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Heidrick & Struggles Reports Second Quarter 2024 Results
Heidrick & Struggles International, Inc. (Nasdaq: HSII) ("Heidrick & Struggles", "Heidrick" or the "Company") today announced financial results for its second quarter ended June 30, 2024.
Second Quarter Highlights:
- Net revenue grew to $278.6 million driven by all businesses
- Adjusted EBITDA was $28.8 million
- Adjusted EBITDA margin was 10.3%
"Our team delivered a strong second quarter. In a very complex operating environment, clients continue to need help engaging, assessing and enabling critical leadership talent – and our world-class colleagues met those needs with energy and creativity. This work helped propel our second quarter revenue beyond the high end of our outlook range while generating a double-digit EBITDA margin," stated CEO Tom Monahan.
"Even as we continued to deliver value to clients, we also made important changes to our leadership team and staffing levels. As a result, we enter the second half of the year with more targeted solutions and better alignment of our organization with client needs. Going forward, we are tightly focused on accelerating returns from our recent investment cycle and on creating unmatched value for clients, colleagues and investors."
2024 Second Quarter Results
Consolidated net revenue of $278.6 million compared to $271.2 million in the 2023 second quarter. The Company experienced revenue growth in On-Demand Talent, Heidrick Consulting, and Executive Search in the Americas and Asia Pacific, partially offset by a decrease in Executive Search in Europe.
Adjusted EBITDA was $28.8 million compared to $34.9 million in the 2023 second quarter. Adjusted EBITDA margin was 10.3%, compared to 12.9% in the 2023 second quarter. In Executive Search, Adjusted EBITDA was $52.7 million compared to $53.2 million in the prior year period. In On-Demand Talent, Adjusted EBITDA was a loss of $1.6 million versus a gain of $2.6 million in the prior year period. In Heidrick Consulting, Adjusted EBITDA was a loss of $1.4 million compared to a loss of $1.7 million in the prior year period.
In the 2024 second quarter, the company recorded a non-cash goodwill impairment charge of $16.2 million primarily related to the Company's On-Demand Talent segment, a $6.9 million restructuring charge and a $1.2 million earnout fair value adjustment. In the 2023 second quarter, the Company recorded a non-cash goodwill impairment charge of $7.2 million associated with the Company's Heidrick Consulting segment.
Including these unusual charges in the 2024 second quarter, net loss was $5.2 million and diluted loss per share was $0.25. Excluding these unusual charges in both the 2024 and 2023 second quarters, adjusted net income was $14.1 million and adjusted diluted earnings per share was $0.67, with an adjusted effective tax rate of 40.9%, in the 2024 second quarter. This compares to adjusted net income of $15.0 million and adjusted diluted earnings per share of $0.73, with an adjusted effective tax rate of 37.7% in the 2023 second quarter.
Executive Search net revenue of $210.0 million increased 1.5% compared to net revenue of $206.8 million in the 2023 second quarter. Excluding the impact of exchange rate fluctuations, which negatively impacted results by 0.4%, or $0.9 million, net revenue increased 2.0%, or $4.1 million from the 2023 second quarter. Net revenue increased 6.1% in the Americas (up 6.3% on a constant currency basis), decreased 12.0% in Europe (down 11.7% on a constant currency basis), and increased 0.7% in Asia Pacific (up 3.3% on a constant currency basis) when compared to the prior year second quarter. All practice groups, except for Consumer and Industrial, exhibited growth over the prior year period.
The Company had 415 Executive Search consultants at June 30, 2024, compared to 423 at June 30, 2023. Productivity, as measured by annualized Executive Search net revenue per consultant, was $2.0 million compared to $1.9 million in the 2023 second quarter, reflecting a lower number of consultants combined with higher revenue. Average revenue per executive search was approximately $151,000 compared to $146,000 in the prior year period. The number of search confirmations decreased 1.6% compared to the year-ago period.
On-Demand Talent net revenue of $41.9 million increased 6.8% compared to net revenue of $39.2 million in the 2023 second quarter. Excluding the impact of exchange rate fluctuations, which negatively impacted results by $0.2 million, or 0.5%, net revenue increased 7.3%, or $2.9 million from the 2023 second quarter.
Heidrick Consulting net revenue of $26.8 million increased 6.2% compared to net revenue of $25.2 million in the 2023 second quarter. The Company had 85 Heidrick Consulting consultants at June 30, 2024, compared to 89 at June 30, 2023.
Consolidated salaries and benefits decreased $1.0 million to $177.9 million compared to $178.9 million in the 2023 second quarter. Year-over-year, fixed compensation expense decreased $3.0 million due to decreases in separation expense, talent acquisition and retention costs, retirement and benefits expenses, and expenses related to the deferred compensation plan, partially offset by increases in stock compensation, and base salaries and payroll taxes. Variable compensation increased $1.9 million due to an increase in consultant production. Salaries and benefits expense was 63.8% of net revenue for the quarter, compared to 66.0% in the 2023 second quarter.
General and administrative expenses increased $5.9 million, or 14.7%, to $46.5 million compared to $40.5 million in the 2023 second quarter. The increase was due to the 2024 Global Conference, earnout fair value adjustments, professional fees, office occupancy, hiring fees, IT, and marketing, partially offset by decreases in intangible amortization, travel and entertainment, and the use of external third-party consultants. As a percentage of net revenue, general and administrative expenses were 16.7% for the 2024 second quarter compared to 14.9% in the 2023 second quarter.
The Company's cost of services was $29.7 million, or 10.7% of net revenue for the quarter, compared to $25.3 million, or 9.3% of net revenue in the 2023 second quarter. This primarily related to an increase in the volume of On-Demand Talent and Heidrick Consulting projects.
The Company's research and development expenses were $5.6 million, or 2.0%, of net revenue for the quarter compared to $5.7 million, or 2.1%, of net revenue for the second quarter 2023.
Net cash provided by operating activities was $62.5 million compared to net cash provided by operating activities of $46.9 million in the 2023 second quarter. Cash, cash equivalents and marketable securities at June 30, 2024 was $296.9 million compared to $239.0 million at June 30, 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 second quarter cash dividend of $0.15 per share payable on August 22, 2024, to shareholders of record at the close of business on August 9, 2024.
2024 Third Quarter Outlook
The Company expects 2024 third quarter consolidated net revenue of between $260 million and $280 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 June 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.
