies in fiscal 2022 compared to fiscal 2021 due to the lower amount of borrowings outstanding.
Income Tax Provision
The provision for income tax was$102.1 million in fiscal 2022 compared to$48.1 million in fiscal 2021. This reflects a 24% effective tax rate for fiscal 2022 compared to a 29% effective tax rate for fiscal 2021. In addition to the impact ofU.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 2022 was partially attributable to a tax benefit recorded in connection with tax credits claimed in the current year for eligible research and development expenditures. The fiscal 2021 effective tax rate was higher due to a tax expense recorded for withholding taxes on intercompany dividends that are not eligible for credit and a shortfall recorded in connection with stock-based awards that vested in fiscal 2021. The shortfall is the amount by which the Company's tax deduction for these awards, based on the fair market value of the awards on the date of vesting, is less than the expense recorded in the Company's financial statements over the awards' vesting period. Conversely, the Company recorded a tax benefit for a windfall in connection with stock-based awards that vested in fiscal 2022. 39
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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 byKorn Ferry that are included in the consolidated results of income. Net income attributable to noncontrolling interest was$4.5 million and$1.1 million in fiscal 2022 and fiscal 2021, respectively.
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 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) as well as using excess cash to repay the Notes. OnApril 1, 2022 , we completed the acquisition ofPatina Solutions Group for$42.9 million , net of cash acquired. We believePatina Solutions Group contributes a substantial interim executive solutions expertise across multiple industry verticals as well as offers ideal solutions for today's nomadic labor market.Patina Solutions Group's vast network of C-suite, top-tier, and professional interim talent spans functional areas of expertise such as finance, operations, legal, human resources, IT and more. This combination presents real, tangible opportunity forKorn Ferry and our clients looking for the right talent, who are highly agile, with specialized skills and expertise, to help them drive superior performance, including on an interim basis.Patina Solutions Group offers. OnNovember 1, 2021 , we completed the acquisition ofThe Lucas Group for$90.9 million , net of cash acquired.The Lucas Group contributes a substantial professional search and interim expertise that is expected to enhance our search portfolio.The Lucas Group is a professional search and interim staffing firm, targeting middle market businesses. The addition ofThe Lucas Group toKorn Ferry's broader talent acquisition portfolio - spanning Executive Search, RPO & Professional Search - is expected to accelerate our ability to capture additional share of this significant market. OnDecember 16, 2019 , we completed a private placement of 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 matureDecember 15, 2027 , with interest payable semi-annually in arrears onJune 15 andDecember 15 of each year, that commenced onJune 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 (the "Prior Credit Agreement") and to pay expenses and fees in connection therewith. As ofApril 30, 2022 , the fair value of the Notes was$379.5 million , which is based on borrowing rates currently required of notes with similar terms, maturity and credit risk. 40
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OnDecember 16, 2019 , we also entered into a senior secured$650.0 million credit agreement (the "Credit Agreement") with a syndicate of banks andBank of America, National Association as administrative agent to among other things, provide for enhanced financial flexibility. See Note 11-Long-Term Debt for a description of the Credit Agreement. We had a total of$645.3 million and$646.0 million available under our$650.0 million five-year senior secured revolving credit facility (the "Revolver") after$4.7 million and$4.0 million of standby letters of credit had been issued as ofApril 30, 2022 and 2021, respectively. We had a total of$10.0 million and$11.0 million of standby letters of credits with other financial institutions as ofApril 30, 2022 and 2021, respectively. The standby letters of credits were generally issued as a result of entering into office premise leases. OneJune 24, 2022 , we entered into an Amendment to the Credit Agreement (as amended by the Amendment, the "Amended Credit Agreement") with the lenders party thereto andBank of America, National Association as administrative agent, to, among other things, extend the existing maturity date and provide for a new delayed draw term loan facility. The Amended Credit Agreement provides for five-year senior secured credit facilities in an aggregate amount of$1,150 million comprised of a$650.0 million revolving credit facility and a$500 million delayed draw term loan facility. 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 . See Note 18-Subsequent Events - Credit Facility for a further description of the Amended Credit Agreement. OnDecember 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. OnJune 21, 2021 , the Board of Directors increased the quarterly dividend to$0.12 per share. OnJune 21, 2022 , the Board of Directors approved a 25% increase in the quarterly dividend, which increased the quarterly dividend to$0.15 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 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. OnJune 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 million . The Company repurchased approximately$98.8 million and$30.4 million of the Company's stock during fiscal 2022 and 2021, respectively. 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 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. However, if the national or global economy, credit market conditions and/or labor markets were to deteriorate in the future, such changes could put 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$1,211.1 million and$1,097.1 million as ofApril 30, 2022 and 2021, respectively. Net of amounts held in trust for deferred compensation plans and accrued bonuses, cash and cash equivalents and marketable securities were$605.4 million and$642.1 million atApril 30, 2022 and 2021, respectively. As ofApril 30, 2022 and 2021, we held$416.7 million and$382.8 million , respectively of cash and cash equivalents and marketable securities 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 andU.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 andU.S. Treasury and Agency securities are available for general corporate purposes. 41
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As ofApril 30, 2022 and 2021, marketable securities of$233.0 million and$246.4 million , respectively, included equity securities of$168.7 million (net of gross unrealized gains of$10.7 million and gross unrealized losses of$6.1 million ) and$175.6 million (net of gross unrealized gains of$30.0 million and gross unrealized losses of$0.1 million ), respectively, and were held in trust for settlement of our obligations under certain deferred compensation plans, of which$158.7 million and$166.5 million , respectively, are classified as non-current. These marketable securities were held to satisfy vested obligations totaling$160.8 million and$157.3 million as ofApril 30, 2022 and 2021, respectively. Unvested obligations under the deferred compensation plans totaled$24.0 million and$26.5 million as ofApril 30, 2022 and 2021, respectively. The net increase in our working capital of$38.6 million as ofApril 30, 2022 compared toApril 30, 2021 is primarily attributable to increases in cash and cash equivalents and accounts receivables, partially offset by increases in compensation and benefits payable and other accrued liabilities. Cash and cash equivalents increased primarily due to cash from operations, partially offset by the Acquisitions, purchase of property and equipment, repurchase of common stock and dividends issued to shareholders. The increase in accounts receivable was due to higher revenue in the fourth quarter of fiscal 2022 compared to fiscal 2021. Compensation and benefits payable increased due to higher performance-related bonus liability as a result of higher fee revenue while the increase in other accrued liabilities was due to higher levels of new business. Cash provided by operating activities was$501.7 million in fiscal 2022, an increase of$250.3 million , compared to$251.4 million in fiscal 2021. Cash used in investing activities was$184.3 million in fiscal 2022 compared to$61.4 million in fiscal 2021. An increase in cash used in investing activities was primarily due to$133.8 million in cash paid for the Acquisitions, an increase in the purchase of property and equipment of$18.3 million and a decrease in proceeds received from life insurance policies of$15.3 million . This was partially offset by an increase of proceeds received from sales of marketable securities for$22.8 million and a decrease in purchase of marketable securities for$21.5 million in fiscal 2022 compared to fiscal 2021. Cash used in financing activities was$137.4 million in fiscal 2022 compared to cash used in financing activities of$66.9 million in fiscal 2021. The increase in cash used in financing activities was primarily due to an increase in repurchases of shares of the Company's common stock of$65.9 million in fiscal 2022 compared to fiscal 2021, higher cash used to repurchase shares of common stock to satisfy tax withholding requirements upon the vesting of restricted stock of$18.5 million in fiscal 2022 compared to$5.0 million in fiscal 2021 and an increase of$4.3 million in dividends paid to our shareholders. This was partially offset by less payments made on life insurance policy loans of$12.1 million in fiscal 2022 compared to fiscal 2021.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements and have not entered into any transactions involving unconsolidated, special purpose entities.
Contractual Obligations
Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingent liabilities for which we cannot reasonably predict future payment. The following table represents our contractual obligations as ofApril 30, 2022 : Payments Due in: Less Than More Than Note (1) Total 1 Year 1-3 Years 3-5 Years 5 Years (in thousands) Operating lease commitments 15$ 222,862 $ 55,890 $ 87,643 $ 55,345 $ 23,984 Finance lease commitments 15 2,835 1,115 1,299 421 - Accrued restructuring charges 13 1,502 1,001 - - 501 Interest payments on COLI loans (2) 11 35,855 4,421 8,832 8,621 13,981 Long-term debt 11 400,000 - - - 400,000 Estimated interest on long-term debt (3) 11 111,000 18,500 37,000 37,000 18,500 Total$ 774,054 $ 80,927 $ 134,774 $ 101,387 $ 456,966
(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
(3) Interest on the Notes payable semi-annually in arrears on
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
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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 ofApril 30, 2022 and 2021, we held contracts with gross cash surrender value ("CSV") of$263.2 million and$241.3 million , respectively. Total outstanding borrowings against the CSV of COLI contracts were$79.8 million and$80.0 million as ofApril 30, 2022 and 2021, respectively. Such borrowings do not require annual principal repayments, bear interest primarily at variable rates and are secured by the CSV of COLI contracts. AtApril 30, 2022 and 2021, the net cash value of these policies was$183.3 million and$161.3 million , respectively. Total death benefits payable, net of loans under COLI contracts, were$449.3 million and$443.9 million atApril 30, 2022 and 2021, 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 ofApril 30, 2022 .
Accounting Developments
Recently Adopted Accounting Standards
InMarch 2020 , theFinancial Accounting Standards Board (the "FASB") issued guidance on Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions to the guidance on contract modifications and hedge accounting related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative rates. Entities can elect to adopt this guidance as of any date within an interim period that includes or is subsequent toMarch 12, 2020 and can adopt it for new contracts and contract modifications entered into throughDecember 31, 2022 . We adopted this guidance in our fiscal year beginningMay 1, 2021 and we elected to apply the amendments prospectively throughDecember 12, 2022 . The adoption of this guidance did not have a material impact on the consolidated financial statements.
Recently Proposed Accounting Standards - Not Yet Adopted
InOctober 2021 , the FASB issued an amendment in accounting for contract assets and contract liabilities from contracts with customers, which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. The amendment of this standard becomes effective in fiscal years beginning afterDecember 15, 2022 . The amendment should be applied prospectively to business combinations that occur after the effective date. We will adopt this guidance in our fiscal year beginningMay 1, 2023 . We are currently evaluating the impact of this accounting guidance but do not anticipate that it will have a material impact on the consolidated financial statements.
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