Heidrick & Struggles Sees Three Percent Revenue Gain Amid Challenging Market Conditions
October 26, 2023 – Executive search, leadership consulting, and culture shaping services provider Heidrick & Struggles / (NASDAQ:HSII) has posted third quarter revenues of $263.2 million, a three percent increase compared to the same period a year ago. The firm experienced growth in On-Demand Talent, Heidrick Consulting, and Executive Search in Europe, partially offset by declines in Executive Search in Asia Pacific and the Americas. The Chicago-headquartered recruiter — the fifth largest global firm as ranked by Hunt Scanlon Media — reported net income of $15 million and diluted earnings per share was $0.73, with an effective tax rate of 37.5 percent. This compares to net income of $20.8 million and diluted earnings per share of $1.02, in the 2022 third quarter.
“We are very pleased with our third quarter results, posting year over year revenue growth and another double-digit adjusted EBITDA margin quarter despite ongoing macro uncertainty,” said Krishnan Rajagopalan, president and CEO of Heidrick. “These results reflect the benefits of our One Heidrick strategy, which is to bring the best permanent executive level and on-demand talent to our clients, and to help leadership and organizations be more effective through our diversified product offering.”
“Our diversified solutions of On-Demand Talent, Heidrick Consulting, and soon to include Heidrick Digital, will continue to be an increasing percentage of our business, and now contribute nearly 25 percent of our revenues,” Mr. Rajagopalan said.
Executive Search revenue was $198.8 million compared to $212.8 million in the 2022 third quarter Revenue decreased 7.9 percent, or $16.8 million on a constant currency basis from the 2022 third quarter. Net revenue decreased 7.9 percent in the Americas (down 8.1 percent on a constant currency basis), increased 8.4 percent in Europe (up 1.0 percent on a constant currency basis), and decreased 21.6 percent in Asia Pacific (down 19.8 percent on a constant currency basis) when compared to the prior year third quarter.
The firm had 417 executive search consultants at September 30, 2023, compared to 389 at September 30, 2022. Productivity, as measured by annualized executive search net revenue per consultant, was $1.9 million compared to $2.2 million in the 2022 third quarter, reflecting a higher number of consultants combined with lower revenue. Average revenue per executive search was approximately $153,000 compared to $155,000 in the prior year period. The number of search confirmations decreased 5.1 percent compared to the year-ago period.
On-Demand Talent net revenue was $41.1 million, an increase of 76.6 percent compared to net revenue of $23.2 million in the 2022 third quarter, primarily due to the acquisition of Atreus Group, partially offset by a decrease in the volume of legacy on-demand projects.
Heidrick Consulting net revenue was $23.3 million compared to net revenue of $19.1 million in the 2022 third quarter due to organic growth coupled with the acquisition of businessfourzero. The firm had 90 Heidrick Consulting consultants at September 30, 2023, compared to 72 at September 30, 2022.
The board of directors declared a 2023 fourth quarter cash dividend of $0.15 per share payable on November 21, 2023, to shareholders of record at the close of business on November 7, 2023.
Recent 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 Mr. Rajagopalan. “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.
The Prospect of a Recession Remains Murky
In a new report, The Conference Board says persistent labor shortages, a possible recession, and then rebound in 2024 could be in store for the U.S. economy. Debbie Gollin of The Bachrach Group’s sister company Jackson Lucas, Gary Erickson of Executive Search Partners, John Arbolino of Boothroyd & Co., and Adam Zoia of Glocap join Hunt Scanlon Media to share their thoughts on the economy and what lies ahead.
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.”
Looking Ahead
Heidrick expects 2023 fourth quarter consolidated net revenue of between $240 million and $260 million, which may be impacted by external factors, such as the foreign exchange and interest rate environments, foreign conflicts, inflation and macroeconomic constraints on pricing actions. In addition, Heidrick notes that this outlook is based on the average currency rates in September 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.
Heidrick & Struggles shares have lost about 17.8 percent since the beginning of the year versus the S&P 500’s gain of 10.6 percent. Heidrick’s stock is currently near a one year low.
Related: Heidrick & Struggles Appoints Leader of Israeli Office
Contributed by Scott A. Scanlon, Editor-in-Chief; and Dale M. Zupsansky, Managing Editor – Hunt Scanlon Media
