Heidrick & Struggles Reports First Quarter 2024 Results

Quarterly Revenue of $265 Million, 11% Year Over Year Growth

Maintains Strong Profitability with Diluted EPS of $0.67

Declares $0.15 Per Share Cash Dividend

CHICAGO, May 6, 2024 /PRNewswire/ -- Today Heidrick & Struggles International, Inc. (Nasdaq: HSII) ("Heidrick & Struggles", "Heidrick" or the "Company") announced financial results for its first quarter ended March 31, 2024.

First Quarter Highlights:

• Net revenue of $265.2 million increased 11% year over year
• Adjusted EBITDA of $25.9 million
• Adjusted EBITDA margin was 9.8%
• Net income was $14.0 million and diluted earnings per share was $0.67

"During the first quarter we generated double-digit top line growth achieving the high end of our guidance range with solid margin performance," stated CEO Tom Monahan. "For the clients we serve, more than ever before, driving great corporate performance requires discovering, accessing, evaluating and enabling exceptional leadership. During my first two months as CEO, I have come to fully appreciate the vast market opportunity we have in front of us given the vital and expanding nature of the client needs we address, and our inherent strengths including our strong collection of intellectual property and people, trust in the Heidrick brand and our deep relationships at the c-suite and board levels."

"Looking ahead, it is clear we need to more consistently and forcefully use these tremendous assets to create value for our clients, people and shareholders. Together with our leadership team, I am tightly focused on empowering our highly talented people to effectively meet client needs through clearer offer strategies, an intense focus on organic service innovation and even more robust technology."

2024 First Quarter Results

Consolidated net revenue of $265.2 million included the acquisition of Atreus Group GmbH ("Atreus") completed on February 1, 2023 and the acquisition businessfourzero completed on April 1, 2023. Consolidated net revenue was $239.3 million in the 2023 first quarter. The Company experienced revenue growth in On-Demand Talent, Heidrick Consulting, and Executive Search in the Americas and Europe, partially offset by a decrease in Executive Search in Asia Pacific. 

Adjusted EBITDA was $25.9 million compared to $25.6 million in the 2023 first quarter. Adjusted EBITDA margin was 9.8%, compared to 10.7% in the 2023 first quarter. In Executive Search, Adjusted EBITDA was $48.4 million compared to $47.8 million in the prior year period. In On-Demand Talent, Adjusted EBITDA was a loss of $0.9 million versus a loss of $1.3 million in the prior year period. In Heidrick Consulting, Adjusted EBITDA was a loss of $2.0 million compared to a loss of $2.8 million in the prior year period.

Net income was $14.0 million and diluted earnings per share was $0.67, with an effective tax rate of 38.8% driven by the non-deductibility of earnout expense associated with the acquisitions of Atreus and businessfourzero. This compares to net income of $15.6 million and diluted earnings per share of $0.76, with an effective tax rate of 31.7%, in the 2023 first quarter.

Executive Search net revenue of $201.5 million increased 5.8% compared to net revenue of $190.5 million in the 2023 first quarter. Excluding the impact of exchange rate fluctuations, which positively impacted results by 0.2%, or $0.5 million, net revenue increased 5.5%, or $10.5 million from the 2023 first quarter. Net revenue increased 7.3% in the Americas (up 7.1% on a constant currency basis), increased 6.6% in Europe (up 4.3% on a constant currency basis), and decreased 3.7% in Asia Pacific (down 0.9% on a constant currency basis) when compared to the prior year first quarter.  All practice groups, except for Consumer and Industrial, exhibited growth over the prior year period. 

The Company had 424 Executive Search consultants at March 31, 2024, compared to 432 at March 31, 2023. Productivity, as measured by annualized Executive Search net revenue per consultant, was $1.9 million compared to $1.8 million in the 2023 first quarter, reflecting a lower number of consultants combined with higher revenue.  Average revenue per executive search was approximately $136,000 compared to $124,000 in the prior year period. The number of search confirmations decreased 3.2% compared to the year-ago period.

On-Demand Talent net revenue of $37.9 million increased 21.7% compared to net revenue of $31.1 million in the 2023 first quarter, primarily due to the acquisition of Atreus. Foreign exchange rate fluctuations positively impacted results by $0.3 million, or 0.8%.

Heidrick Consulting net revenue of $25.9 million increased 46.0% compared to net revenue of $17.7 million in the 2023 first quarter due to the acquisition of businessfourzero and increases in leadership assessment and development engagements. Excluding the impact of exchange rate fluctuations, which positively impacted results by 2.2%, or $0.4 million, Heidrick Consulting net revenue increased 43.8%, or $7.8 million, compared to the prior year period. The Company had 95 Heidrick Consulting consultants at March 31, 2024, compared to 78 at March 31, 2023. 

Consolidated salaries and benefits increased $15.6 million, or 9.8%, to $174.4 million compared to $158.9 million in the 2023 first quarter and include the acquisitions of Atreus and businessfourzero. Year-over-year, fixed compensation expense increased $5.4 million due to increases in base salaries and payroll taxes, as well as increases in talent acquisition and retention costs, stock compensation, separation expense and expenses related to the deferred compensation plan, partially offset by a decrease in retirement and benefits. Variable compensation increased $10.2 million due to an increase in consultant production. Salaries and benefits expense was 65.8% of net revenue for the quarter, compared to 66.4% in the 2023 first quarter.

General and administrative expenses increased $7.0 million, or 20.5%, to $41.4 million compared to $34.3 million in the 2023 first quarter and include the acquisitions of Atreus and businessfourzero. The increase was due to increases in business development travel, office occupancy costs, intangible amortization and accretion, marketing expenses, hiring fees, bad debt, and taxes and licenses costs, partially offset by a decrease in insurance and bank fees.  As a percentage of net revenue, general and administrative expenses were 15.6% for the 2024 first quarter compared to 14.3% in the 2023 first quarter.

The Company's cost of services was $27.4 million, or 10.3% of net revenue for the quarter, compared to $22.8 million, or 9.5% of net revenue in the 2023 first quarter. This primarily 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 2.2%, of net revenue for the quarter compared to $5.5 million, or 2.3%, of net revenue for the first quarter 2023.

Net cash used in operating activities was $203.4 million, compared to net cash used by operating activities of $337.0 million in the 2023 first quarter. Cash, cash equivalents and marketable securities at March 31, 2024 was $252.8 million compared to $204.7 million at March 31, 2023 and $478.2 million at December 31, 2023. 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 following the year in which they are earned.

Dividend

The Board of Directors declared a 2024 first quarter cash dividend of $0.15 per share payable on May 23, 2024, to shareholders of record at the close of business on May 16, 2024. 

2024 Second Quarter Outlook 

The Company expects 2024 second quarter consolidated net revenue of between $255 million and $275 million, 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 March 2024 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 first quarter results today, May 6, 2024 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 (800) 715-9871 or (646) 307-1963, conference ID# 4805686.  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 70 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 EBITDA, Adjusted EBITDA margin, and consolidated net revenue excluding the impact of exchange rate fluctuations (referred to as on a constant currency basis). 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 EBITDA refers to net income before interest, taxes, depreciation and amortization, as adjusted, to the extent they occur, for earnout accretion, earnout fair value adjustments, contingent compensation, deferred compensation plan income or expense, certain reorganization costs, impairment charges and restructuring charges.

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 second quarter of 2024. 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, retain and motivate 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 fact that increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks could pose a risk to our systems, networks, solutions, services and data; the fact that our net revenue may be affected by adverse macroeconomic or labor market conditions, including impacts of inflation and effects of geopolitical instability; the aggressive competition we face; 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, the risks of an expansion or escalation of those conflicts and our ability to quickly and completely recover from any disruption to our business; unfavorable tax law changes and tax authority rulings; our ability to realize the benefit of our net 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 maintain an effective system of disclosure controls and internal control over our financial reporting and produce accurate and timely financial statements; our ability to execute and integrate future acquisitions; and the fact that we have anti-takeover provisions that 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, 2023, under the heading "Risk Factors" in Item 1A. 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
[email protected]

Media:
Bianca Wilson, Director, Public Relations
[email protected]

SOURCE Heidrick & Struggles