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Heidrick & Struggles Reports Third Quarter 2023 Results

Quarterly Revenue of $263M, 3% Year Over Year Growth

13th Consecutive Quarter of Double-Digit Adjusted EBITDA Margin

CHICAGO, Oct. 25, 2023 /PRNewswire/ -- Today Heidrick & Struggles International, Inc. (Nasdaq: HSII) ("Heidrick & Struggles", "Heidrick" or the "Company") announced financial results for its third quarter ended September 30, 2023.

Third Quarter Highlights:

  • Net revenue of $263.2 million increased 3% year over year
  • Operating income of $22.1 million increased $8.6 million sequentially and operating margin was 8.4%
  • Adjusted operating income of $22.1 million increased $1.3 million sequentially and adjusted operating margin was 8.4%
  • Adjusted EBITDA of $32.3 million decreased $4.1 million sequentially and adjusted EBITDA margin was 12.3%
  • Net income was $15.0 million and diluted earnings per share was $0.73

"We are very pleased with our third quarter results, posting year over year revenue growth and another double-digit adjusted EBITDA margin quarter despite ongoing macro uncertainty," stated Heidrick & Struggles' President and Chief Executive Officer, Krishnan Rajagopalan. "These results reflect the benefits of our One Heidrick strategy, which is to bring the best permanent executive level and on-demand talent to our clients, and to help leadership and organizations be more effective through our diversified product offering. Our diversified solutions of On-Demand Talent, Heidrick Consulting, and soon to include Heidrick Digital, will continue to be an increasing percentage of our business, and now contribute nearly 25% of our revenues." 

2023 Third Quarter Results

Consolidated net revenue was $263.2 million in the 2023 third quarter compared to consolidated net revenue of $255.2 million in the 2022 third quarter. The Company experienced growth in On-Demand Talent, Heidrick Consulting, and Executive Search in Europe, partially offset by declines in Executive Search in Asia Pacific and the Americas.

On a sequential basis, 2023 third quarter operating income was $22.1 million compared to $13.6 million in the 2023 second quarter. Adjusted operating income was $22.1 million compared to $20.8 million in the 2023 second quarter, and adjusted operating margin was 8.4% compared to 7.7% in the 2023 second quarter. Adjusted operating income in the 2023 second quarter reflects the exclusion of a non-cash impairment charge of $7.2 million. Adjusted EBITDA was $32.3 million in the 2023 third quarter compared to $36.4 million in the 2023 second quarter, and 2023 third quarter adjusted EBITDA margin was 12.3% compared to 13.4% in the 2023 second quarter. 2023 third quarter net income was $15.0 million compared to $9.0 million in the 2023 second quarter. This generated diluted earnings per share in the 2023 third quarter of $0.73, compared to $0.44 in the 2023 second quarter. Adjusted net income of $15.0 million and adjusted diluted earnings per share of $0.73 in the 2023 third quarter were consistent with 2023 second quarter results.

Executive Search net revenue was $198.8 million compared to net revenue of $212.8 million in the 2022 third quarter reflecting a decrease in the volume of executive search confirmations. Net revenue decreased 7.9%, or $16.8 million on a constant currency basis from the 2022 third quarter. Net revenue decreased 7.9% in the Americas (down 8.1% on a constant currency basis), increased 8.4% in Europe (up 1.0% on a constant currency basis), and decreased 21.6% in Asia Pacific (down 19.8% on a constant currency basis) when compared to the prior year third quarter.

The Company had 417 Executive Search consultants at September 30, 2023, compared to 389 at September 30, 2022. Productivity, as measured by annualized Executive Search net revenue per consultant, was $1.9 million compared to $2.2 million in the 2022 third quarter, reflecting a higher number of consultants combined with lower revenue.  Average revenue per executive search was approximately $153,000 compared to $155,000 in the prior year period.  The number of search confirmations decreased 5.1% compared to the year-ago period.

On-Demand Talent net revenue was $41.1 million, an increase of 76.6% compared to net revenue of $23.2 million in the 2022 third quarter, primarily due to the acquisition of Atreus Group GmbH ("Atreus"), partially offset by a decrease in the volume of legacy on-demand projects.

Heidrick Consulting net revenue was $23.3 million compared to net revenue of $19.1 million in the 2022 third quarter due to organic growth coupled with the acquisition of businessfourzero. The Company had 90 Heidrick Consulting consultants at September 30, 2023, compared to 72 at September 30, 2022.

Consolidated salaries and benefits decreased $4.3 million, or 2.5%, to $167.2 million compared to $171.5 million in the 2022 third quarter. Year-over-year, fixed compensation expense increased $9.2 million due to increases in base salaries and payroll taxes, expenses related to the deferred compensation plan, separation costs, and talent acquisition and retention costs, partially offset by decreases in stock compensation, and retirement and benefits. Variable compensation decreased $13.5 million due to lower bonus accruals related to decreased consultant productivity. Salaries and benefits expense was 63.5% of net revenue for the quarter compared to 67.2% in the 2022 third quarter.

General and administrative expenses increased $5.4 million, or 16.7%, to $37.6 million compared to $32.2 million in the 2022 third quarter. The increase was due to intangible amortization and accretion, increases in expenses related to office occupancy, and marketing, as well as the acquisitions of Atreus and businessfourzero, partially offset by a decrease in business development travel. As a percentage of net revenue, general and administrative expenses were 14.3% for the 2023 third quarter compared to 12.6% in the 2022 third quarter.

The Company's cost of services was $30.7 million, or 11.7% of net revenue for the quarter, compared to $17.8 million, or 7.0% of net revenue in the 2022 third 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 $5.6 million, or 2.1% of net revenue for the quarter compared to $5.4 million, or 2.1%, of net revenue for the third quarter 2022.

Operating income was $22.1 million for the quarter compared to $28.3 million in the 2022 third quarter. Operating income margin was 8.4% versus 11.1% in the 2022 third quarter.  Adjusted operating income in the 2023 third quarter was $22.1 million and adjusted operating income margin was 8.4% compared to 2022 third quarter adjusted operating income of $27.8 million and adjusted operating margin of 10.9%. Adjusted operating income in the 2022 third quarter reflects an adjustment to exclude a reduction in the fair value of an On-Demand Talent earnout by $0.5 million.

Adjusted EBITDA was $32.3 million compared to $33.3 million in the 2022 third quarter. Adjusted EBITDA margin was 12.3%, compared to 13.0% in the 2022 third quarter. In Executive Search, adjusted EBITDA was $51.9 million compared to $51.5 million in the prior year period. In On-Demand Talent, adjusted EBITDA was a loss of $0.6 million versus income of $0.2 million in the prior year period.  In Heidrick Consulting, adjusted EBITDA was a loss of $2.2 million compared to a loss of $5.2 million in the prior year period.

Net income was $15.0 million and diluted earnings per share was $0.73, with an effective tax rate of 37.5%. This compares to net income of $20.8 million and diluted earnings per share of $1.02, with an effective tax rate of 29.5% in the 2022 third quarter. Adjusted net income was $15.0 million and adjusted diluted earnings per share was $0.73, with an adjusted effective tax rate of 37.5% compared to 2022 third quarter adjusted net income of $20.5 million and adjusted diluted earnings per share of $1.00, which reflects the aforementioned earnout fair value adjustment.

Net cash provided by operating activities was $109.5 million, compared to $138.5 million in the 2022 third quarter. Cash, cash equivalents and marketable securities at September 30, 2023 was $334.0 million compared to $456.0 million at September 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.

Dividend

The Board of Directors declared a 2023 fourth quarter cash dividend of $0.15 per share payable on November 21, 2023, to shareholders of record at the close of business on November 7, 2023. 

2023 Fourth Quarter Outlook

The Company expects 2023 fourth quarter consolidated net revenue of between $240 million and $260 million, which may be impacted by external factors, such as the foreign exchange and interest rate environments, foreign conflicts, inflation and macroeconomic constraints on pricing actions. In addition, this outlook is based on the average currency rates in September 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 third quarter results today, October 25, 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 (referred to as constant currency). 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 is operating income excluding goodwill impairment and earnout fair value adjustments.

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 are net income and diluted earnings per share excluding goodwill impairment and earnout fair value adjustments, net of tax.

Adjusted effective tax rate is effective tax rate excluding goodwill impairment and earnout fair value adjustments, net of tax.

Adjusted EBITDA refers to earnings before interest, taxes, depreciation, intangible amortization, equity-settled stock compensation expense, earnout accretion, earnout fair value adjustments, acquisition contingent compensation, 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 fourth quarter of 2023 and the Company's expectations regarding its One Heidrick strategy and associated investment initiatives. 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 conflict in Israel and the Gaza Strip and the risks of an expansion or escalation of those conflicts; 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:
Steven Horwitz, Interim Head of Investor Relations
shorwitz@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

September 30,




2023


2022


$ Change


% Change

Revenue








Revenue before reimbursements (net revenue)

$   263,160


$   255,185


$          7,975


3.1 %

Reimbursements

4,736


3,086


1,650


53.5 %

Total revenue

267,896


258,271


9,625


3.7 %









Operating expenses








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 %

Research and development

5,560


5,400


160


3.0 %

Reimbursed expenses

4,736


3,086


1,650


53.5 %

Total operating expenses

245,759


229,949


15,810


6.9 %









Operating income

22,137


28,322


(6,185)


(21.8) %









Non-operating income (expense)








Interest, net

2,505


1,255





Other, net

(649)


(43)





Net non-operating income

1,856


1,212













Income before income taxes

23,993


29,534













Provision for income taxes

9,006


8,708













Net income

14,987


20,826













Other comprehensive loss, net of tax

(4,001)


(5,454)













Comprehensive income

$     10,986


$     15,372













Weighted-average common shares outstanding








Basic

20,076


19,816





Diluted

20,553


20,413













Earnings per common share








Basic

$        0.75


$        1.05





Diluted

$        0.73


$        1.02













Salaries and benefits as a % of net revenue

63.5 %


67.2 %





General and administrative expenses as a % of net revenue

14.3 %


12.6 %





Cost of services as a % of net revenue

11.7 %


7.0 %





Research and development as a % of net revenue

2.1 %


2.1 %





Operating income margin

8.4 %


11.1 %





 

Heidrick & Struggles International, Inc.

Segment Information

(In thousands)

(Unaudited)



Three Months Ended September 30,


2023


2022


$

Change


%
Change


2023
Margin1


2022
Margin1

Revenue












Executive Search












Americas

$ 132,320


$ 143,747


$  (11,427)


(7.9) %





Europe

44,606


41,141


3,465


8.4 %





Asia Pacific

21,888


27,919


(6,031)


(21.6) %





Total Executive Search

198,814


212,807


(13,993)


(6.6) %





On-Demand Talent

41,053


23,247


17,806


76.6 %





Heidrick Consulting

23,293


19,131


4,162


21.8 %





Revenue before reimbursements (net revenue)

263,160


255,185


7,975


3.1 %





Reimbursements

4,736


3,086


1,650


53.5 %





Total revenue

$ 267,896


$ 258,271


$   9,625


3.7 %





























Operating income (loss)












Executive Search












Americas

$ 39,285


$ 39,741


$    (456)


(1.1) %


29.7 %


27.6 %

Europe

8,519


5,652


2,867


50.7 %


19.1 %


13.7 %

Asia Pacific

2,486


4,503


(2,017)


(44.8) %


11.4 %


16.1 %

Total Executive Search

50,290


49,896


394


0.8 %


25.3 %


23.4 %

On-Demand Talent

(4,595)


(276)


(4,319)


NM


(11.2) %


(1.2) %

Heidrick Consulting

(4,075)


(2,000)


(2,075)


(103.8) %


(17.5) %


(10.5) %

Total segments

41,620


47,620


(6,000)


(12.6) %


15.8 %


18.7 %

Research and Development

(5,560)


(5,400)


(160)


(3.0) %


(2.1) %


(2.1) %

Global Operations Support

(13,923)


(13,898)


(25)


(0.2) %


(5.3) %


(5.4) %

Total operating income

$ 22,137


$ 28,322


$  (6,185)


(21.8) %


8.4 %


11.1 %

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

 

Heidrick & Struggles International, Inc.

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)



Nine Months Ended

September 30,




2023


2022


$ Change


% Change

Revenue








Revenue before reimbursements (net revenue)

$   773,702


$   837,747


$      (64,045)


(7.6) %

Reimbursements

10,090


7,170


2,920


40.7 %

Total revenue

783,792


844,917


(61,125)


(7.2) %









Operating expenses








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 %

Research and development

16,746


14,347


2,399


16.7 %

Impairment charges

7,246



7,246


100.0 %

Reimbursed expenses

10,090


7,170


2,920


40.7 %

Total operating expenses

730,299


752,497


(22,198)


(2.9) %









Operating income

53,493


92,420


(38,927)


(42.1) %









Non-operating income (expense)








Interest, net

7,667


1,664





Other, net

2,537


(1,740)





Net non-operating income (expense)

10,204


(76)













Income before income taxes

63,697


92,344













Provision for income taxes

24,142


28,902













Net income

39,555


63,442













Other comprehensive loss, net of tax

(3,633)


(14,060)













Comprehensive income

$     35,922


$     49,382













Weighted-average common shares outstanding








Basic

19,998


19,723





Diluted

20,716


20,558













Earnings per common share








Basic

$        1.98


$        3.22





Diluted

$        1.91


$        3.09













Salaries and benefits as a % of net revenue

65.3 %


69.3 %





General and administrative expenses as a % of net revenue

14.5 %


11.6 %





Cost of services as a % of net revenue

10.2 %


6.3 %





Research and development as a % of net revenue

2.2 %


1.7 %





Operating income margin

6.9 %


11.0 %





 

Heidrick & Struggles International, Inc.

Segment Information

(In thousands)

(Unaudited)



Nine Months Ended September 30,


2023


2022


$

Change


%
Change


2023
Margin1


2022
Margin1

Revenue












Executive Search












Americas

$   398,210


$   482,320


$  (84,110)


(17.4) %





Europe

129,104


139,017


(9,913)


(7.1) %





Asia Pacific

68,766


87,928


(19,162)


(21.8) %





Total Executive Search

596,080


709,265


(113,185)


(16.0) %





On-Demand Talent

111,410


68,981


42,429


61.5 %





Heidrick Consulting

66,212


59,501


6,711


11.3 %





Revenue before reimbursements (net revenue)

773,702


837,747


(64,045)


(7.6) %





Reimbursements

10,090


7,170


2,920


40.7 %





Total revenue

$   783,792


$   844,917


$  (61,125)


(7.2) %





























Operating income (loss)












Executive Search












Americas

$   121,128


$   123,842


$    (2,714)


(2.2) %


30.4 %


25.7 %

Europe

12,663


15,661


(2,998)


(19.1) %


9.8 %


11.3 %

Asia Pacific

7,132


13,469


(6,337)


(47.0) %


10.4 %


15.3 %

Total Executive Search

140,923


152,972


(12,049)


(7.9) %


23.6 %


21.6 %

On-Demand Talent

(11,821)


(1,207)


(10,614)


NM


(10.6) %


(1.7) %

Heidrick Consulting2

(17,877)


(4,492)


(13,385)


NM


(27.0) %


(7.5) %

Total segments

111,225


147,273


(36,048)


(24.5) %


14.4 %


17.6 %

Research and Development

(16,746)


(14,347)


(2,399)


(16.7) %


(2.2) %


(1.7) %

Global Operations Support

(40,986)


(40,506)


(480)


(1.2) %


(5.3) %


(4.8) %

Total operating income

$     53,493


$     92,420


$  (38,927)


(42.1) %


6.9 %


11.0 %













Margin based on revenue before reimbursements (net revenue).

Includes impairment charges of $7.2 million for the nine months ended September 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

September 30,


Nine Months Ended

September 30,


2023


2022


2023


2022

Net income

$          14,987


$          20,826


$        39,555


$        63,442









Adjustments








Impairment charges, net of tax1



6,038


Earnout fair value adjustment, net of tax2


(350)



(350)

Total adjustments


(350)


6,038


(350)









Adjusted net income

$          14,987


$          20,476


$        45,593


$        63,092









Weighted-average common shares outstanding








Basic

20,076


19,816


19,998


19,723

Diluted

20,553


20,413


20,716


20,558









Earnings per common share








Basic

$              0.75


$              1.05


$           1.98


$           3.22

Diluted

$              0.73


$              1.02


$           1.91


$           3.09









Adjusted earnings per common share








Basic

$              0.75


$              1.03


$           2.28


$           3.20

Diluted

$              0.73


$              1.00


$           2.20


$           3.07

1

The Company recorded a goodwill impairment charge of $7.2 million in the Heidrick Consulting segment for the nine months ended September 30, 2023.

2

The Company recorded a fair value adjustment to reduce the On-Demand Talent earnout by $0.5 million for the three and nine months ended September 30, 2022.

 

Heidrick & Struggles International, Inc.

Consolidated Balance Sheets

(In thousands)

(Unaudited)



September 30,
2023


December 31,
2022





Current assets




Cash and cash equivalents

$         286,429


$         355,447

Marketable securities

47,560


266,169

Accounts receivable, net

189,442


126,437

Prepaid expenses

28,333


24,098

Other current assets

50,611


40,722

Income taxes recoverable

10,799


10,946

Total current assets

613,174


823,819





Non-current assets




Property and equipment, net

34,034


30,207

Operating lease right-of-use assets

65,412


71,457

Assets designated for retirement and pension plans

11,195


11,332

Investments

43,154


34,354

Other non-current assets

19,528


25,788

Goodwill

198,241


138,361

Other intangible assets, net

22,509


6,333

Deferred income taxes

33,999


33,987

Total non-current assets

428,072


351,819





Total assets

$      1,041,246


$      1,175,638





Current liabilities




Accounts payable

$           18,966


$           14,613

Accrued salaries and benefits

264,625


451,161

Deferred revenue

41,502


43,057

Operating lease liabilities

20,994


19,554

Other current liabilities

33,171


56,016

Income taxes payable

12,709


4,076

Total current liabilities

391,967


588,477





Non-current liabilities




Accrued salaries and benefits

48,598


59,467

Retirement and pension plans

57,351


48,456

Operating lease liabilities

55,832


63,299

Other non-current liabilities

40,985


5,293

Deferred income taxes

7,365


Total non-current liabilities

210,131


176,515





Total liabilities

602,098


764,992





Stockholders' equity

439,148


410,646





Total liabilities and stockholders' equity

$      1,041,246


$      1,175,638

 

Heidrick & Struggles International, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)




Three Months Ended

September 30,



2023


2022

Cash flows - operating activities





Net income


$          14,987


$          20,826

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





Depreciation and amortization


4,740


2,583

Deferred income taxes


(6,994)


(730)

Stock-based compensation expense


3,559


4,209

Accretion expense related to earnout payments


455


275

Gain on marketable securities


(346)


(113)

Loss on disposal of property and equipment


61


67

Changes in assets and liabilities:





Accounts receivable


7,785


20,030

Accounts payable


1,257


694

Accrued expenses


76,113


91,867

Deferred revenue


(2,165)


(4,386)

Income taxes recoverable and payable, net


9,205


2,453

Retirement and pension plan assets and liabilities


294


179

Prepaid expenses


(1,136)


(1,967)

Other assets and liabilities, net


1,659


2,477

Net cash provided by operating activities


109,474


138,464






Cash flows - investing activities





Acquisition of business, net of cash acquired


(2,204)


Capital expenditures


(2,805)


(3,940)

Purchases of marketable securities and investments


(47,781)


(180,739)

Proceeds from sales of marketable securities and investments


21,571


226

Net cash used in investing activities


(31,219)


(184,453)






Cash flows - financing activities





Cash dividends paid


(3,149)


(3,120)

Acquisition earnout payments


(2,038)


Net cash used in financing activities


(5,187)


(3,120)






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


(4,414)


(12,031)






Net increase (decrease) in cash, cash equivalents and restricted cash


68,654


(61,140)

Cash, cash equivalents and restricted cash at beginning of period


217,817


336,650

Cash, cash equivalents and restricted cash at end of period


$        286,471


$        275,510






 

Heidrick & Struggles International, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)




Nine Months Ended

September 30,



2023


2022

Cash flows - operating activities





Net income


$        39,555


$        63,442

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





Depreciation and amortization


13,432


7,824

Deferred income taxes


(548)


(976)

Stock-based compensation expense


7,331


11,691

Accretion expense related to earnout payments


1,097


820

Gain on marketable securities


(2,040)


(113)

Loss on disposal of property and equipment


192


376

Impairment charges


7,246


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





Accounts receivable


(52,205)


(64,753)

Accounts payable


(1,657)


(3,250)

Accrued expenses


(197,698)


(32,414)

Deferred revenue


(1,622)


(5,913)

Income taxes recoverable and payable, net


6,617


(5,661)

Retirement and pension plan assets and liabilities


6,697


3,476

Prepaid expenses


(3,771)


(6,637)

Other assets and liabilities, net


(3,243)


(8,960)

Net cash used in operating activities


(180,617)


(41,048)






Cash flows - investing activities





Acquisition of businesses, net of cash acquired


(37,953)


Capital expenditures


(9,619)


(8,176)

Purchases of marketable securities and investments


(75,464)


(186,097)

Proceeds from sales of marketable securities and investments


289,689


1,216

Net cash provided by (used in) investing activities


166,653


(193,057)






Cash flows - financing activities





Repurchases of common stock


(904)


Cash dividends paid


(9,383)


(9,343)

Payment of employee tax withholdings on equity transactions


(4,141)


(3,219)

Acquisition earnout payments


(37,984)


Net cash used in financing activities


(52,412)


(12,562)






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


(2,642)


(23,082)






Net decrease in cash, cash equivalents and restricted cash


(69,018)


(269,749)

Cash, cash equivalents and restricted cash at beginning of period


355,489


545,259

Cash, cash equivalents and restricted cash at end of period


$      286,471


$      275,510

 

Heidrick & Struggles International, Inc.

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

(In thousands)

(Unaudited)



Three Months Ended

September 30,


Nine Months Ended

September 30,


2023


2022


2023


2022

Revenue before reimbursements (net revenue)

$    263,160


$    255,185


$    773,702


$    837,747









Net income

14,987


20,826


39,555


63,442

Interest, net

(2,505)


(1,255)


(7,667)


(1,664)

Other, net

649


43


(2,537)


1,740

Provision for income taxes

9,006


8,708


24,142


28,902

Operating income

22,137


28,322


53,493


92,420









Adjustments








Stock-based compensation expense

2,927


3,778


6,254


10,804

Depreciation

2,387


1,785


6,563


5,403

Intangible amortization

2,353


799


6,869


2,421

Earnout accretion

455


276


1,097


820

Earnout fair value adjustments


(507)



(507)

Acquisition contingent consideration

3,268


911


8,711


2,971

Deferred compensation plan

(1,427)


(2,102)


2,309


(8,589)

Reorganization costs

176



3,572


Impairment charges



7,246


Total adjustments

10,139


4,940


42,621


13,323









Adjusted EBITDA

$      32,276


$      33,262


$      96,114


$    105,743

Adjusted EBITDA margin

12.3 %


13.0 %


12.4 %


12.6 %

 

Heidrick & Struggles International, Inc.

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

(In thousands)

(Unaudited)



Three Months Ended September 30, 2023


Executive
Search


On-Demand
Talent


Heidrick
Consulting


Research &
Development


Global

Operations
Support


Total













Revenue before reimbursements (net
revenue)

$    198,814


$      41,053


$      23,293


$         —


$         —


$    263,160













Operating income (loss)1

50,290


(4,595)


(4,075)


(5,560)


(13,923)


22,137













Adjustments












Stock-based compensation

881


7


146


89


1,804


2,927

Depreciation

1,288


125


156


655


163


2,387

Intangible amortization

40


1,869


444




2,353

Earnout accretion


397


58




455

Acquisition contingent compensation

649


1,559


1,060




3,268

Deferred compensation plan

(1,370)



(34)


(22)


(1)


(1,427)

Reorganization costs

111


65





176

Total adjustments

1,599


4,022


1,830


722


1,966


10,139













Adjusted EBITDA

$      51,889


$          (573)


$       (2,245)


$       (4,838)


$     (11,957)


$      32,276

Adjusted EBITDA margin

26.1 %


(1.4) %


(9.6) %


(1.8) %


(4.5) %


12.3 %














Three Months Ended September 30, 2022


Executive
Search


On-Demand
Talent


Heidrick
Consulting


Research &
Development


Global
Operations
Support


Total













Revenue before reimbursements (net
revenue)

$    212,807


$      23,247


$      19,131


$              —


$              —


$    255,185













Operating income (loss)1

49,896


(276)


(2,000)


(5,400)


(13,898)


28,322













Adjustments












Stock-based compensation

1,250


6


469


57


1,996


3,778

Depreciation

1,373


46


89


166


111


1,785

Intangible amortization

71


628


100




799

Earnout accretion


276





276

Earnout fair value adjustments


(507)





(507)

Acquisition contingent compensation

911






911

Deferred compensation plan

(2,021)



(52)


(28)


(1)


(2,102)

Total adjustments

1,584


449


606


195


2,106


4,940













Adjusted EBITDA

$      51,480


$           173


$       (1,394)


$       (5,205)


$     (11,792)


$      33,262

Adjusted EBITDA margin

24.2 %


0.7 %


(7.3 %)


(2.0) %


(4.6) %


13.0 %

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)



Nine Months Ended September 30, 2023


Executive
Search


On-Demand
Talent


Heidrick
Consulting


Research &
Development


Global
Operations
Support


Total













Revenue before reimbursements (net
revenue)

$    596,080


$    111,410


$      66,212


$         —


$         —


$    773,702













Operating income (loss)1

140,923


(11,821)


(17,877)


(16,746)


(40,986)


53,493













Adjustments












Stock-based compensation

2,204


15


268


211


3,556


6,254

Depreciation

3,928


326


507


1,319


483


6,563

Intangible amortization

145


5,737


987




6,869

Earnout accretion


982


115




1,097

Acquisition contingent compensation

2,449


4,144


2,118




8,711

Deferred compensation plan

2,220



56


31


2


2,309

Reorganization costs

2,280


1,292





3,572

Impairment charges



7,246




7,246

Total adjustments

13,226


12,496


11,297


1,561


4,041


42,621













Adjusted EBITDA

$    154,149


$           675


$       (6,580)


$     (15,185)


$     (36,945)


$      96,114

Adjusted EBITDA margin

25.9 %


0.6 %


(9.9 %)


(2.0 %)


(4.8) %


12.4 %














Nine Months Ended September 30, 2022


Executive
Search


On-Demand
Talent


Heidrick
Consulting


Research &
Development


Global
Operations
Support


Total













Revenue before reimbursements (net
revenue)

$    709,265


$      68,981


$      59,501


$              —


$              —


$    837,747













Operating income (loss)1

152,972


(1,207)


(4,492)


(14,347)


(40,506)


92,420













Adjustments












Stock-based compensation

3,418


20


738


147


6,481


10,804

Depreciation

4,351


99


346


276


331


5,403

Intangible amortization

232


1,889


300




2,421

Earnout accretion


820





820

Earnout fair value adjustments


(507)





(507)

Acquisition contingent compensation

2,971






2,971

Deferred compensation plan

(8,254)



(228)


(106)


(1)


(8,589)

Total adjustments

2,718


2,321


1,156


317


6,811


13,323













Adjusted EBITDA

$    155,690


$        1,114


$       (3,336)


$     (14,030)


$     (33,695)


$    105,743

Adjusted EBITDA margin

22.0 %


1.6 %


(5.6 %)


(1.7 %)


(4.0 %)


12.6 %

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.