Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Heidrick & Struggles International Inc (HSII, Financial) generated solid topline growth, exceeding the high end of their outlook range.
- The company made significant leadership changes to drive growth, including appointing new leaders for non-search business areas.
- Heidrick Consulting saw a 6% year-over-year revenue growth, driven by increased leadership assessment and development engagements.
- On-demand talent business grew its revenue by 7% despite a slowdown in the broader temporary staffing space.
- The company has a strong cash position of $296.9 million, up $58 million from the previous year, with no debt and a $275 million credit facility.
Negative Points
- Heidrick & Struggles International Inc (HSII) recorded a non-cash one-time goodwill impairment of $16.2 million due to higher interest rates.
- A one-time restructuring charge of $6.9 million was incurred related to leadership changes and reduction in force.
- Adjusted EBITDA margin decreased to 10.3% from 12.9% in the same quarter last year.
- General and administrative expenses increased to $46.4 million, or 16.7% of net revenue, compared to 14.9% in the previous year.
- The on-demand talent business recorded an adjusted EBITDA loss of $1.6 million, compared to a gain of $2.6 million in the same quarter last year.
Q & A Highlights
Q: On-demand talent profitability improved or the loss narrowed based on efforts on both sides in terms of getting better revenue growth and expense management. Where is that aiming and how are you managing that business for margin and profit, going forward?
A: (Thomas Monahan, CEO) We are pleased with the top-line performance of on-demand talent in a difficult economic environment. We see our way to high-single-digit margins within six to eight quarters, driven by scaling key solution areas and benefits from the integration of Atreus.
Q: In your conversations on the executive search side with multinational companies, what is demand like? We've heard some reticence and elongation of decision-making timelines, particularly on the multinational side. Is that consistent or inconsistent with what you experience?
A: (Thomas Monahan, CEO) There is political and geopolitical uncertainty, a massive technology-driven remaking of the world, and a demographic reality that critical talent is scarce. These dynamics are long-term tailwinds for our business, and we are uniquely positioned to help clients confront these challenges.
Q: Could you give us an update on Navigator, where that stands from an actual dollars and cents perspective, and how you're going to manage that for growth versus profitability?
A: (Thomas Monahan, CEO) We are not disclosing the actual size of the Navigator product but are making investments in technology platforms that scale our impact on clients. We have two beta solutions: a digital assessment platform and a leadership intelligence platform. Digital assessment is closer to existing client workflows, while leadership intelligence faces a longer sales cycle.
Q: You talked about realigning how you engage with clients, particularly on the digital side. Can you provide more color on what you're doing there and what you hope to accomplish?
A: (Thomas Monahan, CEO) We are leveraging our existing relationships to get clients onto our digital platforms and using digital products as a point of introduction to Heidrick. We have linked the work of our digital products and go-to-market teams around our existing global go-to-market platform to accelerate market dynamics.
Q: What other investments are you looking to accelerate growth and returns from, besides digital products?
A: (Thomas Monahan, CEO) We are focusing on the build-out of our on-demand talent platform and scaling our most powerful value propositions within Heidrick Consulting. We see opportunities to accelerate profitability and achieve scale economics faster.
Q: On-demand talent had nice growth in the second quarter despite market headwinds. What contributed to this outperformance?
A: (Thomas Monahan, CEO) The real news is at the value proposition level. We target known workflows and pain points, such as Interim Chief Information Security Officer roles and critical project talent, creating solutions that meet urgent client needs.
Q: Any changes in how you would characterize the overall macro environment from what you've been seeing over the last quarter or two?
A: (Thomas Monahan, CEO) The environment remains consistent with pockets of strength and challenges by industry and geography. Our teams excel at finding client needs, and the long-term macro headwinds behind our business are powerful. Great talent and leadership are critical for corporate performance.
Q: How should we think about the timing of R&D spend for the remainder of the year?
A: (Mark Harris, CFO) We expect a marginal increase in the second half of the year as we launch projects and start amortizing them. This will be more about amortization of the balance sheet rather than cash hitting the P&L.
Q: What was the thought process behind hosting an Investor Day?
A: (Thomas Monahan, CEO) We want to showcase our exceptional leadership, delve deeper into the client pain points we solve, and demonstrate our innovative technology and platforms. It's a great opportunity to engage with our shareholders and provide a comprehensive look at our business.
Q: How do we think about the executive search business on a sequential basis for revenue within the guide?
A: (Mark Harris, CFO) We expect headcount to be neutral to better in Q3 and Q4. Productivity is at the high end of the $1.8 million to $2.0 million range, driven by strength in the Americas. We expect Europe to modulate, and Asia Pacific has shown good pickup.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
