Heidrick & Struggles Reports Fourth Quarter and Full Year 2023 Results

2023 Fourth Quarter Results

Consolidated net revenue was $253.2 million in the 2023 fourth quarter compared to consolidated net revenue of $235.7 million in the 2022 fourth quarter. The Company experienced growth in On-Demand Talent and Heidrick Consulting, partially offset by declines in Executive Search in Asia Pacific and the Americas.

Adjusted EBITDA was $35.8 million in the 2023 fourth quarter compared to $25.9 million in the 2022 fourth quarter, and 2023 fourth quarter adjusted EBITDA margin was 14.1% compared to 11.0% in the 2022 fourth quarter.

2023 fourth quarter net income was $14.9 million compared to $16.0 million in the 2022 fourth quarter. This generated diluted earnings per share in the 2023 fourth quarter of $0.72, compared to $0.78 in the 2022 fourth quarter.

Executive Search net revenue was $184.0 million compared to net revenue of $192.7 million in the 2022 fourth quarter. However, executive search confirmations increased by 4.0% in the fourth quarter of 2023 when compared to the same period last year. Net revenue decreased 5.6%, or $10.7 million on a constant currency basis from the 2022 fourth quarter. Net revenue decreased 4.4% in the Americas (down 4.7% on a constant currency basis), was flat in Europe (down 4.9% on a constant currency basis), and decreased 11.8% in Asia Pacific (down 11.2% on a constant currency basis) when compared to the prior year fourth quarter.

The Company had 414 Executive Search consultants at December 31, 2023, compared to 390 at December 31, 2022. Productivity, as measured by annualized Executive Search net revenue per consultant, was $1.8 million compared to $2.0 million in the 2022 fourth quarter, reflecting a higher number of consultants combined with lower revenue. Average revenue per executive search was approximately $138,000 compared to $150,000 in the prior year period. 

On-Demand Talent net revenue was $41.1 million, an increase of 83.7% compared to net revenue of $22.4 million in the 2022 fourth quarter, primarily due to the acquisition of Atreus Group GmbH ("Atreus").

Heidrick Consulting net revenue was $28.1 million compared to net revenue of $20.7 million in the 2022 fourth quarter due to organic growth coupled with the acquisition of businessfourzero. The Company had 89 Heidrick Consulting consultants at December 31, 2023, compared to 70 at December 31, 2022.

Consolidated salaries and benefits decreased $5.8 million, or 3.7%, to $151.0 million compared to $156.8 million in the 2022 fourth quarter. Year-over-year, fixed compensation expense increased $7.5 million due to increases in base salaries and payroll taxes, expenses related to the deferred compensation plan, talent acquisition and retention costs, and retirement and benefits, partially offset by decreases in stock compensation and separation costs. Variable compensation decreased $13.3 million due to lower bonus accruals related to decreased consultant productivity. Salaries and benefits expense was 59.7% of net revenue for the quarter compared to 66.5% in the 2022 fourth quarter.

General and administrative expenses increased $8.6 million, or 24.2%, to $44.1 million compared to $35.5 million in the 2022 fourth quarter. The increase was due to intangible amortization and accretion, bad debt, office occupancy, taxes and licenses, IT, marketing, and business development travel, partially offset by a decrease in professional fees. As a percentage of net revenue, general and administrative expenses were 17.4% for the 2023 fourth quarter compared to 15.1% in the 2022 fourth quarter.

The Company's cost of services was $30.2 million, or 11.9% of net revenue for the quarter, compared to $17.5 million, or 7.4% of net revenue in the 2022 fourth quarter. This increase is related to an increase in the volume of projects driven by the acquisitions of Atreus and businessfourzero.

The Company's research and development expenses were $6.0 million, or 2.4% of net revenue for the quarter compared to $6.1 million, or 2.6%, of net revenue for the fourth quarter 2022.

Adjusted EBITDA was $35.8 million compared to $25.9 million in the 2022 fourth quarter. Adjusted EBITDA margin was 14.1%, compared to 11.0% in the 2022 fourth quarter. In Executive Search, adjusted EBITDA was $54.7 million compared to $53.9 million in the prior year period. In On-Demand Talent, adjusted EBITDA was $0.8 million versus a loss of $1.4 million in the prior year period. In Heidrick Consulting, adjusted EBITDA was $1.0 million compared to a loss of $2.4 million in the prior year period.

Net income was $14.9 million and diluted earnings per share was $0.72, with an effective tax rate of 40.5%. This compares to net income of $16.0 million and diluted earnings per share of $0.78, with an effective tax rate of 29.9% in the 2022 fourth quarter.

Net cash provided by operating activities was $155.9 million, compared to $160.3 million in the 2022 fourth quarter. Cash, cash equivalents and marketable securities at December 31, 2023 was $478.2 million compared to $621.6 million at December 31, 2022, the decrease was due to earnout payments in 2023 related to the acquisition of Business Talent Group in 2021, as well as the acquisitions of Atreus and businessfourzero. 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 following year.

Fiscal 2023 Results

Consolidated net revenue decreased 4.3%, or $46.6 million, to $1,026.9 million compared to $1,073.5 million in 2022 (down 4.6%, or $49.5 million on a constant currency basis).

Executive Search net revenue decreased 13.5%, or $121.9 million, to $780.0 million from $901.9 million in 2022 (down 13.5%, or $121.6 million on a constant currency basis). In 2023, net revenue decreased 14.7% in the Americas, decreased 5.6% in Europe, and decreased 19.6% in Asia Pacific. All industry practices exhibited decline over the prior year with the exception of the Social Impact and Industrial practice groups. Productivity was $1.9 million, compared to $2.3 million in 2022. The average revenue per executive search was approximately $139,000 compared to $144,000 in 2022, while confirmations decreased 10.5%.

On-Demand Talent increased 66.9% to a record net revenue of $152.5 million compared to $91.3 million in 2022 (up 64.1% on a constant currency basis). The increase in net revenue was primarily due to the acquisition of Atreus.

Heidrick Consulting net revenue increased 17.6%, to a record $94.3 million from $80.2 million in 2022 (up 16.9% on a constant currency basis). The increase in net revenue was primarily due to the acquisition of businessfourzero.

Adjusted EBITDA was $125.6 million and adjusted EBITDA margin was 12.2%, compared to adjusted EBITDA of $120.9 million and adjusted EBITDA margin of 11.3% in 2022. In Executive Search, Adjusted EBITDA was $206.7 million compared to $206.2 million in the prior year. In On-Demand Talent, Adjusted EBITDA was $1.4 million versus a loss of $0.3 million in the prior year. In Heidrick Consulting, Adjusted EBITDA was a loss of $5.8 million compared to a loss of $6.4 million in the prior year.

Net income was $54.4 million and diluted earnings per share was $2.62, with an effective tax rate of 38.6%. This compares to net income of $79.5 million and diluted earnings per share of $3.86 with an effective tax rate of 31.0% in 2022. Excluding the goodwill impairment charges in 2023, adjusted net income was $60.4 million compared to $79.2 million in 2022 and adjusted diluted earnings per share was $2.91 compared to $3.84 in 2022, with adjusted effective tax rates of 37.0% and 31.0%, respectively, for the 2023 and 2022 periods.

Dividend

The Board of Directors declared a 2024 first quarter cash dividend of $0.15 per share payable on March 21, 2024, to shareholders of record at the close of business on March 8, 2024. 

2024 First Quarter Outlook

The Company expects 2024 first quarter consolidated net revenue of between $245 million and $265 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 December 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, and consultant retention along with the current backlog.

Quarterly Webcast and Conference Call

Heidrick & Struggles will host a conference call to review its fourth quarter results today, February 26, 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 (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 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 net income, adjusted diluted earnings per share, adjusted effective tax rate, adjusted EBITDA, adjusted EBITDA margin, and 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 allocate resources. 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 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, 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 first 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, leadership changes, 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; the fact that our net revenue may be affected by adverse economic conditions; our clients' ability to restrict us from recruiting their employees; the aggressive competition we face; our heavy reliance on information management systems; 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; social, political, regulatory and legal risks in markets where we operate; any challenges to the classification of our on-demand talent as independent contractors; the impact of foreign currency exchange rate fluctuations; the fact that we may not be able to align our cost structure with net revenue; unfavorable tax law changes and tax authority rulings; our ability to realize our tax losses; the timing of the establishment or reversal of valuation allowance on deferred tax assets; any impairment of our goodwill, other intangible assets and other long-lived assets; our ability to execute and integrate future acquisitions; the fact that we have anti-takeover provisions that make an acquisition of us difficult and expensive; our ability to access additional credit; and 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. 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, VP, Investor Relations
srosenberg@heidrick.com

Media:
Bianca Wilson, Director, Public Relations, Americas
bwilson@heidrick.com

Heidrick & Struggles International, Inc. Consolidated Statements of Comprehensive Income (In thousands, except per share amounts) (Unaudited)
	Three Months Ended December 31,
	2023		2022		$ Change		% Change
Revenue
Revenue before reimbursements (net revenue)	$   253,162		$   235,717		$        17,445		7.4 %
Reimbursements	4,228		2,952		1,276		43.2 %
Total revenue	257,390		238,669		18,721		7.8 %
Operating expenses
Salaries and benefits	151,036		156,828		(5,792)		(3.7) %
General and administrative expenses	44,089		35,492		8,597		24.2 %
Cost of services	30,221		17,484		12,737		72.8 %
Research and development	5,952		6,067		(115)		(1.9) %
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