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Heidrick & Struggles Reports First Quarter 2024 Results
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.
