Heidrick & Struggles(HSII) - 2023 Q4 - Earnings Call Transcript

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