Heidrick & Struggles Reports 2022 Third Quarter and Nine Month Results

Rhea-AI Summary

Heidrick & Struggles (Nasdaq: HSII) announced its Q3 2022 results, reporting net revenue of $255.2 million and diluted EPS of $1.02. Operating income was $28.3 million, with an operating margin of 11.1%. Despite unfavorable foreign exchange impacts, consolidated net revenue saw a 0.7% increase year-over-year on a constant currency basis. Cash and equivalents totaled $456.0 million, up 30.9% from a year ago, while the company anticipates Q4 revenue between $215 million and $235 million. A dividend of $0.15 per share was declared for Q4.

Positive

• Net revenue of $255.2 million, a 0.7% increase on a constant currency basis.
• Cash and equivalents at $456.0 million, a 30.9% year-over-year increase.
• Diluted EPS of $1.02, demonstrating strong profitability.
• Declaring a Q4 cash dividend of $0.15 per share.

Negative

• Operating income decreased to $28.3 million from $33.3 million in Q3 2021.
• Total net revenue decreased from $263.8 million in Q3 2021.
• Executive Search net revenue declined by 4.0% due to exchange rate fluctuations.

Robust Operating Margins of 11.1% in the Third Quarter

Achieved $1.02 Diluted EPS in the Third Quarter

CHICAGO, Oct. 24, 2022 /PRNewswire/ -- Today Heidrick & Struggles International, Inc. (Nasdaq: HSII) ("Heidrick & Struggles" or the "Company") announced financial results for its third quarter ended September 30, 2022.

Third Quarter Highlights:

• Net revenue of $255.2 million; on a constant currency basis net revenue was $265.8 million
• Operating income of $28.3 million and operating margin of 11.1%
• Net income of $20.8 million and diluted earnings per share of $1.02
• Adjusted EBITDA of $33.3 million and adjusted EBITDA margin of 13.0%
• Cash, cash equivalents and marketable securities was $456.0 million, 30.9% higher than September 30, 2021

"We are pleased with the performance we delivered in the third quarter, which was near historic highs," stated Heidrick & Struggles' President and Chief Executive Officer, Krishnan Rajagopalan. "Our strong profitability was realized even as we continue to make investments for the long-term in digital product innovation and despite unfavorable foreign exchange fluctuations. We are proud of our results as they were achieved in a slowing global market that is being impacted by looming recessionary concerns given rampant inflation and rising interest rates. On a constant currency basis, revenue for the quarter exceeded our record year-ago levels. Further, even with the current market slowdown and the strength of the U.S. dollar, we still expect to see our performance to be above the record years we delivered pre-pandemic in 2018 and 2019."

Rajagopalan continued, "We continue on our ambitious path, with a goal to transform Heidrick & Struggles into the world's leading leadership advisory firm that will provide a new generation of business services that will enable companies to achieve higher performance from their executive-level talent in a fast-changing world. Across Executive Search, On-Demand Talent and Heidrick Consulting, we're leveraging our assets while developing complementary digital products to strategically differentiate our firm and address vital leadership needs along with commitments to DE&I, purpose and sustainability. Together with our powerful One Heidrick go-to-market approach, we expect our diversification strategy will meet increasingly complex client demands, while further enhancing long-term shareholder value."

2022 Third Quarter Results

Consolidated net revenue of $255.2 million compared to record consolidated net revenue of $263.8 million in the 2021 third quarter. Excluding the impact of exchange rate fluctuations, which negatively impacted results by 4.0%, or $10.6 million, consolidated net revenue increased 0.7%, or $2.0 million from the 2021 third quarter.

Executive Search net revenue of $212.8 million compared to net revenue of $221.6 million in the 2021 third quarter. Excluding the impact of exchange rate fluctuations, which negatively impacted results by 4.2%, or $9.2 million, net revenue increased 0.2%, or $0.4 million from the 2021 third quarter. Net revenue decreased 3.4% in the Americas (down 3.3% on a constant currency basis), decreased 3.6% in Europe (up 12.7% on a constant currency basis), and decreased 7.3% in Asia Pacific (down 0.6% on a constant currency basis) when compared to the prior year third quarter. The Industrial and Social Impact practice groups exhibited growth over the prior year. 

The Company had 389 Executive Search consultants at September 30, 2022, compared to 368 at September 30, 2021. Productivity, as measured by annualized Executive Search net revenue per consultant, was $2.2 million compared to $2.4 million in the 2021 third quarter. Average revenue per executive search was approximately $155,000, up from $134,000 a year earlier. The number of confirmed searches decreased 17.1% compared to the year-ago period.

On-Demand Talent net revenue of $23.2 million compared to net revenue of $24.3 million in the 2021 third quarter. This reflects an anticipated seasonal slowdown partially offset by increases in average project size, reflecting strategic initiatives to expand and penetrate key accounts, along with increases in project extensions.

Heidrick Consulting net revenue of $19.1 million compared to net revenue of $17.9 million in the 2021 third quarter. Excluding the impact of exchange rate fluctuations, which negatively impacted results by 7.5%, or $1.3 million, Heidrick Consulting revenue increased 14.4%, or $2.6 million, compared to the prior year period.  The Company had 72 Heidrick Consulting consultants at September 30, 2022, compared to 66 at September 30, 2021.  

Consolidated salaries and benefits decreased $14.4 million, or 7.8%, to $171.5 million compared to $185.9 million in the 2021 third quarter. Year-over-year, fixed compensation expense increased $3.4 million due to base salaries and payroll taxes and retirement and benefits, partially offset by decreases in the deferred compensation plan and talent acquisition and retention costs. Variable compensation decreased $17.9 million due to a decrease in production. Salaries and benefits expense was 67.2% of net revenue for the quarter, compared to 70.5% in the 2021 third quarter.

General and administrative expenses were $32.2 million compared to $29.2 million in the 2021 third quarter. The increase was primarily due to business development travel, information technology, bad debt and professional fees.  As a percentage of net revenue, general and administrative expenses were 12.6% for the 2022 third quarter compared to 11.1% in the 2021 third quarter.

The Company's cost of services was $17.8 million, or 7.0% of net revenue for the quarter, compared to $18.7 million, or 7.1% of net revenue in the 2021 third quarter, primarily related to On-Demand Talent and a decrease in the volume of on-demand projects.

Research and development, a new category of expense in 2022 that captures expenses associated with new digital product development efforts, was $5.4 million, or 2.1% of net revenue for the quarter. Consistent with all investments, research and development is subject to the Company's return on investment criteria.

Operating income was $28.3 million for the quarter compared to record $33.3 million in the 2021 third quarter. Operating income margin was 11.1% versus 12.6% in the 2021 third quarter.  The Company recorded a fair value adjustment to reduce the On-Demand Talent earnout by $0.5 million in the 2022 third quarter. Year-ago results included a $3.3 million restructuring credit related to the timing of office closures associated with the Company's real estate strategy. Excluding these items in both periods, adjusted operating income in the 2022 third quarter was $27.8 million compared to $30.1 million in the 2021 third quarter and adjusted operating income margin was 10.9% compared to 11.4% in the 2021 third quarter.  

Net income was $20.8 million and diluted earnings per share was $1.02, with an effective tax rate of 29.5%. This compares to record net income of $24.5 million and record diluted earnings per share of $1.21, with an effective tax rate of 27.0%, in the 2021 third quarter. Excluding the aforementioned fair value adjustment of the earnout in the 2022 third quarter and the restructuring credit in the 2021 third quarter, adjusted net income in the 2022 third quarter was $20.5 million compared to $22.4 million in the 2021 third quarter and adjusted diluted earnings per share was $1.00 compared to $1.11 in the 2021 third quarter, with adjusted effective tax rates of 29.5% and 26.0%, respectively, for the 2022 third quarter and 2021 third quarter.

Adjusted EBITDA was $33.3 million compared to $35.5 million in the 2021 third quarter. Adjusted EBITDA margin was 13.0%, compared to 13.5% in the 2021 third quarter. 

Net cash provided by operating activities was $138.5 million, compared to net cash provided by operating activities of $117.1 million in the 2021 third quarter. Cash, cash equivalents and marketable securities at September 30, 2022 was $456.0 million, compared to $545.2 million at December 31, 2021 and $348.3 million at September 30, 2021. The Company's cash position typically builds throughout the year as employee bonuses are accrued, mostly to be paid out in the first quarter. There was no debt on the balance sheet at September 30, 2022, providing the Company financial flexibility.

2022 Nine Month Results

For the nine months ended September 30, 2022, consolidated net revenue was $837.7 million compared to $717.5 million in the first nine months of 2021. Excluding the impact of exchange rate fluctuations, which negatively impacted results by 3.2%, or $22.9 million, consolidated net revenue increased 20.0%, or $143.2 million, compared to the prior year period.

Executive Search net revenue in the first nine months of 2022 increased 13.4%, or $83.9 million, to $709.3 million from $625.4 million in the first nine months of 2021. Excluding the impact of exchange rate fluctuations, which negatively impacted results by 3.2%, or $20.0 million, net revenue increased 16.6%, or $103.9 million. Net revenue increased 16.9% in the Americas (increased 16.8% on a constant currency basis), increased 11.0% in Europe (increased 23.4% on a constant currency basis), and increased 0.6% in Asia Pacific (increased 5.8% on a constant currency basis). All industry practices exhibited growth over the prior year, except for Healthcare & Life Sciences. Productivity was $2.5 million for the first nine months of 2022 compared to $2.3 million in the first nine months of 2021. The average revenue per executive search was approximately $142,000 in the first nine months of 2022 compared to $127,000 the same period in 2021, while confirmations increased 1.2%.

On-Demand Talent net revenue in the first nine months of 2022 was $69.0 million compared to $43.0 million in the same period of 2021. The increase in net revenue was primarily due to the timing of the acquisition in the prior year and an increase in the average project size.

Heidrick Consulting net revenue in the first nine months of 2022 increased 21.3%, or $10.4 million, to $59.5 million from $49.1 million in the first nine months of 2021. Excluding the impact of exchange rate fluctuations, which negatively impacted results by 5.6%, or $2.7 million, Heidrick Consulting revenue increased 26.9%, or $13.2 million, compared to the prior year period.

Operating income for the first nine months of 2022 was $92.4 million compared to operating income of $81.7 million in the same period of 2021. The operating income margin was 11.0% compared to 11.4% in the first nine months of 2021. Excluding the $0.5 million fair value adjustment to reduce the earnout in the 2022 year-to-date period and the restructuring charge of $3.8 million recorded in the 2021 year-to-date period, adjusted operating income for the first nine months of 2022 was $91.9 million compared to $85.4 million in the first nine months of 2021 and adjusted operating income margin was 11.0% compared to 11.9% in the first nine months of 2021.

Net income for the first nine months of 2022 was $63.4 million and diluted earnings per share was $3.09, with an effective tax rate of 31.3%. This compares to net income of $60.1 million and diluted earnings per share of $2.97 with an effective tax rate of 31.8% in the first nine months of 2021. Excluding the aforementioned fair value adjustment of the earnout recorded in the 2022 year-to-date period and the restructuring charge recorded in the 2021 year-to-date period, adjusted net income for the first nine months of 2022 was $63.1 million compared to $62.7 million in the first nine months of 2021 and adjusted diluted earnings per share was $3.07 compared to $3.10 in the first nine months of 2021, with adjusted effective tax rates of 31.3% and 31.7%, respectively, for the 2022 period and 2021 period.

Adjusted EBITDA for the first nine months of 2022 was $105.7 million and adjusted EBITDA margin was 12.6%, compared to adjusted EBITDA of $104.5 million and adjusted EBITDA margin of 14.6% for the same period in 2021.

Dividend

The Board of Directors declared a 2022 fourth quarter cash dividend of $0.15 per share payable on November 18, 2022, to shareholders of record at the close of business on November 4, 2022. 

2022 Fourth Quarter Outlook

The Company expects 2022 fourth quarter consolidated net revenue between $215 million and $235 million, while acknowledging that continued fluidity in external factors such as the foreign exchange and interest rate environments, foreign conflicts, and inflation may impact quarterly results. In addition, this outlook is based on the average currency rates in September 2022 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 24, 2022 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.

The non-GAAP financial measures used within this earnings release are adjusted operating income, adjusted operating income margin, adjusted net income, adjusted basic and diluted earnings per share, adjusted effective tax rate, adjusted EBITDA, adjusted EBITDA margin, and consolidated and segment 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 earnout obligation adjustments and restructuring charges.

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 earnout obligation adjustments and restructuring charges, net of tax.

Adjusted effective tax rate reflects the exclusion of earnout obligation adjustments and restructuring charges, 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, 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 2022. 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," "goal" 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, the impacts, direct and indirect, of the COVID-19 pandemic (including the emergence of variant strains) on our business, our consultants and employees, and the overall economy; the impact on the global or a regional economy due to the outbreak or escalation of hostilities or war; 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 is 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, 2021, 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 September 30,
	2022		2021		$ Change		% Change
Revenue
Revenue before reimbursements (net revenue)	$   255,185		$   263,825		$        (8,640)		(3.3) %
Reimbursements	3,086		1,490		1,596		107.1 %
Total revenue	258,271		265,315		(7,044)		(2.7) %
Operating expenses
Salaries and benefits	171,473		185,904		(14,431)		(7.8) %
General and administrative expenses	32,189		29,155		3,034		10.4 %
Cost of services	17,801		18,686		(885)		(4.7) %
Research and development	5,400		—		5,400		100.0 %
Restructuring charges	—		(3,262)		3,262		(100.0) %
Reimbursed expenses	3,086		1,490		1,596		107.1 %
Total operating expenses	229,949		231,973		(2,024)		(0.9) %
Operating income	28,322		33,342		(5,020)		(15.1) %
Non-operating income (expense)
Interest, net	1,255		90
Other, net	(43)		145
Net non-operating income	1,212		235
Income before income taxes	29,534		33,577
Provision for income taxes	8,708		9,079
Net income	20,826		24,498
Other comprehensive loss, net of tax	(5,454)		(661)
Comprehensive income	$     15,372		$     23,837
Weighted-average common shares outstanding
Basic	19,816		19,569
Diluted	20,413		20,240
Earnings per common share
Basic	$        1.05		$        1.25
Diluted	$        1.02		$        1.21
Salaries and benefits as a % of net revenue	67.2 %		70.5 %
General and administrative expenses as a % of net revenue	12.6 %		11.1 %
Cost of services as a % of net revenue	7.0 %		7.1 %
Research and development as a % of net revenue	2.1 %		— %
Operating margin	11.1 %		12.6 %

 

Heidrick & Struggles International, Inc. Segment Information (In thousands) (Unaudited)
	Three Months Ended September 30,
	2022		2021		$ Change		% Change		2022 Margin1		2021 Margin1
Revenue
Executive Search
Americas	$ 143,747		$ 148,844		$  (5,097)		(3.4) %
Europe	41,141		42,676		(1,535)		(3.6) %
Asia Pacific	27,919		30,126		(2,207)		(7.3) %
Total Executive Search	212,807		221,646		(8,839)		(4.0) %
On-Demand Talent	23,247		24,287		(1,040)		(4.3) %
Heidrick Consulting	19,131		17,892		1,239		6.9 %
Revenue before reimbursements (net revenue)	255,185		263,825		(8,640)		(3.3) %
Reimbursements	3,086		1,490		1,596		107.1 %
Total revenue	$ 258,271		$ 265,315		$  (7,044)		(2.7) %
Operating income (loss)
Executive Search
Americas2	$ 39,741		$ 38,972		$      769		2.0 %		27.6 %		26.2 %
Europe3	5,652		4,795		857		17.9 %		13.7 %		11.2 %
Asia Pacific	4,503		4,712		(209)		(4.4) %		16.1 %		15.6 %
Total Executive Search	49,896		48,479		1,417		2.9 %		23.4 %		21.9 %
On-Demand Talent4	(276)		881		(1,157)		(131.3) %		(1.2) %		3.6 %
Heidrick Consulting5	(2,000)		(2,556)		556		21.8 %		(10.5) %		(14.3) %
Total segments	47,620		46,804		816		1.7 %		18.7 %		17.7 %
Research and Development	(5,400)		—		(5,400)		(100.0) %		(2.1) %		— %
Global Operations Support6	(13,898)		(13,462)		(436)		(3.2) %		(5.4) %		(5.1) %
Total operating income	$ 28,322		$ 33,342		$  (5,020)		(15.1) %		11.1 %		12.6 %

1	Margin based on revenue before reimbursements (net revenue).
2	Includes restructuring reversals of $2.9 million for the three months ended September 30, 2021.
3	Includes restructuring charges of less than $0.1 million for the three months ended September 30, 2021.
4	Includes a fair value adjustment to reduce the On-Demand Talent earnout by $0.5 million for the three months ended September 30, 2022.
5	Includes restructuring reversals of $0.3 million for the three months ended September 30, 2021.
6	Includes restructuring reversals of $0.1 million for the three months ended September 30, 2021.

 

Heidrick & Struggles International, Inc. Consolidated Statements of Comprehensive Income (In thousands, except per share amounts) (Unaudited)
	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
Revenue
Revenue before reimbursements (net revenue)	$   837,747		$   717,462		$      120,285		16.8 %
Reimbursements	7,170		3,819		3,351		87.7 %
Total revenue	844,917		721,281		123,636		17.1 %
Operating expenses
Salaries and benefits	580,602		513,321		67,281		13.1 %
General and administrative expenses	97,186		83,876		13,310		15.9 %
Cost of services	53,192		34,817		18,375		52.8 %
Research and development	14,347		—		14,347		100.0 %
Restructuring charges	—		3,792		(3,792)		(100.0) %
Reimbursed expenses	7,170		3,819		3,351		87.7 %
Total operating expenses	752,497		639,625		112,872		17.6 %
Operating income	92,420		81,656		10,764		13.2 %
Non-operating income (loss)
Interest, net	1,664		207
Other, net	(1,740)		6,260
Net non-operating income (loss)	(76)		6,467
Income before income taxes	92,344		88,123
Provision for income taxes	28,902		28,028
Net income	63,442		60,095
Other comprehensive loss, net of tax	(14,060)		(1,349)
Comprehensive income	$     49,382		$     58,746
Weighted-average common shares outstanding
Basic	19,723		19,489
Diluted	20,558		20,259
Earnings per common share
Basic	$        3.22		$        3.08
Diluted	$        3.09		$        2.97
Salaries and benefits as a % of net revenue	69.3 %		71.5 %
General and administrative expenses as a % of net revenue	11.6 %		11.7 %
Cost of services as a % of net revenue	6.3 %		4.9 %
Research and development as a % of net revenue	1.7 %		— %
Operating margin	11.0 %		11.4 %

 

Heidrick & Struggles International, Inc. Segment Information (In thousands) (Unaudited)
	Nine Months Ended September 30,
	2022		2021		$ Change		% Change		2022 Margin1		2021 Margin1
Revenue
Executive Search
Americas	$ 482,320		$ 412,740		$ 69,580		16.9 %
Europe	139,017		125,228		13,789		11.0 %
Asia Pacific	87,928		87,429		499		0.6 %
Total Executive Search	709,265		625,397		83,868		13.4 %
On-Demand Talent	68,981		43,006		25,975		60.4 %
Heidrick Consulting	59,501		49,059		10,442		21.3 %
Revenue before reimbursements (net revenue)	837,747		717,462		120,285		16.8 %
Reimbursements	7,170		3,819		3,351		87.7 %
Total revenue	$ 844,917		$ 721,281		$ 123,636		17.1 %
Operating income (loss)
Executive Search
Americas2	$ 123,842		$ 99,822		$ 24,020		24.1 %		25.7 %		24.2 %
Europe3	15,661		13,314		2,347		17.6 %		11.3 %		10.6 %
Asia Pacific4	13,469		13,241		228		1.7 %		15.3 %		15.1 %
Total Executive Search	152,972		126,377		26,595		21.0 %		21.6 %		20.2 %
On-Demand Talent5	(1,207)		1,034		(2,241)		NM		(1.7) %		2.4 %
Heidrick Consulting6	(4,492)		(10,897)		6,405		58.8 %		(7.5) %		(22.2) %
Total segments	147,273		116,514		30,759		26.4 %		17.6 %		16.2 %
Research and Development	(14,347)		—		(14,347)		(100.0) %		(1.7) %		— %
Global Operations Support7	(40,506)		(34,858)		(5,648)		(16.2) %		(4.8) %		(4.9) %
Total operating income	$ 92,420		$ 81,656		$ 10,764		(13.2) %		11.0 %		11.4 %

1	Margin based on revenue before reimbursements (net revenue).
2	Includes restructuring charges of $3.9 million for the nine months ended September 30, 2021.
3	Includes restructuring reversals of $0.1 million for the nine months ended September 30, 2021.
4	Includes restructuring reversals of $0.1 million for the nine months ended September 30, 2021.
5	Includes a fair value adjustment to reduce the On-Demand Talent earnout by $0.5 million for the nine months ended September 30, 2022.
6	Includes restructuring charges of $0.4 million for the nine months ended September 30, 2021.
7	Includes restructuring reversals of $0.2 million for the nine months ended September 30, 2021.

 

Heidrick & Struggles International, Inc. Reconciliation of Operating Income and Adjusted Operating Income (Non-GAAP) (In thousands) (Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue before reimbursements (net revenue)	$     255,185		$     263,825		$     837,747		$     717,462
Operating income	28,322		33,342		92,420		81,656
Adjustments
Earnout adjustment1	(507)		—		(507)		—
Restructuring charges2	—		(3,262)		—		3,792
Total adjustments	(507)		(3,262)		(507)		3,792
Adjusted operating income	$       27,815		$       30,080		$       91,913		$       85,448
Operating margin	11.1 %		12.6 %		11.0 %		11.4 %
Adjusted operating margin	10.9 %		11.4 %		11.0 %		11.9 %

1	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.
2	The Company incurred restructuring reversals of $3.3 million and restructuring charges of $3.8 million for the three and nine months ended September 30, 2021, respectively.

 

Heidrick & Struggles International, Inc. Reconciliation of Operating Income and Adjusted Operating Income (Non-GAAP) (In thousands) (Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$          20,826		$          24,498		$        63,442		$        60,095
Adjustments
Earnout adjustment, net of tax1	(350)		—		(350)		—
Restructuring charges, net of tax2	—		(2,075)		—		2,642
Total adjustments	(350)		(2,075)		(350)		2,642
Adjusted net income	$          20,476		$          22,423		$        63,092		$        62,737
Weighted-average common shares outstanding
Basic	19,816		19,569		19,723		19,489
Diluted	20,413		20,240		20,558		20,259
Earnings per common share
Basic	$              1.05		$              1.25		$           3.22		$           3.08
Diluted	$              1.02		$              1.21		$           3.09		$           2.97
Adjusted earnings per common share
Basic	$              1.03		$              1.15		$           3.20		$           3.22
Diluted	$              1.00		$              1.11		$           3.07		$           3.10

1	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.
2	The Company incurred restructuring reversals of $3.3 million and restructuring charges of $3.8 million for the three and nine months ended September 30, 2021, respectively.

 

Heidrick & Struggles International, Inc. Consolidated Balance Sheets (In thousands) (Unaudited)
	September 30, 2022		December 31, 2021
Current assets
Cash and cash equivalents	$         275,468		$         545,225
Marketable securities	180,507		—
Accounts receivable, net	190,893		133,750
Prepaid expenses	27,322		21,754
Other current assets	41,578		41,449
Income taxes recoverable	4,348		3,210
Total current assets	720,116		745,388
Non-current assets
Property and equipment, net	29,317		27,085
Operating lease right-of-use assets	69,400		72,320
Assets designated for retirement and pension plans	10,961		12,715
Investments	31,728		36,051
Other non-current assets	26,379		23,377
Goodwill	138,069		138,524
Other intangible assets, net	6,998		9,169
Deferred income taxes	40,285		42,169
Total non-current assets	353,137		361,410
Total assets	$      1,073,253		$      1,106,798
Current liabilities
Accounts payable	$           17,248		$           20,374
Accrued salaries and benefits	375,430		409,026
Deferred revenue	43,547		51,404
Operating lease liabilities	17,854		19,332
Other current liabilities	59,301		24,554
Income taxes payable	5,224		10,004
Total current liabilities	518,604		534,694
Non-current liabilities
Accrued salaries and benefits	56,742		73,779
Retirement and pension plans	48,730		55,593
Operating lease liabilities	60,396		65,625
Other non-current liabilities	4,250		41,087
Total non-current liabilities	170,118		236,084
Total liabilities	688,722		770,778
Stockholders' equity	384,531		336,020
Total liabilities and stockholders' equity	$      1,073,253		$      1,106,798

 

Heidrick & Struggles International, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited)
		Three Months Ended September 30,
		2022		2021
Cash flows - operating activities
Net income		$          20,826		$          24,498
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,583		4,534
Deferred income taxes		(730)		(347)
Stock-based compensation expense		4,209		2,820
Accretion expense related to earnout payments		275		182
Gain on marketable securities		(113)		—
Loss on disposal of property and equipment		67		12
Changes in assets and liabilities:
Accounts receivable		20,030		(13,897)
Accounts payable		694		434
Accrued expenses		91,867		113,697
Restructuring accrual		—		(361)
Deferred revenue		(4,386)		3,575
Income taxes recoverable and payable, net		2,453		2,422
Retirement and pension plan assets and liabilities		179		7
Prepaid expenses		(1,967)		(1,742)
Other assets and liabilities, net		2,477		(18,715)
Net cash provided by operating activities		138,464		117,119
Cash flows - investing activities
Capital expenditures		(3,940)		(1,196)
Purchases of marketable securities and investments		(180,739)		(326)
Proceeds from sales of marketable securities and investments		226		338
Net cash used in investing activities		(184,453)		(1,184)
Cash flows - financing activities
Cash dividends paid		(3,120)		(2,862)
Net cash used in financing activities		(3,120)		(2,862)
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash		(12,031)		(2,595)
Net increase (decrease) in cash, cash equivalents and restricted cash		(61,140)		110,478
Cash, cash equivalents and restricted cash at beginning of period		336,650		237,848
Cash, cash equivalents and restricted cash at end of period		$        275,510		$        348,326

 

Heidrick & Struggles International, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited)
		Nine Months Ended September 30,
		2022		2021
Cash flows - operating activities
Net income		$        63,442		$        60,095
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		7,824		16,576
Deferred income taxes		(976)		(1,486)
Stock-based compensation expense		11,691		8,672
Accretion expense related to earnout payments		820		363
Gain on marketable securities		(113)		(1)
Loss on disposal of property and equipment		376		127
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable		(64,753)		(84,877)
Accounts payable		(3,250)		2,931
Accrued expenses		(32,414)		89,405
Restructuring accrual		—		(5,024)
Deferred revenue		(5,913)		6,453
Income taxes recoverable and payable, net		(5,661)		14,937
Retirement and pension plan assets and liabilities		3,476		1,443
Prepaid expenses		(6,637)		(7,724)
Other assets and liabilities, net		(8,960)		(37,114)
Net cash provided by (used in) operating activities		(41,048)		64,776
Cash flows - investing activities
Acquisition of business, net of cash acquired		—		(31,969)
Capital expenditures		(8,176)		(3,902)
Purchases of marketable securities and investments		(186,097)		(1,997)
Proceeds from sales of marketable securities and investments		1,216		20,653
Net cash used in investing activities		(193,057)		(17,215)
Cash flows - financing activities
Cash dividends paid		(9,343)		(8,927)
Payment of employee tax withholdings on equity transactions		(3,219)		(3,090)
Net cash used in financing activities		(12,562)		(12,017)
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash		(23,082)		(3,707)
Net increase (decrease) in cash, cash equivalents and restricted cash		(269,749)		31,837
Cash, cash equivalents and restricted cash at beginning of period		545,259		316,489
Cash, cash equivalents and restricted cash at end of period		$      275,510		$      348,326

 

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,
	2022		2021		2022		2021
Revenue before reimbursements (net revenue)	$    255,185		$    263,825		$    837,747		$    717,462
Net income	20,826		24,498		63,442		60,095
Interest, net	(1,255)		(90)		(1,664)		(207)
Other, net	43		(145)		1,740		(6,260)
Provision for income taxes	8,708		9,079		28,902		28,028
Operating income	28,322		33,342		92,420		81,656
Adjustments
Stock-based compensation expense	3,778		2,846		10,804		8,311
Depreciation	1,785		1,774		5,403		5,311
Intangible amortization	799		751		2,421		1,752
Earnout accretion	276		182		820		363
Earnout fair value adjustments	(507)		—		(507)		—
Acquisition contingent consideration	911		475		2,971		1,398
Deferred compensation plan	(2,102)		(606)		(8,589)		1,949
Restructuring charges	—		(3,262)		—		3,792
Total adjustments	4,940		2,160		13,323		22,876
Adjusted EBITDA	$      33,262		$      35,502		$    105,743		$    104,532
Adjusted EBITDA margin	13.0 %		13.5 %		12.6 %		14.6 %

 

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SOURCE Heidrick & Struggles International, Inc.

FAQ

What were Heidrick & Struggles' Q3 2022 financial results?

Heidrick & Struggles reported Q3 2022 net revenue of $255.2 million and diluted EPS of $1.02.

How did the US dollar impact Heidrick & Struggles' revenue?

The strong US dollar negatively impacted revenue by approximately 4.0%, equivalent to $10.6 million.

What is the forecast for Heidrick & Struggles' Q4 2022 revenue?

Heidrick & Struggles expects Q4 2022 consolidated net revenue between $215 million and $235 million.

What cash dividend has Heidrick & Struggles declared for Q4 2022?

Heidrick & Struggles declared a cash dividend of $0.15 per share for Q4 2022.

What was the operating margin reported by Heidrick & Struggles for Q3 2022?

The operating margin for Q3 2022 was reported at 11.1%.