Heidrick & Struggles(HSII) - 2023 Q3 - Quarterly Report

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