Business Segments

6 Months Ended

Oct. 31, 2017

Business Segments

9. Business Segments

The Company currently operates in three global businesses: Executive Search, Hay Group and Futurestep. The Executive Search segment focuses on recruiting Board of Director and C-level positions, in addition to research-based interviewing and onboarding solutions, for clients predominantly in the consumer, financial services, industrial, life sciences/healthcare and technology industries. Hay Group assists clients with ongoing assessment, compensation and development of their senior executives and management teams, and addresses four fundamental needs: Talent Strategy, Succession Management, Leadership Development and Rewards, Motivation and Engagement, all underpinned by a comprehensive array of world-leading intellectual property, products and tools. Futurestep is a global industry leader in high-impact talent acquisition solutions. Its portfolio of services includes global and regional RPO, project recruitment, individual professional search and consulting. The Executive Search business segment is managed by geographic regional leaders and Hay Group and Futurestep worldwide operations are managed by their Chief Executive Officers. The Executive Search geographic regional leaders and the Chief Executive Officers of Hay Group and Futurestep report directly to the Chief Executive Officer of the Company. The Company also operates a Corporate segment to record global expenses of the Company.

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 (recoveries), net, 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, except the items described above are excluded from EBITDA to arrive at Adjusted EBITDA. For the six months ended October 31, 2016, Adjusted EBITDA includes deferred revenue adjustment related to the Legacy Hay acquisition, reflecting revenue that the Hay Group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue.

Financial highlights by business segment are as follows:

	Three Months Ended October 31, 2017
	Executive Search
	North America		EMEA		Asia Pacific		Latin America		Subtotal		Hay Group			Futurestep		Corporate			Consolidated
	(in thousands)
Fee revenue	$	101,544	$	41,346	$	25,912	$	7,964	$	176,766	$	199,953		$	66,299	$	—		$	443,018
Total revenue	$	104,329	$	42,073	$	26,187	$	7,994	$	180,583	$	203,836		$	71,049	$	—		$	455,468
Net income attributable to Korn/Ferry International																			$	36,331
Net income attributable to noncontrolling interest																				401
Other income, net																				(3,626	)
Interest expense, net																				2,579
Equity in earnings of unconsolidated subsidiaries, net																				(60	)
Income tax provision																				15,619
Operating income (loss)	$	22,945	$	6,345	$	4,381	$	1,527	$	35,198	$	26,370		$	9,409	$	(19,733	)		51,244
Depreciation and amortization		984		459		371		111		1,925		8,143			784		1,595			12,447
Other income, net		290		43		94		39		466		57			—		3,103			3,626
Equity in earnings of unconsolidated subsidiaries, net		60		—		—		—		60		—			—		—			60
EBITDA		24,279		6,847		4,846		1,677		37,649		34,570			10,193		(15,035	)		67,377
Restructuring charges (recoveries), net		—		—		273		—		273		(481	)		6		—			(202	)
Integration/acquisition costs		—		—		—		—		—		2,313			—		80			2,393
Adjusted EBITDA	$	24,279	$	6,847	$	5,119	$	1,677	$	37,922	$	36,402		$	10,199	$	(14,955	)	$	69,568

	Three Months Ended October 31, 2016
	Executive Search
	North America			EMEA			Asia Pacific		Latin America		Subtotal			Hay Group			Futurestep		Corporate			Consolidated
	(in thousands)
Fee revenue	$	92,732		$	34,779		$	19,470	$	9,247	$	156,228		$	188,842		$	56,847	$	—		$	401,917
Total revenue	$	95,902		$	35,507		$	19,929	$	9,296	$	160,634		$	192,352		$	61,968	$	—		$	414,954
Net income attributable to Korn/Ferry International																						$	30,152
Net income attributable to noncontrolling interest																							904
Other loss, net																							879
Interest expense, net																							2,736
Equity in earnings of unconsolidated subsidiaries, net																							(29	)
Income tax provision																							11,906
Operating income (loss)	$	26,272		$	6,847		$	2,028	$	2,284	$	37,431		$	22,943		$	7,787	$	(21,613	)		46,548
Depreciation and amortization		990			229			264		174		1,657			8,025			669		1,401			11,752
Other (loss) income, net		(92	)		(80	)		24		24		(124	)		(11	)		—		(744	)		(879	)
Equity in earnings of unconsolidated subsidiaries, net		29			—			—		—		29			—			—		—			29
EBITDA		27,199			6,996			2,316		2,482		38,993			30,957			8,456		(20,956	)		57,450
Integration/acquisition costs		—			—			—		—		—			4,365			—		1,455			5,820
Adjusted EBITDA	$	27,199		$	6,996		$	2,316	$	2,482	$	38,993		$	35,322		$	8,456	$	(19,501	)	$	63,270
	Six Months Ended October 31, 2017
	Executive Search
	North America			EMEA			Asia Pacific		Latin America		Subtotal			Hay Group			Futurestep		Corporate			Consolidated
	(in thousands)
Fee revenue	$	193,377		$	81,467		$	47,490	$	15,623	$	337,957		$	379,406		$	126,909	$	—		$	844,272
Total revenue	$	199,534		$	83,131		$	48,067	$	15,658	$	346,390		$	387,132		$	136,863	$	—		$	870,385
Net income attributable to Korn/Ferry International																						$	65,372
Net income attributable to noncontrolling interest																							789
Other income, net																							(7,158	)
Interest expense, net																							5,239
Equity in earnings of unconsolidated subsidiaries, net																							(90	)
Income tax provision																							27,829
Operating income (loss)	$	44,940		$	13,020		$	7,522	$	2,553	$	68,035		$	45,453		$	17,646	$	(39,153	)		91,981
Depreciation and amortization		1,933			887			691		218		3,729			16,228			1,580		3,119			24,656
Other income, net		572			99			199		59		929			89			8		6,132			7,158
Equity in earnings of unconsolidated subsidiaries, net		90			—			—		—		90			—			—		—			90
EBITDA		47,535			14,006			8,412		2,830		72,783			61,770			19,234		(29,902	)		123,885
Restructuring charges (recoveries), net		—			—			313		—		313			(241	)		6		—			78
Integration/acquisition costs		—			—			—		—		—			4,862			—		119			4,981
Adjusted EBITDA	$	47,535		$	14,006		$	8,725	$	2,830	$	73,096		$	66,391		$	19,240	$	(29,783	)	$	128,944

	Six Months Ended October 31, 2016
	Executive Search
	North America		EMEA			Asia Pacific		Latin America		Subtotal		Hay Group		Futurestep			Corporate			Consolidated
	(in thousands)
Fee revenue	$	174,534	$	70,149		$	39,096	$	18,810	$	302,589	$	363,424	$	111,525		$	—		$	777,538
Deferred revenue adjustment due to acquisition		—		—			—		—		—		3,535		—			—			3,535
Adjusted fee revenue	$	174,534	$	70,149		$	39,096	$	18,810	$	302,589	$	366,959	$	111,525		$	—		$	781,073
Total revenue	$	181,327	$	71,756		$	40,109	$	18,910	$	312,102	$	373,860	$	121,925		$	—		$	807,887
Net income attributable to Korn/Ferry International																				$	33,360
Net income attributable to noncontrolling interest																					1,764
Other income, net																					(3,380	)
Interest expense, net																					5,797
Equity in earnings of unconsolidated subsidiaries, net																					(108	)
Income tax provision																					13,631
Operating income (loss)	$	42,740	$	12,874		$	4,130	$	4,614	$	64,358	$	15,200	$	15,300		$	(43,794	)		51,064
Depreciation and amortization		1,820		440			489		288		3,037		16,041		1,292			2,826			23,196
Other income (loss), net		196		(56	)		111		97		348		224		(2	)		2,810			3,380
Equity in earnings of unconsolidated subsidiaries, net		108		—			—		—		108		—		—			—			108
EBITDA		44,864		13,258			4,730		4,999		67,851		31,465		16,590			(38,158	)		77,748
Restructuring charges, net		1,706		128			622		360		2,816		21,488		—			216			24,520
Integration/acquisition costs		—		—			—		—		—		8,629		—			5,218			13,847
Deferred revenue adjustment due to acquisition		—		—			—		—		—		3,535		—			—			3,535
Adjusted EBITDA	$	46,570	$	13,386		$	5,352	$	5,359	$	70,667	$	65,117	$	16,590		$	(32,724	)	$	119,650