[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the company [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 for Heidrick & Struggles International, Inc. and its subsidiaries, including balance sheets, statements of comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, revenue recognition, credit losses, property and equipment, leases, financial instruments, goodwill, intangible assets, current assets/liabilities, line of credit, stock-based compensation, restructuring, income taxes, accumulated other comprehensive income, segment information, guarantees, and commitments and contingencies [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Item | March 31, 2022 (Unaudited) | December 31, 2021 | | :------------------------------------------------ | :------------------------- | :------------------ | | **Current Assets** | | | | Cash and cash equivalents | $267,986 | $545,225 | | Accounts receivable, net | $186,220 | $133,750 | | Total current assets | $535,602 | $745,388 | | **Total Assets** | $895,572 | $1,106,798 | | **Current Liabilities** | | | | Accrued salaries and benefits | $179,663 | $409,026 | | Total current liabilities | $339,719 | $534,694 | | **Total Liabilities** | $544,807 | $770,778 | | **Total Stockholders' Equity** | $350,765 | $336,020 | - Total assets decreased from **$1,106,798 thousand** at December 31, 2021, to **$895,572 thousand** at March 31, 2022, primarily driven by a significant reduction in cash and cash equivalents[9](index=9&type=chunk) - Total liabilities decreased from **$770,778 thousand** to **$544,807 thousand**, largely due to a decrease in accrued salaries and benefits[9](index=9&type=chunk) [Unaudited Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section details the company's financial performance over a period, including total revenue, operating income, net income, and earnings per share Condensed Consolidated Statements of Comprehensive Income (in thousands, except per share amounts) | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenue | $285,537 | $194,731 | | Operating income | $30,232 | $19,608 | | Net income | $18,467 | $14,832 | | Basic earnings per common share | $0.94 | $0.77 | | Diluted earnings per common share | $0.90 | $0.74 | | Cash dividends paid per share | $0.15 | $0.15 | - Total revenue increased by **46.6%** year-over-year, from **$194,731 thousand** in Q1 2021 to **$285,537 thousand** in Q1 2022[10](index=10&type=chunk) - Net income grew by **24.5%** year-over-year, from **$14,832 thousand** in Q1 2021 to **$18,467 thousand** in Q1 2022[10](index=10&type=chunk) - Diluted EPS increased from **$0.74** to **$0.90** year-over-year[10](index=10&type=chunk) [Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders%27%20Equity) This section tracks the changes in the company's equity over a period, reflecting net income, dividends, and other comprehensive income/loss Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Item | Balance at Dec 31, 2021 | Net Income | Other Comprehensive Loss | Stock-based Compensation | Vesting of Equity Awards | Cash Dividends Declared | Dividend Equivalents | Balance at Mar 31, 2022 | | :-------------------------------- | :---------------------- | :--------- | :----------------------- | :----------------------- | :----------------------- | :---------------------- | :------------------- | :---------------------- | | Total Stockholders' Equity | $336,020 | $18,467 | $(1,082) | $3,698 | $(3,219) | $(2,940) | $(179) | $350,765 | - Total stockholders' equity increased from **$336,020 thousand** at December 31, 2021, to **$350,765 thousand** at March 31, 2022, primarily driven by net income, partially offset by cash dividends and other comprehensive loss[11](index=11&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash generated and used by the company across operating, investing, and financing activities over a period Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(262,196) | $(142,571) | | Net cash provided by (used in) investing activities | $(6,052) | $17,854 | | Net cash used in financing activities | $(6,338) | $(6,162) | | Net decrease in cash, cash equivalents and restricted cash | $(277,257) | $(132,418) | | Cash, cash equivalents and restricted cash at end of period | $268,002 | $184,071 | - Net cash used in operating activities significantly increased to **$(262,196) thousand** in Q1 2022 from **$(142,571) thousand** in Q1 2021, primarily due to a decrease in accrued expenses related to bonus payments[13](index=13&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk) - Investing activities shifted from providing **$17,854 thousand** in Q1 2021 to using **$(6,052) thousand** in Q1 2022, mainly due to increased purchases of marketable securities and investments and lower proceeds from sales[13](index=13&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) [Unaudited Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Unaudited%20Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides 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=9&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, adhering to SEC rules and U.S. GAAP - The unaudited Condensed Consolidated Financial Statements are prepared in accordance with SEC rules and U.S. GAAP, requiring management estimates and assumptions that may differ from actual results[15](index=15&type=chunk) [2. Summary of Significant Accounting Policies](index=9&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note details the key accounting policies applied by the company, including revenue recognition, cost of services, and treatment of marketable securities - The Company's significant accounting policies are consistent with those in its 2021 Annual Report on Form 10-K, with specific details provided for revenue recognition, cost of services, R&D, marketable securities, restricted cash, EPS, reclassifications, and leases[16](index=16&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) Restricted Cash Reconciliation (in thousands) | Item | March 31, 2022 | March 31, 2021 | December 31, 2021 | December 31, 2020 | | :------------------------------------------ | :------------- | :------------- | :---------------- | :---------------- | | Cash and cash equivalents | $267,986 | $184,055 | $545,225 | $316,473 | | Restricted cash included within other non-current assets | $16 | $16 | $34 | $16 | | Total cash, cash equivalents and restricted cash | $268,002 | $184,071 | $545,259 | $316,489 | - The Company is evaluating the impact of ASU No. 2020-04, which provides temporary expedients for reference rate reform, with the effect not yet known or reasonably estimable[28](index=28&type=chunk) [3. Revenue](index=11&type=section&id=3.%20Revenue) This note details the company's revenue recognition policies across its Executive Search, On-Demand Talent, and Heidrick Consulting segments - Revenue from Executive Search is recognized over time, typically six months, based on estimated personnel time, with fixed retainers and variable 'uptick revenue' estimated at contract inception[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) - On-Demand Talent revenue is recognized over time as services are consumed, with the Company acting as the principal in third-party contractor transactions[33](index=33&type=chunk)[34](index=34&type=chunk) - Heidrick Consulting revenue is recognized over time using input (time incurred) and output (sessions/assessments delivered) methods, with enterprise agreements for Culture Connect recognized ratably over the subscription period[35](index=35&type=chunk)[36](index=36&type=chunk) Changes in Contract Balances (in thousands) | Item | March 31, 2022 | December 31, 2021 | Change | | :-------------------- | :------------- | :---------------- | :----- | | Total contract assets | $41,073 | $36,942 | $4,131 | | Deferred revenue | $55,364 | $51,404 | $3,960 | - The Company recognized **$51.1 million** in revenue from contract liabilities at the beginning of Q1 2022 and **$8.3 million** from changes in estimates of variable consideration[42](index=42&type=chunk) [4. Credit Losses](index=13&type=section&id=4.%20Credit%20Losses) This note explains the methodology for estimating the allowance for credit losses and presents the activity in the allowance account - The Company's allowance for credit losses is based on historical collection experience, current/future economic conditions, and specific client reviews, with no significant impact from COVID-19[44](index=44&type=chunk) Allowance for Credit Losses Activity (in thousands) | Item | Amount | | :-------------------------- | :----- | | Balance at December 31, 2021 | $5,666 | | Provision for credit losses | $2,154 | | Write-offs | $(1,534) | | Foreign currency translation | $(8) | | Balance at March 31, 2022 | $6,278 | [5. Property and Equipment, net](index=14&type=section&id=5.%20Property%20and%20Equipment%2C%20net) This note provides a breakdown of the company's property and equipment, net of accumulated depreciation, and related depreciation expense Property and Equipment, net (in thousands) | Item | March 31, 2022 | December 31, 2021 | | :-------------------------- | :------------- | :---------------- | | Property and equipment, gross | $81,665 | $81,478 | | Accumulated depreciation | $(54,503) | $(54,393) | | Property and equipment, net | $27,162 | $27,085 | - Depreciation expense for the three months ended March 31, 2022 and 2021, was **$1.8 million** for both periods[47](index=47&type=chunk) [6. Leases](index=14&type=section&id=6.%20Leases) This note describes the company's lease arrangements, including operating lease costs and key lease metrics like weighted average remaining term and discount rate - The Company's lease portfolio consists of operating leases for office space and equipment, with most office leases combining lease and non-lease components[48](index=48&type=chunk)[50](index=50&type=chunk)[52](index=52&type=chunk) - An incremental borrowing rate is used to determine the present value of lease payments, as most leases lack an implicit interest rate[49](index=49&type=chunk) Lease Cost Components (in thousands) | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------- | :-------------------------------- | :-------------------------------- | | Operating lease cost | $4,358 | $4,867 | | Variable lease cost | $1,161 | $1,228 | | Total lease cost | $5,519 | $6,095 | Operating Lease Metrics as of March 31 | Metric | 2022 | 2021 | | :------------------------------ | :------- | :------- | | Weighted Average Remaining Lease Term | 6.3 years | 5.9 years | | Weighted Average Discount Rate | 3.25 % | 3.44 % | [7. Financial Instruments and Fair Value](index=15&type=section&id=7.%20Financial%20Instruments%20and%20Fair%20Value) This note discusses the company's financial instruments, their classification, fair value measurements, and the valuation techniques used - Marketable debt securities, primarily U.S. Treasury bills, are classified as available-for-sale, with unrealized gains/losses recognized in Accumulated other comprehensive income[54](index=54&type=chunk) Cash, Cash Equivalents and Marketable Securities (in thousands) | Item | March 31, 2022 | December 31, 2021 | | :-------------------- | :------------- | :---------------- | | Cash | $145,982 | $265,233 | | Money market funds | $28,026 | $80,798 | | U.S. Treasury securities | $93,978 | $199,194 | | Total | $267,986 | $545,225 | - The Company's U.S. non-qualified deferred compensation plan primarily consists of U.S. marketable securities and mutual funds, with an aggregate cost basis of **$27.5 million** at March 31, 2022[56](index=56&type=chunk) - Contingent consideration and compensation liabilities are valued using Level 3 inputs (discounted cash flow models) due to unobservable market inputs[60](index=60&type=chunk) [8. Goodwill and Other Intangible Assets](index=18&type=section&id=8.%20Goodwill%20and%20Other%20Intangible%20Assets) This note provides a breakdown of goodwill by segment and other intangible assets, along with related amortization expense Goodwill by Segment (in thousands) | Segment | March 31, 2022 | December 31, 2021 | | :-------------------- | :------------- | :---------------- | | Executive Search | $93,488 | $92,995 | | On-Demand Talent | $45,529 | $45,529 | | Total goodwill | $139,017 | $138,524 | - Goodwill increased slightly by **$493 thousand**, primarily due to foreign currency translation adjustments in the Americas segment[62](index=62&type=chunk) Other Intangible Assets, net (in thousands) | Item | March 31, 2022 | December 31, 2021 | | :-------------------------- | :------------- | :---------------- | | Client relationships | $5,361 | $5,632 | | Trade name | $1,028 | $1,204 | | Software | $2,073 | $2,333 | | Total other intangible assets, net | $8,462 | $9,169 | - Intangible asset amortization expense for the three months ended March 31, 2022, was **$0.8 million**, a significant increase from **$0.2 million** in the prior year[63](index=63&type=chunk) [9. Other Current Assets and Liabilities](index=19&type=section&id=9.%20Other%20Current%20Assets%20and%20Liabilities) This note details the components of other current assets and liabilities, highlighting significant changes such as the recognition of an earnout liability Other Current Assets (in thousands) | Item | March 31, 2022 | December 31, 2021 | | :-------------------- | :------------- | :---------------- | | Contract assets | $41,073 | $36,942 | | Other | $6,073 | $4,507 | | Total other current assets | $47,146 | $41,449 | Other Current Liabilities (in thousands) | Item | March 31, 2022 | December 31, 2021 | | :-------------------- | :------------- | :---------------- | | Earnout liability | $26,949 | $0 | | Other | $27,033 | $24,554 | | Total other current liabilities | $53,982 | $24,554 | - Other current liabilities significantly increased from **$24,554 thousand** to **$53,982 thousand**, primarily due to the recognition of a **$26,949 thousand** earnout liability[65](index=65&type=chunk) [10. Line of Credit](index=21&type=section&id=10.%20Line%20of%20Credit) This note describes the company's revolving credit facility, its terms, and the outstanding balance and compliance status - The Company has a committed unsecured revolving credit facility of **$200 million**, increased from **$175 million**, maturing on July 13, 2026[66](index=66&type=chunk) - As of March 31, 2022, and December 31, 2021, there were no outstanding borrowings, and the Company was in compliance with all covenants[67](index=67&type=chunk) [11. Stock-Based Compensation](index=21&type=section&id=11.%20Stock-Based%20Compensation) This note outlines the company's stock-based compensation plans, the expense recognized, and the unrecognized compensation expense for unvested awards - The Third A&R Program allows for grants of stock options, stock appreciation rights, and other stock-based compensation, with **447,946 shares** remaining available for future awards as of March 31, 2022[68](index=68&type=chunk)[69](index=69&type=chunk) Stock-Based Compensation Expense (in thousands) | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Salaries and benefits (includes cash-settled restricted stock units) | $2,904 | $5,461 | | Income tax benefit related to stock-based compensation | $790 | $1,453 | - Unrecognized compensation expense for unvested restricted stock units was **$12.3 million** (weighted average **2.6 years**), for performance stock units was **$7.5 million** (weighted average **2.1 years**), and for phantom stock units was **$3.1 million** (weighted average **2.5 years**) as of March 31, 2022[72](index=72&type=chunk)[75](index=75&type=chunk)[79](index=79&type=chunk) [12. Restructuring](index=23&type=section&id=12.%20Restructuring) This note details restructuring charges and accruals, primarily related to the 2020 Plan for real estate footprint reduction - The Company did not incur any restructuring charges in Q1 2022 and does not anticipate future charges under the 2020 Plan[82](index=82&type=chunk) Restructuring Charges (Reversals) by Segment (in thousands) - Three Months Ended March 31, 2021 | Type of Charge | Americas | Europe | Asia Pacific | Heidrick Consulting | Global Operations Support | Total | | :--------------- | :------- | :----- | :----------- | :------------------ | :------------------------ | :---- | | Employee related | $19 | $(52) | $(124) | $(44) | $7 | $(194) | | Office related | $3,676 | $0 | $0 | $366 | $0 | $4,042 | | Other | $3 | $0 | $0 | $0 | $10 | $13 | | Total | $3,698 | $(52) | $(124) | $322 | $17 | $3,861 | - The 2020 Plan charges primarily related to a reduction in real estate footprint, including a **$5.7 million** gain on lease termination in 2021[82](index=82&type=chunk) Changes in Restructuring Accrual (in thousands) - Three Months Ended March 31, 2022 | Item | Employee Related | Office Related | Other | Total | | :-------------------------- | :--------------- | :------------- | :---- | :---- | | Accrual balance at Dec 31, 2021 | $8,394 | $0 | $0 | $8,394 | | Cash payments | $(4,843) | $0 | $0 | $(4,843) | | Non-cash write-offs | $(34) | $0 | $0 | $(34) | | Exchange rate fluctuations | $(18) | $0 | $0 | $(18) | | Accrual balance at Mar 31, 2022 | $3,499 | $0 | $0 | $3,499 | [13. Income Taxes](index=24&type=section&id=13.%20Income%20Taxes) This note provides details on income before taxes, the income tax provision, and the effective tax rate, noting impacts from one-time items Income Tax Information (in millions) | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Income before taxes | $27.9 | $22.8 | | Income tax provision | $9.4 | $7.9 | | Effective tax rate | 33.7% | 34.9% | - The effective tax rates for both periods were impacted by one-time items and the mix of income[84](index=84&type=chunk) [14. Changes in Accumulated Other Comprehensive Income](index=24&type=section&id=14.%20Changes%20in%20Accumulated%20Other%20Comprehensive%20Income) This note details the changes in accumulated other comprehensive income, primarily driven by foreign currency translation adjustments Changes in Accumulated Other Comprehensive Income (AOCI) (in thousands) | Component | Balance at Dec 31, 2021 | Other Comprehensive Loss (net of tax) | Balance at Mar 31, 2022 | | :-------------------------- | :---------------------- | :------------------------------------ | :---------------------- | | Foreign Currency Translation | $4,294 | $(1,082) | $3,212 | | Pension | $(2,619) | $0 | $(2,619) | | Total AOCI | $1,675 | $(1,082) | $593 | - AOCI decreased from **$1,675 thousand** to **$593 thousand**, primarily due to a foreign currency translation adjustment loss of **$1,082 thousand**[85](index=85&type=chunk) [15. Segment Information](index=24&type=section&id=15.%20Segment%20Information) This note provides financial performance data, including revenue and operating income, disaggregated by the company's operating segments - The Company operates in five segments: Executive Search (Americas, Europe, Asia Pacific), Heidrick Consulting, and On-Demand Talent[86](index=86&type=chunk) Revenue by Segment (in thousands) | Segment | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Executive Search | $242,549 | $179,618 | | On-Demand Talent | $23,381 | $0 | | Heidrick Consulting | $17,931 | $14,038 | | Total net revenue | $283,861 | $193,656 | Operating Income by Segment (in thousands) | Segment | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Executive Search | $50,308 | $34,940 | | On-Demand Talent | $(582) | $0 | | Heidrick Consulting | $(2,084) | $(4,710) | | Total operating income | $30,232 | $19,608 | [16. Guarantees](index=25&type=section&id=16.%20Guarantees) This note discloses the company's outstanding letters of credit, primarily supporting office lease agreements, and the absence of related accrued liabilities - The Company has letters of credit totaling approximately **$4.4 million** as of March 31, 2022, primarily supporting office lease agreements, with no accrued liability as no default exists[91](index=91&type=chunk) [17. Commitments and Contingencies](index=25&type=section&id=17.%20Commitments%20and%20Contingencies) This note addresses the company's involvement in legal claims and litigation, with management assessing no material adverse impact on financial condition - The Company is involved in various legal 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[92](index=92&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&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 condition and results of operations for the three months ended March 31, 2022, compared to the same period in 2021. It covers an executive overview of the business, key performance indicators, compensation model, second-quarter outlook, detailed results of operations by segment, liquidity and capital resources, and critical accounting policies. The discussion highlights significant revenue growth, improved operating income, and strategic investments in new services like On-Demand Talent, while also addressing cash flow dynamics and future expectations [Executive Overview](index=26&type=section&id=Executive%20Overview) This section provides a high-level summary of Heidrick & Struggles' business model, global 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[95](index=95&type=chunk) - Executive Search focuses on placing top-level senior executives, leveraging a relationship-based, data-driven approach with tools like Infinity Framework and Heidrick Connect[96](index=96&type=chunk)[97](index=97&type=chunk)[99](index=99&type=chunk) - On-Demand Talent provides independent professionals for interim leadership and project-based initiatives[101](index=101&type=chunk) - Heidrick Consulting offers leadership assessment, team/organization acceleration, digital innovation, diversity & inclusion, and culture shaping programs, with a focus on digital solutions[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) [Key Performance Indicators](index=29&type=section&id=Key%20Performance%20Indicators) This section identifies the primary financial and operational metrics used to measure the company's performance and drive strategic decisions - Primary financial and operational measures include net revenue, operating income, operating margin, Adjusted EBITDA, and consultant headcount[105](index=105&type=chunk) - Executive Search performance is also measured by confirmation trends, consultant productivity (annualized net revenue per consultant), and average revenue per search[105](index=105&type=chunk) - Revenue growth can improve operating margins as incremental revenue increases do not proportionally increase all costs[106](index=106&type=chunk) [Our Compensation Model](index=29&type=section&id=Our%20Compensation%20Model) This section explains the company's consultant compensation structure, comprising fixed and variable components tied to revenue generation - Consultant compensation has fixed and variable components, with variable pay tied to net revenue generation through a tiered payout model[108](index=108&type=chunk) - The Company terminated cash bonus deferrals for consultants in 2020 and for management in 2021, now paying **100%** of cash bonuses in the first quarter of the following year[111](index=111&type=chunk) [Second Quarter 2022 Outlook](index=29&type=section&id=Second%20Quarter%202022%20Outlook) This section provides the company's net revenue forecast for Q2 2022, considering various market and operational factors - The Company forecasts Q2 2022 net revenue between **$290 million** and **$300 million**[112](index=112&type=chunk) - This outlook considers factors like foreign conflicts, interest rates, COVID-19, new search confirmations, project volumes, consultant productivity/retention, and seasonality[112](index=112&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's consolidated and segment-specific financial performance, including revenue, expenses, and operating income Consolidated Results of Operations (as a percentage of net revenue) | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net revenue | 100.0 % | 100.0 % | | Salaries and benefits | 71.0 % | 73.0 % | | General and administrative expenses | 10.5 % | 14.1 % | | Cost of services | 6.3 % | 0.8 % | | Research and development | 1.6 % | — | | Operating income | 10.7 % | 10.1 % | | Net income | 6.5 % | 7.7 % | - Consolidated total revenue increased by **$90.8 million (46.6%)** to **$285.5 million**, primarily driven by a **$90.2 million (46.6%)** increase in net revenue[119](index=119&type=chunk)[120](index=120&type=chunk) - Executive Search net revenue increased by **$62.9 million (35.0%)** to **$242.5 million**, due to a **23.1%** increase in confirmed searches[120](index=120&type=chunk) - Heidrick Consulting net revenue increased by **$3.9 million (27.7%)** to **$17.9 million**, driven by a **56.2%** increase in consulting engagements[120](index=120&type=chunk) - The acquisition of On-Demand Talent contributed **$23.4 million** to net revenue in Q1 2022[120](index=120&type=chunk) - Salaries and benefits expense increased by **$60.1 million (42.5%)** to **$201.4 million**, mainly due to higher bonus accruals from increased consultant productivity, but decreased as a percentage of net revenue from **73.0%** to **71.0%**[122](index=122&type=chunk)[123](index=123&type=chunk) - General and administrative expenses increased by **$2.4 million (8.9%)** to **$29.8 million**, but decreased as a percentage of net revenue from **14.1%** to **10.5%**[124](index=124&type=chunk)[125](index=125&type=chunk) - Cost of services significantly increased by **$16.5 million** to **$18.0 million**, primarily due to the On-Demand Talent acquisition[126](index=126&type=chunk) - Operating income increased to **$30.2 million** in Q1 2022 from **$19.6 million** in Q1 2021, despite a negative foreign exchange impact of **$0.5 million**[129](index=129&type=chunk) - Net non-operating income shifted from a **$3.2 million** income in Q1 2021 to a **$2.4 million** expense in Q1 2022, mainly due to a **$2.2 million** unrealized loss on the deferred compensation plan[130](index=130&type=chunk)[132](index=132&type=chunk) Executive Search Segment Performance (in thousands) | Segment | Net Revenue (2022) | Net Revenue (2021) | Operating Income (2022) | Operating Income (2021) | | :-------------- | :----------------- | :----------------- | :---------------------- | :---------------------- | | Americas | $162,553 | $116,506 | $39,851 | $26,256 | | Europe | $49,745 | $37,643 | $5,403 | $4,540 | | Asia Pacific | $30,251 | $25,469 | $5,054 | $4,144 | - Americas Executive Search net revenue increased **39.5%** due to a **22.8%** rise in confirmations and higher average revenue per search[135](index=135&type=chunk) - Europe Executive Search net revenue increased **32.1%** due to a **30.1%** rise in confirmations, despite a negative foreign exchange impact of **$2.7 million**[139](index=139&type=chunk) - Asia Pacific Executive Search net revenue increased **18.8%** due to a **14.5%** rise in confirmations, despite a negative foreign exchange impact of **$1.0 million**[142](index=142&type=chunk) - On-Demand Talent reported **$23.4 million** in net revenue and an operating loss of **$0.6 million** in Q1 2022[146](index=146&type=chunk)[148](index=148&type=chunk) - Heidrick Consulting net revenue increased **27.7%** to **$17.9 million**, driven by a **56.2%** increase in engagements, and its operating loss improved by **$2.6 million** to **$(2.1) million**[149](index=149&type=chunk)[152](index=152&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its financial obligations, discussing cash balances, operational cash flow, and credit facilities - The Company believes its cash balances, operational cash flow, and revolving credit facility are sufficient to finance operations for at least the next **12 months**[155](index=155&type=chunk) - Cash, cash equivalents, and marketable securities decreased from **$545.2 million** at December 31, 2021, to **$268.0 million** at March 31, 2022[159](index=159&type=chunk) - Cash used in operating activities was **$262.2 million** in Q1 2022, primarily due to **$383.1 million** in cash bonus payments related to 2021 and prior year deferrals[160](index=160&type=chunk) - Cash used in investing activities was **$6.1 million** in Q1 2022, compared to **$17.9 million** provided in Q1 2021, reflecting increased purchases of marketable securities and capital expenditures[162](index=162&type=chunk)[163](index=163&type=chunk) - Cash used in financing activities was **$6.3 million** in Q1 2022, mainly for dividend payments (**$3.1 million**) and employee tax withholdings on equity transactions (**$3.2 million**)[164](index=164&type=chunk) [Application of Critical Accounting Policies and Estimates](index=39&type=section&id=Application%20of%20Critical%20Accounting%20Policies%20and%20Estimates) This section highlights the accounting policies that require significant management judgment and estimates, such as revenue recognition and goodwill impairment - Critical accounting policies involve significant estimates and assumptions, particularly for revenue recognition, income taxes, interim effective tax rate, and goodwill/intangible asset impairment[167](index=167&type=chunk) [Recently Issued and Adopted Financial Accounting Standards](index=39&type=section&id=Recently%20Issued%20and%20Adopted%20Financial%20Accounting%20Standards) This section references the notes to the financial statements for information on new and adopted accounting standards - Information on recently issued and adopted financial accounting standards is incorporated by reference from Note 2 of the Condensed Consolidated Financial Statements[168](index=168&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section analyzes the company's exposure to market risks, primarily foreign currency fluctuations, and quantifies their potential impact on financial results - The Company is exposed to currency market risk due to global operations in various currencies, though revenue and expenses are generally matched to reduce earnings risk[169](index=169&type=chunk) - A **10%** change in the average exchange rate for foreign currencies would have increased or decreased net income by approximately **$0.8 million** for the three months ended March 31, 2022[169](index=169&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting - Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2022, and concluded they were effective[172](index=172&type=chunk) - There were no material changes to the Company's internal control over financial reporting during the three months ended March 31, 2022[173](index=173&type=chunk) [PART II. OTHER INFORMATION](index=40&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part includes disclosures on legal proceedings, risk factors, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the detailed information on legal proceedings provided in the notes to the condensed consolidated financial statements - Information regarding legal proceedings is incorporated by reference from Note 17, Commitments and Contingencies, in the Condensed Consolidated Financial Statements[174](index=174&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) This section confirms that there have been no material changes to the company's previously disclosed risk factors - There have been no material changes to the Company's risk factors from those set forth in its Annual Report on Form 10-K for the year ended December 31, 2021[175](index=175&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists all supplementary documents filed with the Form 10-Q, including employment agreements and certifications - The report includes exhibits such as employment agreements, management severance pay plans, certifications from the CEO and CFO (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL documents[177](index=177&type=chunk) [SIGNATURE](index=42&type=section&id=SIGNATURE) This section contains the official signature of the registrant, certifying the filing of the report - The report is signed by Stephen A. Bondi, Vice President, Controller, and Chief Accounting Officer of Heidrick & Struggles International, Inc., on April 25, 2022[181](index=181&type=chunk)

Heidrick & Struggles International, Inc. (NASDAQ:HSII) Q4 2021 Earnings Conference Call February 28, 2022 5:00 PM ET Company Participants Krishnan Rajagopalan - President and Chief Executive Officer Mark Harris - Chief Financial Officer Conference Call Participants Tobey Sommer - Truist Securities Kevin Steinke - Barrington Research Operator Good afternoon. I am Norah, today's conference call operator. Welcome to the Heidrick & Struggles 2021 Fourth Quarter and Fiscal Year End Conference call. Joining toda ...

PART I [ITEM 1. BUSINESS](index=4&type=section&id=ITEM%201.%20BUSINESS) Heidrick & Struggles is a global human capital leadership advisory firm offering executive search, consulting, and on-demand talent services [Overview](index=4&type=section&id=Overview) Heidrick & Struggles is a human capital leadership advisory firm providing executive search, consulting, and on-demand talent services globally - Heidrick & Struggles is a human capital leadership advisory firm providing executive search, consulting, and on-demand talent services globally[12](index=12&type=chunk) - The company operates with **over 430 consultants** in major cities worldwide and has been a leadership advisor for **over 60 years**[12](index=12&type=chunk) [Our Service Offerings](index=4&type=section&id=Our%20service%20offerings) The company's services include retained Executive Search, On-Demand Talent, and Heidrick Consulting for human capital development [Executive Search](index=4&type=section&id=Executive%20Search) Executive Search focuses on placing top-level senior executives, utilizing a relationship-based, data-driven approach with proprietary tools - The company specializes in retained executive search for top-level senior executives, aiming for competitive advantages like access to key decision-makers and higher fees[13](index=13&type=chunk)[14](index=14&type=chunk) - The search process is supported by the Infinity Framework and Heidrick Connect, which facilitate data-driven candidate evaluation and client engagement[15](index=15&type=chunk) - Fees are generally based on **one-third of the estimated first-year compensation** for the position, with additional billing for actual compensation exceeding estimates[16](index=16&type=chunk) [On-Demand Talent](index=5&type=section&id=On-Demand%20Talent) The On-Demand Talent segment, established in April 2021, provides clients with access to high-end independent talent for interim leadership and project-based initiatives - The On-Demand Talent segment was formed in April 2021 with the acquisition of Business Talent Group, LLC (BTG)[18](index=18&type=chunk) - This segment provides clients with on-demand access to top independent talent for interim leadership and project-based initiatives[18](index=18&type=chunk) - On-Demand Talent represented **less than 10% of the company's net revenue in 2021**[18](index=18&type=chunk) [Heidrick Consulting](index=5&type=section&id=Heidrick%20Consulting) Heidrick Consulting offers human capital development and organizational design solutions, including leadership assessment and diversity & inclusion advisory services - Heidrick Consulting offers solutions for human capital development and organizational design, including leadership assessment, team acceleration, and diversity & inclusion advisory services[19](index=19&type=chunk)[20](index=20&type=chunk) - The segment generated revenue primarily through professional fees based on project size and scope[21](index=21&type=chunk) - Heidrick Consulting represented **less than 10% of net revenue in 2021** and is focused on increasing scale and improving operating margins[21](index=21&type=chunk) [Organization](index=5&type=section&id=Organization) The company's global structure is segmented by geography, service offering, and industry/functional practices for comprehensive client service [Geographic Structure](index=5&type=section&id=Geographic%20Structure) The company provides services through 48 offices in 28 countries, with Executive Search operating in three distinct geographic segments - The company operates through a network of **48 offices in 28 countries**, including affiliates in South Africa and Turkey[23](index=23&type=chunk)[24](index=24&type=chunk) - Executive Search services are divided into three geographic reporting segments: Americas, Europe (including Africa), and Asia Pacific (including the Middle East)[25](index=25&type=chunk) - On-Demand Talent and Heidrick Consulting segments operate globally[26](index=26&type=chunk) Net Revenue by Segment (2019-2021) | Segment | 2021 (%) | 2020 (%) | 2019 (%) | | :--- | :--- | :--- | :--- | | Executive Search Americas | 58 % | 58 % | 58 % | | Executive Search Europe | 17 % | 20 % | 19 % | | Executive Search Asia Pacific | 11 % | 13 % | 14 % | | On-Demand Talent | 7 % | — % | — % | | Heidrick Consulting | 7 % | 9 % | 9 % | [Global Industry Practices](index=6&type=section&id=Global%20Industry%20Practices) The company's executive search and consulting businesses operate across six broad industry groups, with Financial Services and Global Technology & Services being the largest - The company operates in **six broad industry groups**, with consultants specializing in sub-sectors to provide market intelligence[30](index=30&type=chunk) Percentage of Billings by Global Industry Practices (2019-2021) | Global Industry Practices | 2021 (%) | 2020 (%) | 2019 (%) | | :--- | :--- | :--- | :--- | | Financial Services | 27 % | 25 % | 26 % | | Global Technology & Services | 23 | 21 | 21 | | Industrial | 20 | 20 | 21 | | Consumer Markets | 15 | 17 | 17 | | Healthcare & Life Sciences | 13 | 14 | 12 | | Social Impact | 2 | 3 | 3 | [Global Functional Practices](index=6&type=section&id=Global%20Functional%20Practices) Executive Search consultants specialize in recruiting for specific 'C-level' functional positions, leveraging global teams for comprehensive client service - Executive Search consultants specialize in 'C-level' functional positions, including CEO & Board of Directors, Human Resources Officers, Financial Officers, and Information and Technology Officers[32](index=32&type=chunk)[33](index=33&type=chunk) - The company uses unified global executive search teams to leverage diversity and market intelligence for better client service[31](index=31&type=chunk)[34](index=34&type=chunk) [Client Base](index=7&type=section&id=Client%20Base) The company serves a diverse client base, including Fortune 1000 companies, private equity firms, and not-for-profit organizations - Clients include Fortune 1000 companies, major U.S. and non-U.S. companies, middle market and emerging growth companies, private equity firms, and governmental/not-for-profit organizations[35](index=35&type=chunk) - No single client accounted for **more than 1% of net revenue in 2021 and 2020**, and the top ten clients accounted for approximately **6% of total revenue in 2021**[38](index=38&type=chunk) [Information Management Systems](index=7&type=section&id=Information%20Management%20Systems) The company relies on proprietary technology like Infinity Framework and Heidrick Connect to enhance search processes, candidate evaluation, and client engagement - Proprietary systems like Infinity Framework and Heidrick Connect are used for executive search to evaluate candidates and provide talent insights[39](index=39&type=chunk)[40](index=40&type=chunk) - Culture Connect is a Web-based system integral to the culture-shaping process for the consulting business, enabling online surveys and virtual delivery of solutions[41](index=41&type=chunk) [Competition](index=9&type=section&id=Competition) The executive search industry is highly competitive and fragmented, with direct competition from four established global retained firms - The executive search industry is highly competitive, with direct competition from Egon Zehnder International, Korn Ferry, Russell Reynolds Associates, and Spencer Stuart[42](index=42&type=chunk) - Competition at the senior executive level relies heavily on reputation, global access, and consultant experience, making it more quality-sensitive than price-sensitive[43](index=43&type=chunk) [Seasonality](index=9&type=section&id=Seasonality) The company's business does not exhibit discernible seasonality, but revenue and operating income can vary quarterly due to global economic volatility - There is no discernible seasonality in the company's business[45](index=45&type=chunk) - Revenue and operating income can vary quarter-to-quarter due to global economic and business cycle volatility[45](index=45&type=chunk) [Human Capital Resources](index=9&type=section&id=Human%20Capital%20Resources) The company prioritizes attracting, developing, and retaining diverse talent, emphasizing DEI, formalized values, and continuous learning [Employee Summary](index=9&type=section&id=Employee%20Summary) As of December 31, 2021, the company employed 1,846 individuals globally, including 434 consultants and 575 associates - As of December 31, 2021, the company employed **1,846 individuals globally**[47](index=47&type=chunk) - The workforce included **434 consultants** (365 in Executive Search and 69 in Heidrick Consulting) and **575 associates**[47](index=47&type=chunk) [Diversity Equity and Inclusion](index=10&type=section&id=Diversity%20Equity%20and%20Inclusion) The company is committed to fostering an inclusive workforce, with women representing 64% of the overall workforce and 37.5% of the Board of Directors in 2021 - Women represented **64% of the overall workforce in 2021**, with **69% of new hires** and **65% of promotions** being women[50](index=50&type=chunk) - People of color represented **26% of the overall workforce in 2021**, accounting for **35% of new hires** and **21% of promotions**[50](index=50&type=chunk) - The Board of Directors is **37.5% women** and **25% people of color**[50](index=50&type=chunk) - DEI efforts in 2021 included expanding mentorship programs, launching firm-wide DEI learning content, and implementing HRIS campaigns for voluntary self-identification[52](index=52&type=chunk) [Our Values](index=11&type=section&id=Our%20Values) The company's core values, formalized in 2015, include client growth, firm unity, integrity, and ownership of results, with 'Respect and value each individual' added in 2020 - The company's values include 'Grow with our clients,' 'Win as one firm,' 'Always act with Integrity,' and 'Own the results'[53](index=53&type=chunk) - In 2020, 'Respect and value each individual' was added to articulate commitment to diversity and inclusion[53](index=53&type=chunk) [Employee Engagement](index=11&type=section&id=Employee%20Engagement) The company conducts biennial Organization Accelerator Questionnaires and pulse surveys to gather employee feedback on organizational agility and individual experiences - The company uses a proprietary Organization Accelerator Questionnaire (OAQ) every two years to gather employee feedback, with **92% participation in 2020**[54](index=54&type=chunk) - Pulse surveys and 'Voice of Employee' tools provide real-time feedback using machine learning and AI technology[55](index=55&type=chunk) [Learning and Development](index=12&type=section&id=Learning%20and%20Development) The company is committed to continuous professional development, delivering over 12,800 hours of live virtual training in 2021 to build key skills - The company delivered **over 12,800 hours of aggregate live virtual training globally in 2021**[58](index=58&type=chunk) - Programs focus on building leadership, business development, account management, client service, and change leadership skills[57](index=57&type=chunk) [Participation in our Communities](index=12&type=section&id=Participation%20in%20our%20Communities) The company encourages employee community involvement through a Global Philanthropic Committee, which organized a Global Day of Service in 2021 - A Global Philanthropic Committee coordinates charitable causes and philanthropic endeavors[60](index=60&type=chunk) - In 2021, **442 colleagues in 35 offices** participated in the Global Day of Service, supporting **38 non-profit organizations**[60](index=60&type=chunk) [Compensation and Benefits](index=12&type=section&id=Compensation%20and%20Benefits) The company offers fair compensation based on performance and a comprehensive benefits program tailored to local market competitiveness - Compensation is based on demonstrated capabilities, achievement, experience, and superior performance, with discretionary bonus awards tied to values[60](index=60&type=chunk) - Benefits are administered country-by-country to be competitive and include medical, dental, vision, 401(k), and deferred compensation plans[60](index=60&type=chunk) [Employee Safety](index=12&type=section&id=Employee%20Safety) In response to COVID-19, the company implemented flexible workspace guidance and vaccination policies to prioritize employee health and safety - The company implemented 'flexible workspace' guidance across regions, allowing remote work and a phased return to offices due to COVID-19[61](index=61&type=chunk) - Vaccination policies were rolled out in the U.S. and Canada in September 2021, requiring proof of vaccination for office visits[62](index=62&type=chunk) [Ethics](index=13&type=section&id=Ethics) The company encourages ethical conduct and provides an independent, anonymous reporting hotline for alleged breaches of legal or ethical obligations - The Heidrick & Struggles EthicsLine is an independent, web-based and telephonic reporting hotline for ethical concerns, financial fraud, or Code of Conduct violations[65](index=65&type=chunk) - The EthicsLine allows for anonymous reporting and is operational 24/7[65](index=65&type=chunk) [Regulation](index=13&type=section&id=Regulation) The company is subject to U.S. securities laws and various global regulations, including anti-bribery, privacy, and data protection laws - The company is subject to U.S. securities laws and global regulations, including anti-bribery, privacy, and data protection laws (e.g., GDPR)[66](index=66&type=chunk) - A global privacy program is in place to comply with rapidly emerging privacy and data protection laws in countries like Brazil and China, and U.S. states like California[66](index=66&type=chunk) [Available Information](index=13&type=section&id=Available%20Information) The company makes its SEC filings and corporate governance documents available free of charge on its investor relations website - Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy statements are available free of charge on the company's investor relations website[67](index=67&type=chunk) - Corporate governance documents, including the certificate of incorporation, by-laws, committee charters, and code of ethics, are also posted online[67](index=67&type=chunk) [ITEM 1A. RISK FACTORS](index=13&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces various risks, including operational challenges, legal and regulatory issues, aggressive competition, and economic downturns [Company Risks](index=14&type=section&id=Company%20Risks) Company-specific risks include attracting and retaining talent, maintaining reputation, managing client restrictions, and reliance on information systems [Operational Risks](index=14&type=section&id=Operational%20Risks) Operational risks include dependence on attracting and retaining qualified consultants, potential client loss from consultant departures, and maintaining professional reputation - Success depends on attracting, integrating, developing, managing, and retaining qualified consultants and senior leaders[71](index=71&type=chunk) - Risk of consultants taking clients to other firms upon departure, potentially affecting client relationships and business[72](index=72&type=chunk) - Maintaining professional reputation and brand name is crucial for securing new engagements and hiring consultants[73](index=73&type=chunk) - Client restrictions on recruiting their employees can hinder fulfilling executive searches and obtaining new assignments[74](index=74&type=chunk)[75](index=75&type=chunk) - Heavy reliance on information management systems, with risks related to system improvements, implementation of new technologies, and potential interruptions[76](index=76&type=chunk)[77](index=77&type=chunk) [Legal, Regulatory and Compliance Risks](index=15&type=section&id=Legal%2C%20Regulatory%20and%20Compliance%20Risks) Legal, regulatory, and compliance risks include potential service liability, evolving data security laws, and independent contractor reclassification challenges - Exposure to potential claims related to executive search (e.g., confidentiality breaches, malpractice) and new types of claims from consulting services[78](index=78&type=chunk) - Evolving data security, privacy, and protection laws (e.g., GDPR, California laws) may limit service use, increase compliance costs, and lead to fines or litigation[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk) - Risk of adverse tax, legal, and other consequences if on-demand independent contractors are challenged and reclassified as employees[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk) - Increased cybersecurity requirements and sophisticated attacks pose risks to systems, networks, solutions, services, and data, potentially leading to reputational damage or financial impact[85](index=85&type=chunk) [Industry and General Economic Risks](index=16&type=section&id=Industry%20and%20General%20Economic%20Risks) Industry and general economic risks include the adverse impact of the COVID-19 pandemic, aggressive competition, economic downturns, and currency fluctuations - The COVID-19 pandemic has caused and could continue to cause severe disruptions, impacting demand for services, lengthening search processes, and affecting client decision-making[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) - The global executive search industry is highly competitive and fragmented, with competition from large firms, specialty firms, Internet-based firms, and clients' in-house personnel[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk) - Adverse economic conditions, including inflation, can negatively impact demand for services and increase operating expenses[95](index=95&type=chunk) - Significant currency fluctuations, particularly an increase in the U.S. dollar's value, could adversely impact operating income, as approximately **40% of 2021 net revenue** was generated outside the U.S[96](index=96&type=chunk) - Ability to access additional credit could be limited if the company fails to comply with credit agreement covenants[97](index=97&type=chunk) [General Risks](index=18&type=section&id=General%20Risks) General risks include adverse impacts from multinational operations, geopolitical tensions, tax law changes, and challenges in acquisition integration - Multinational operations are exposed to social, political, regulatory, legal, and economic risks, especially in countries with unsettled and inconsistently applied legal systems[98](index=98&type=chunk) - The military incursion by Russia into Ukraine could adversely impact macroeconomic conditions and result in heightened economic sanctions, potentially affecting operations in Europe and Asia Pacific[99](index=99&type=chunk) - Unfavorable tax law changes and tax authority rulings, as well as the inability to generate sufficient profits to realize net deferred tax assets, could adversely affect results[100](index=100&type=chunk)[101](index=101&type=chunk) - Failure to align cost structure and headcount with net revenue, especially with inflationary pressures, could negatively impact business[102](index=102&type=chunk) - Risk of impairment of goodwill, other intangible assets, and other long-lived assets due to changes in business climate, financial performance, or market conditions[103](index=103&type=chunk) - Challenges in executing and integrating future acquisitions, such as BTG, could negatively affect business and profitability[104](index=104&type=chunk)[105](index=105&type=chunk) - Anti-takeover provisions in corporate documents make an acquisition of the company difficult and expensive[106](index=106&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=20&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments to report - No unresolved staff comments[107](index=107&type=chunk) [ITEM 2. PROPERTIES](index=20&type=section&id=ITEM%202.%20PROPERTIES) The company's corporate headquarters is in Chicago, Illinois, and it leases office space in 46 cities across 26 countries - Corporate headquarters is in Chicago, Illinois[108](index=108&type=chunk) - As of December 31, 2021, the company leased office space in **46 cities in 26 countries**[108](index=108&type=chunk) - All offices are leased, and existing facilities are considered in good operating condition and suitable for current and future needs[108](index=108&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=20&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company has contingent liabilities from various pending claims and litigation in the ordinary course of business - The company faces contingent liabilities from pending claims and litigation in the ordinary course of business[109](index=109&type=chunk) - The ultimate resolution of these matters is not expected to have a material adverse effect on financial condition, results of operations, or liquidity[109](index=109&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=20&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Not applicable[110](index=110&type=chunk) PART II [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=21&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock is listed on Nasdaq, with 19.6 million shares outstanding and a consistent quarterly cash dividend of $0.15 per share [Market for our Common Stock](index=21&type=section&id=Market%20for%20our%20Common%20Stock) The company's common stock is traded on the Nasdaq Stock Market under the symbol 'HSII' - Common stock is listed on the Nasdaq Stock Market under the symbol '**HSII**'[114](index=114&type=chunk) [Holders of Record](index=21&type=section&id=Holders%20of%20Record) As of February 14, 2022, the company had 50 holders of record and 19,591,527 shares of common stock outstanding - As of February 14, 2022, there were **50 holders of record** of common stock[115](index=115&type=chunk) - As of February 25, 2022, there were **19,591,527 shares of Common Stock outstanding**[5](index=5&type=chunk) [Performance Graph](index=21&type=section&id=Performance%20Graph) The performance graph compares the company's cumulative total stockholder return against the S&P SmallCap 600 and S&P Composite 1500 Human Resource indices - The performance graph compares the company's stock return against the S&P SmallCap 600 Index and the S&P Composite 1500 Human Resource and Employment Services Index[116](index=116&type=chunk) - The comparison assumes an initial investment of **$100 on December 31, 2016**, with dividend reinvestment[116](index=116&type=chunk)[118](index=118&type=chunk) [Dividends](index=22&type=section&id=Dividends) The company paid a consistent quarterly cash dividend of $0.15 per share from 2019 through 2021, totaling $0.60 per share annually - The company paid a quarterly cash dividend of **$0.15 per share in 2019**, continuing through 2021[119](index=119&type=chunk) - Total cash dividend paid was **$0.60 per share in 2021**[119](index=119&type=chunk) - A quarterly dividend of **$0.15 per share** was approved in February 2022, payable on March 18, 2022[119](index=119&type=chunk) Dividend Equivalent Payments on Restricted Stock Units | Year | Amount (millions) | | :--- | :--- | | 2021 | $0.7 | | 2020 | $0.5 | [Issuer Purchases of Equity Securities](index=22&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) A $50 million share repurchase authorization from 2008 has $21.7 million remaining, with no repurchases made in 2021 or 2020 - A **$50 million share repurchase authorization** was announced on February 11, 2008[121](index=121&type=chunk) - No shares were repurchased in 2021 or 2020[121](index=121&type=chunk) - As of December 31, 2021, **$21.7 million remains available** under the repurchase authorization[121](index=121&type=chunk) [ITEM 6. RESERVED](index=23&type=section&id=ITEM%206.%20RESERVED) This item is reserved and contains no information [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=23&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides an overview of the company's business, key performance indicators, compensation model, and financial results [Executive Overview](index=23&type=section&id=Executive%20Overview) The company is a leadership advisory firm specializing in executive search, on-demand talent, and consulting services, with strong 2021 growth [Our Business](index=23&type=section&id=Our%20Business) Heidrick & Struggles is a leadership advisory firm providing executive search, on-demand talent, and consulting services globally - The company is a leadership advisory firm offering executive search, on-demand talent, and consulting services[126](index=126&type=chunk) - Services are provided to a broad range of clients through **over 430 consultants worldwide**[129](index=129&type=chunk) - Executive search services are primarily on a retained basis, with fees generally **one-third of the estimated first-year compensation**[129](index=129&type=chunk) [Key Performance Indicators](index=24&type=section&id=Key%20Performance%20Indicators) Key performance indicators include net revenue, operating income, operating margin, Adjusted EBITDA, and consultant headcount - Primary financial and operational measures include net revenue, operating income, operating margin, Adjusted EBITDA (non-GAAP), and Adjusted EBITDA margin (non-GAAP)[131](index=131&type=chunk) - Executive Search and Heidrick Consulting performance is also measured by consultant headcount, confirmed search trends, consultant productivity, and average revenue per search[131](index=131&type=chunk) [Our Compensation Model](index=24&type=section&id=Our%20Compensation%20Model) Consultant compensation includes fixed and variable components tied to net revenue, with cash bonuses now paid 100% in the first quarter of the following year - Consultant compensation includes fixed and variable components, with variable pay tied to net revenue generation and individual performance[134](index=134&type=chunk) - The company terminated cash bonus deferrals for consultants in 2020 and for management in 2021, now paying **100% of cash bonuses** in the first quarter of the following year[137](index=137&type=chunk) [Impact of COVID-19](index=25&type=section&id=Impact%20of%20COVID-19) The COVID-19 pandemic caused demand decline and operational disruptions in 2020, but the company adapted with digital solutions, leading to strong 2021 growth - COVID-19 caused a decline in demand for services, lengthening of search processes, and inability to execute in-person engagements in Q2 2020, leading to goodwill impairment in Europe and Asia Pacific[140](index=140&type=chunk) - A restructuring plan implemented in Q3 2020 aimed for **$30-40 million in annual cost savings** through workforce reduction, real estate optimization, and deferred compensation elimination[141](index=141&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk) - In 2021, the company mitigated pandemic impacts through innovation, utilizing Heidrick Connect for Executive Search and new digital solutions for Heidrick Consulting[139](index=139&type=chunk)[145](index=145&type=chunk) [2021 Overview](index=26&type=section&id=2021%20Overview) In 2021, consolidated net revenue increased by 61.4% to $1.0 billion, driven by strong growth across all segments and a return to profitability Consolidated Financial Performance (2021 vs. 2020) | Metric | 2021 | 2020 | Change (YoY) | | :--- | :--- | :--- | :--- | | Consolidated Net Revenue | $1.0 billion | $621.6 million | +61.4% | | Executive Search Net Revenue | $868.8 million | $565.2 million | +53.7% | | Heidrick Consulting Net Revenue | $67.6 million | $56.4 million | +19.8% | | On-Demand Talent Contribution | $66.6 million | — | N/A | | Operating Income (Loss) | $98.3 million | $(35.5) million | N/A | | Operating Margin | 9.8% | (5.7)% | +15.5 pp | - Executive Search confirmed searches increased by **44.6%**, and average revenue per executive search rose to **$131,000 in 2021** from $123,200 in 2020[147](index=147&type=chunk)[149](index=149&type=chunk) - Cash, cash equivalents, and marketable securities increased by **$208.8 million to $545.2 million** at year-end 2021[151](index=151&type=chunk) [2022 First Quarter Outlook](index=27&type=section&id=2022%20First%20Quarter%20Outlook) The company forecasts 2022 first-quarter net revenue between $270 million and $280 million, considering ongoing global instability - Forecasted 2022 first-quarter net revenue is between **$270 million and $280 million**[152](index=152&type=chunk) - The outlook considers the continued fluidity of the COVID-19 pandemic and instability in Ukraine and Russia[152](index=152&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Consolidated net revenue increased by 61.4% to $1.0 billion in 2021, with operating income recovering significantly to $98.3 million Consolidated Results of Operations (2021 vs. 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Revenue | $1,003,001 | $621,615 | +61.4% | | Total Revenue | $1,008,474 | $629,370 | +60.2% | | Operating Income (Loss) | $98,264 | $(35,529) | N/A | | Net Income (Loss) | $72,572 | $(37,707) | N/A | | Basic EPS | $3.72 | $(1.95) | N/A | | Diluted EPS | $3.58 | $(1.95) | N/A | Operating Expenses as % of Net Revenue (2021 vs. 2020) | Expense Category | 2021 (%) | 2020 (%) | Change (pp) | | :--- | :--- | :--- | :--- | | Salaries and benefits | 71.5 | 72.5 | -1.0 | | General and administrative expenses | 13.0 | 18.8 | -5.8 | | Cost of Services | 5.3 | 0.7 | +4.6 | | Impairment charges | — | 5.3 | -5.3 | | Restructuring charges | 0.4 | 8.4 | -8.0 | [Year ended December 31, 2021 compared to year ended December 31, 2020](index=30&type=section&id=Year%20ended%20December%2031%2C%202021%20compared%20to%20year%20ended%20December%2031%2C%202020) Consolidated net revenue increased by $381.4 million (61.4%) to $1.0 billion in 2021, driven by strong segment growth and reduced charges - Consolidated net revenue increased by **$381.4 million, or 61.4%, to $1.0 billion in 2021**[163](index=163&type=chunk) - Executive Search net revenue increased by **$303.6 million (53.7%)** due to a **44.6% increase in confirmed searches**[163](index=163&type=chunk) - Heidrick Consulting net revenue increased by **$11.2 million (19.8%)** due to a **48.1% increase in consulting engagements**[163](index=163&type=chunk)[164](index=164&type=chunk) - On-Demand Talent, acquired in Q2 2021, contributed **$66.6 million to net revenue**[164](index=164&type=chunk) - Operating income was **$98.3 million in 2021**, compared to an operating loss of **$35.5 million in 2020**, driven by revenue growth and lower impairment/restructuring charges[173](index=173&type=chunk) - Salaries and benefits expense increased by **$267.0 million (59.3%)** due to higher fixed and variable compensation, but decreased as a percentage of net revenue from **72.5% to 71.5%**[166](index=166&type=chunk)[168](index=168&type=chunk) - General and administrative expenses increased by **$13.8 million (11.8%)** but decreased as a percentage of net revenue from **18.8% to 13.0%**[169](index=169&type=chunk)[170](index=170&type=chunk) - Cost of services increased by **$48.4 million to $52.8 million**, primarily due to the On-Demand Talent acquisition and more Heidrick Consulting engagements[170](index=170&type=chunk) - Impairment charges decreased from **$33.0 million in 2020 to zero in 2021**, and restructuring charges decreased from **$52.4 million to $3.8 million**[171](index=171&type=chunk)[172](index=172&type=chunk) [Executive Search](index=33&type=section&id=Executive%20Search) The Executive Search segment experienced significant growth across all regions in 2021, returning to operating profitability Executive Search Net Revenue by Region (2021 vs. 2020) | Region | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | Americas | $581,440 | $361,416 | +60.9% | | Europe | $170,312 | $124,243 | +37.1% | | Asia Pacific | $117,008 | $79,511 | +47.2% | Executive Search Operating Income (Loss) by Region (2021 vs. 2020) | Region | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | Americas | $142,040 | $62,806 | +$79,234 | | Europe | $18,424 | $(22,827) | +$41,251 | | Asia Pacific | $18,167 | $(6,724) | +$24,891 | [Americas](index=33&type=section&id=Americas) Americas Executive Search net revenue increased 60.9% to $581.4 million in 2021, driven by a 57.1% increase in confirmed searches - Americas net revenue increased **60.9% to $581.4 million in 2021**, driven by a **57.1% increase in executive search confirmations**[178](index=178&type=chunk) - Operating income was **$142.0 million in 2021**, including **$3.9 million in restructuring charges**, compared to **$62.8 million in 2020**[182](index=182&type=chunk) [Europe](index=33&type=section&id=Europe) Europe Executive Search net revenue increased 37.1% to $170.3 million in 2021, returning to an operating income of $18.4 million - Europe net revenue increased **37.1% to $170.3 million in 2021**, driven by a **33.6% increase in executive search confirmations**[183](index=183&type=chunk) - Operating income was **$18.4 million in 2021**, including a **$0.1 million restructuring reversal**, compared to an operating loss of **$22.8 million in 2020**[188](index=188&type=chunk) - The 2020 operating loss included **$24.5 million in goodwill impairment charges**[186](index=186&type=chunk)[188](index=188&type=chunk) [Asia Pacific](index=34&type=section&id=Asia%20Pacific) Asia Pacific Executive Search net revenue increased 47.2% to $117.0 million in 2021, achieving an operating income of $18.2 million - Asia Pacific net revenue increased **47.2% to $117.0 million in 2021**, driven by a **28.6% increase in executive search confirmations**[189](index=189&type=chunk) - Operating income was **$18.2 million in 2021**, including a **$0.1 million restructuring reversal**, compared to an operating loss of **$6.7 million in 2020**[194](index=194&type=chunk) - The 2020 operating loss included **$8.5 million in goodwill impairment charges**[192](index=192&type=chunk)[194](index=194&type=chunk) [On-Demand Talent](index=34&type=section&id=On-Demand%20Talent) The On-Demand Talent segment generated $66.6 million in net revenue in 2021, exceeding expectations despite an operating loss of $9.3 million - On-Demand Talent reported net revenue of **$66.6 million in 2021**, driven by large account penetration, project wins, and higher average project size[195](index=195&type=chunk) - The segment recorded an operating loss of **$9.3 million**, which included an **$11.4 million one-time earnout obligation adjustment** due to revenue exceeding expectations[196](index=196&type=chunk)[197](index=197&type=chunk) [Heidrick Consulting](index=34&type=section&id=Heidrick%20Consulting) Heidrick Consulting net revenue increased 19.8% to $67.6 million in 2021, with an improved operating loss reflecting its growth strategy - Heidrick Consulting net revenue increased **19.8% to $67.6 million in 2021**, due to a **48.1% increase in consulting confirmations**[198](index=198&type=chunk) - The operating loss improved to **$16.2 million in 2021** (including $0.4 million restructuring charges) from **$28.4 million in 2020**[202](index=202&type=chunk) - The segment continues to build momentum from collaboration within the company and is a critical component of the growth strategy[202](index=202&type=chunk) [Global Operations Support](index=35&type=section&id=Global%20Operations%20Support) Global Operations Support expenses increased by $14.5 million (35.9%) to $54.9 million in 2021, primarily due to higher compensation and IT costs - Global Operations Support expenses increased by **$14.5 million, or 35.9%, to $54.9 million in 2021**[203](index=203&type=chunk) - The increase was driven by higher variable compensation, base salaries, payroll taxes, stock compensation, and information technology costs[203](index=203&type=chunk)[204](index=204&type=chunk) - A restructuring reversal of **$0.2 million** was recorded in 2021 due to an early lease termination agreement[205](index=205&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity through cash balances, operating cash flows, and a $200 million revolving credit facility [General](index=35&type=section&id=General) The company believes its cash balances, operating cash flows, and revolving credit facility provide sufficient liquidity for future operations - Available cash, operating cash flows, and the revolving credit facility are expected to be sufficient for operations, dividends, and stock repurchases[206](index=206&type=chunk) - Non-deferred annual bonuses are paid in the first quarter following the year they are earned[207](index=207&type=chunk) [Lines of credit](index=35&type=section&id=Lines%20of%20credit) The company has a $200 million committed unsecured revolving credit facility, maturing in July 2026, with no outstanding borrowings - A **$200 million committed unsecured revolving credit facility** was established in July 2021, maturing in July 2026[208](index=208&type=chunk) - No outstanding borrowings as of December 31, 2021 and 2020[212](index=212&type=chunk) - The company was in compliance with all financial and other covenants[212](index=212&type=chunk) [Cash, cash equivalents, and marketable securities](index=36&type=section&id=Cash%2C%20cash%20equivalents%2C%20and%20marketable%20securities) Cash, cash equivalents, and marketable securities increased by $208.8 million to $545.2 million at year-end 2021, with a portion held by foreign subsidiaries - Cash, cash equivalents, and marketable securities increased by **$208.8 million to $545.2 million** at December 31, 2021[213](index=213&type=chunk) - Approximately **$186.5 million** was held by foreign subsidiaries, with a portion permanently reinvested[213](index=213&type=chunk) - The company expects to pay approximately **$368.2 million in bonuses** related to 2021 performance in Q1 2022[213](index=213&type=chunk) [Cash flows provided by operating activities](index=36&type=section&id=Cash%20flows%20provided%20by%20operating%20activities) Cash provided by operating activities was $271.4 million in 2021, primarily from net income and increased accrued expenses - Cash provided by operating activities was **$271.4 million in 2021**, primarily from net income (net of non-cash charges) and an increase in accrued expenses[214](index=214&type=chunk) - In 2020, cash provided by operating activities was **$23.4 million**[215](index=215&type=chunk) [Cash flows provided by (used in) investing activities](index=36&type=section&id=Cash%20flows%20provided%20by%20%28used%20in%29%20investing%20activities) Cash used in investing activities was $21.3 million in 2021, mainly for acquisitions and capital expenditures, partially offset by investment sales - Cash used in investing activities was **$21.3 million in 2021**[216](index=216&type=chunk) - Key uses included **$33.5 million for acquisitions** (net of cash acquired) and **$6.2 million for capital expenditures**[216](index=216&type=chunk) - Proceeds from the maturity and sale of available-for-sale investments provided **$20.8 million**[216](index=216&type=chunk) [Cash flows used in financing activities](index=36&type=section&id=Cash%20flows%20used%20in%20financing%20activities) Cash used in financing activities was $15.5 million in 2021, primarily for cash dividend payments and employee tax withholdings on equity transactions - Cash used in financing activities was **$15.5 million in 2021**[218](index=218&type=chunk) - Major outflows included **$12.4 million for cash dividends** and **$3.1 million for employee tax withholdings** on equity transactions[218](index=218&type=chunk) [Stock repurchase program](index=36&type=section&id=Stock%20repurchase%20program) The company has a $50 million stock repurchase authorization from 2008, with $21.7 million remaining and no repurchases in 2021 or 2020 - A **$50 million stock repurchase authorization** from 2008 has **$21.7 million remaining**[220](index=220&type=chunk) - No shares were repurchased in 2021 or 2020[220](index=220&type=chunk) [Off-balance sheet arrangements](index=36&type=section&id=Off-balance%20sheet%20arrangements) The company does not have material off-balance sheet arrangements, special purpose entities, or related party transactions [Contractual obligations](index=37&type=section&id=Contractual%20obligations) As of December 31, 2021, the company had $94.5 million in operating lease payment obligations and $3.2 million in asset retirement obligations Contractual Obligations (as of December 31, 2021) | Obligation Type | Total Amount (millions) | Within 12 Months (millions) | | :--- | :--- | :--- | | Lease Payment Obligations | $94.5 | $18.4 | | Asset Retirement Obligations | $3.2 | $0.3 | [Application of Critical Accounting Policies and Estimates](index=37&type=section&id=Application%20of%20Critical%20Accounting%20Policies%20and%20Estimates) The company's critical accounting policies involve significant estimates for revenue recognition, income taxes, goodwill, and other asset impairment [General](index=37&type=section&id=General) Financial statement preparation requires management to make estimates and assumptions, which are based on historical experience and believed to be reasonable - Financial statements require management to make estimates and assumptions, which are based on historical experience and various other reasonable assumptions[224](index=224&type=chunk) - Critical accounting policies involve estimates highly susceptible to changes in operating results and cash flows[225](index=225&type=chunk) [Revenue recognition](index=37&type=section&id=Revenue%20recognition) Revenue is recognized as performance obligations are satisfied, involving estimates for variable consideration and various recognition methods across segments - Executive Search revenue is recognized over time, with variable consideration (uptick revenue) estimated at contract inception using a portfolio approach and expected value method[226](index=226&type=chunk)[227](index=227&type=chunk)[228](index=228&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[230](index=230&type=chunk) - Heidrick Consulting revenue is recognized over time using input and output methods for various services, and straight-line for enterprise agreements on the Culture Connect platform[231](index=231&type=chunk)[232](index=232&type=chunk) [Income taxes](index=38&type=section&id=Income%20taxes) Determining income tax expense involves judgment in estimating current tax exposures and the recoverability of deferred tax assets, with annual reassessments - Income tax provision, liabilities, and deferred tax assets/liabilities involve judgment in estimating current tax exposures and recoverability of deferred tax assets[234](index=234&type=chunk) - Valuation allowances are established against deferred tax assets when realization is not more likely than not, and reassessed ongoingly[236](index=236&type=chunk) - Deferred taxes are recorded for undistributed foreign earnings not permanently reinvested, with annual assessments for distribution[237](index=237&type=chunk) [Goodwill](index=39&type=section&id=Goodwill) Goodwill is assessed for impairment at least annually by comparing the fair value of reporting units to their carrying amounts using discounted cash flow methodology - Goodwill is assessed for impairment at least annually or when circumstances indicate non-recoverability[238](index=238&type=chunk) - The impairment test compares the fair value of reporting units (Americas, Europe, Asia Pacific, On-Demand Talent, Heidrick Consulting) to their carrying amount[239](index=239&type=chunk) - Fair value is determined using a discounted cash flow methodology, dependent on estimates of future market growth, revenue, costs, capital investments, and discount rates[239](index=239&type=chunk) [Other intangible assets and long-lived assets](index=39&type=section&id=Other%20intangible%20assets%20and%20long-lived%20assets) Other intangible assets and long-lived assets are reviewed for impairment when events or changes suggest their carrying amount may not be recoverable - Other intangible assets and long-lived assets are reviewed for impairment when events or changes indicate non-recoverability[241](index=241&type=chunk) - Recoverability is measured by comparing the carrying amount to estimated undiscounted future cash flows[241](index=241&type=chunk) [Contingent Consideration](index=39&type=section&id=Contingent%20Consideration) Contingent consideration for acquisitions is valued using Level 3 fair value measurements based on operating metrics and management's financial projections - Contingent consideration for acquisitions is based on operating metrics and valued using Level 3 fair value measurements (discounted cash flow models)[243](index=243&type=chunk) - Fair value is assessed at each balance sheet date, with changes recorded in General and administrative expenses[243](index=243&type=chunk) - Estimates rely on financial projections, market participant assumptions for revenue growth/profitability, and risk-adjusted discount rates[243](index=243&type=chunk)[244](index=244&type=chunk) [Recently Issued and Adopted Financial Accounting Standards](index=40&type=section&id=Recently%20Issued%20and%20Adopted%20Financial%20Accounting%20Standards) The company is evaluating ASU No. 2020-04 (Reference Rate Reform) and adopted ASU No. 2019-12 (Income Taxes) with no material impact - The company is evaluating the impact of ASU No. 2020-04, 'Facilitation of the Effects of Reference Rate Reform on Financial Reporting,' effective through December 31, 2022[311](index=311&type=chunk) - ASU No. 2019-12, 'Simplifying the Accounting for Income Taxes,' was adopted on January 1, 2021, with no impact on the consolidated financial statements[312](index=312&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=40&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to currency market risk due to multinational operations, with approximately 40% of 2021 net revenue generated outside the U.S - The company is exposed to currency market risk due to operations in the Americas, Europe, and Asia Pacific, with approximately **40% of 2021 net revenue** generated outside the U.S[96](index=96&type=chunk)[246](index=246&type=chunk) - A **10% change in the average exchange rate** for all foreign currencies would have increased or decreased 2021 net income by approximately **$3.2 million**[246](index=246&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=41&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents audited consolidated financial statements, independent auditor's reports, and detailed notes on accounting policies and segment information [Report of Independent Registered Public Accounting Firm](index=42&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) RSM US LLP issued an unqualified opinion on the company's consolidated financial statements, identifying revenue recognition as a critical audit matter - RSM US LLP issued an unqualified opinion on the consolidated financial statements for the three years ended December 31, 2021[252](index=252&type=chunk) - Revenue recognition from executive search and consulting engagements was identified as a critical audit matter due to significant management estimates for progress over time and uptick revenue[257](index=257&type=chunk)[258](index=258&type=chunk) [Report of Independent Registered Public Accounting Firm (Internal Control)](index=44&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20%28Internal%20Control%29) RSM US LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting, excluding Business Talent Group, LLC - RSM US LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[262](index=262&type=chunk) - Business Talent Group, LLC (acquired in Q2 2021) was excluded from the assessment of internal control over financial reporting[264](index=264&type=chunk) [Consolidated Balance Sheets](index=45&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to $1,106.8 million in 2021, driven by higher cash, receivables, and goodwill, with corresponding increases in liabilities and equity Consolidated Balance Sheet Highlights (as of December 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,106,798 | $787,812 | +$318,986 | | Total Liabilities | $770,778 | $520,210 | +$250,568 | | Total Stockholders' Equity | $336,020 | $267,602 | +$68,418 | | Cash and cash equivalents | $545,225 | $316,473 | +$228,752 | | Accounts receivable, net | $133,750 | $88,123 | +$45,627 | | Goodwill | $138,524 | $91,643 | +$46,881 | | Accrued salaries and benefits (current) | $409,026 | $217,908 | +$191,118 | [Consolidated Statements of Comprehensive Income (Loss)](index=46&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) The company reported a net income of $72.6 million in 2021, a significant turnaround from a $37.7 million net loss in 2020 Consolidated Statements of Comprehensive Income (Loss) Highlights (Year Ended December 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | :--- | | Net Revenue | $1,003,001 | $621,615 | $706,924 | | Total Revenue | $1,008,474 | $629,370 | $725,614 | | Operating Income (Loss) | $98,264 | $(35,529) | $63,511 | | Net Income (Loss) | $72,572 | $(37,707) | $46,869 | | Comprehensive Income (Loss) | $70,830 | $(38,114) | $46,631 | | Basic EPS | $3.72 | $(1.95) | $2.45 | | Diluted EPS | $3.58 | $(1.95) | $2.40 | [Consolidated Statements of Cash Flows](index=47&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash increased by $228.8 million in 2021, primarily from $271.4 million in operating activities, offset by investing and financing outflows Consolidated Statements of Cash Flows Highlights (Year Ended December 31) | Cash Flow Activity | 2021 (in thousands) | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $271,401 | $23,353 | $78,645 | | Net cash provided by (used in) investing activities | $(21,259) | $32,626 | $(69,315) | | Net cash used in financing activities | $(15,517) | $(16,402) | $(18,240) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $228,770 | $44,770 | $(8,543) | | Cash, cash equivalents and restricted cash at end of period | $545,259 | $316,489 | $271,719 | [Consolidated Statements of Changes in Stockholders' Equity](index=48&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Total stockholders' equity increased to $336.0 million in 2021, driven by net income and stock-based compensation, partially offset by dividends Consolidated Statements of Changes in Stockholders' Equity Highlights (Year Ended December 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | :--- | | Balance at December 31 | $336,020 | $267,602 | $309,115 | | Net income (loss) | $72,572 | $(37,707) | $46,869 | | Stock-based compensation | $12,760 | $10,199 | $10,298 | | Cash dividends declared | $(11,708) | $(11,576) | $(11,461) | [Notes to Consolidated Financial Statements](index=49&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on accounting policies, revenue recognition, credit losses, property, leases, financial instruments, acquisitions, and segment data [1. Basis of Presentation](index=49&type=section&id=1.%20Basis%20of%20Presentation) The consolidated financial statements are prepared in accordance with GAAP, involving significant estimates for revenue recognition and impairment assessments - Consolidated financial statements are prepared in accordance with GAAP and include Heidrick & Struggles International, Inc. and its wholly-owned subsidiaries[279](index=279&type=chunk) - Significant estimates are made for revenue recognition, deferred tax assets, and impairment assessments of goodwill and other intangible assets[279](index=279&type=chunk) [2. Summary of Significant Accounting Policies](index=49&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the company's accounting policies for cash, receivables, property, leases, goodwill, revenue, compensation, and income taxes - Cash equivalents are highly liquid instruments with original maturities of **three months or less**[280](index=280&type=chunk) - Accounts receivable allowance is based on historical collection experience, economic conditions, and specific customer reviews[283](index=283&type=chunk) - Property and equipment are depreciated using the straight-line method over estimated useful lives[285](index=285&type=chunk) - Operating leases are recognized on the balance sheet as right-of-use assets and lease liabilities[289](index=289&type=chunk) - Goodwill is tested for impairment at least annually using a discounted cash flow methodology[293](index=293&type=chunk)[294](index=294&type=chunk) - Salaries and benefits include fixed and variable compensation, with cash bonus deferrals terminated for consultants in 2020 and management in 2021[300](index=300&type=chunk)[303](index=303&type=chunk) - Deferred tax assets and liabilities are determined based on temporary differences and enacted tax rates, with valuation allowances applied when realization is uncertain[304](index=304&type=chunk) - The company adopted ASU No. 2019-12, 'Simplifying the Accounting for Income Taxes,' on January 1, 2021, with no material impact[312](index=312&type=chunk) [3. Revenue](index=53&type=section&id=3.%20Revenue) Revenue is recognized as performance obligations are satisfied across Executive Search, On-Demand Talent, and Heidrick Consulting segments - Executive Search revenue is recognized over time, with variable 'uptick revenue' estimated at contract inception based on historical analysis[313](index=313&type=chunk)[314](index=314&type=chunk)[315](index=315&type=chunk) - On-Demand Talent revenue is recognized over time based on time-based fees, with the company acting as the principal for third-party contractor services[317](index=317&type=chunk) - Heidrick Consulting revenue is recognized over time using input and output methods for services and straight-line for Culture Connect enterprise agreements[318](index=318&type=chunk)[319](index=319&type=chunk) Changes in Contract Asset and Liability Balances (Year Ended December 31, 2021) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Total contract assets | $36,942 | $19,652 | +$17,290 | | Deferred revenue (contract liabilities) | $51,404 | $38,050 | +$13,354 | [4. Credit Losses](index=55&type=section&id=4.%20Credit%20Losses) The company's expected credit loss allowance for accounts receivable is based on historical collection experience and economic conditions - The company's expected credit loss allowance for accounts receivable is based on historical collection experience, current/future economic conditions, and customer status[326](index=326&type=chunk) - The COVID-19 pandemic did not significantly impact the estimate of credit losses[326](index=326&type=chunk) Allowance for Credit Losses on Trade Receivables (Year Ended December 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | :--- | | Balance at January 1 | $6,557 | $5,140 | $3,502 | | Provision for credit losses | $4,991 | $6,696 | $5,900 | | Write-offs | $(5,730) | $(5,418) | $(4,270) | | Balance at December 31 | $5,666 | $6,557 | $5,140 | [5. Property and Equipment, net](index=56&type=section&id=5.%20Property%20and%20Equipment%2C%20net) Net property and equipment increased to $27.1 million in 2021, with depreciation expense of $7.1 million, including accelerated depreciation from restructuring Property and Equipment, Net (as of December 31) | Category | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Property and equipment, gross | $81,478 | $80,680 | | Accumulated depreciation | $(54,393) | $(57,188) | | Property and equipment, net | $27,085 | $23,492 | - Depreciation expense was **$7.1 million in 2021**, $8.1 million in 2020, and $9.5 million in 2019[329](index=329&type=chunk) - Accelerated depreciation of **$0.9 million in 2021** and **$4.2 million in 2020** was recorded due to the restructuring plan's impact on office assets[330](index=330&type=chunk) [6. Leases](index=56&type=section&id=6.%20Leases) The company's lease portfolio consists of operating leases for office space and equipment, with a $5.7 million gain from a lease termination in 2021 - The company's lease portfolio comprises operating leases for office space and equipment; no finance leases[331](index=331&type=chunk) - Operating lease right-of-use assets and liabilities are recognized based on the present value of lease payments, using an incremental borrowing rate[290](index=290&type=chunk)[332](index=332&type=chunk) - In 2021, a lease termination resulted in a **$5.7 million gain** and accelerated right-of-use asset amortization of **$8.7 million**[335](index=335&type=chunk) Lease Cost Components (Year Ended December 31) | Component | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Operating lease cost | $18,912 | $22,227 | | Variable lease cost | $4,949 | $6,047 | | Total lease cost | $23,861 | $28,274 | Future Maturities of Operating Lease Liabilities (as of December 31, 2021) | Year | Amount (in thousands) | | :--- | :--- | | 2022 | $18,444 | | 2023 | $18,634 | | 2024 | $16,562 | | 2025 | $8,528 | | 2026 | $7,164 | | Thereafter | $25,214 | | Total lease payments | $94,546 | | Less: Interest | $(9,589) | | Present value of lease liabilities | $84,957 | [7. Financial Instruments and Fair Value](index=58&type=section&id=7.%20Financial%20Instruments%20and%20Fair%20Value) The company's financial instruments include marketable securities and deferred compensation plan investments, measured at fair value using Level 1, 2, and 3 inputs - Marketable debt securities (U.S. Treasury bills, commercial paper) are classified as available-for-sale[340](index=340&type=chunk) Cash, Cash Equivalents, and Marketable Securities (as of December 31, 2021) | Category | Fair Value (in thousands) | | :--- | :--- | | Cash | $265,233 | | Money market funds (Level 1) | $80,798 | | U.S. Treasury securities (Level 1) | $199,194 | | Total | $545,225 | - U.S. non-qualified deferred compensation plan investments are primarily Level 1 (marketable securities and mutual funds)[343](index=343&type=chunk)[345](index=345&type=chunk) - German pension plan assets are fully reinsured by group insurance contracts, measured using Level 2 inputs[344](index=344&type=chunk)[345](index=345&type=chunk) - Contingent consideration for acquisitions is valued using Level 3 inputs (discounted cash flow models) due to unobservable market data[349](index=349&type=chunk) Reconciliation of Level 3 Liabilities (Year Ended December 31, 2021) | Metric | Acquisition Earnout Accruals (in thousands) | Contingent Compensation Accruals (in thousands) | | :--- | :--- | :--- | | Balance at December 31, 2020 | $— | $(2,390) | | Acquisition earnout | $(23,800) | — | | Earnout accretion | $(486) | — | | Compensation expense | — | $(1,973) | | Fair value adjustment | $(11,368) | — | | Foreign currency translation | — | $222 | | Balance at December 31, 2021 | $(35,654) | $(4,141) | [8. Acquisitions](index=61&type=section&id=8.%20Acquisitions) In 2021, the company acquired Business Talent Group (BTG) for $32.6 million, recording $45.5 million in goodwill, and Heidrick & Struggles Finland OY for $1.6 million - Acquired Business Talent Group, LLC (BTG) in April 2021 for **$32.6 million initial consideration**[352](index=352&type=chunk) - BTG acquisition resulted in **$45.5 million of goodwill** and **$10.6 million of other intangible assets** (customer relationships, software, trade name)[352](index=352&type=chunk) - An earnout liability for BTG increased by **$11.4 million to $35.7 million** due to performance exceeding initial revenue and operating income estimates[352](index=352&type=chunk) - Acquired Heidrick & Struggles Finland OY in October 2021 for **$1.6 million**, adding **$1.5 million of goodwill**[353](index=353&type=chunk) [9. Goodwill and Other Intangible Assets](index=61&type=section&id=9.%20Goodwill%20and%20Other%20Intangible%20Assets) Goodwill increased to $138.5 million in 2021 due to acquisitions, with no impairment in 2021, contrasting with $33.0 million impairment in 2020 Goodwill by Segment (as of December 31) | Segment | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Americas | $91,463 | $91,643 | | Europe | $1,532 | $— | | On-Demand Talent | $45,529 | $— | | Total Goodwill | $138,524 | $91,643 | - Goodwill increased due to **$45.5 million from the BTG acquisition** and **$1.5 million from the H&S Finland acquisition in 2021**[356](index=356&type=chunk)[357](index=357&type=chunk) - The 2021 annual goodwill impairment evaluation showed fair values of Americas, Europe, and On-Demand Talent reporting units exceeded carrying values by **369%, 97%, and 15%**, respectively[361](index=361&type=chunk) - In 2020, goodwill in Europe and Asia Pacific reporting units was impaired by **$24.5 million and $8.5 million**, respectively, totaling **$33.0 million**[362](index=362&type=chunk) Other Intangible Assets, Net (as of December 31) | Segment | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Executive Search | $599 | $1,129 | | On-Demand Talent | $8,570 | $— | | Total Other Intangible Assets, Net | $9,169 | $1,129 | - BTG acquisition added **$5.8 million for customer relationships**, **$3.1 million for software**, and **$1.7 million for a trade name**[364](index=364&type=chunk) - Intangible asset amortization expense was **$2.9 million in 2021**, $0.7 million in 2020, and $0.9 million in 2019[365](index=365&type=chunk) [10. Other Current Assets](index=64&type=section&id=10.%20Other%20Current%20Assets) Other current assets increased to $41.4 million in 2021 from $23.3 million in 2020, primarily due to an increase in contract assets Components of Other Current Assets (as of December 31) | Component | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Contract assets | $36,942 | $19,652 | | Other | $4,507 | $3,627 | | Total other current assets | $41,449 | $23,279 | [11. Line of Credit](index=64&type=section&id=11.%20Line%20of%20Credit) The company's unsecured revolving credit facility was increased to $200 million in July 2021, with no outstanding borrowings as of December 31, 2021 - The company's unsecured revolving credit facility was increased to **$200 million in July 2021**, with a matur

Heidrick & Struggles International, Inc. (NASDAQ:HSII) Q3 2021 Earnings Conference Call October 25, 2021 5:00 PM ET Company Participants Krishnan Rajagopalan - President and CEO Mark Harris - CFO Conference Call Participants Josh Vogel - Sidoti & Company Tobey Sommer - Truist Securities Kevin Steinke - Barrington Research Operator Good afternoon. I am Blu, today's conference call operator. Welcome to the Heidrick & Struggles 2021 Third Quarter Conference call. Joining today's call is Company's President and ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File Number: 0-25837 HEIDRICK & STRUGGLES INTERNATIONAL, INC. (Exact Name of Registrant as Specified in its Charter) (State or Other Jur ...

HEIDRICK & STRUGGLES SECOND QUARTER 2021 RESULTS July 26, 2021 SAFE HARBOR STATEMENT This press release contains forward-looking statements. The forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate and management's beliefs and assumptions. Forward-looking statements may be identified by the use of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," and simil ...

Financial Data and Key Metrics Changes - The company reported record net revenue of $260 million in Q2 2021, representing a 79% year-over-year increase and a 34% sequential increase [6][26] - Adjusted EBITDA margin expanded by 590 basis points to 14.4%, with adjusted EPS of $1.14 more than tripling from the previous year and increasing over 30% sequentially [6][35] - Adjusted net income for Q2 2021 was $22.9 million, a 31.6% increase from Q1 2021 [36] Business Line Data and Key Metrics Changes - Executive Search net revenue was $224.1 million, up 24.8% from the previous quarter, with growth across all regions: Americas up 26.5%, Europe up 19.3%, and Asia Pacific up 25% [27] - Heidrick Consulting net revenue increased by 22% to $17.1 million, driven by a 74% increase in confirmations [30] - The newly established on-demand talent segment generated $18.7 million in revenue, reflecting over 50% growth year-over-year [31] Market Data and Key Metrics Changes - The company noted strong demand for services as clients adapt to post-pandemic challenges, with a significant increase in diverse placements, particularly at the Board level [15][16] - The integration of digital solutions has allowed the company to execute searches faster, reducing completion times by approximately 25% [49] Company Strategy and Development Direction - The company is focused on three growth initiatives: expanding search and consulting services, developing leadership solutions, and investing in new product development [20] - The acquisition of BTG is seen as a strategic move to enhance the company's offerings in the high-growth on-demand talent market [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the ongoing pandemic and geopolitical events, highlighting positive market trends and opportunities [17][40] - The company anticipates continued strong performance, with Q3 revenue guidance projected between $245 million and $255 million [40] Other Important Information - The company ended Q2 2021 with cash and cash equivalents of $237.8 million, a 27% increase from the previous year [37] - A dividend of $0.15 per share was announced for August, reflecting the company's strong financial position [36] Q&A Session Summary Question: Is the elevated war for talent yielding any uptick in revenue? - Management confirmed that there has been an uptick in revenue due to higher demand and confirmation trends, with notable increases in various regions [46] Question: Can you quantify the faster pace of executing searches enabled by technology? - Management indicated a 25% reduction in days to complete searches due to technology adoption, suggesting this may become the new norm [49] Question: How should we think about the cost of service line going forward with BTG? - Management explained that BTG will have a variable cost of service model, with expectations for margins to improve as the business scales [50][51] Question: How do you view the company's performance versus growth in the end markets? - Management believes the company is holding its own and possibly gaining market share, although specific metrics are difficult to quantify [64][68] Question: What are the implications of remote work on the Executive Search business? - Management noted that remote work has expanded the candidate pool and improved placement speed, indicating a lasting trend [60][61]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's financial performance and condition for the period ended June 30, 2021 [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 for the period ended June 30, 2021 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased, primarily driven by goodwill and accounts receivable, leading to growth in total stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **$832,066** | **$787,812** | | Cash and cash equivalents | $237,832 | $316,473 | | Accounts receivable, net | $168,504 | $88,123 | | Goodwill | $137,401 | $91,643 | | **Total Liabilities** | **$532,513** | **$520,210** | | Accrued salaries and benefits (Current) | $198,120 | $217,908 | | **Total Stockholders' Equity** | **$299,553** | **$267,602** | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) The company reported a significant turnaround to net income, driven by a substantial 78% increase in revenue for Q2 2021 Key Income Statement Data (in thousands, except per share amounts) | Metric | Q2 2021 | Q2 2020 | 6 Months 2021 | 6 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $259,981 | $145,603 | $453,637 | $317,084 | | Operating Income (Loss) | $28,706 | $(23,986) | $48,314 | $(5,834) | | Net Income (Loss) | $20,765 | $(25,733) | $35,597 | $(17,067) | | Diluted EPS | $1.03 | $(1.33) | $1.76 | $(0.89) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities improved, while investing activities focused on the BTG acquisition and financing used for dividends Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(52,343) | $(124,765) | | Net cash used in investing activities | $(16,031) | $(13,508) | | Net cash (used in) provided by financing activities | $(9,155) | $89,664 | | **Net decrease in cash** | **$(78,641)** | **$(52,959)** | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, the BTG acquisition, goodwill impairment, and restructuring charges - On April 1, 2021, the Company acquired Business Talent Group (BTG) for **$32.6 million** in initial cash consideration, plus a potential earnout of **$20-30 million**, adding a new 'On-Demand Talent' operating segment[64](index=64&type=chunk) - As a result of the BTG acquisition, the company recorded **$45.5 million** in goodwill and **$10.6 million** in other intangible assets (customer relationships, software, trade name)[64](index=64&type=chunk)[67](index=67&type=chunk) - The company implemented a restructuring plan in Q3 2020, incurring **$7.1 million** in charges in the first six months of 2021, primarily for real estate optimization, with total charges to date of **$59.4 million**[86](index=86&type=chunk)[87](index=87&type=chunk) - In Q2 2020, the company recorded a non-cash goodwill impairment charge of **$33.0 million** (**$24.5 million** in Europe and **$8.5 million** in Asia Pacific) due to the economic impact of COVID-19[61](index=61&type=chunk)[96](index=96&type=chunk)[145](index=145&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's strong recovery, segment growth, and the impact of the BTG acquisition, with a positive Q3 outlook - The company's business now comprises three main services: Executive Search, Heidrick Consulting, and the newly added On-Demand Talent service following the acquisition of Business Talent Group (BTG) on April 1, 2021[104](index=104&type=chunk)[106](index=106&type=chunk) - The company forecasts Q3 2021 net revenue to be between **$245 million** and **$255 million**, indicating continued strong performance[131](index=131&type=chunk) - The company's digital platforms, Heidrick Connect for Executive Search and new digital solutions for Heidrick Consulting, were critical in navigating the remote work environment and contributed to the strong operational recovery[109](index=109&type=chunk)[123](index=123&type=chunk)[128](index=128&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Q2 2021 consolidated net revenue surged **78.6%** to **$260.0 million**, driving a significant shift to operating income Net Revenue by Segment - Three Months Ended June 30 (in thousands) | Segment | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Executive Search | $224,133 | $134,154 | +67.1% | | On-Demand Talent | $18,719 | $— | N/A | | Heidrick Consulting | $17,129 | $11,449 | +49.6% | | **Total Net Revenue** | **$259,981** | **$145,603** | **+78.6%** | Operating Income (Loss) by Segment - Three Months Ended June 30 (in thousands) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Executive Search | $42,958 | $(7,294) | | On-Demand Talent | $153 | $— | | Heidrick Consulting | $(3,631) | $(8,321) | | Global Operations Support | $(10,774) | $(8,371) | | **Total Operating Income (Loss)** | **$28,706** | **$(23,986)** | - Executive Search productivity surged, with annualized net revenue per consultant at **$2.4 million** for Q2 2021, compared to **$1.4 million** in Q2 2020[140](index=140&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong cash reserves with no outstanding borrowings, and subsequently increased its credit facility - The company had **$237.8 million** in cash, cash equivalents, and marketable securities at June 30, 2021, with no outstanding borrowings on its credit facility[217](index=217&type=chunk)[216](index=216&type=chunk) - Cash used in operations for the first six months of 2021 was **$52.3 million**, mainly due to **$200.3 million** in cash bonus payments related to 2020 performance[218](index=218&type=chunk) - On July 13, 2021, the company amended its credit agreement, increasing the revolving credit facility from **$175 million** to **$200 million** and extending the maturity date to July 2026[100](index=100&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Primary market risk is foreign currency fluctuations, with a 10% change impacting net income by approximately **$1.1 million** - The company's main market risk is foreign currency exchange rate risk from its operations in the Americas, Europe, and Asia Pacific[228](index=228&type=chunk) - A **10%** change in average foreign currency exchange rates would have impacted net income by about **$1.1 million** for the six months ended June 30, 2021[228](index=228&type=chunk) [Item 4. Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective, with no material changes to internal controls over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[230](index=230&type=chunk) - No material changes were made to the internal control over financial reporting during the second quarter of 2021[231](index=231&type=chunk) [PART II. OTHER INFORMATION](index=48&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides information on legal proceedings, risk factors, and exhibits filed with the Form 10-Q [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various claims and litigation, not expected to materially affect financial condition - The company faces various claims and litigation from the ordinary course of business but does not expect them to have a material adverse effect on its financial condition[99](index=99&type=chunk)[232](index=232&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) A new risk factor concerns potential misclassification of on-demand talent as independent contractors post-BTG acquisition - A new risk factor has been introduced following the BTG acquisition regarding the potential misclassification of on-demand talent as independent contractors[234](index=234&type=chunk) - A misclassification determination could result in significant monetary exposure from unpaid taxes, wage and hour claims, and other employee-related liabilities, potentially impacting both the company and its clients[236](index=236&type=chunk) [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) Key exhibits filed include the amended Credit Agreement and CEO/CFO certifications under Sarbanes-Oxley - Key exhibits filed include the First Amendment to the Credit Agreement and CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906[238](index=238&type=chunk)

HEIDRICK & STRUGGLES FIRST QUARTER 2021 RESULTS April 26, 2021 SAFE HARBOR STATEMENT The 2021 first quarter news release, conference call webcast, and the following slides contain forward-looking statements. The forwardlooking statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate and management's beliefs and assumptions. Forward-looking statements may be identified by the use of words such as "expects," "anticipates," "intends," "plans," "b ...

Heidrick & Struggles International, Inc. (NASDAQ:HSII) Q1 2021 Earnings Conference Call April 26, 2021 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 Josh Vogel - Sidoti & Company Kevin Steinke - Barrington Research Tobey Sommer - Truist Securities Operator Ladies and gentlemen, thank you for standing by. And welcome to Heidrick & Struggles Q1 2021 Earnings Conf ...