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Heidrick & Struggles Reports Third Quarter 2024 Results
Heidrick & Struggles International, Inc. (Nasdaq: HSII) ("Heidrick & Struggles", "Heidrick" or the "Company") today announced financial results for its third quarter ended September 30, 2024.
Third Quarter Highlights:
- Net revenue of $278.6 million increased 5.9% year-over-year
- Adjusted EBITDA of $30.4 million
- Adjusted EBITDA margin of 10.9%
"Our Heidrick colleagues delivered solid quarterly results, outperforming industry trends and reaching the upper end of our outlook. This performance reflects our team's sharp focus on market opportunities and client needs even as we implemented significant change across our organization," said CEO Tom Monahan. "Looking ahead, there is still much work to be done as we pursue growth opportunities in Executive Search, more tightly focus our suite of leadership solutions, and drive profitability and scalability across the portfolio."
"This work will allow us to take advantage of a large and growing market opportunity as clients increasingly put leadership strategy at the heart of their corporate strategy. With an iconic brand, deep expertise across regions and sectors, and a robust financial position, we believe Heidrick is well positioned to attract top talent and cultivate deeper and more durable client relationships. Combining these assets with disciplined execution will enable us to achieve sustained and profitable organic growth while enhancing long-term shareholder value."
2024 Third Quarter Results
Consolidated net revenue of $278.6 million increased $15.4 million, or 5.9%, compared to $263.2 million in the 2023 third 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 $30.4 million compared to $29.3 million in the 2023 third quarter. Adjusted EBITDA margin was 10.9%, compared to 11.2% in the 2023 third quarter. In Executive Search, Adjusted EBITDA was $50.7 million compared to $51.0 million in the prior year period. In On-Demand Talent, Adjusted EBITDA was $1.8 million versus a loss of $0.6 million in the prior year period. In Heidrick Consulting, Adjusted EBITDA was a loss of $1.0 million compared to a loss of $2.4 million in the prior year period.
Net income was $14.8 million and diluted earnings per share was $0.71 with an effective tax rate of 29.7% compared to net income of $15.0 million and diluted earnings per share of $0.73, with an effective tax rate of 37.5% in the 2023 third quarter. The 2024 third quarter effective tax rate was positively impacted by a decrease in the Company's estimated annual effective tax rate. 2024 third quarter adjusted net income was $15.1 million and adjusted diluted earnings per share was $0.72, with an adjusted effective tax rate of 28.5%.
Executive Search net revenue of $204.4 million increased $5.6 million, or 2.8%, compared to net revenue of $198.8 million in the 2023 third quarter. Excluding the impact of exchange rate fluctuations, which positively impacted results by $0.2 million, or 0.1%, net revenue increased 2.7%, or $5.4 million from the 2023 third quarter. Net revenue increased 1.7% in the Americas (up 2.1% on a constant currency basis), decreased 3.3% in Europe (down 5.0% on a constant currency basis), and increased 22.0% in Asia Pacific (up 22.0% on a constant currency basis) when compared to the prior year third quarter.
The Company had 414 Executive Search consultants at September 30, 2024, compared to 417 at September 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 third quarter, reflecting a lower number of consultants combined with higher revenue. Average revenue per executive search was approximately $149,000 compared to $153,000 in the prior year period. The number of search confirmations increased 5.4% compared to the year-ago period.
On-Demand Talent net revenue of $46.2 million increased $5.2 million, or 12.6%, compared to net revenue of $41.1 million in the 2023 third quarter. Excluding the impact of exchange rate fluctuations, which positively impacted results by $0.4 million, or 0.9%, net revenue increased 11.7%, or $4.8 million from the 2023 third quarter.
Heidrick Consulting net revenue of $27.9 million increased $4.6 million, or 19.9%, compared to net revenue of $23.3 million in the 2023 third quarter. Excluding the impact of exchange rate fluctuations, which positively impacted results by $0.3 million, or 1.1%, net revenue increased 18.9%, or $4.4 million. The Company had 84 Heidrick Consulting consultants at September 30, 2024, compared to 90 at September 30, 2023.
Consolidated salaries and benefits increased $15.8 million, or 9.5%, to $183.0 million compared to $167.2 million in the 2023 third quarter. Year-over-year, fixed compensation expense increased $9.9 million primarily reflecting increases in expenses related to the non-cash mark-to-market adjustments associated with the deferred compensation and stock compensation plans. Variable compensation increased $5.9 million due to an increase in consultant production. Salaries and benefits expense was 65.7% of net revenue for the quarter, compared to 63.5% in the 2023 third quarter.
General and administrative expenses increased $2.2 million, or 5.8%, to $39.7 million compared to $37.6 million in the 2023 third quarter. The increase was due to bad debt, office occupancy costs, expenses related to information technology, and business development travel, partially offset by decreases in professional fees, intangible amortization, and insurance and bank fees. As a percentage of net revenue, general and administrative expenses were 14.3% for both the 2024 and 2023 third quarters.
The Company's cost of services was $31.0 million, or 11.1% of net revenue for the quarter, compared to $30.7 million, or 11.7% of net revenue in the 2023 third 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 $5.7 million, or 2.0%, of net revenue for the quarter compared to $5.6 million, or 2.1%, of net revenue for the third quarter 2023.
Net cash provided by operating activities was $101.1 million compared to net cash provided by operating activities of $109.5 million in the 2023 third quarter. Cash, cash equivalents and marketable securities at September 30, 2024, was $409.4 million compared to $334.0 million at September 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 fourth quarter cash dividend of $0.15 per share payable on November 21, 2024, to shareholders of record at the close of business on November 14, 2024.
2024 Fourth Quarter Outlook
The Company expects 2024 fourth 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 September 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 third quarter results today, November 4, 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.
