Segments

9 Months Ended

Jan. 31, 2020

10. 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 consultant engagement. These investments combined with the recent acquisition of the Acquired Companies have provided the Company the opportunity to reassess 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 has begun to regularly 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 has been 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 subsequent to the aforementioned change and determined that no impairment indicators were present. Operating results prior to November 1, 2019 have been revised 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 Development, and Rewards and Benefits. This is supported and underpinned by a comprehensive range of some of the world’s leading lP and data.

Digital is an integrated platform that gives clients direct access to people and organizational data, insights, analytics and digital assets. It is comprised of individual products that when used together, give clients a common language for all talent matters.

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 and 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 Company’s 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 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 Company’s chief operating decision maker is not provided asset information by reportable segment.

Financial highlights by business segment are as follows:

	Three Months Ended January 31, 2020
					Executive Search
	Consulting		Digital		North America		EMEA		Asia Pacific		Latin America		Subtotal		RPO & Professional Search		Corporate			Consolidated
	(in thousands)
Fee revenue	$	140,525	$	99,389	$	106,888	$	44,301	$	25,089	$	7,283	$	183,561	$	91,850	$	—		$	515,325
Total revenue	$	144,298	$	100,663	$	110,230	$	45,077	$	25,365	$	7,351	$	188,023	$	94,995	$	—		$	527,979

Net income attributable to Korn Ferry																				$	19,993
Net income attributable to noncontrolling interest																					963
Other income, net																					(5,055	)
Interest expense, net																					6,919
Income tax provision																					8,775
Operating income (loss)	$	2,663	$	8,463	$	21,808	$	4,644	$	5,070	$	1,198	$	32,720	$	14,144	$	(26,395	)		31,595
Depreciation and amortization		4,417		5,832		847		422		329		295		1,893		979		1,742			14,863
Other income (loss), net		558		193		3,963		29		106		162		4,260		88		(44	)		5,055
EBITDA		7,638		14,488		26,618		5,095		5,505		1,655		38,873		15,211		(24,697	)		51,513
Integration/acquisition costs		—		4,332		—		—		—		—		—		—		2,372			6,704
Restructuring, charges, net		11,061		7,032		—		—		—		—		—		—		—			18,093
Separation costs		—		—		—		1,783		—		—		1,783		—		—			1,783
Adjusted EBITDA	$	18,699	$	25,852	$	26,618	$	6,878	$	5,505	$	1,655	$	40,656	$	15,211	$	(22,325	)	$	78,093

	Three Months Ended January 31, 2019
					Executive Search
	Consulting		Digital		North America		EMEA		Asia Pacific			Latin America		Subtotal		RPO & Professional Search		Corporate			Consolidated
	(in thousands)
Fee revenue	$	139,029	$	62,473	$	114,215	$	45,940	$	25,687		$	7,554	$	193,396	$	79,606	$	—		$	474,504
Total revenue	$	143,204	$	62,473	$	117,725	$	46,639	$	26,046		$	7,573	$	197,983	$	82,512	$	—		$	486,172

Net income attributable to Korn Ferry																					$	44,964
Net income attributable to noncontrolling interest																						480
Other income, net																						(2,463	)
Interest expense, net																						4,282
Income tax provision																						15,420
Operating income (loss)	$	11,782	$	17,497	$	30,596	$	7,525	$	5,929		$	653	$	44,703	$	12,176	$	(23,475	)		62,683
Depreciation and amortization		4,001		3,306		970		402		338			97		1,807		803		1,824			11,741
Other income (loss), net		582		204		1,626		26		(134	)		133		1,651		77		(51	)		2,463
EBITDA		16,365		21,007		33,192		7,953		6,133			883		48,161		13,056		(21,702	)		76,887
Integration/acquisition costs		650		127		—		—		—			—		—		—		27			804
Adjusted EBITDA	$	17,015	$	21,134	$	33,192	$	7,953	$	6,133		$	883	$	48,161	$	13,056	$	(21,675	)	$	77,691

	Nine Months Ended January 31, 2020
					Executive Search
	Consulting		Digital		North America		EMEA		Asia Pacific		Latin America		Subtotal		RPO & Professional Search		Corporate			Consolidated
	(in thousands)
Fee revenue	$	422,103	$	223,097	$	332,428	$	130,652	$	78,395	$	23,140	$	564,615	$	282,448	$	—		$	1,492,263
Total revenue	$	433,832	$	224,371	$	342,753	$	132,830	$	79,201	$	23,211	$	577,995	$	292,156	$	—		$	1,528,354

Net income attributable to Korn Ferry																				$	105,748
Net income attributable to noncontrolling interest																					1,890
Other income, net																					(8,014	)
Interest expense, net																					15,186
Income tax provision																					38,988
Operating income (loss)	$	24,272	$	41,036	$	80,254	$	18,466	$	17,866	$	2,999	$	119,585	$	44,279	$	(75,374	)		153,798
Depreciation and amortization		13,188		13,156		2,617		1,328		1,004		938		5,887		2,961		5,163			40,355
Other income (loss), net		1,469		528		5,740		148		193		249		6,330		216		(529	)		8,014
EBITDA		38,929		54,720		88,611		19,942		19,063		4,186		131,802		47,456		(70,740	)		202,167
Integration/acquisition costs		—		4,332		—		—		—		—		—		—		4,987			9,319
Restructuring charges, net		11,061		7,032		—		—		—		—		—		—		—			18,093
Separation costs		—		—		—		1,783		—		—		1,783		—		—			1,783
Adjusted EBITDA	$	49,990	$	66,084	$	88,611	$	21,725	$	19,063	$	4,186	$	133,585	$	47,456	$	(65,753	)	$	231,362

	Nine Months Ended January 31, 2019
						Executive Search
	Consulting			Digital		North America		EMEA		Asia Pacific		Latin America		Subtotal		RPO & Professional Search		Corporate			Consolidated
	(in thousands)
Fee revenue	$	423,958		$	190,008	$	342,175	$	137,522	$	79,918	$	24,339	$	583,954	$	237,357	$	—		$	1,435,277
Total revenue	$	437,235		$	190,008	$	352,804	$	140,024	$	80,817	$	24,388	$	598,033	$	246,051	$	—		$	1,471,327

Net income attributable to Korn Ferry																					$	52,387
Net income attributable to noncontrolling interest																						1,782
Other income, net																						(2,483	)
Interest expense, net																						12,722
Income tax provision																						14,143
Operating income (loss)	$	(47,431	)	$	23,057	$	92,438	$	21,813	$	19,337	$	3,460	$	137,048	$	36,337	$	(70,460	)		78,551
Depreciation and amortization		12,219			9,483		2,917		867		1,083		305		5,172		2,325		5,291			34,490
Other income (loss), net		1,107			514		1,146		388		118		263		1,915		103		(1,156	)		2,483
EBITDA		(34,105	)		33,054		96,501		23,068		20,538		4,028		144,135		38,765		(66,325	)		115,524
Integration/acquisition costs		5,304			1,255		—		—		—		—		—		—		187			6,746
Tradename write-offs		76,967			29,588		—		—		—		—		—		—		—			106,555
Adjusted EBITDA	$	48,166		$	63,897	$	96,501	$	23,068	$	20,538	$	4,028	$	144,135	$	38,765	$	(66,138	)	$	228,825