Heidrick & Struggles(US:HSII) Seeking Alphaยท2024-07-30 08:09Core Insights - Heidrick & Struggles reported Q2 results that exceeded Wall Street's revenue and adjusted EPS estimates, with total revenue growth of 2.7% year-on-year to $278.6 million and adjusted EPS of $0.67, despite a slight decline in profitability [1][11] - The company guided for Q3 revenues of $260-280 million, which also exceeds prior estimates, indicating sustained revenue levels [12] - European operations faced a significant revenue decline of 12.0% year-on-year, attributed to a weak macroeconomic environment, but this segment represents only 14.4% of total revenues [4] Financial Performance - Q2 revenue was $278.6 million, surpassing the consensus estimate of $265.7 million, while adjusted EPS was $0.67, exceeding the estimate of $0.56 [11] - Adjusted EBITDA margin decreased by 2.6 percentage points to 10.3%, driven by increased operating costs, including a $5.9 million rise in general and administrative expenses [13] - The On-Demand Talent segment reported a $4.2 million decrease in adjusted EBITDA, leading to a negative earnings figure of -$1.6 million despite a 7.3% constant currency revenue growth [13] Future Guidance - The company expects Q3 revenues to be in the range of $260-280 million, with a conservative approach to guidance, suggesting potential for higher actual revenues [12] - Growth estimates for 2024 have been slightly increased to 3.5%, with a total revenue CAGR estimate of 2.9% from 2023 to 2033 [6] Valuation Insights - The fair value estimate for Heidrick & Struggles is now $50.13, representing a 39% upside from the current stock price, although the margin of undervaluation has become more modest [7] - The weighted average cost of capital (WACC) has decreased to 9.61%, down from 10.49%, reflecting a more favorable cost of equity calculation [8] Management Changes - The company announced the departure of CFO Mark Harris, who will leave in August to pursue other opportunities, with no new CFO announced yet [5]