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Heidrick & Struggles Reports Second Quarter 2023 Results

13% Sequential Revenue Growth Including 10% Organic

Maintains Strong Balance Sheet Post-Acquisitions of Atreus and businessfourzero

CHICAGO, July 31, 2023 /PRNewswire/ -- Today Heidrick & Struggles International, Inc. (Nasdaq: HSII) ("Heidrick & Struggles", "Heidrick" or the "Company") announced financial results for its second quarter ended June 30, 2023.

Second Quarter Highlights:

  • Net revenue of $271.2 million increased 13% sequentially, 10% organically
  • Operating income of $13.6 million decreased $4.2 million sequentially and operating margin was 5.0%
  • Adjusted operating income of $20.8 million increased 17% sequentially and adjusted operating margin was 7.7%
  • Adjusted EBITDA of $36.4 million increased 33% sequentially and adjusted EBITDA margin was 13.4%
  • Net income was $9.0 million and diluted earnings per share was $0.44; adjusted net income was $15.0 million and adjusted diluted earnings per share was $0.73

"We are very pleased with the second quarter results which included the first full quarter of results from our recent acquisition of Atreus Group ("Atreus") in our On-Demand Talent segment, as well as the results from businessfourzero ("B4Z") in our Heidrick Consulting segment.  Even before the positive effects of these acquisitions, each of our lines of business demonstrated organic sequential growth, despite ongoing macro uncertainty and an anticipated return to more normalized levels of business performance. This validates our focus on the steadfast execution of our strategy while maintaining strong profitability," stated Heidrick & Struggles' President and Chief Executive Officer, Krishnan Rajagopalan. "Importantly, the integrations of both our recent acquisitions are progressing smoothly. We are advancing our diversification strategy while continuing to make appropriate investments in our digital capabilities and technologies throughout the company.  These initiatives are aimed at providing our clients with the next generation of talent and leadership advisory services, enabling them to achieve higher performance through their leaders and teams in an ever-evolving business landscape." 

2023 Second Quarter Results

Consolidated net revenue of $271.2 million compared to record consolidated net revenue of $298.7 million in the 2022 second quarter.  Consolidated financial results include the first full quarter of contribution from the Company's recent acquisitions of Atreus and B4Z.

On a sequential basis, 2023 second quarter net revenue increased 13.3% from the 2023 first quarter, 10% of that growth was organic, as the Company experienced growth in Executive Search driven by the Americas and Europe markets, partially offset by a decline in the Asia Pacific market, along with sequential revenue growth in Heidrick Consulting and On-Demand Talent. 2023 second quarter adjusted operating income increased 17.2% and adjusted operating margin increased 30 basis points to 7.7% compared to 7.4% in the 2023 first quarter. Adjusted EBITDA of $36.4 million in the 2023 second quarter increased 33% sequentially and adjusted EBITDA margin increased 190 basis points to 13.4% compared to 11.5% in the 2023 first quarter.  2023 second quarter adjusted net income was $15.0 million compared to $15.6 million in the 2023 first quarter. This generated adjusted diluted earnings per share in the 2023 second quarter of $0.73 compared to $0.76 in the 2023 first quarter.

Executive Search net revenue of $206.8 million compared to net revenue of $253.9 million in the 2022 second quarter reflecting an anticipated market slowdown combined with a return to more normalized operating levels. Excluding the impact of exchange rate fluctuations, which negatively impacted results by 0.3%, or $0.8 million, net revenue decreased 18.2%, or $46.3 million, from the 2022 second quarter. Net revenue decreased 21.3% in the Americas (down 21.2% on a constant currency basis), decreased 5.3% in Europe (down 6.1% on a constant currency basis), and decreased 23.9% in Asia Pacific (down 20.5% on a constant currency basis) when compared to the prior year second quarter. The Social Impact and Industrial practice groups exhibited growth over the prior year. 

The Company had 423 Executive Search consultants at June 30, 2023, compared to 388 at June 30, 2022. Productivity, as measured by annualized Executive Search net revenue per consultant, was $1.9 million compared to $2.6 million in the 2022 second quarter, reflecting a higher number of consultants combined with lower revenue.  Average revenue per executive search was approximately $143,000 compared to $153,000 in the prior year period.  The number of search confirmations decreased 12.7% compared to the year-ago period.

On-Demand Talent net revenue of $39.2 million, an increase of 75.5% compared to net revenue of $22.4 million in the 2022 second quarter, primarily due to the acquisition of Atreus, partially offset by a decrease in the volume of legacy on-demand projects.

Heidrick Consulting net revenue of $25.2 million compared to net revenue of $22.4 million in the 2022 second quarter. The Company had 89 Heidrick Consulting consultants at June 30, 2023, compared to 66 at June 30, 2022.

Consolidated salaries and benefits decreased $28.8 million, or 13.9%, to $178.9 million compared to $207.7 million in the 2022 second quarter. Year-over-year, fixed compensation expense increased $18.8 million due to base salaries and payroll taxes, the deferred compensation plan, reorganization, and retirement and benefits, as well as the acquisitions of Atreus and B4Z, partially offset by a decrease in stock compensation. Variable compensation decreased $47.6 million due to lower bonus accruals related to decreased consultant productivity. Salaries and benefits expense was 66.0% of net revenue for the quarter compared to 69.5% in the 2022 second quarter.

General and administrative expenses increased $5.3 million, or 15.1%, to $40.5 million compared to $35.2 million in the 2022 second quarter. The increase was due to intangible amortization and accretion, office occupancy, IT, and taxes and licenses, partially offset by a decrease in business development travel. As a percentage of net revenue, general and administrative expenses were 14.9% for the 2023 second quarter compared to 11.8% in the 2022 second quarter.

The Company's cost of services was $25.3 million, or 9.3% of net revenue for the quarter, compared to $17.4 million, or 5.8% of net revenue in the 2022 second quarter. This related to an increase in the volume of On-Demand Talent projects driven by the acquisition of Atreus.

The Company's research and development expenses were $5.7 million, or 2.1%, of net revenue for the quarter compared to $4.5 million, or 1.5%, of net revenue for the second quarter 2022.

In the 2023 second quarter, the Company recorded a non-cash goodwill impairment charge of $7.2 million associated with the Company's Heidrick Consulting segment. In the 2022 fourth quarter, the Company conducted its most recent annual goodwill impairment evaluation, which indicated that the carrying value of the Heidrick Consulting reporting unit was less than its fair value. During the 2023 second quarter, the Company acquired B4Z and recorded approximately $7.1 million of goodwill in the Heidrick Consulting reporting unit. Due to the inclusion of goodwill in a reporting unit with a pre-existing fair value shortfall, the Company identified a triggering event and performed an interim goodwill impairment evaluation during the 2023 second quarter, which resulted in the impairment of the recently acquired B4Z goodwill.

Including the previously mentioned non-cash impairment charge, operating income was $13.6 million for the quarter compared to $33.9 million in the 2022 second quarter. Operating income margin was 5.0% versus 11.3% in the 2022 second quarter.  Excluding the non-cash impairment charge, adjusted operating income in the 2023 second quarter was $20.8 million and adjusted operating margin was 7.7%.

Adjusted EBITDA was $36.4 million compared to $36.8 million in the 2022 second quarter. Adjusted EBITDA margin was 13.4%, compared to 12.3% in the 2022 second quarter. In Executive Search, adjusted EBITDA was $53.9 million compared to $52.3 million in the prior year period. In On-Demand Talent, adjusted EBITDA was $2.6 million versus $0.6 million in the prior year period.  In Heidrick Consulting, adjusted EBITDA was a loss of $1.6 million compared to a loss of $0.1 million in the prior year period.

Net income was $9.0 million and diluted earnings per share was $0.44, with an effective tax rate of 46.8%. This compares to net income of $24.1 million and diluted earnings per share of $1.19, with an effective tax rate of 30.9% in the 2022 second quarter. Excluding the non-cash impairment charge recorded in the 2023 second quarter, adjusted net income was $15.0 million and adjusted diluted earnings per share was  $0.73, with an adjusted effective tax rate of 37.7%.

Net cash provided by operating activities was $46.9 million, compared to $82.7 million in the 2022 second quarter. Cash, cash equivalents and marketable securities at June 30, 2023 was $239.0 million compared to $336.6 million at June 30, 2022 and $621.6 million at December 31, 2022. The Company's cash position typically builds throughout the year as employee bonuses are accrued, mostly to be paid out in the first half of the year.

2023 Six Months Results

For the six months ended June 30, 2023, consolidated net revenue was $510.5 million compared to $582.6 million in the first six months of 2022. Excluding the impact of exchange rate fluctuations, which negatively impacted results by 1.0%, or $6.1 million, consolidated net revenue decreased 11.3%, or $65.9 million, compared to the prior year period.

Executive Search net revenue in the first six months of 2023 decreased 20.0%, or $99.2 million, to $397.3 million from $496.5 million in the first six months of 2022. Excluding the impact of exchange rate fluctuations, which negatively impacted results by 1.0%, or $5.1 million, net revenue decreased 19.0%, or $94.1 million. Net revenue decreased 21.5% in the Americas (decreased 21.3% on a constant currency basis), decreased 13.7% in Europe (decreased 11.3% on a constant currency basis), and decreased 21.9% in Asia Pacific (decreased 18.0% on a constant currency basis). Only the Social Impact and Industrial practice groups exhibited growth over the prior year.  Productivity was $1.9 million for the first six months of 2023 compared to $2.6 million in the first six months of 2022. The average revenue per executive search was $133,000 in the first six months of 2023 compared to $137,000 the same period in 2022, while search confirmations decreased 17.6%.

On-Demand Talent net revenue in the first six months of 2023 was $70.4 million compared to $45.7 million in the same period of 2022. The increase in net revenue was primarily driven by the acquisition of Atreus, as well as an increase in the volume of legacy on-demand projects.

Heidrick Consulting net revenue in the first six months of 2023 increased 6.3%, or $2.5 million, to $42.9 million from $40.4 million in the first six months of 2022. Excluding the impact of exchange rate fluctuations, which negatively impacted results by 2.0%, or $0.8 million, Heidrick Consulting revenue increased 8.3%, or $3.3 million, compared to the prior year period.

Operating income for the first six months of 2023 was $31.4 million compared to operating income of $64.1 million in the same period of 2022. The operating income margin was 6.1% compared to 11.0% in the first six months of 2022. Excluding the non-cash impairment charge recorded in the 2023 year-to-date period, adjusted operating income was $38.6 million and adjusted operating income margin was 7.6%.

Adjusted EBITDA for the first six months of 2023 was $63.8 million and adjusted EBITDA margin was 12.5%, compared to adjusted EBITDA of $72.5 million and adjusted EBITDA margin of 12.4% for the same period in 2022.  In Executive Search, adjusted EBITDA was $102.3 million compared to $104.2 million in the prior year period.  In On-Demand Talent, adjusted EBITDA was $1.2 million versus $0.9 million in the prior year period.  In Heidrick Consulting, adjusted EBITDA was a loss of $4.3 million compared to a loss of $1.9 million in the prior year period.

Net income for the first six months of 2023 was $24.6 million and diluted earnings per share was $1.19, with an effective tax rate of 38.1%. This compares to net income of $42.6 million and diluted earnings per share of $2.08, with an effective tax rate of 32.2%, in the first six months of 2022. Excluding the restructuring charge recorded in the 2023 year-to-date period, adjusted net income was $30.6 million and adjusted diluted earnings per share was $1.48 with an adjusted effective tax rate of 34.8%.

Dividend

The Board of Directors declared a 2023 second quarter cash dividend of $0.15 per share payable on August 25, 2023, to shareholders of record at the close of business on August 11, 2023. 

2023 Third Quarter Outlook

The Company expects 2023 third quarter consolidated net revenue of between $245 million and $265 million, which reflects typical summer seasonality, while acknowledging that continued fluidity in external factors, such as the foreign exchange and interest rate environments, foreign conflicts, inflation and macroeconomic constraints on pricing actions, may impact quarterly results. In addition, this outlook is based on the average currency rates in June 2023 and reflects, among other factors, management's assumptions for the anticipated volume of new Executive Search confirmations, On-Demand Talent projects, and Heidrick Consulting assignments, consultant productivity, consultant retention, and the seasonality of the business along with the current backlog.

Quarterly Webcast and Conference Call

Heidrick & Struggles will host a conference call to review its second quarter results today, July 31, 2023 at 5:00 pm Eastern Time. Participants may access the Company's call and supporting slides through its website at www.heidrick.com or by dialing (888) 440-4091 or (646) 960-0846, conference ID# 6106012.  For those unable to participate on the live call, a webcast and copy of the slides will be archived at www.heidrick.com and available for up to 30 days following the investor call. 

About Heidrick & Struggles International, Inc.

Heidrick & Struggles (Nasdaq: HSII) is a premier provider of global leadership advisory and on-demand talent solutions, serving the senior-level talent and consulting needs of the world's top organizations. In our role as trusted leadership advisors, we partner with our clients to develop future-ready leaders and organizations, bringing together our services and offerings in executive search, diversity and inclusion, leadership assessment and development, organization and team acceleration, culture shaping and on-demand, independent talent solutions. Heidrick & Struggles pioneered the profession of executive search more than 65 years ago. Today, the firm provides integrated talent and human capital solutions to help our clients change the world, one leadership team at a time. ® www.heidrick.com

Non-GAAP Financial Measures

To supplement the financial results presented in accordance with generally accepted accounting principles in the United States ("GAAP"), Heidrick & Struggles presents certain non-GAAP financial measures. A "non-GAAP financial measure" is defined as a numerical measure of a company's financial performance that excludes or includes amounts different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of comprehensive income, balance sheets or statements of cash flow of the Company.

Non-GAAP financial measures used within this earnings release are adjusted operating income, adjusted operating income margin, adjusted net income, adjusted diluted earnings per share, adjusted effective tax rate, adjusted EBITDA, adjusted EBITDA margin, and consolidated net revenue excluding the impact of exchange rate fluctuations. These measures are presented because management uses this information to monitor and evaluate financial results and trends. Management believes this information is also useful for investors to evaluate the comparability of financial information presented. Reconciliations of these non-GAAP financial measures to the most directly comparable measures calculated and presented in accordance with GAAP are provided as schedules attached to this release.

Adjusted operating income reflects the exclusion of goodwill impairment.

Adjusted operating income margin refers to adjusted operating income as a percentage of net revenue in the same period.

Adjusted net income and adjusted diluted earnings per share reflect the exclusion of goodwill impairment, net of tax.

Adjusted effective tax rate reflects the exclusion of goodwill impairment, net of tax.

Adjusted EBITDA refers to earnings before interest, taxes, depreciation, intangible amortization, equity-settled stock compensation expense, earnout accretion, earnout obligation adjustments, contingent compensation related to acquisitions, deferred compensation plan income and expense, reorganization costs, impairment charges, restructuring charges, and other non-operating income (expense). 

Adjusted EBITDA margin refers to adjusted EBITDA as a percentage of net revenue in the same period.   

The Company evaluates its results of operations on both an as reported and a constant currency basis. The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. The Company believes providing constant currency information provides valuable supplemental information regarding its results of operations, consistent with how it evaluates its performance. The Company calculates constant currency percentages by converting its financial results in a local currency for a period using the average exchange rate for the prior period to which it is comparing. This calculation may differ from similarly titled measures used by other companies.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of the federal securities laws, including statements regarding guidance for the third quarter of 2023. 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," "outlook," "projects," "forecasts," "aim" and similar expressions. Forward-looking statements are not guarantees of future performance, rely on a number of assumptions, and involve certain known and unknown risks and uncertainties that are difficult to predict, many of which are beyond our control. Factors that may cause actual outcomes and results to differ materially from what is expressed, forecasted, or implied in the forward-looking statements include, among other things, our ability to attract, integrate, develop, manage and retain qualified consultants and senior leaders; our ability to prevent our consultants from taking our clients with them to another firm; our ability to maintain our professional reputation and brand name; our clients' ability to restrict us from recruiting their employees; our heavy reliance on information management systems; risks arising from our implementation of new technology and intellectual property to deliver new products and services to our clients; our dependence on third parties for the execution of certain critical functions; the fact that we face the risk of liability in the services we perform; the fact that data security, data privacy and data protection laws and other evolving regulations and cross-border data transfer restrictions may limit the use of our services and adversely affect our business; any challenges to the classification of our on-demand talent as independent contractors; the increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks that could pose a risk to our systems, networks, solutions, services and data; the impacts, direct and indirect, of the COVID-19 pandemic (including the emergence of variant strains) or other highly infectious or contagious disease on our business, our consultants and employees, and the overall economy; the aggressive competition we face; the fact that our net revenue may be affected by adverse economic conditions including inflation, the impact of foreign currency exchange rate fluctuations; our ability to access additional credit; social, political, regulatory, legal and economic risks in markets where we operate, including the impact of the ongoing war in Ukraine and the risks of an expansion or escalation of that conflict; unfavorable tax law changes and tax authority rulings; the timing of the establishment or reversal of valuation allowance on deferred tax assets; the fact that we may not be able to align our cost structure with net revenue; any impairment of our goodwill, other intangible assets and other long-lived assets; our ability to execute and integrate future acquisitions; and the fact that we have anti-takeover provisions that could make an acquisition of us difficult and expensive. We caution the reader that the list of factors may not be exhaustive. For more information on these risks, uncertainties and other factors, refer to our Annual Report on Form 10-K for the year ended December 31, 2022, under the heading "Risk Factors" in Item 1A, as updated in Part II of our subsequent Quarterly Reports on Form 10-Q, and other filings with the Securities and Exchange Commission. The forward-looking statements contained in this press release speak only as of the date of this press release. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Contacts:

Investors & Analysts:
Suzanne Rosenberg, Vice President, Investor Relations
srosenberg@heidrick.com

Media:
Nina Chang, Vice President, Corporate Communications
nchang@heidrick.com

 

Heidrick & Struggles International, Inc.

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)



Three Months Ended

June 30,




2023


2022


$ Change


% Change

Revenue








Revenue before reimbursements (net revenue)

$   271,225


$   298,701


$      (27,476)


(9.2) %

Reimbursements

2,552


2,408


144


6.0 %

 Total revenue

273,777


301,109


(27,332)


(9.1) %









Operating expenses








Salaries and benefits

178,916


207,684


(28,768)


(13.9) %

General and administrative expenses

40,514


35,203


5,311


15.1 %

Cost of services

25,306


17,403


7,903


45.4 %

Research and development

5,658


4,545


1,113


24.5 %

Impairment charges

7,246



7,246


100.0 %

Reimbursed expenses

2,552


2,408


144


6.0 %

 Total operating expenses

260,192


267,243


(7,051)


(2.6) %









Operating income

13,585


33,866


(20,281)


(59.9) %









Non-operating income








Interest, net

1,913


299





Other, net

1,377


774





 Net non-operating income

3,290


1,073













Income before income taxes

16,875


34,939













Provision for income taxes

7,893


10,790













Net income

8,982


24,149













Other comprehensive loss, net of tax

(75)


(7,524)













Comprehensive income

$       8,907


$     16,625













Weighted-average common shares outstanding








Basic

20,010


19,726





Diluted

20,637


20,314













Earnings per common share








Basic

$        0.45


$        1.22





Diluted

$        0.44


$        1.19













Salaries and benefits as a % of net revenue

66.0 %


69.5 %





General and administrative expenses as a % of net revenue

14.9 %


11.8 %





Cost of services as a % of net revenue

9.3 %


5.8 %





Research and development as a % of net revenue

2.1 %


1.5 %





Operating margin

5.0 %


11.3 %





 

Heidrick & Struggles International, Inc.

Segment Information

(In thousands)

(Unaudited)



Three Months Ended June 30,


2023


2022


$

Change


%
Change


2023
Margin1


2022
Margin1

Revenue












Executive Search












 Americas

$ 138,563


$ 176,020


$  (37,457)


(21.3) %





 Europe

45,567


48,131


(2,564)


(5.3) %





 Asia Pacific

22,649


29,758


(7,109)


(23.9) %





Total Executive Search

206,779


253,909


(47,130)


(18.6) %





 On-Demand Talent

39,240


22,353


16,887


75.5 %





 Heidrick Consulting

25,206


22,439


2,767


12.3 %





Revenue before reimbursements (net revenue)

271,225


298,701


(27,476)


(9.2) %





Reimbursements

2,552


2,408


144


6.0 %





Total revenue

$ 273,777


$ 301,109


$  (27,332)


(9.1) %





























Operating income (loss)












Executive Search












 Americas

$ 43,144


$ 44,250


$  (1,106)


(2.5) %


31.1 %


25.1 %

 Europe

2,432


4,606


(2,174)


(47.2) %


5.3 %


9.6 %

 Asia Pacific

1,364


3,912


(2,548)


(65.1) %


6.0 %


13.1 %

Total Executive Search

46,940


52,768


(5,828)


(11.0) %


22.7 %


20.8 %

 On-Demand Talent

(2,862)


(349)


(2,513)


NM


(7.3) %


(1.6) %

 Heidrick Consulting2

(10,686)


(408)


(10,278)


NM


(42.4) %


(1.8) %

Total segments

33,392


52,011


(18,619)


(35.8) %


12.3 %


17.4 %

 Research and Development

(5,658)


(4,545)


(1,113)


(24.5) %


(2.1) %


(1.5) %

 Global Operations Support

(14,149)


(13,600)


(549)


(4.0) %


(5.2) %


(4.6) %

Total operating income

$ 13,585


$ 33,866


$  (20,281)


(59.9) %


5.0 %


11.3 %


1   Margin based on revenue before reimbursements (net revenue).

2   Includes impairment charges of $7.2 million for the three months ended June 30, 2023.

 

Heidrick & Struggles International, Inc.

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)



Six Months Ended

June 30,




2023


2022


$ Change


% Change

Revenue








Revenue before reimbursements (net revenue)

$   510,542


$   582,562


$      (72,020)


(12.4) %

Reimbursements

5,354


4,084


1,270


31.1 %

 Total revenue

515,896


586,646


(70,750)


(12.1) %









Operating expenses








Salaries and benefits

337,775


409,129


(71,354)


(17.4) %

General and administrative expenses

74,841


64,997


9,844


15.1 %

Cost of services

48,138


35,391


12,747


36.0 %

Research and development

11,186


8,947


2,239


25.0 %

Impairment charges

7,246



7,246


100.0 %

Reimbursed expenses

5,354


4,084


1,270


31.1 %

 Total operating expenses

484,540


522,548


(38,008)


(7.3) %









Operating income

31,356


64,098


(32,742)


(51.1) %









Non-operating income (expense)








Interest, net

5,162


409





Other, net

3,186


(1,697)





 Net non-operating income (expense)

8,348


(1,288)













Income before income taxes

39,704


62,810













Provision for income taxes

15,136


20,194













Net income

24,568


42,616













Other comprehensive income (loss), net of tax

368


(8,606)













Comprehensive income

$     24,936


$     34,010













Weighted-average common shares outstanding








Basic

19,958


19,675





Diluted

20,701


20,485













Earnings per common share








Basic

$        1.23


$        2.17





Diluted

$        1.19


$        2.08













Salaries and benefits as a % of net revenue

66.2 %


70.2 %





General and administrative expenses as a % of net revenue

14.7 %


11.2 %





Cost of services as a % of net revenue

9.4 %


6.1 %





Research and development as a % of net revenue

2.2 %


1.5 %





Operating margin

6.1 %


11.0 %





 

Heidrick & Struggles International, Inc.

Segment Information

(In thousands)

(Unaudited)



Six Months Ended June 30,


2023


2022


$

Change


%
Change


2023
Margin1


2022
Margin1

Revenue












Executive Search












 Americas

$   265,890


$   338,573


$  (72,683)


(21.5) %





 Europe

84,498


97,876


(13,378)


(13.7) %





 Asia Pacific

46,878


60,009


(13,131)


(21.9) %





Total Executive Search

397,266


496,458


(99,192)


(20.0) %





 On-Demand Talent

70,357


45,734


24,623


53.8 %





 Heidrick Consulting

42,919


40,370


2,549


6.3 %





Revenue before reimbursements (net revenue)

510,542


582,562


(72,020)


(12.4) %





Reimbursements

5,354


4,084


1,270


31.1 %





Total revenue

$   515,896


$   586,646


$  (70,750)


(12.1) %





























Operating income (loss)












Executive Search












 Americas

$     81,843


$     84,101


$    (2,258)


(2.7) %


30.8 %


24.8 %

 Europe

4,144


10,009


(5,865)


(58.6) %


4.9 %


10.2 %

 Asia Pacific

4,646


8,966


(4,320)


(48.2) %


9.9 %


14.9 %

Total Executive Search

90,633


103,076


(12,443)


(12.1) %


22.8 %


20.8 %

 On-Demand Talent

(7,226)


(931)


(6,295)


NM


(10.3) %


(2.0) %

 Heidrick Consulting2

(13,802)


(2,492)


(11,310)


NM


(32.2) %


(6.2) %

Total segments

69,605


99,653


(30,048)


(30.2) %


13.6 %


17.1 %

 Research and Development

(11,186)


(8,947)


(2,239)


(25.0) %


(2.2) %


(1.5) %

 Global Operations Support

(27,063)


(26,608)


(455)


(1.7) %


(5.3) %


(4.6) %

Total operating income

$     31,356


$     64,098


$  (32,742)


(51.1) %


6.1 %


11.0 %














1   Margin based on revenue before reimbursements (net revenue).

2   Includes impairment charges of $7.2 million for the six months ended June 30, 2023.

 

Heidrick & Struggles International, Inc.

Reconciliation of Net Income and Adjusted Net Income (Non-GAAP)

(In thousands, except per share amounts)

(Unaudited)



Three Months Ended

June 30,


Six Months Ended

June 30,


2023


2022


2023


2022

Net income

$            8,982


$          24,149


$        24,568


$        42,616









Adjustments








Impairment charges, net of tax1

6,038



6,038


 Total adjustments

6,038



6,038










Adjusted net income

$          15,020


$          24,149


$        30,606


$        42,616









Weighted-average common shares outstanding








Basic

20,010


19,726


19,958


19,675

Diluted

20,637


20,314


20,701


20,485









Earnings per common share








Basic

$              0.45


$              1.22


$           1.23


$           2.17

Diluted

$              0.44


$              1.19


$           1.19


$           2.08









Adjusted earnings per common share








Basic

$              0.75


$              1.22


$           1.53


$           2.17

Diluted

$              0.73


$              1.19


$           1.48


$           2.08



1

The Company recorded a goodwill impairment charge of $7.2 million in the Heidrick Consulting segment for the three and six months ended June 30, 2023.

 

Heidrick & Struggles International, Inc.

Consolidated Balance Sheets

(In thousands)

(Unaudited)



June 30,
2023


December 31,
2022





Current assets




Cash and cash equivalents

$         217,776


$         355,447

Marketable securities

21,240


266,169

Accounts receivable, net

197,899


126,437

Prepaid expenses

27,401


24,098

Other current assets

50,622


40,722

Income taxes recoverable

8,397


10,946

 Total current assets

523,335


823,819





Non-current assets




Property and equipment, net

33,330


30,207

Operating lease right-of-use assets

69,692


71,457

Assets designated for retirement and pension plans

11,552


11,332

Investments

44,357


34,354

Other non-current assets

22,082


25,788

Goodwill

198,639


138,361

Other intangible assets, net

26,903


6,333

Deferred income taxes

34,565


33,987

 Total non-current assets

441,120


351,819





Total assets

$         964,455


$      1,175,638





Current liabilities




Accounts payable

$           15,477


$           14,613

Accrued salaries and benefits

193,858


451,161

Deferred revenue

44,102


43,057

Operating lease liabilities

21,221


19,554

Other current liabilities

36,017


56,016

Income taxes payable

8,118


4,076

 Total current liabilities

318,793


588,477





Non-current liabilities




Accrued salaries and benefits

48,444


59,467

Retirement and pension plans

58,951


48,456

Operating lease liabilities

60,326


63,299

Other non-current liabilities

42,005


5,293

Deferred income taxes

7,619


 Total non-current liabilities

217,345


176,515





Total liabilities

536,138


764,992





Stockholders' equity

428,317


410,646





Total liabilities and stockholders' equity

$         964,455


$      1,175,638

 

Heidrick & Struggles International, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)




Three Months Ended

June 30,



2023


2022

Cash flows - operating activities





Net income


$            8,982


$          24,149

Adjustments to reconcile net income to net cash provided by operating activities:





 Depreciation and amortization


4,819


2,621

 Deferred income taxes


(223)


231

 Stock-based compensation expense


1,919


3,784

 Accretion expense related to earnout payments


451


274

 Gain on marketable securities


(49)


 Loss on disposal of property and equipment


1


142

 Impairment charges


7,246


 Changes in assets and liabilities:





Accounts receivable


(35,658)


(31,641)

Accounts payable


(1,777)


212

Accrued expenses


52,164


103,143

Deferred revenue


396


(5,664)

Income taxes recoverable and payable, net


495


(13,142)

Retirement and pension plan assets and liabilities


333


(200)

Prepaid expenses


4,500


4,411

Other assets and liabilities, net


3,341


(5,636)

Net cash provided by operating activities


46,940


82,684






Cash flows - investing activities





Acquisition of business, net of cash acquired


(5,842)


Capital expenditures


(3,006)


(2,432)

Purchases of marketable securities and investments


(21,511)


(347)

Proceeds from sales of marketable securities and investments


153


227

Net cash used in investing activities


(30,206)


(2,552)






Cash flows - financing activities





Repurchases of common stock


(904)


Cash dividends paid


(3,122)


(3,104)

Net cash used in financing activities


(4,026)


(3,104)






Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash


376


(8,380)






Net increase in cash, cash equivalents and restricted cash


13,084


68,648

Cash, cash equivalents and restricted cash at beginning of period


204,733


268,002

Cash, cash equivalents and restricted cash at end of period


$        217,817


$        336,650






 

Heidrick & Struggles International, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)




Six Months Ended

June 30,



2023


2022

Cash flows - operating activities





Net income


$        24,568


$        42,616

Adjustments to reconcile net income to net cash used in operating activities:





 Depreciation and amortization


8,692


5,241

 Deferred income taxes


6,446


(246)

 Stock-based compensation expense


3,772


7,482

 Accretion expense related to earnout payments


642


545

 Gain on marketable securities


(1,694)


 Loss on disposal of property and equipment


131


309

 Impairment charges


7,246


 Changes in assets and liabilities, net of effects of acquisition:





Accounts receivable


(59,990)


(84,783)

Accounts payable


(2,914)


(3,944)

Accrued expenses


(273,811)


(124,281)

Deferred revenue


543


(1,527)

Income taxes recoverable and payable, net


(2,588)


(8,114)

Retirement and pension plan assets and liabilities


6,403


3,297

Prepaid expenses


(2,635)


(4,670)

Other assets and liabilities, net


(4,902)


(11,437)

Net cash used in operating activities


(290,091)


(179,512)






Cash flows - investing activities





Acquisition of businesses, net of cash acquired


(35,749)


Capital expenditures


(6,814)


(4,236)

Purchases of marketable securities and investments


(27,683)


(5,358)

Proceeds from sales of marketable securities and investments


268,118


990

Net cash provided by (used in) investing activities


197,872


(8,604)






Cash flows - financing activities





Repurchases of common stock


(904)


Cash dividends paid


(6,234)


(6,223)

Payment of employee tax withholdings on equity transactions


(4,141)


(3,219)

Acquisition earnout payments


(35,946)


Net cash used in financing activities


(47,225)


(9,442)






Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash


1,772


(11,051)






Net decrease in cash, cash equivalents and restricted cash


(137,672)


(208,609)

Cash, cash equivalents and restricted cash at beginning of period


355,489


545,259

Cash, cash equivalents and restricted cash at end of period


$      217,817


$      336,650

 

Heidrick & Struggles International, Inc.

Reconciliation of Net Income and Operating Income to Adjusted EBITDA (Non-GAAP)

(In thousands)

(Unaudited)



Three Months Ended

June 30,


Six Months Ended

June 30,


2023


2022


2023


2022

Revenue before reimbursements (net
revenue)

$    271,225


$    298,701


$    510,542


$    582,562









Net income

8,982


24,149


24,568


42,616

Interest, net

(1,913)


(299)


(5,162)


(409)

Other, net

(1,377)


(774)


(3,186)


1,697

Provision for income taxes

7,893


10,790


15,136


20,194

Operating income

13,585


33,866


31,356


64,098









Adjustments








Stock-based compensation expense

1,499


3,351


3,327


7,026

Depreciation

2,172


1,810


4,176


3,618

Intangible amortization

2,647


810


4,516


1,622

Earnout accretion

451


273


642


544

Acquisition contingent consideration

3,784


971


5,443


2,060

Deferred compensation plan

1,603


(4,255)


3,736


(6,487)

Reorganization costs

3,396



3,396


Impairment charges

7,246



7,246


 Total adjustments

22,798


2,960


32,482


8,383









Adjusted EBITDA

$      36,383


$      36,826


$      63,838


$      72,481

Adjusted EBITDA margin

13.4 %


12.3 %


12.5 %


12.4 %

 

Heidrick & Struggles International, Inc.

Reconciliation of Operating Income to Adjusted EBITDA by Line of Business (Non-GAAP)

(In thousands)

(Unaudited)



Three Months Ended June 30, 2023


Executive
Search


On-Demand
Talent


Heidrick
Consulting


Research &
Development


Global
Operations
Support


Total













Revenue before reimbursements (net
revenue)

$    206,779


$      39,240


$      25,206


$         —


$         —


$    271,225













Operating income (loss)1

46,940


(2,862)


(10,686)


(5,658)


(14,149)


13,585













Adjustments












Stock-based compensation

706


2


47


57


687


1,499

Depreciation

1,297


116


183


416


160


2,172

Intangible amortization

53


2,151


443




2,647

Earnout accretion


394


57




451

Acquisition contingent compensation

1,165


1,561


1,058




3,784

Deferred compensation plan

1,541



37


24


1


1,603

Reorganization costs

2,169


1,227





3,396

Impairment charges



7,246




7,246

 Total adjustments

6,931


5,451


9,071


497


848


22,798













Adjusted EBITDA

$      53,871


$        2,589


$       (1,615)


$       (5,161)


$     (13,301)


$      36,383

Adjusted EBITDA margin

26.1 %


6.6 %


(6.4) %


(1.9) %


(4.9) %


13.4 %






































Three Months Ended June 30, 2022


Executive
Search


On-Demand
Talent


Heidrick
Consulting


Research &
Development


Global
Operations
Support


Total













Revenue before reimbursements (net
revenue)

$    253,909


$      22,353


$      22,439


$              —


$              —


$    298,701













Operating income (loss)1

52,768


(349)


(408)


(4,545)


(13,600)


33,866













Adjustments












Stock-based compensation

1,098


8


160


57


2,028


3,351

Depreciation

1,486


31


124


64


105


1,810

Intangible amortization

78


632


100




810

Earnout accretion


273





273

Acquisition contingent compensation

971






971

Deferred compensation plan

(4,089)



(113)


(53)



(4,255)

 Total adjustments

(456)


944


271


68


2,133


2,960













Adjusted EBITDA

$      52,312


$           595


($137)


$       (4,477)


$     (11,467)


$      36,826

Adjusted EBITDA margin

20.6 %


2.7 %


(0.6 %)


(1.5) %


(3.8) %


12.3 %



1

The Company does not allocate interest income or expense, other income or expense, and the provision for income taxes to the Company's reportable operating segments. As such, the Company has concluded that operating income (loss) represents the most directly comparable measure of financial performance presented in accordance with U.S. GAAP for the reconciliation of Adjusted EBITDA in this presentation.

 

Heidrick & Struggles International, Inc.

Reconciliation of Operating Income to Adjusted EBITDA by Line of Business (Non-GAAP)

(In thousands)

(Unaudited)



Six Months Ended June 30, 2023


Executive
Search


On-Demand
Talent


Heidrick
Consulting


Research &
Development


Global
Operations
Support


Total













Revenue before reimbursements (net
revenue)

$    397,266


$      70,357


$      42,919


$         —


$         —


$    510,542













Operating income (loss)1

90,633


(7,226)


(13,802)


(11,186)


(27,063)


31,356













Adjustments












Stock-based compensation

1,323


8


122


122


1,752


3,327

Depreciation

2,640


201


351


664


320


4,176

Intangible amortization

105


3,868


543




4,516

Earnout accretion


585


57




642

Acquisition contingent compensation

1,800


2,585


1,058




5,443

Deferred compensation plan

3,590



90


53


3


3,736

Reorganization costs

2,169


1,227





3,396

Impairment charges



7,246




7,246

 Total adjustments

11,627


8,474


9,467


839


2,075


32,482













Adjusted EBITDA

$    102,260


$        1,248


$       (4,335)


$     (10,347)


$     (24,988)


$      63,838

Adjusted EBITDA margin

25.7 %


1.8 %


(10.1) %


(2.0) %


(4.9) %


12.5 %






































Six Months Ended June 30, 2022


Executive
Search


On-Demand
Talent


Heidrick
Consulting


Research &
Development


Global
Operations
Support


Total













Revenue before reimbursements (net
revenue)

$    496,458


$      45,734


$      40,370


$              —


$              —


$    582,562













Operating income (loss)1

103,076


(931)


(2,492)


(8,947)


(26,608)


64,098













Adjustments












Stock-based compensation

2,168


14


269


90


4,485


7,026

Depreciation

2,978


53


257


110


220


3,618

Intangible amortization

161


1,261


200




1,622

Earnout accretion


544





544

Acquisition contingent compensation

2,060






2,060

Deferred compensation plan

(6,233)



(176)


(78)



(6,487)

 Total adjustments

1,134


1,872


550


122


4,705


8,383













Adjusted EBITDA

$    104,210


$           941


$       (1,942)


$       (8,825)


$     (21,903)


$      72,481

Adjusted EBITDA margin

21.0 %


2.1 %


(4.8) %


(1.5) %


(3.8) %


12.4 %



1

The Company does not allocate interest income or expense, other income or expense, and the provision for income taxes to the Company's reportable operating segments. As such, the Company has concluded that operating income (loss) represents the most directly comparable measure of financial performance presented in accordance with U.S. GAAP for the reconciliation of Adjusted EBITDA in this presentation.

 

SOURCE Heidrick & Struggles International, Inc.