August 1, 2023 – Executive search, leadership consulting, and culture shaping services provider Heidrick & Struggles / (NASDAQ:HSII) has posted second quarter revenues of $298.7 million, a 13 percent increase compared to the same period a year ago. The Chicago-headquartered recruiter — the fifth largest global firm as ranked by Hunt Scanlon Media — reported net income of $9.0 million and diluted earnings per share was $0.44, with an effective tax rate of 46.8 percent. This compares to net income of $24.1 million and diluted earnings per share of $1.19, with an effective tax rate of 30.9 percent in the 2022 second quarter.
“We are very pleased with the second quarter results which included the first full quarter of results from our recent acquisition of Atreus Group in our On-Demand Talent segment, as well as the results from businessfourzero in our Heidrick Consulting segment,” said Krishnan Rajagopalan, president and CEO of Heidrick. “Even before the positive effects of these acquisitions, each of our lines of business demonstrated organic sequential growth, despite ongoing macro uncertainty and an anticipated return to more normalized levels of business performance. This validates our focus on the steadfast execution of our strategy while maintaining strong profitability.”
“Importantly, the integrations of both our recent acquisitions are progressing smoothly,” Mr. Rajagopalan said. “We are advancing our diversification strategy while continuing to make appropriate investments in our digital capabilities and technologies throughout the company. These initiatives are aimed at providing our clients with the next generation of talent and leadership advisory services, enabling them to achieve higher performance through their leaders and teams in an ever-evolving business landscape.”
Executive search net revenue of $206.8 million compared to net revenue of $253.9 million in the 2022 second quarter reflecting an anticipated market slowdown combined with a return to more normalized operating levels, the search firm said. Excluding the impact of exchange rate fluctuations, which negatively impacted results by 0.3 percent, or $0.8 million, net revenue decreased 18.2 percent, or $46.3 million, from the 2022 second quarter. Net revenue decreased 21.3 percent in the Americas (down 21.2 percent on a constant currency basis), decreased 5.3 percent in Europe (down 6.1 percent on a constant currency basis), and decreased 23.9 percent in Asia-Pacific (down 20.5 percent on a constant currency basis) when compared to the prior year second quarter. The social impact and industrial practice groups exhibited growth over the prior year.
Heidrick had 423 executive search consultants at June 30, 2023, compared to 388 at June 30, 2022. Productivity, as measured by annualized executive search net revenue per consultant, was $1.9 million compared to $2.6 million in the 2022 second quarter, reflecting a higher number of consultants combined with lower revenue. Average revenue per executive search was approximately $143,000 compared to $153,000 in the prior year period. The number of search confirmations decreased 12.7 percent compared to the year-ago period.
On-Demand Talent net revenue of $39.2 million, an increase of 75.5 percent compared to net revenue of $22.4 million in the 2022 second quarter, primarily due to the acquisition of Atreus, partially offset by a decrease in the volume of legacy on-demand projects. Heidrick Consulting net revenue of $25.2 million compared to net revenue of $22.4 million in the 2022 second quarter. The firm had 89 Heidrick Consulting consultants at June 30, 2023, compared to 66 at June 30, 2022.
Growing Via Acquisitions
As previously mentioned, Heidrick recently closed the acquisition of Atreus, one of the leading players for executive interim management in Germany. Together, Atreus and Heidrick & Struggles’ wholly owned, U.S.-based Business Talent Group (BTG), which was acquired in 2021, constitute the company’s on-demand talent segment and build on its strong market position in this space. The brand name Atreus, well-known in the German market, will be retained, and the Atreus management team, led by Harald Linné and Rainer Nagel, will remain in place.
“Heidrick & Struggles is on an exciting transformation journey to broaden and diversify our suite of executive talent and leadership advisory services,” said Krishnan Rajagopalan, president and CEO of Heidrick. “Our on-demand talent business is core to our overall growth strategy and a key client imperative that will only accelerate as companies continue to seek alternative ways to approach talent management with speed, agility, and flexibility – whether it’s through on-demand access to executive leaders for interim roles or strategic project work.”
“The acquisition of Atreus is a highly complementary investment for Heidrick & Struggles,” said Mr. Rajagopalan. “The addition of Germany, a strategically important market for the firm, along with our existing on-demand talent businesses in the United States and the United Kingdom, gives us a strong springboard to scale this powerful platform across Europe and globally.”
Demand trends demonstrate that executives are beginning to understand the benefits that on-demand talent can offer given the attractive economics for project-based work. According to recent Heidrick & Struggles market research, more than 60 percent of executives surveyed in Europe have used some form of on-demand talent in the past, and 85 percent believe they will start to use on-demand talent services more in the future.
Heidrick & Struggles Appoints Leader of Israeli Office
Heidrick & Struggles has named Cheli Nachman as partner in charge of its Tel Aviv, Israel office. She also becomes a partner in the technology practice. “Cheli is highly regarded both as a super-dedicated recruitment consultant and trusted advisor,” said Claire Skinner, regional leader, Europe and Africa. “She will provide clients with access to talent and leadership at a time when they seek creative, nimble, and high-performing talent to achieve their strategic business objectives.” Ms. Nachman specializes in cybersecurity, data and analytics, artificial intelligence, enterprise software, industrial technology, and financial technology executive search work. She also has experience working closely with clients at venture capital and private equity firms.
Heidrick also entered into an agreement to acquire businessfourzero, a London-headquartered consultancy specializing in developing and implementing purpose-driven change. “This acquisition will not only deepen Heidrick & Struggles’ existing set of leadership advisory and industry-leading culture and organization solutions, but also accelerate the company’s ability to help clients drive successful business transformations by linking purpose and strategy to leadership and culture,” said the firm.
“Powerful, purpose-driven cultures and inspired and engaged workforces are critical drivers of successful business transformations and long-term, sustainable performance,” said Mr. Rajagopalan. “businessfourzero will form an integral part of Heidrick Consulting’s offering, strengthening our ability to work with clients who are focused on developing future-ready cultures and organizations with pragmatic, actionable strategies. We look forward to welcoming Atif Sheikh and the entire team.”
Heidrick expects 2023 third quarter consolidated net revenue of between $245 million and $265 million, which reflects typical summer seasonality, 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 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, consultant retention, and the seasonality of the business along with the current backlog.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media