CHICAGO, April 22, 2024 /PRNewswire/ -- Heidrick & Struggles (Nasdaq: HSII) today announced it will hold its quarterly conference call to discuss 2024 first quarter financial results on Monday, May 6, 2024, at 5:00pm ET. The conference call and accompanying slides will be publicly available via live webcast from the investor relations section of the Heidrick & Struggles website at www.heidrick.com.  To listen by phone dial +1-800-715-9871 or +1-646-307-1963, conference ID: 4805686.   The webcast will be ava ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-25837 HEIDRICK & STRUGGLES INTERNATIONAL, INC. (Exact Name of Registrant as Specified in its Charter) (State or Other Jurisdiction of Incorporation or Organization) Delaware 36-268126 ...

Cautionary Statement Regarding Forward-Looking Information Non-GAAP Financial Measures & Currency Presentation Reconciliations of these non-GAAP financial measures with the most directly comparable measures calculated and presented in accordance with GAAP are provided in the appendix. All currency amounts presented in millions except for earnings per share data. Our Purpose & Vision • We help our clients change the world, one leadership team at a time. TM • Executive Search • Leadership Fourth Quarter 2023 ...

Financial Data and Key Metrics Changes - The company achieved over $1 billion in revenue for the year, with net revenue for Q4 2023 at over $253 million, a 7% increase year-over-year [28][49] - Adjusted EBITDA for Q4 was $35.8 million, a 37.9% improvement from $25.9 million in Q4 2022, resulting in a double-digit adjusted EBITDA margin of 14.1% [53][70] - Adjusted diluted EPS for the quarter was $0.72, down from $0.78 in the same quarter last year, primarily due to a higher tax rate [70] Business Line Data and Key Metrics Changes - Executive Search revenue decreased by 4.5% year-over-year to $184 million, with confirmations up 4% [54][37] - On-Demand Talent recorded revenue of $41.1 million, an increase of 83.7% compared to Q4 2022, achieving positive adjusted EBITDA of $0.8 million [59][55] - Heidrick Consulting's revenue grew by 35.8% year-over-year to $28.1 million, benefiting from both organic growth and the acquisition of B4Z [60][44] Market Data and Key Metrics Changes - The company noted a stabilization in demand, particularly for CEO and CHRO roles, with growth in confirmations across all practice groups [37][38] - The company is seeing growth in sectors such as life sciences and consumer practices, while banking and professional services are experiencing slowdowns [40][114] - The company highlighted a strong demand for interim executives, particularly in the CFO office, reflecting changing executive skill needs [42][40] Company Strategy and Development Direction - The company is focused on diversifying its solutions while scaling its search business, with non-search business contributing 24% of total revenue, up from 9% in 2018 [31][56] - The establishment of separate CEO and President roles aims to enhance focus on executing across businesses and expanding capabilities [11][10] - The company is optimistic about future growth, citing improving economic indicators and strong client engagement [36][33] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about a potential return to a growth mindset in the second half of 2024, driven by improving economic conditions and client demand [34][33] - The company is preparing for continued challenges but is encouraged by resilience in the economic outlook and client interest in leadership advisory services [36][33] - Management emphasized the importance of leadership as a performance lever and the need for companies to treat their leadership pipeline as a strategic asset [6][6] Other Important Information - The company announced the planned retirement of President and CEO Krishnan Rajagopalan, with Tom Monahan set to take over the role [10][12] - The company has made significant strides in its digital offerings, with the Heidrick Navigator platform gaining traction among clients [45][4] - The company is committed to maintaining margin discipline while investing in growth opportunities [65][74] Q&A Session Summary Question: What is the outlook for the demand environment? - Management noted that while growth does not feel like 2021, there is no significant contraction, and clients are beginning to focus on transformation [80] - There are large forces such as AI and sustainability driving companies to rethink management and business models, which could fuel growth [81] Question: Can you comment on the sustainability of Heidrick Consulting's recent revenue growth? - Management indicated that the growth is supported by both organic growth and the integration of recent acquisitions, with a strong pipeline for future projects [92][94] Question: What is the status of the Heidrick Navigator and digital pipeline? - The company has signed a significant client for the Heidrick Navigator platform and is optimistic about ongoing discussions with other potential clients [102][95] Question: What are the expectations for G&A expenses in 2024? - Management expects G&A to rise by about 5% in 2024, with a target of maintaining it around 15-16% of revenue in the long term [103][102] Question: Which industry verticals are showing the most optimistic trends? - Management highlighted continued momentum in industrial and technology sectors, with signs of recovery in big tech and episodic hiring in financial services [106][114]

Cautionary Statement Regarding Forward-Looking Information 2 N O N - G A A P F I N A N C I A L M E A S U R E S Reconciliations of these non-GAAP financial measures with the most directly comparable measures calculated and presented in accordance with GAAP are provided in the appendix. C U R R E N C Y P R E S E N T A T I O N All currency amounts presented in thousands except for earnings per share data. Our Purpose & Vision • We help our clients change the world, one leadership team at a time.TM I N T E G R ...

PART I. FINANCIAL INFORMATION [ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of comprehensive income, statements of changes in stockholders' equity, and statements of cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time, reflecting its financial position Condensed Consolidated Balance Sheet Data (in thousands) | Metric | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :-------------------------------- | :----------------------- | :----------- | | Cash and cash equivalents | $286,429 | $355,447 | | Marketable securities | $47,560 | $266,169 | | Accounts receivable, net | $189,442 | $126,437 | | Total current assets | $613,174 | $823,819 | | Goodwill | $198,241 | $138,361 | | Total assets | $1,041,246 | $1,175,638 | | Accrued salaries and benefits (current) | $264,625 | $451,161 | | Total current liabilities | $391,967 | $588,477 | | Total liabilities | $602,098 | $764,992 | | Total stockholders' equity | $439,148 | $410,646 | - Total assets decreased by **$134.4 million** from December 31, 2022, to September 30, 2023, primarily driven by a significant reduction in marketable securities and cash and cash equivalents[8](index=8&type=chunk) - Goodwill increased by **$59.88 million**, reflecting recent acquisitions[8](index=8&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This statement presents the company's financial performance over a period, including net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income Data (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue before reimbursements (net revenue) | $263,160 | $255,185 | $773,702 | $837,747 | | Total revenue | $267,896 | $258,271 | $783,792 | $844,917 | | Operating income | $22,137 | $28,322 | $53,493 | $92,420 | | Net income | $14,987 | $20,826 | $39,555 | $63,442 | | Basic EPS | $0.75 | $1.05 | $1.98 | $3.22 | | Diluted EPS | $0.73 | $1.02 | $1.91 | $3.09 | | Cash dividends paid per share | $0.15 | $0.15 | $0.45 | $0.45 | - For the three months ended September 30, 2023, net revenue increased by **3.1%** year-over-year, while net income decreased by **28.1%** and diluted EPS decreased by **28.4%**[11](index=11&type=chunk) - For the nine months ended September 30, 2023, net revenue decreased by **7.6%** year-over-year, net income decreased by **37.6%**, and diluted EPS decreased by **38.2%**[11](index=11&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) This statement details the changes in the company's equity accounts over a period, reflecting the impact of net income, dividends, and other transactions Stockholders' Equity Data (in thousands) | Metric (in thousands) | Balance at Dec 31, 2022 | Balance at Sep 30, 2023 | | :-------------------------------- | :---------------------- | :---------------------- | | Total Stockholders' Equity | $410,646 | $439,148 | | Net income (9 months) | $15,586 (Q1) + $8,982 (Q2) + $14,987 (Q3) = $39,555 | $39,555 | | Stock-based compensation (9 months) | $1,853 (Q1) + $2,324 (Q2) + $3,154 (Q3) = $7,331 | $7,331 | | Cash dividends declared (9 months) | $(3,006) (Q1) + $(3,003) (Q2) + $(3,014) (Q3) = $(9,023) | $(9,023) | - Total stockholders' equity increased by **$28.5 million** from December 31, 2022, to September 30, 2023, primarily due to net income and stock-based compensation, partially offset by cash dividends[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement reports the cash generated and used by the company across operating, investing, and financing activities over a period Condensed Consolidated Statements of Cash Flow Data (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(180,617) | $(41,048) | | Net cash provided by (used in) investing activities | $166,653 | $(193,057) | | Net cash used in financing activities | $(52,412) | $(12,562) | | Net decrease in cash, cash equivalents and restricted cash | $(69,018) | $(269,749) | | Cash, cash equivalents and restricted cash at end of period | $286,471 | $275,510 | - Net cash used in operating activities significantly increased to **$(180.6) million** in 2023 from **$(41.0) million** in 2022, primarily due to a decrease in accrued expenses and an increase in accounts receivable[17](index=17&type=chunk) - Investing activities shifted from a net cash outflow of **$(193.1) million** in 2022 to a net cash inflow of **$166.7 million** in 2023, driven by proceeds from sales of marketable securities[17](index=17&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and additional information supporting the condensed consolidated financial statements, clarifying accounting policies and specific line items [1. Basis of Presentation of Interim Financial Information](index=10&type=section&id=1.%20Basis%20of%20Presentation%20of%20Interim%20Financial%20Information) This note outlines the accounting principles and assumptions used in preparing the unaudited interim financial statements - The unaudited Condensed Consolidated Financial Statements are prepared in conformity with GAAP, requiring management estimates and assumptions, which are subject to uncertainty[18](index=18&type=chunk) [2. Summary of Significant Accounting Policies](index=10&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note describes the key accounting policies applied in the preparation of the financial statements, including revenue recognition, goodwill, and R&D expenses - Cost of services primarily consists of third-party contractor costs for On-Demand Talent and Heidrick Consulting segments[21](index=21&type=chunk) - Research and development (R&D) expenses are related to developing new technologies and enhancing existing products/services across all segments[22](index=22&type=chunk) - The Company performed an interim goodwill impairment evaluation during Q2 2023 for the Heidrick Consulting reporting unit, resulting in a **$7.2 million** impairment charge[32](index=32&type=chunk)[34](index=34&type=chunk) [3. Revenue](index=13&type=section&id=3.%20Revenue) This note details the company's revenue recognition policies across its various service offerings and provides information on contract balances - Executive Search revenue is recognized over approximately six months, based on estimated personnel time, and includes fixed retainers and variable 'uptick revenue'[37](index=37&type=chunk)[39](index=39&type=chunk) - On-Demand Talent revenue is recognized over time based on time-based fees, with the Company acting as the principal in third-party contractor transactions[41](index=41&type=chunk) - Heidrick Consulting revenue is recognized over time using both input (general consulting) and output (coaching, training, assessments) methods[42](index=42&type=chunk) Contract Balances (in thousands) | Contract Balances (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change | | :------------------------------- | :----------- | :----------- | :----- | | Unbilled receivables, net | $17,322 | $13,940 | $3,382 | | Contract assets | $18,808 | $21,348 | $(2,540) | | Total contract assets | $36,130 | $35,288 | $842 | | Deferred revenue | $41,502 | $43,057 | $(1,555) | - The Company recognized **$37.5 million** in revenue from contract liabilities at the beginning of the period and **$19.3 million** from changes in estimates of variable consideration during the nine months ended September 30, 2023[49](index=49&type=chunk) [4. Credit Losses](index=15&type=section&id=4.%20Credit%20Losses) This note describes the methodology for estimating the allowance for credit losses on trade receivables and presents the related activity - The allowance for credit losses on trade receivables is based on historical collection experience, economic conditions, and specific client assessments[51](index=51&type=chunk) Allowance for Credit Losses (in thousands) | Allowance for Credit Losses (in thousands) | Amount | | :--------------------------------------- | :----- | | Balance at December 31, 2022 | $6,643 | | Provision for credit losses | $5,390 | | Write-offs | $(5,460) | | Foreign currency translation | $(56) | | Balance at September 30, 2023 | $6,517 | [5. Property and Equipment, net](index=16&type=section&id=5.%20Property%20and%20Equipment%2C%20net) This note provides details on the company's property and equipment, including gross amounts, accumulated depreciation, and net book value Property and Equipment, Net (in thousands) | Property and Equipment (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Property and equipment, gross | $93,617 | $85,236 | | Accumulated depreciation | $(59,583) | $(55,029) | | Property and equipment, net | $34,034 | $30,207 | - Depreciation expense for the nine months ended September 30, 2023, was **$6.6 million**, up from **$5.4 million** in the prior year[55](index=55&type=chunk) [6. Leases](index=16&type=section&id=6.%20Leases) This note describes the company's lease arrangements, primarily for office space and equipment, and presents key lease metrics - The Company's lease portfolio consists primarily of operating leases for office space and equipment, with most office leases combining lease and non-lease components[56](index=56&type=chunk)[58](index=58&type=chunk) Key Lease Metrics | Lease Metrics | Sep 30, 2023 | Sep 30, 2022 | | :-------------------------------- | :----------- | :----------- | | Weighted Average Remaining Lease Term | 6.2 years | 6.5 years | | Weighted Average Discount Rate | 3.77% | 3.31% | | Operating cash flows from operating leases (9 months) | $14,923 | $13,572 | | Present value of lease liabilities | $76,826 | N/A | [7. Financial Instruments and Fair Value](index=17&type=section&id=7.%20Financial%20Instruments%20and%20Fair%20Value) This note provides information on the fair value measurements of the company's financial instruments, including cash, marketable securities, and contingent liabilities Cash, Cash Equivalents & Marketable Securities Fair Value (in thousands) | Cash, Cash Equivalents & Marketable Securities (in thousands) | Sep 30, 2023 Fair Value | Dec 31, 2022 Fair Value | | :------------------------------------------------ | :---------------------- | :---------------------- | | Cash | $171,155 | $247,198 | | Money market funds | $14,585 | $62,338 | | U.S. Treasury securities | $148,249 | $312,080 | | Total | $333,989 | $621,616 | - Contingent consideration and compensation liabilities are valued using Level 3 inputs (unobservable inputs) and discounted cash flow models[68](index=68&type=chunk) Level 3 Liabilities (in thousands) | Level 3 Liabilities (in thousands) | Dec 31, 2022 | Sep 30, 2023 | | :--------------------------------- | :----------- | :----------- | | Earnout liability (current) | $(36,010) | $0 | | Earnout liability (non-current) | $0 | $(36,533) | | Contingent compensation (current) | $(1,500) | $(5,300) | | Contingent compensation (non-current) | $(6,700) | $(9,600) | [8. Acquisitions](index=21&type=section&id=8.%20Acquisitions) This note details the company's recent acquisitions, including the purchase price, acquired goodwill, and intangible assets for each transaction - On February 1, 2023, the Company acquired Atreus Group GmbH, a German executive interim management provider, for **$33.4 million** initially, with an estimated earnout liability of **$32.0 million**[72](index=72&type=chunk) - The Atreus acquisition resulted in **$61.3 million** of goodwill and significant intangible assets (customer relationships, software, trade name) in the On-Demand Talent segment[72](index=72&type=chunk) - On April 1, 2023, the Company acquired businessfourzero, a consultancy specializing in purpose-driven change, for **$9.5 million** initially, with an estimated earnout liability of **$4.3 million**[73](index=73&type=chunk) - The businessfourzero acquisition added **$7.1 million** of goodwill and intangible assets (customer relationships, trade name) to the Heidrick Consulting segment[73](index=73&type=chunk) [9. Goodwill and Other Intangible Assets](index=21&type=section&id=9.%20Goodwill%20and%20Other%20Intangible%20Assets) This note provides a breakdown of goodwill by segment, details on other intangible assets, and information on impairment charges and amortization expense Goodwill by Segment (in thousands) | Goodwill by Segment (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Executive Search | $92,951 | $92,832 | | On-Demand Talent | $105,290 | $45,529 | | Heidrick Consulting | $7,246 | $0 | | Total goodwill, gross | $205,487 | $138,361 | | Accumulated impairment | $(7,246) | $0 | | Total goodwill | $198,241 | $138,361 | - A **$7.2 million** goodwill impairment charge was recorded for the Heidrick Consulting reporting unit during the nine months ended September 30, 2023, writing off all associated goodwill[79](index=79&type=chunk) Other Intangible Assets, Net (in thousands) | Other Intangible Assets, net (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------------ | :----------- | :----------- | | Client relationships | $15,565 | $4,556 | | Trade name | $2,314 | $481 | | Software | $4,630 | $1,296 | | Total other intangible assets, net | $22,509 | $6,333 | - Intangible asset amortization expense for the nine months ended September 30, 2023, was **$6.9 million**, a significant increase from **$2.4 million** in the prior year, largely due to recent acquisitions[82](index=82&type=chunk) [10. Other Current and Non-current Assets and Liabilities](index=24&type=section&id=10.%20Other%20Current%20and%20Non-current%20Assets%20and%20Liabilities) This note provides a detailed breakdown of various other current and non-current assets and liabilities, including contract assets and earnout liabilities Other Current Assets (in thousands) | Other Current Assets (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :---------------------------------- | :----------- | :----------- | | Contract assets | $36,130 | $35,288 | | Other | $14,481 | $5,434 | | Total other current assets | $50,611 | $40,722 | Other Current Liabilities (in thousands) | Other Current Liabilities (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------------- | :----------- | :----------- | | Earnout liability | $0 | $36,010 | | Other | $33,171 | $20,006 | | Total other current liabilities | $33,171 | $56,016 | Other Non-current Liabilities (in thousands) | Other Non-current Liabilities (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------------- | :----------- | :----------- | | Earnout liability | $36,533 | $0 | | Other | $4,452 | $5,293 | | Total other non-current liabilities | $40,985 | $5,293 | [11. Line of Credit](index=24&type=section&id=11.%20Line%20of%20Credit) This note describes the company's revolving credit facility, including recent amendments and its compliance with financial covenants - The Company amended its Credit Agreement on February 24, 2023, replacing LIBOR with SOFR as the interest rate benchmark and increasing the committed unsecured revolving credit facility from **$175 million** to **$200 million**, with a **$75 million** expansion feature[85](index=85&type=chunk) - As of September 30, 2023, and December 31, 2022, the Company had no outstanding borrowings and was in compliance with all financial covenants[87](index=87&type=chunk) [12. Stock-Based Compensation and Common Stock](index=24&type=section&id=12.%20Stock-Based%20Compensation%20and%20Common%20Stock) This note provides details on the company's stock-based compensation plans, related expenses, and common stock transactions, including share repurchases - Stockholders approved an amendment to the GlobalShare Program, increasing shares reserved for issuance by **1,060,000**, with **1,028,212** shares remaining available as of September 30, 2023[88](index=88&type=chunk)[89](index=89&type=chunk) Stock-Based Compensation Expense (in thousands) | Stock-Based Compensation Expense (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Salaries and benefits | $2,934 | $3,535 | $6,337 | $7,713 | | General and administrative expenses | $203 | $405 | $1,013 | $810 | | Income tax benefit | $864 | $1,072 | $2,024 | $2,320 | - The Company repurchased **36,000** shares of common stock for **$0.9 million** during the three months ended June 30, 2023, with **$20.8 million** remaining under the repurchase authorization[103](index=103&type=chunk) [13. Restructuring](index=26&type=section&id=13.%20Restructuring) This note provides an update on the company's 2020 restructuring plan, including workforce reductions and real estate expense adjustments - The 2020 restructuring plan, which included workforce reductions and real estate expense reductions, did not incur any charges during the three and nine months ended September 30, 2023 and 2022, and no future charges are anticipated[104](index=104&type=chunk) - The restructuring accrual balance for employee-related costs was reduced to **zero** as of September 30, 2023, from **$3.4 million** at December 31, 2022, due to cash payments[106](index=106&type=chunk) [14. Income Taxes](index=27&type=section&id=14.%20Income%20Taxes) This note presents the company's income before taxes, provision for income taxes, and effective tax rates, along with factors influencing these rates Income Tax Metrics | Income Tax Metrics | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income before taxes | $23,993 | $29,534 | $63,697 | $92,344 | | Provision for income taxes | $9,006 | $8,708 | $24,142 | $28,902 | | Effective tax rate | 37.5% | 29.5% | 37.9% | 31.3% | - The effective tax rate for both the three and nine months ended September 30, 2023, was impacted by the tax effect on goodwill impairment and the inability to recognize losses[107](index=107&type=chunk)[108](index=108&type=chunk) [15. Changes in Accumulated Other Comprehensive Income (Loss)](index=27&type=section&id=15.%20Changes%20in%20Accumulated%20Other%20Comprehensive%20Income%20%28Loss%29) This note details the changes in accumulated other comprehensive income (loss) components, including available-for-sale securities and foreign currency translation adjustments Accumulated Other Comprehensive Income (Loss) Components (in thousands) | AOCI Component (in thousands) | Balance at Dec 31, 2022 | Other comprehensive income before reclassification, net of tax (9 months) | Balance at Sep 30, 2023 | | :------------------------------ | :---------------------- | :---------------------------------------------------------------------- | :---------------------- | | Available for Sale Securities | $(41) | $68 | $27 | | Foreign Currency Translation | $(4,163) | $(3,701) | $(7,864) | | Pension | $15 | $0 | $15 | | Total AOCI | $(4,189) | $(3,633) | $(7,822) | [16. Segment Information](index=27&type=section&id=16.%20Segment%20Information) This note provides financial data disaggregated by the company's operating segments, including net revenue and operating income (loss) - The Company operates five segments: Executive Search (Americas, Europe, Asia Pacific), Heidrick Consulting, and On-Demand Talent[110](index=110&type=chunk) Segment Net Revenue (in thousands) | Segment Net Revenue (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Executive Search | $198,814 | $212,807 | $596,080 | $709,265 | | On-Demand Talent | $41,053 | $23,247 | $111,410 | $68,981 | | Heidrick Consulting | $23,293 | $19,131 | $66,212 | $59,501 | | Total net revenue | $263,160 | $255,185 | $773,702 | $837,747 | Segment Operating Income (Loss) (in thousands) | Segment Operating Income (Loss) (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Executive Search | $50,290 | $49,896 | $140,923 | $152,972 | | On-Demand Talent | $(4,595) | $(276) | $(11,821) | $(1,207) | | Heidrick Consulting (incl. impairment) | $(4,075) | $(2,000) | $(17,877) | $(4,492) | | Total segment operating income | $41,620 | $47,620 | $111,225 | $147,273 | [17. Guarantees](index=28&type=section&id=17.%20Guarantees) This note discloses the company's outstanding letters of credit, primarily supporting office lease agreements, and the related liability assessment - The Company has letters of credit totaling approximately **$4.4 million** as of September 30, 2023, primarily supporting office lease agreements, with no accrued liability as no default is expected[113](index=113&type=chunk) [18. Commitments and Contingencies](index=28&type=section&id=18.%20Commitments%20and%20Contingencies) This note addresses the company's involvement in legal claims and litigation, and management's assessment of their potential financial impact - The Company is involved in various legal claims and litigation, but management believes their ultimate resolution will not have a material adverse effect on its financial condition or results of operations[114](index=114&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=30&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the Company's financial performance, including an executive overview of its business segments, key performance indicators, compensation model, and a detailed analysis of results of operations for the three and nine months ended September 30, 2023, compared to the prior year, alongside an assessment of liquidity and capital resources [Executive Overview](index=30&type=section&id=Executive%20Overview) This section provides a high-level summary of the company's business, its service offerings, and strategic focus areas - Heidrick & Struggles is a human capital leadership advisory firm offering executive search, consulting, and on-demand talent services globally[118](index=118&type=chunk) - The Company focuses on top-level senior executives in Executive Search, utilizing a data-driven approach with tools like Heidrick Leadership Framework and Heidrick Connect[119](index=119&type=chunk)[122](index=122&type=chunk) - Recent acquisitions include Atreus Group GmbH (Germany, On-Demand Talent) and businessfourzero (purpose-driven change consultancy, Heidrick Consulting) to expand service offerings[130](index=130&type=chunk) [Key Performance Indicators](index=32&type=section&id=Key%20Performance%20Indicators) This section identifies the primary financial and operational metrics used by management to assess the company's performance across its business segments - Primary financial and operational measures include net revenue, operating income, operating margin, Adjusted EBITDA, and consultant headcount[131](index=131&type=chunk) - Executive Search performance is also measured by confirmation trends, consultant productivity (annualized net revenue per consultant), and average revenue per search[131](index=131&type=chunk) [Our Compensation Model](index=32&type=section&id=Our%20Compensation%20Model) This section explains the structure of consultant compensation, including fixed and variable components, and recent changes to bonus deferral policies - Consultant compensation has fixed and variable components, with variable pay tied to net revenue generation and overall Company performance[134](index=134&type=chunk)[135](index=135&type=chunk) - The Company terminated cash bonus deferrals for consultants (2020) and management (2021), now paying **100%** of cash bonuses in the first half of the following year, with final deferrals paid in the nine months ended September 30, 2023[138](index=138&type=chunk) [Fourth Quarter 2023 Outlook](index=33&type=section&id=Fourth%20Quarter%202023%20Outlook) This section provides the company's forward-looking guidance for consolidated net revenue in the upcoming quarter, noting potential influencing factors - The Company expects consolidated net revenue for Q4 2023 to be between **$240 million** and **$260 million**[139](index=139&type=chunk) - This outlook is subject to external factors such as foreign exchange rates, interest rates, foreign conflicts, inflation, and macroeconomic constraints[139](index=139&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) This section provides a detailed comparative analysis of the company's financial performance for the three and nine months ended September 30, 2023, versus the prior year [Three Months Ended September 30, 2023, Compared to the Three Months Ended September 30, 2022](index=35&type=section&id=Three%20Months%20Ended%20September%2030%2C%202023%2C%20Compared%20to%20the%20Three%20Months%20Ended%20September%2030%2C%202022) This section analyzes the company's financial performance for the third quarter of 2023 in comparison to the same period in the prior year Three-Month Financial Performance (in thousands) | Metric (in thousands) | Sep 30, 2023 | Sep 30, 2022 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Total revenue | $267,896 | $258,271 | $9,625 | 3.7% | | Net revenue | $263,160 | $255,185 | $7,975 | 3.1% | | Executive Search net revenue | $198,814 | $212,807 | $(13,993) | (6.6%) | | On-Demand Talent net revenue | $41,053 | $23,247 | $17,806 | 76.6% | | Heidrick Consulting net revenue | $23,293 | $19,131 | $4,162 | 21.8% | | Operating income | $22,137 | $28,322 | $(6,185) | (21.8%) | | Salaries and benefits | $167,219 | $171,473 | $(4,254) | (2.5%) | | General and administrative expenses | $37,564 | $32,189 | $5,375 | 16.7% | | Cost of services | $30,680 | $17,801 | $12,879 | 72.3% | - Executive Search net revenue decreased due to lower search confirmations, while On-Demand Talent and Heidrick Consulting net revenues increased significantly, primarily driven by recent acquisitions (Atreus and businessfourzero, respectively)[146](index=146&type=chunk) - Operating income declined by **21.8%** year-over-year, influenced by increased general and administrative expenses and cost of services, despite a decrease in salaries and benefits[150](index=150&type=chunk)[152](index=152&type=chunk)[155](index=155&type=chunk) [Nine months Ended September 30, 2023, Compared to the Nine months Ended September 30, 2022](index=42&type=section&id=Nine%20months%20Ended%20September%2030%2C%202023%2C%20Compared%20to%20the%20Nine%20months%20Ended%20September%2030%2C%202022) This section analyzes the company's financial performance for the first nine months of 2023 in comparison to the same period in the prior year Nine-Month Financial Performance (in thousands) | Metric (in thousands) | Sep 30, 2023 | Sep 30, 2022 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Total revenue | $783,792 | $844,917 | $(61,125) | (7.2%) | | Net revenue | $773,702 | $837,747 | $(64,045) | (7.6%) | | Executive Search net revenue | $596,080 | $709,265 | $(113,185) | (16.0%) | | On-Demand Talent net revenue | $111,410 | $68,981 | $42,429 | 61.5% | | Heidrick Consulting net revenue | $66,212 | $59,501 | $6,711 | 11.3% | | Operating income | $53,493 | $92,420 | $(38,927) | (42.1%) | | Salaries and benefits | $504,994 | $580,602 | $(75,608) | (13.0%) | | General and administrative expenses | $112,405 | $97,186 | $15,219 | 15.7% | | Cost of services | $78,818 | $53,192 | $25,626 | 48.2% | | Impairment charges | $7,246 | $0 | $7,246 | N/A | - Consolidated net revenue decreased by **7.6%** for the nine-month period, primarily due to a **16.0%** decline in Executive Search net revenue, partially offset by strong growth in On-Demand Talent (**61.5%**) and Heidrick Consulting (**11.3%**) driven by acquisitions[182](index=182&type=chunk) - Operating income decreased by **42.1%** year-over-year, significantly impacted by a **$7.2 million** goodwill impairment charge in Heidrick Consulting and increased general and administrative expenses and cost of services[191](index=191&type=chunk)[192](index=192&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term and long-term financial obligations, detailing cash flows from operating, investing, and financing activities - The Company believes its cash balances, operating cash flows, and revolving credit facility are sufficient to meet liquidity requirements for at least the next 12 months[220](index=220&type=chunk) Cash, Cash Equivalents & Marketable Securities (in millions) | Cash, Cash Equivalents & Marketable Securities (in millions) | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :------------------------------------------------ | :----------- | :----------- | :----------- | | Total | $334.0 | $621.6 | $456.0 | | Held by foreign subsidiaries | $147.9 | N/A | N/A | - Cash used in operating activities was **$180.6 million** for the nine months ended September 30, 2023, primarily due to a **$197.7 million** decrease in accrued expenses (cash bonus payments) and a **$52.2 million** increase in accounts receivable[226](index=226&type=chunk) - Investing activities generated **$166.7 million** in cash, driven by **$289.7 million** from sales of marketable securities, partially offset by acquisitions (**$38.0 million**) and capital expenditures (**$9.6 million**)[228](index=228&type=chunk) - Financing activities used **$52.4 million**, mainly for earnout payments (**$38.0 million**), dividends (**$9.4 million**), and employee tax withholdings on equity transactions (**$4.1 million**)[230](index=230&type=chunk) [Application of Critical Accounting Policies and Estimates](index=49&type=section&id=Application%20of%20Critical%20Accounting%20Policies%20and%20Estimates) This section highlights the accounting policies that require significant judgment and estimation, such as revenue recognition, income taxes, and goodwill impairment - Critical accounting policies involve significant estimates and assumptions related to revenue recognition, income taxes, interim effective tax rate, and the assessment of goodwill and other intangible assets for impairment[235](index=235&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=50&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the Company's exposure to market risks, primarily currency market risk, and its potential impact on financial results - The Company is exposed to currency market risk due to global operations, though revenue and expenses are generally matched to reduce risk to earnings[237](index=237&type=chunk) - A **10%** change in average exchange rates for foreign currencies would have impacted net income by approximately **$0.8 million** for the nine months ended September 30, 2023[237](index=237&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=50&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section details the evaluation of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of September 30, 2023[239](index=239&type=chunk) - There were no material changes to the Company's internal control over financial reporting during the three months ended September 30, 2023[240](index=240&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the disclosures regarding legal proceedings and contingent liabilities provided in the notes to the financial statements - Information on legal proceedings is incorporated by reference from Note 18, Commitments and Contingencies, in the Condensed Consolidated Financial Statements[241](index=241&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) This section highlights the factors that could materially affect the Company's business, financial condition, and operating results - There have been no material changes to the Company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022[242](index=242&type=chunk) [Item 6. Exhibits](index=51&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the quarterly report, including certifications and XBRL-related documents - The report includes certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, along with Inline XBRL documents[243](index=243&type=chunk) [SIGNATURE](index=52&type=section&id=SIGNATURE) This section contains the signature of the authorized representative, confirming the filing of the report - The report was signed on October 25, 2023, by Stephen A. Bondi, Vice President, Controller, and Chief Accounting Officer[246](index=246&type=chunk)

Cautionary Statement Regarding Forward-Looking Information 2 N O N - G A A P F I N A N C I A L M E A S U R E S To supplement the financial results presented in accordance with generally accepted accounting principles in the United States ("GAAP"), Heidrick & Struggles presents certain non-GAAP financial measures. A "non-GAAP financial measure" is defined as a numerical measure of a company's financial performance that excludes or includes amounts different than the most directly comparable measure calculate ...

Heidrick & Struggles International, Inc. (NASDAQ:HSII) Q2 2023 Earnings Conference Call July 31, 2023 5:00 PM ET Company Participants Suzanne Rosenberg - Vice President, Investor Relations Krishnan Rajagopalan - President and CEO Mark Harris - Chief Financial Officer Conference Call Participants Kevin Steinke - Barrington Research Jack Wilson - Truist Securities Operator Please standby, we are about to begin. Good afternoon, ladies and gentlemen. Welcome to the Heidrick & Struggles Q2 2023 Earnings Conferen ...

PART I. FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) The section presents unaudited condensed consolidated financial statements and accompanying detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and liabilities decreased while stockholders' equity increased from year-end 2022 | Metric | June 30, 2023 (Unaudited) | December 31, 2022 | | :--------------------------------- | :-------------------------- | :------------------ | | Cash and cash equivalents | $217,776 | $355,447 | | Marketable securities | $21,240 | $266,169 | | Accounts receivable, net | $197,899 | $126,437 | | Total current assets | $523,335 | $823,819 | | Goodwill | $198,639 | $138,361 | | Other intangible assets, net | $26,903 | $6,333 | | Total assets | $964,455 | $1,175,638 | | Accrued salaries and benefits (current) | $193,858 | $451,161 | | Total current liabilities | $318,793 | $588,477 | | Total liabilities | $536,138 | $764,992 | | Total stockholders' equity | $428,317 | $410,646 | [Unaudited Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Net income declined significantly for the three and six-month periods due to lower revenue and higher expenses | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue before reimbursements (net revenue) | $271,225 | $298,701 | $510,542 | $582,562 | | Total revenue | $273,777 | $301,109 | $515,896 | $586,646 | | Total operating expenses | $260,192 | $267,243 | $484,540 | $522,548 | | Operating income | $13,585 | $33,866 | $31,356 | $64,098 | | Net income | $8,982 | $24,149 | $24,568 | $42,616 | | Basic EPS | $0.45 | $1.22 | $1.23 | $2.17 | | Diluted EPS | $0.44 | $1.19 | $1.19 | $2.08 | | Cash dividends paid per share | $0.15 | $0.15 | $0.30 | $0.30 | [Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity increased due to net income and stock-based compensation, offset by dividends and repurchases | Metric | Balance at December 31, 2022 | Balance at June 30, 2023 | | :--------------------------------- | :--------------------------- | :----------------------- | | Total Stockholders' Equity | $410,646 | $428,317 | | Net income (six months) | N/A | $24,568 | | Stock-based compensation (six months) | N/A | $3,772 | | Cash dividends declared (six months) | N/A | $(6,009) | | Repurchase of common stock (six months) | N/A | $(904) | [Unaudited Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company experienced significant cash outflows from operations, while investing activities provided cash | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(290,091) | $(179,512) | | Net cash provided by (used in) investing activities | $197,872 | $(8,604) | | Net cash used in financing activities | $(47,225) | $(9,442) | | Net decrease in cash, cash equivalents and restricted cash | $(137,672) | $(208,609) | | Cash, cash equivalents and restricted cash at end of period | $217,817 | $336,650 | [Unaudited Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Unaudited%20Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, revenue recognition, acquisitions, goodwill, and other financial statement components [1. Basis of Presentation of Interim Financial Information](index=11&type=section&id=1.%20Basis%20of%20Presentation%20of%20Interim%20Financial%20Information) - The unaudited Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP and SEC rules, involving **management estimates and assumptions** that may differ from actual results[19](index=19&type=chunk) [2. Summary of Significant Accounting Policies](index=11&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) - The company's significant accounting policies are **consistent with its Annual Report on Form 10-K**, with specific details provided for revenue recognition, cost of services, R&D, marketable securities, restricted cash, EPS calculation, leases, and goodwill impairment testing[20](index=20&type=chunk) - Goodwill impairment evaluation was performed during Q2 2023 due to the acquisition of businessfourzero into the Heidrick Consulting reporting unit, which had a pre-existing fair value shortfall, resulting in a **$7.2 million impairment charge**[33](index=33&type=chunk)[35](index=35&type=chunk) - The company is evaluating the impact of ASU No. 2020-04 regarding reference rate reform (LIBOR to SOFR), but it is **not expected to have a material effect** on financial statements[36](index=36&type=chunk) [3. Revenue](index=14&type=section&id=3.%20Revenue) - Executive Search revenue is recognized over time, typically over six months, based on estimated personnel time incurred, with variable consideration (uptick revenue) estimated at contract inception[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) - On-Demand Talent revenue is recognized over time as clients simultaneously receive and consume benefits, with the company acting as the principal in third-party contractor transactions[42](index=42&type=chunk) - Heidrick Consulting revenue is recognized over time using both input (time incurred) and output (sessions/assessments delivered) methods, with enterprise agreements for Culture Connect recognized ratably over the subscription period[43](index=43&type=chunk)[44](index=44&type=chunk) | Contract Balance | June 30, 2023 | December 31, 2022 | Change | | :----------------- | :------------ | :---------------- | :----- | | Unbilled receivables, net | $18,387 | $13,940 | $4,447 | | Contract assets | $18,194 | $21,348 | $(3,154) | | Total contract assets | $36,581 | $35,288 | $1,293 | | Deferred revenue | $44,102 | $43,057 | $1,045 | - During the six months ended June 30, 2023, the Company recognized **$34.2 million of revenue from contract liabilities** at the beginning of the period and **$14.4 million from changes in estimates** of variable consideration[50](index=50&type=chunk) [4. Credit Losses](index=16&type=section&id=4.%20Credit%20Losses) - The allowance for credit losses on trade receivables **increased to $6,979 thousand** at June 30, 2023, from $6,643 thousand at December 31, 2022, reflecting a provision of $3,703 thousand and write-offs of $3,373 thousand[53](index=53&type=chunk) [5. Property and Equipment, net](index=17&type=section&id=5.%20Property%20and%20Equipment,%20net) | Component | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Property and equipment, gross | $91,560 | $85,236 | | Accumulated depreciation | $(58,230) | $(55,029) | | Property and equipment, net | $33,330 | $30,207 | - Depreciation expense for the three months ended June 30, 2023, was **$2.2 million** (vs. $1.8 million in 2022) and for the six months was **$4.2 million** (vs. $3.6 million in 2022)[56](index=56&type=chunk) [6. Leases](index=17&type=section&id=6.%20Leases) - The company's lease portfolio consists primarily of operating leases for office space, with terms ranging from less than one year to 10.1 years. The **weighted average remaining lease term is 6.3 years** and the **weighted average discount rate is 3.79%** as of June 30, 2023[57](index=57&type=chunk)[59](index=59&type=chunk)[61](index=61&type=chunk) | Lease Cost Component | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $4,567 | $4,485 | $9,092 | $8,843 | | Variable lease cost | $3,071 | $1,472 | $4,987 | $2,633 | | Total lease cost | $7,638 | $5,957 | $14,079 | $11,476 | | Future Lease Maturities (as of June 30, 2023) | | :-------------------------------- | :------------ | | 2023 | $9,267 | | 2024 | $21,021 | | 2025 | $12,749 | | 2026 | $11,186 | | 2027 | $9,818 | | Thereafter | $27,566 | | Total lease payments | $91,607 | | Less: Interest | $10,060 | | Present value of lease liabilities | $81,547 | [7. Financial Instruments and Fair Value](index=18&type=section&id=7.%20Financial%20Instruments%20and%20Fair%20Value) | Metric | June 30, 2023 | December 31, 2022 | | :--------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $217,776 | $355,447 | | Marketable securities | $21,240 | $266,169 | | Total Cash, Cash Equivalents & Marketable Securities | $239,016 | $621,616 | - The company's U.S. non-qualified deferred compensation plan investments, primarily U.S. marketable securities and mutual funds, had an aggregate cost basis of **$35.5 million at June 30, 2023**, up from $29.1 million at December 31, 2022[64](index=64&type=chunk) | Level 3 Liabilities (Six Months Ended June 30, 2023) | | :--------------------------------- | :------------ | | Balance at December 31, 2022 | $(44,202) | | Purchase accounting | $(36,266) | | Earnout accretion | $(642) | | Compensation expense | $(5,443) | | Earnout payments | $35,946 | | Foreign currency translation | $(1,123) | | Balance at June 30, 2023 | $(51,730) | | Level 3 Assets (Goodwill) (Six Months Ended June 30, 2023) | | :--------------------------------- | :------------ | | Balance at December 31, 2022 | $138,361 | | Acquired goodwill | $66,588 | | Impairment | $(7,246) | | Foreign currency translation | $936 | | Balance at June 30, 2023 | $198,639 | [8. Acquisitions](index=22&type=section&id=8.%20Acquisitions) - On February 1, 2023, the Company acquired Atreus Group GmbH for **$33.4 million initially**, with an estimated earnout liability of $32.0 million, recording **$59.5 million in goodwill** for the On-Demand Talent segment[72](index=72&type=chunk) - On April 1, 2023, the Company acquired businessfourzero for **$9.5 million initially**, with an estimated earnout liability of $4.3 million, recording **$7.1 million in goodwill** for the Heidrick Consulting segment[73](index=73&type=chunk) [9. Goodwill and Other Intangible Assets](index=22&type=section&id=9.%20Goodwill%20and%20Other%20Intangible%20Assets) | Segment | June 30, 2023 | December 31, 2022 | | :------------------ | :------------ | :---------------- | | Executive Search | $93,250 | $92,832 | | On-Demand Talent | $105,389 | $45,529 | | Heidrick Consulting | $7,246 | $0 | | Goodwill, gross | $205,885 | $138,361 | | Accumulated impairment | $(7,246) | $0 | | Total goodwill | $198,639 | $138,361 | - A **$7.2 million goodwill impairment charge** was recorded for the Heidrick Consulting reporting unit during Q2 2023, writing off all associated goodwill, due to the acquisition of businessfourzero into a unit with a pre-existing fair value shortfall[76](index=76&type=chunk)[78](index=78&type=chunk) | Intangible Asset | June 30, 2023 (Net Carrying Amount) | December 31, 2022 (Net Carrying Amount) | | :----------------- | :---------------------------------- | :-------------------------------------- | | Client relationships | $17,312 | $4,556 | | Trade name | $2,800 | $481 | | Software | $6,791 | $1,296 | | Total intangible assets | $26,903 | $6,333 | - Intangible asset amortization expense **increased significantly to $2.6 million for Q2 2023** (vs. $0.8 million in 2022) and **$4.5 million for H1 2023** (vs. $1.6 million in 2022), primarily due to recent acquisitions[80](index=80&type=chunk) [10. Other Current and Non-current Assets and Liabilities](index=25&type=section&id=10.%20Other%20Current%20and%20Non-current%20Assets%20and%20Liabilities) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Other current assets | $50,622 | $40,722 | | Other current liabilities | $36,017 | $56,016 | | Other non-current liabilities | $42,005 | $5,293 | - Earnout liability shifted from current ($36.0 million) at December 31, 2022, to **non-current ($37.3 million)** at June 30, 2023[82](index=82&type=chunk) [11. Line of Credit](index=25&type=section&id=11.%20Line%20of%20Credit) - The company amended its credit agreement on February 24, 2023, replacing LIBOR with SOFR and **increasing the committed unsecured revolving credit facility from $175 million to $200 million**, with a $75 million expansion feature[83](index=83&type=chunk) - As of June 30, 2023, and December 31, 2022, the company had **no outstanding borrowings** and was in compliance with all covenants[85](index=85&type=chunk) [12. Stock-Based Compensation and Common Stock](index=25&type=section&id=12.%20Stock-Based%20Compensation%20and%20Common%20Stock) - Stockholders approved an amendment to the GlobalShare Program on May 25, 2023, **increasing reserved shares by 1,060,000**, with 1,022,428 shares remaining available for future awards as of June 30, 2023[86](index=86&type=chunk)[87](index=87&type=chunk) | Stock-Based Compensation Expense (Salaries and benefits) | | :------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | Salaries and benefits | $806 | $1,274 | $3,403 | $4,178 | - Unrecognized compensation expense for unvested restricted stock units is **$10.8 million** (weighted average 2.6 years), for performance stock units is **$5.6 million** (weighted average 2.0 years), and for phantom stock units is **$1.4 million** (weighted average 2.6 years)[92](index=92&type=chunk)[95](index=95&type=chunk)[99](index=99&type=chunk) - The company **repurchased 36,000 shares of common stock for $0.9 million** during Q2 2023, with **$20.8 million remaining** under the $50 million repurchase authorization[101](index=101&type=chunk) [13. Restructuring](index=27&type=section&id=13.%20Restructuring) - The 2020 restructuring plan, aimed at optimizing growth and profitability, **did not incur any charges** during the three and six months ended June 30, 2023 and 2022, and no future charges are anticipated. The restructuring accrual balance was zero at June 30, 2023[102](index=102&type=chunk)[104](index=104&type=chunk) [14. Income Taxes](index=28&type=section&id=14.%20Income%20Taxes) | Period | Income Before Taxes | Provision for Income Taxes | Effective Tax Rate | | :------------------------------- | :------------------ | :------------------------- | :----------------- | | Three Months Ended June 30, 2023 | $16.9 million | $7.9 million | 46.8% | | Three Months Ended June 30, 2022 | $34.9 million | $10.8 million | 30.9% | | Six Months Ended June 30, 2023 | $39.7 million | $15.1 million | 38.1% | | Six Months Ended June 30, 2022 | $62.8 million | $20.2 million | 32.2% | - The effective tax rate for the three and six months ended June 30, 2023, was **significantly impacted by the tax effect on goodwill impairment** and the inability to recognize losses[105](index=105&type=chunk)[106](index=106&type=chunk) [15. Changes in Accumulated Other Comprehensive Income (Loss)](index=28&type=section&id=15.%20Changes%20in%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) | Component | Balance at December 31, 2022 | Other Comprehensive Income Before Reclassification, Net of Tax | Balance at June 30, 2023 | | :-------------------------- | :--------------------------- | :------------------------------------------------------------- | :----------------------- | | Available for Sale Securities | $(41) | $54 | $13 | | Foreign Currency Translation | $(4,163) | $314 | $(3,849) | | Pension | $15 | $0 | $15 | | Total AOCI | $(4,189) | $368 | $(3,821) | [16. Segment Information](index=29&type=section&id=16.%20Segment%20Information) - The company operates in five segments: Executive Search (Americas, Europe, Asia Pacific), On-Demand Talent, and Heidrick Consulting, with reimbursements reported separately from segment results[109](index=109&type=chunk)[110](index=110&type=chunk) | Segment Revenue (Net Revenue) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Executive Search | $206,779 | $253,909 | $397,266 | $496,458 | | On-Demand Talent | $39,240 | $22,353 | $70,357 | $45,734 | | Heidrick Consulting | $25,206 | $22,439 | $42,919 | $40,370 | | Total Net Revenue | $271,225 | $298,701 | $510,542 | $582,562 | | Segment Operating Income (Loss) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Executive Search | $46,940 | $52,768 | $90,633 | $103,076 | | On-Demand Talent | $(2,862) | $(349) | $(7,226) | $(931) | | Heidrick Consulting | $(10,686) | $(408) | $(13,802) | $(2,492) | | Total Segment Operating Income | $33,392 | $52,011 | $69,605 | $99,653 | [17. Guarantees](index=29&type=section&id=17.%20Guarantees) - The company has letters of credit totaling approximately **$4.4 million** as of June 30, 2023, primarily supporting office lease agreements, with no accrued liability as no default is expected[112](index=112&type=chunk) [18. Commitments and Contingencies](index=30&type=section&id=18.%20Commitments%20and%20Contingencies) - The company faces contingent liabilities from various pending claims and litigation in the ordinary course of business, but management believes their ultimate resolution **will not materially adversely affect** its financial condition, results of operations, or liquidity[113](index=113&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, operational results, liquidity, capital resources, and critical accounting policies [Executive Overview](index=31&type=section&id=Executive%20Overview) The company provides human capital advisory services and recently expanded through acquisitions - Heidrick & Struggles is a human capital leadership advisory firm providing **executive search, consulting, and on-demand talent services** globally[117](index=117&type=chunk) - The company acquired **Atreus Group GmbH** in February 2023 to expand its on-demand talent presence in continental Europe[128](index=128&type=chunk) - The company acquired **businessfourzero** in April 2023 to complement its culture shaping practice and offer broader leadership advisory solutions[128](index=128&type=chunk) - Key performance indicators include **net revenue, operating income, operating margin, Adjusted EBITDA, consultant headcount, confirmation trends, consultant productivity, and average revenue per search**[129](index=129&type=chunk) - The company expects **Q3 2023 consolidated net revenue between $245 million and $265 million**, reflecting typical summer seasonality and acknowledging external factors like foreign exchange, interest rates, and macroeconomic constraints[137](index=137&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) Revenue and operating income declined, driven by Executive Search, despite growth in other segments from acquisitions Consolidated Financial Performance (as % of Net Revenue) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue before reimbursements (net revenue) | 100.0% | 100.0% | 100.0% | 100.0% | | Salaries and benefits | 66.0% | 69.5% | 66.2% | 70.2% | | General and administrative expenses | 14.9% | 11.8% | 14.7% | 11.2% | | Cost of services | 9.3% | 5.8% | 9.4% | 6.1% | | Research and development | 2.1% | 1.5% | 2.2% | 1.5% | | Impairment charges | 2.7% | — | 1.4% | — | | Operating income | 5.0% | 11.3% | 6.1% | 11.0% | | Net income | 3.3% | 8.1% | 4.8% | 7.3% | Consolidated Revenue and Operating Income by Segment | Segment | Q2 2023 Net Revenue | Q2 2022 Net Revenue | H1 2023 Net Revenue | H1 2022 Net Revenue | | :------------------ | :------------------ | :------------------ | :------------------ | :------------------ | | Executive Search | $206,779 | $253,909 | $397,266 | $496,458 | | On-Demand Talent | $39,240 | $22,353 | $70,357 | $45,734 | | Heidrick Consulting | $25,206 | $22,439 | $42,919 | $40,370 | | Total Net Revenue | $271,225 | $298,701 | $510,542 | $582,562 | | | | | | | | Segment | Q2 2023 Operating Income (Loss) | Q2 2022 Operating Income (Loss) | H1 2023 Operating Income (Loss) | H1 2022 Operating Income (Loss) | | :------------------ | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Executive Search | $46,940 | $52,768 | $90,633 | $103,076 | | On-Demand Talent | $(2,862) | $(349) | $(7,226) | $(931) | | Heidrick Consulting | $(10,686) | $(408) | $(13,802) | $(2,492) | | Total Operating Income | $13,585 | $33,866 | $31,356 | $64,098 | [Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022](index=35&type=section&id=Three%20Months%20Ended%20June%2030,%202023%20Compared%20to%20the%20Three%20Months%20Ended%20June%2030,%202022) - Consolidated total revenue **decreased 9.1% to $273.8 million**, and net revenue **decreased 9.2% to $271.2 million**, primarily due to a $47.1 million (18.6%) decrease in Executive Search net revenue[141](index=141&type=chunk)[142](index=142&type=chunk) - On-Demand Talent net revenue **increased 75.5% to $39.2 million**, driven by the Atreus acquisition, while Heidrick Consulting net revenue **increased 12.3% to $25.2 million**, primarily due to the businessfourzero acquisition[142](index=142&type=chunk) - Executive Search productivity (annualized net revenue per consultant) **decreased from $2.6 million to $1.9 million**, and average revenue per executive search **decreased from $153,000 to $143,000**[143](index=143&type=chunk)[145](index=145&type=chunk) - Salaries and benefits expense **decreased 13.9% to $178.9 million**, mainly due to a **$47.6 million decrease in variable compensation** from lower consultant productivity, partially offset by increased fixed compensation from acquisitions[146](index=146&type=chunk) - General and administrative expenses **increased 15.1% to $40.5 million**, and cost of services **increased 45.4% to $25.3 million**, both primarily due to recent acquisitions[148](index=148&type=chunk)[150](index=150&type=chunk) - A **$7.2 million goodwill impairment charge** was recorded in Heidrick Consulting, contributing to its operating loss of $10.7 million (vs. $0.4 million loss in 2022)[153](index=153&type=chunk)[180](index=180&type=chunk) - Operating income **decreased from $33.9 million to $13.6 million**, negatively impacted by foreign exchange fluctuations of $0.4 million[155](index=155&type=chunk) [Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022](index=42&type=section&id=Six%20Months%20Ended%20June%2030,%202023%20Compared%20to%20the%20Six%20Months%20Ended%20June%2030,%202022) - Consolidated total revenue **decreased 12.1% to $515.9 million**, and net revenue **decreased 12.4% to $510.5 million**, with Executive Search net revenue down $99.2 million (20.0%) due to decreased engagement volume[183](index=183&type=chunk)[184](index=184&type=chunk) - On-Demand Talent net revenue **increased 53.8% to $70.4 million**, driven by the Atreus acquisition and increased legacy project volume. Heidrick Consulting net revenue **increased 6.3% to $42.9 million**, primarily due to the businessfourzero acquisition[184](index=184&type=chunk) - Salaries and benefits expense **decreased 17.4% to $337.8 million**, mainly due to a **$103.3 million decrease in variable compensation**, partially offset by a $31.9 million increase in fixed compensation from acquisitions[186](index=186&type=chunk) - General and administrative expenses **increased 15.1% to $74.8 million**, and cost of services **increased 36.0% to $48.1 million**, both primarily due to acquisitions[189](index=189&type=chunk)[191](index=191&type=chunk) - A **$7.2 million goodwill impairment charge** in Heidrick Consulting contributed to its operating loss of $13.8 million (vs. $2.5 million loss in 2022)[194](index=194&type=chunk)[218](index=218&type=chunk) - Operating income **decreased from $64.1 million to $31.4 million**, negatively impacted by foreign exchange fluctuations of $1.1 million[195](index=195&type=chunk) - Net non-operating income shifted from a $1.3 million loss in 2022 to an **$8.3 million income in 2023**, primarily due to higher interest income and unrealized gains on the deferred compensation plan[195](index=195&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is maintained via cash and a credit facility, though cash balances decreased significantly in H1 2023 - The company believes its cash balances, operational cash flow, and **$200 million revolving credit facility** (increased from $175 million and converted to SOFR) are sufficient to finance operations for at least the next 12 months[221](index=221&type=chunk)[223](index=223&type=chunk) | Metric | June 30, 2023 | December 31, 2022 | June 30, 2022 | | :--------------------------------- | :------------ | :---------------- | :------------ | | Cash, cash equivalents and marketable securities | $239.0 million | $621.6 million | $336.6 million | - Cash used in operating activities was **$290.1 million for H1 2023**, primarily due to a **$274.8 million decrease in accrued expenses** (cash bonus payments) and a $60.0 million increase in accounts receivable[227](index=227&type=chunk) - Cash provided by investing activities was **$197.9 million for H1 2023**, mainly from **$268.1 million in marketable securities sales**, partially offset by $35.7 million for acquisitions and $27.7 million for marketable securities purchases[229](index=229&type=chunk) - Cash used in financing activities was **$47.2 million for H1 2023**, driven by a **$35.9 million earnout payment**, $6.2 million in dividends, and $4.1 million in employee tax withholdings on equity transactions[231](index=231&type=chunk) - The company has aggregate future operating lease payment obligations of **$81.5 million**, with **$21.2 million payable within 12 months**, and asset retirement obligations of $2.9 million[233](index=233&type=chunk) [Application of Critical Accounting Policies and Estimates](index=48&type=section&id=Application%20of%20Critical%20Accounting%20Policies%20and%20Estimates) Key accounting policies requiring significant management judgment include revenue recognition, taxes, and impairment assessments - Critical accounting policies and estimates include **revenue recognition, income taxes, interim effective tax rate, and the assessment of goodwill and other intangible assets for impairment**, which involve significant management judgment and assumptions[236](index=236&type=chunk) [Recently Issued and Adopted Financial Accounting Standards](index=49&type=section&id=Recently%20Issued%20and%20Adopted%20Financial%20Accounting%20Standards) Information on new accounting standards is incorporated by reference from Note 2 of the financial statements - Information on recently issued and adopted financial accounting standards is **incorporated by reference from Note 2** of the Condensed Consolidated Financial Statements[238](index=238&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is primarily exposed to currency market risk, with a 10% rate change having a minor impact on net income - The company faces currency market risk from global operations, with a **10% change in average exchange rates** potentially impacting net income by approximately **$0.2 million** for the six months ended June 30, 2023[239](index=239&type=chunk) [Item 4. Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The company's disclosure controls and procedures were evaluated and **deemed effective as of June 30, 2023**[241](index=241&type=chunk) - **No material changes** to internal control over financial reporting occurred during the three months ended June 30, 2023[242](index=242&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20Proceedings) Information on legal proceedings is incorporated by reference from Note 18 of the financial statements - Information on legal proceedings is **incorporated by reference from Note 18**, Commitments and Contingencies, in the Condensed Consolidated Financial Statements[243](index=243&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors have occurred since its 2022 Annual Report on Form 10-K - **No material changes** to the company's risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2022[244](index=244&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20Proceeds) The company repurchased 36,000 shares for $0.9 million in Q2 2023, with $20.8 million remaining under its authorization | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares That May Yet be Purchased Under the Program | | :----------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------- | :------------------------------------------------------------------- | | May 1, 2023 - May 31, 2023 | 36,000 | $25.11 | 36,000 | $20.8 million | | Total | 36,000 | $25.11 | 36,000 | $20.8 million | [Item 6. Exhibits](index=51&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including stock agreements, officer certifications, and XBRL documents - Exhibits include stock unit participation agreements, **CEO/CFO certifications (Sarbanes-Oxley Act Sections 302 and 906)**, and Inline XBRL documents[247](index=247&type=chunk) [SIGNATURE](index=52&type=section&id=SIGNATURE) The report was duly signed by the Vice President, Controller, and Chief Accounting Officer on July 31, 2023 - The report was signed by **Stephen A. Bondi, Vice President, Controller, and Chief Accounting Officer**, on July 31, 2023[251](index=251&type=chunk)

Heidrick & Struggles International, Inc. (NASDAQ:HSII) Q1 2023 Earnings Conference Call April 24, 2023 5:00 PM ET Company Participants Suzanne Rosenberg - VP of IR Krishnan Rajagopalan - President and CEO Mark Harris - CFO Conference Call Participants Tobey Sommer - Truist Securities Kevin Steinke - Barrington Research Marc Riddick - Sidoti Operator Welcome, everyone, to the Heidrick & Struggles Q1 2023 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. It ...