Q2 2021 Heidrick & Struggles International Inc Earnings Call
[music].
Good day and thank you first.
For standing by welcome to the Heidrick <unk> struggles Q2, 'twenty 'twenty 1 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone.
If you would like to ask.
Question.
You may need to price started 1 telephone I would've liked hand conference on Richard's speaker today Suzanne Rosenberg.
Thank you. Please go ahead.
Good afternoon, everyone and thank you for participating in Heidrick <unk> struggles 2021 second quarter conference call joining.
Today's call is our president and CEO Krishnan radical pollen and Chief Financial Officer, Mark Harris, we have posted our second quarter slides on the IR homepage on our website at Heidrick Dot com and we encourage you to view them for additional context, but we won't be referring to specific page numbers during our opening remarks in.
In our materials we were.
Joining me on non-GAAP financial measures that we believe provide additional insight into our underlying results a reconciliation between GAAP and non-GAAP financial measures can be found in the release also on our remarks, we will be making forward looking statements and ask that you. Please refer to the safe Harbor language contained in our news release with.
With that Krishnan I'll now.
<unk> call over to you.
Thank you Susanne.
Good afternoon, everyone and thank you for taking the time to join our call today.
As you can see from our press release, our second quarter closed out a very strong first half of the year for heidrick.
We performed exceptionally well and we see a number of positive market trends.
<unk> is underway I think it's important to note that many of our clients and communities around the world continue to navigate through the pandemic.
We remain vigilant and are closely monitoring the situation globally as we advise our clients through the difficult challenges they face and also help them prepare for the new opportunities in a post pandemic world.
Turning to our results.
Building on the strong momentum of our record first quarter, our recovery accelerated into the second quarter with another outstanding performance.
Again, our results exceeded our expectations and our team delivered robust growth both sequentially and year over year.
In addition.
And we're ahead of our pre pandemic performance levels in terms of both revenue growth and profitability.
For the second quarter record net revenue increased 79% year over year and 34% sequentially.
Newly acquired BTG, which operates in the high growth on demand talent.
<unk> segment of the market exceeded our revenue growth expectations.
Profitability also reached all time highs with our adjusted EBITDA margin expanded 590 basis points from the first quarter of this year to 14, 4% and.
And adjusted EPS of $1.14.
More than tripled from last year and increased more than 30% sequentially.
While a portion of this strong performance can be attributed to some pent up demand still working its way through the system at this stage. The outperformance is really the result from a confluence of larger forces, including a seismic change in how we work.
Driven by people working differently and new skill sets that are required to be successful.
Companies must be agile adaptive and fluid through our executive search consulting and on demand capabilities. We are helping clients solve for these complex issues, while addressing major trends accelerated by society and depend.
<unk>, including diversity equity and inclusion.
Digital transformation ESG.
ESG.
And others.
The result is more projects with more clients that have greater sustainability and a more diverse revenue stream.
We also continue to benefit from changes we've made in the way we are.
Operate and our strong positioning in the market developed over the past several years.
So our own digital transformation, we are executing searches at a faster pace and delivering new solutions virtually.
Additionally, tech, enabling our business has accelerated productivity.
When we look back at our peak productivity levels in 2018.
Reached $1.9 million per consultant.
And then as 1 would expect this dropped during the pandemic to $1.6 million per consultant in 2020.
Balancing our historical trends with our current rate we see this rate returning on average annual levels of around $2 million per consultant.
And our Heidrick <unk>.
Consulting business, we have expanded our role with clients is leadership advisers and are focused on the client journeys, where we believe we can have the most impact.
And recently, we added on demand talent capabilities through our acquisition of BTG.
These businesses together with our firm's IP technology and global data and insights.
We have enhanced our platform and our approach, creating a stickiness with our clients that we haven't previously had.
Turning to our recently completed acquisition of BTG, we're extremely pleased with our second quarter performance as revenue growth exceeded our expectations. These results demonstrated accelerated client interest.
Interest in high end on demand talent as companies seek fast and flexible support for a variety of business needs, including corporate growth initiatives change management.
Interim executive and project consulting.
BTG catapult our firm into the high growth on demand segment of the talent market and also allows.
Owes us to bring our clients a new solution that strongly complements our portfolio of leadership advisory and talent services and builds off of an exclusive 2 and a half year partnership we had with BTG prior to acquiring them.
As a reminder, btg's talent pool includes a broad range of highly skilled independent.
And on professionals, who bring deep expertise across industries and functions and are pursuing independent project were largely to increase their professional control over what they work on and who they work with.
While the business was already benefiting from the need for organizations to be agile there is no doubt that COVID-19.
<unk> and new ways of working have greatly accelerated the business needs that BTG can address.
Demand continues to grow and already in the last few months, we have raised the visibility of on demand services by engaging with the C suite.
With the integration of our go to market approach for executive search consulting.
<unk> an on demand, we continue to drive productivity and collaboration across our businesses with over 40% of Heidrick consulting revenue driven by executive search.
We've seen great collaboration and innovation coming from our teams, including terrific Cross border work.
Leadership assessments with a focus on future.
Leadership assignments and development needs.
On the optimization of leadership pipelines.
Culture reset as companies re energize their workforces and align around the future of work.
And returning to work on how a hybrid model impacts culture, among many other client projects.
We also continue to position ourselves as thought leaders in the market by publishing important IP, including our recently issued board monitor reports on our piece on aligning culture with the bottom line.
How companies can accelerate their progress.
As the war for talent continues and the demand for our services around the globe growth.
Our firm is thoughtfully augmenting our team to address many human capital growth opportunities, we now see emerging.
Importantly, we are extremely well positioned as we go to market as 1 heidrick, bringing the best portfolio of solutions to help our clients solve their most complex talent leadership and culture issues.
As I mentioned at the beginning of my remarks, a larger set of themes and trends are taking hold and evolving across multiple industries further driving our momentum and likely resulting from the elongated future cycles.
These themes include leadership teams in crisis.
Acceleration at the top.
Significant P/e growth Inc.
Increased M&A activity.
Digital transformation major organization and culture shifts driven by the future of work and.
And our renewed focus and urgency on day Ni and ESG.
Drilling down on a couple of these themes.
So in terms of our integrated DNI service offering, which we launched in April of last year were applying an exciting and truly differentiated approach through what we call the abcs of day Eni.
As for accelerating the impact on results of day Eni.
Vs for building the diverse leadership teams in there.
Our talent pipelines.
And sees for creating inclusive leadership behaviors and workplace cultures.
Our approach to DNI is resonating with our clients.
On the build side halfway into the year, our overall U S diverse placements were tracking at 52% we also.
And focus on accelerating diverse representation at the board levels and we've seen a significant increase in diversity placements there as well.
Again at the midyear Mark 73% of our board placements in the U S with diverse and that figure was 66% globally.
Also our DNI advisory pipeline is.
Continuing with many clients focusing on the culture side, developing inclusive cultures and leaders and accelerating the impact on our results. We expect this trend to continue and even accelerate as organizations recognize that culture is the key to attracting and retaining talent.
As many companies have started returning.
Strong work post Covid. There is also an additional impetus.
In terms of ESG, we see emerging demand from companies, who are concerned about these issues and their stakeholders and are ready to take action.
This has translated into a sharp increase in the number of chief sustainability officer assignments were.
Turning to seeing a growing interest in boards wanting to better understand the landscape.
In their own companies positioning.
And the private equity VC World, we see significant activity at the investment professional and at the portfolio company level, where we are winning multiple searches with these clients and establishing deeper relationships.
From a VC and disruptive innovators perspective functional tech and product talent remains in high demand, especially from a diversity perspective.
Our second quarter and year to date results are reflective of these trends and as Mark will take us through in a moment our guidance implies continued strong performance going.
We're also forward.
On a global basis to pandemic and geopolitical events remain fluid, but we're increasingly confident in our own visibility into the positive movements. We're seeing in the post pandemic opportunities play directly into heidrick strength and positioning.
Importantly, we are helping our clients focus on priorities coming.
<unk>.
An executive search, we're placing top talent to address new needs and urgencies with a focus on increasing visible representation and diversity.
In Heidrick consulting we're advising companies on their adaptation to new and upcoming challenges as leaders think about workplace culture and inclusion.
Out of the pen, bringing employees back to work utilizing hybrid office models.
And the BTG, we're filling on demand needs in an agile way and providing an alternative solution that resonates with our clients.
As always we remain focused on solving our clients' most critical problems.
And working at the top of organizations, where heidrick brand sits today.
Beyond tech, enabling our current portfolio and further enhancing our platform to capture even more future growth opportunities.
We are making specific investments in our capabilities to bring our IP.
Analytics and data to our clients and creating.
<unk> debt leverage technology, and will enable us to deliver and deepen the impact of our client offerings.
In summary, the Heidrick story is 1 of growth and innovation and we see multiple paths to continue our transformation.
To this end we remain focused on executing on our 3 growth initiatives, which include.
Lucian first growing the scale on impact of both search and consulting delivering a premium service experience and the heidrick way to clients.
Second expanding the development of leadership solutions and capabilities to address new and ongoing client comparative such.
Such as on demand talent and third.
<unk> seen in new product development and strategic expansion into adjacent and complementary areas with innovative tech driven offerings to drive the future growth and shareholder value.
In closing we are on an excellent position with an innovative strategy and the best team to help our clients deliver performance.
I want to thank all of our employees around the world for the great work, they're doing for the important contributions they make each and every day towards advancing our clients' agendas.
Now I'll turn the call over to Mark to walk us through Heidrick is very strong quarterly performance and our third quarter outlook.
Mark.
Thank you Krishna and good afternoon, everyone. Thank you for joining our call today.
Our continued hard work of the Heidrick <unk> struggles team allowed us to continue to deliver record results in the second quarter, putting our first half EPS on a record pace for the full year as Christian mentioned net revenue in the second quarter was marked by strong double digit improvements both sequentially and.
And year over year, driven by each of our businesses all practices in each region.
This growth coupled with strong management of the P&L resulted in all time high levels of profitability.
Before I begin my review on the second quarter I would like to point out some changes in our reporting format that we think youll find helpful. First Youll notice we established.
Tablets, a new reporting segment called on demand talent to reflect the acquisition on BTG in the quarter low.
Related to BTG, we added a cost of service line item on the consolidated P&L.
The line item includes both third party contract costs, primarily related to Btg's independent talent and to a much lesser extent, but also includes.
<unk> third party cost of services for some of Heidrick consulting engagement delivery, which were previously included in general and administrative expenses.
With that today my remarks will focus more on the sequential trends as I believe these are the most meaningful comparisons in the previous year's performance.
Last year's second quarter was clearly impacted.
The global pandemic and while we recognize that many clients and communities around the world continue to struggle, we see overall demand of our services continuing to grow as we advise our clients on the new challenges in a post pandemic world. We're very pleased with the current market trends, yet we remain vigilant of potential disruptions from the pandemic and continue to closely.
Monitor the situation.
Now let me provide you with some details of our historical second quarter results.
I am pleased to announce that we crossed over $200 million in net revenue for the first time in a quarter and hit a record net revenue of $260 million in the second quarter, which was 78, 6% above last.
Last year's second quarter, and 34, 2% above the $193.7 million, we reported in the first quarter of this year, which also was a record quarter of its own growth.
This is much stronger than we expected when we publicly commented on our last call and coupled with the demand momentum we've seen thus far in July we're encouraged about the third quarter.
Quarter, which is reflected in our guidance I will comment more on this later in my prepared remarks.
Looking at executive search net revenue was $224.1 million up $44.5 million or 24, 8% compared to $179.6 million in the last quarter.
<unk> and our performance.
Sequentially, we experienced growth in all regions with the Americas up 26, 5% Europe, increasing 19, 3% in Asia Pacific we saw growth of 25%.
This growth is reflected in our company's new confirmation record, which increased 6.2% to nearly 700 confirmations compared to the prior record of approximately.
<unk> <unk> hundred confirmations, we achieved in the first quarter of this year.
In addition to the higher number of engagements we closed in the period the better than expected strength was also driven by the higher value of the searches.
When we look at adjusted operating margin by Executive search segments. There is some noise in the second quarter numbers due to catch up adjustments in consultant bonus.
Deferred compensation movements in strategic hires therefore.
Therefore, I think it's more helpful and relevant to look beyond the quarter to the year to date numbers as the 6 month period better reflects our achievement.
When you compare adjusted operating margin from the first half of 2021 for the first half of 2020, you will see 80.
<unk> points decrease from the Americas 310 basis points improvement in Europe, and a 580 basis points improvement in Asia. However.
However, when you back out mark to market adjustments and investments from both numbers in their respective periods, we see improvements of 570 basis points 790 basis points and over 1000.
And basis points in Americas, Europe, and Asia, respectively, or 700 basis points overall and executive search.
In short, we're very pleased with our margin improvements and given the continued market performance, we expect to continue to invest on our teams accordingly.
Turning to Heidrick consulting net revenue was $17.1.
$1 million in the second quarter of 2021, which was up $3.1 million compared to the $14 million last quarter, an increase of 22%.
This was driven by outstanding execution of our backlogs and new client engagements.
In fact, we saw 74% increase in confirmations from $12.9 million in Q1.2021 to 'twenty 2.
$2.4 million in Q2.2021, while also increasing our backlog at the end of the second quarter by 14% compared to the first quarter.
All of this helps to drive our performance expectations for the third quarter, which is embedded in our revenue guidance.
As you see in our income statement.
Added our new segment on demand talent.
With net revenue in the second quarter of $18.7 million. This performance was an outstanding achievement with revenue growth just over 50% from a year ago and this is also much stronger than expected based on our investment models.
Chris John mentioned, we continue to raise the visibility and growth in demand and the on demand segment an important part.
Allen our strategy further revenue generated from the hydro channel continues to stroke strong performance with growth year over year.
Turning to expenses, we saw salary and benefits increase for fixed compensation, increasing by $6.1 million net quarter, primarily driven by increases in hiring costs separation costs and deferred compensation plans.
Variable compensation increased by $38.6 million, primarily due to the record revenue performance in the quarter eras.
Irrespective salaries and benefits as a percentage of revenue decreased to 71, 6% compared to 73% in the first quarter of 2021.
Looking at general administrative expenses were essentially flat for the first quarter at 27.
$4 million.
Primarily due to office occupancy savings lower levels of professional services and bad debt, partially offset by increases in first time intangible amortization associated with the acquisition of BTG and information technology and travel and entertainment.
As a percentage of net revenue general and administrative expenses were 10, 5% compared to 2000.
7.1% in the first quarter of 2021.
360 basis points improvement.
While we're very pleased to see G&A move down to under 11%. Our annual expectation is for an increase in the second half of the year as we expect travel occupancy and other costs to normalize a bit below historical levels.
With that I would imagine.
On 14, <unk> as a percentage of revenue would be closer to 12% to 13%.
As anticipated and disclosed in our first quarter conference call, we recorded a restructuring charge of $3.2 million on the second quarter due to our real estate strategy.
This charge is accounting related to the specific timing of office closings moving forward, we do expect additional restructuring.
<unk> charges pertaining to real estate in the third quarter of approximately $1 million to $2 million with very limited spillover on the fourth quarter on beyond.
Excluding the restructuring charge.
We're pleased to report that adjusted operating income in the second quarter of 2021 was $31.9 million a 35, 9% increase from the $23.5 million we had.
Imagine each quarter of 2021.
While we only saw adjusted operating margins improve approximately 20 basis points between the second and the first quarters of 2021, it's important to note that only the second quarter includes the new on demand margins when removing on demand adjusted operating margin improved 110 basis points to 13, 2%.
The first on a 12, 1% we saw on the first quarter of 2021.
This all translated to adjusted EBITDA of $37.6 million, a 30% increase over the first quarter and adjusted EBITDA margin of 14, 4% or.
Our first half EBITDA is now $66.5 million on 'twenty, 'twenty, 1 compared to $36.1 million and 2.
Funny on increase of 84%.
Our margins also improved 330 basis points to $14.7 in the first half of 2021.
Our adjusted net income in the second quarter of 2021 of $22.9 million increased 31, 6% from the $17.4 million in the first quarter of 2021 and adjusted diluted earnings per.
Share of $1.14 increased 32, 6% from the 86.
But the first half 1 'twenty 1 adjusted EPS of $2. We're on record pace to close out the year at an annual level never seen before here at Heidrick.
Given our performance in the second quarter, our board of directors approved and we announced that we will be paying a <unk> 15 per share.
<unk> thousand 1 August for all shareholders of record on August 6.
Now, let me turn to our balance sheet, where we ended the second quarter with cash and cash equivalents of $237.8 million compared to $187.8 million at June 32020, when backing out the 2020 credit facility outstanding balance net increase of 27%.
Dividend is clearly driven by our performance discussed and we expect this trend to continue as our accounts receivable growth to $168.5 million, while maintaining a strong DSO target.
Also given the completion of our acquisition of BTG in the second quarter, our balance sheet. Now reflects the addition of $5.8 million for customer.
<unk> mission ships with an 11 year amortization period software with respect to Btg's talent database of $3.1 million amortized over 3 years trade name of $1.7 million amortized over 3 years and $23.8 million for the BTG earn out which will accrete over the next 2 years as the payout becomes more estimable.
With regards to revenue and operating income achievements.
Finally, please also note that we added $45.5 million of goodwill to our balance sheet as well for the acquisition.
With regards to our strong balance sheet. We're also pleased to announce that earlier. This month, we took advantage of favorable market conditions by renewing and extending our credit facility to July 2026.
With this renewal, we expanded our credit facility to $200 million with an accordion option to increase that up to $275 million now at the same terms as our previous credit facility with a strong cash position and no outstanding borrowings coupled with the new credit facility. This allows us plenty of dry powder for even further flexibility to execute our growth.
How does <unk>.
Now, let me turn to our third quarter outlook.
Given the strong performance, we're seeing in our markets and looking at our models. We believe our third quarter revenue will be in the range of $245 million to $255 million of course. This can change materially if we see other spikes in COVID-19, especially with the Delta variant continuing.
On strike havoc, which has.
<unk> global equity markets, how the governments choose to respond such as further lockdowns or if the governments don't take necessary steps and stimulus as well as other macro events or acute business events that are on for St to heidrick at this time.
In summary, this was an outstanding quarter, driven by an incredible team at Heidrick.
On to <unk>, we anticipate we will continue on our current growth trajectory.
Further we're very pleased with how quickly heidrick <unk> struggles manage through the 2020 recession, returning well past pre pandemic levels within a very short period of time and the financial position. We are in to successfully execute through the new growth cycle. We're currently experiencing.
<unk>, but that will be happy to take your questions operator over to you.
Thank you and as a reminder to ask a question you will need to press star 1 on your accounts again, if you'd like to ask a question press star 1 on your telephone with phosphate just a moment to compile the Q&A roster.
Our first question he has Josh Vogel Sidoti Jos Your line is open.
Thanks, Good afternoon, guys. Thanks for taking my questions.
I have a couple here.
My first 1 just given the need for talent you discussed pent up demand in.
The robust activity levels.
<unk>.
Are you finding this.
Elevated war for talent debt, yielding any uptick revenue or just instances, where the actual comp are exceeding what the original estimates were.
Sure Josh.
Mark would you mind just repeating.
Awesome.
Yeah sure I was just curious if you were benefiting from any uptick revenue where the actual comp was coming in higher than your original estimate just given how busy elevated war for talent and pent up demand.
Bye Bye global companies, yes.
Yes. So the answer is yes, what we were able to see.
That 1 way to think I guess the first 1 is in terms of our normal retainers, we haven't seen really any material modifications.
In terms of what that is.
As well as the mix et cetera. So I think we've held that pretty well the structures have held pretty well the uptick definitely have come in.
<unk> than we anticipated we have seen.
Higher upticks in previous periods, but it was obviously a great strength for example.
And America is they were up about 9% in Europe.
They were up almost 32% and Asia Pacific They were up almost 20% so.
In terms of where we thought those would come in I think you had kind of 2 things going on within the revenue guidance.
The company is clearly we had great confirmation trying on we've disclosed almost 700 confirmations and that was up from the.
Record 600 is not more than just a quarter ago, but by a holding on and maintaining our discipline in terms of both structure and the components of it with the upticks kind of kicking in it clearly helps everything else.
Thank.
So on his insights and Christian you had a comment about executing switches that at a faster pace enabled by technology. I was wondering if you could quantify this and as that may be a new norm or.
Given the.
On the growing use of technology in the search process or is it just a function of the current environment and pent.
For Josh.
Josh Let me try to answer that for you and for everybody else on the call in Washington D. C. There is a fire alarm going off and Chris on how to run out of the building. So I'm going to do my best to be Christian on if that's okay.
Okay.
1 of the things that we saw to answer your question is.
What the enablement of the technology and let's be Frank a little.
Got a big push from the Covid side of it has really allowed us to kind of reduce our days to complete.
On by almost 25% so without flying candidates all over the place with the implementation of zoom interviewing with the digital assessments, which we've had for a long time, but really I think is force the acceptance rate of a lot of the technology of heidrick connect on everything.
That we kind of put in place that it's hard to unscramble, how much is waiting on that but we have seen a nice drop.
And I guess the question for US is is that the new norm, we think actually it probably is on.
There might be some lingering for final mile to meet candidates, but it doesn't seem to be changing the new methodology.
If I can call it that.
<unk> with Heidrick consulting, where we've seen again acceptance of our digital delivery mechanism, we've seen that kind of come through that's helped us out a bit in terms of quickly achieving against some revenue targets.
Again, I think their accomplishment of the 2017 over $17 million in revenue day were able to achieve this quarter is really speaking to that so.
And BTG, obviously, we'll get you some comparisons with the rollout of debt have another quarter in there.
We can kind of demonstrate it but I think really that is really unlocking some value for us.
Hopefully some differentiation, which we think is is really helping us in the market.
That's helpful. Thank you and I just have a couple of quick quick hit ones.
<unk> found.
BTG in.
How should we think about the cost of service line going forward from like a quarterly run rate perspective.
Is it more fixed or variable in there just how should we think about that as BTG growth.
BTG.
1 is the rate is going to have kind of that cost of service percentage in their model right. So unlike executive search and heidrick consulting where theres, an internalization of us able to process. This is clearly going to come from.
Independent outside consultants that are going to be engaging so you have to figure that plus or minus around that amount or percentage of revenue is going to walk out that.
Because we have to pay the third party consultants to implement interim on project work on.
The idea of what we should have behind it is really a scale right. As we continue to grow that element, we should be able to see that scale kind of come through it was really nice for their first reported quarter to show.
More than breakeven.
As I have made comments about last quarter, it's always going to flirt with plus or minus on the breakeven side of it they had a real excellent quarter.
And again the team there just is a fantastic job in managing that side of the business. So we saw I think it was <unk>, 8% margin. If you figure as we kind of get further down the road with scale, we should be able to get that up considerably.
But again just to set expectations, we're not expecting this to be a 15% 20% margin business. This will always kind of play on that.
810, maybe slightly above that margin business.
Finally in its steady state of growth.
That's helpful. Thanks.
I think that it's still you know.
A small but rapidly growing part of the business I was just curious.
How much on demand or BTG revenue into your Q3 guidance number.
Using Q2, as a base and just kind of like a tangent to that how much visibility you have in the BTG pipeline relative to executive search.
It's very similar.
They have a backlog they understand the client engagements they know whats in their pipeline on the sales strategy. They are a very well managed business. So their number is obviously on our guidance, we don't really break that out in terms of how much is H C. R.
And on demand or executive search, we all lumped up into 1 but I guess my comment.
So it's not going to be too dissimilar on what youre seeing around the quarter on the first quarter at least.
And you would expect again as we kind of grow the business and we think about strategically. This is very much a U S centric type of business right now with a little bit in Europe.
But we want to again work with them on our channel and really open up Europe really open up Asia.
Pacific and really see where we can take the growth out of this mess, that's kind of where 1 plus 1 equals 3 here.
Great and thank you and just lastly.
I haven't seen them I know, it's a ITG doing about $50 million in 2020, the run rate is 60% growth.
Based on the Q2 is that.
Comment with a good number we should think about 2021, well I think 50% growth is very very high.
Yes, I don't I don't.
I don't think were going to.
Flow without too much on I would say again, when we talked about kind of high growth, we're thinking about I guess respective high growth, maybe thats, a nice way to say it.
On where we would say look it's certainly.
<unk> going to be long term better than executive search executive search as you know has been a 4% to 5% 30 year growth business.
Obviously expected to be significantly better than that especially as they are kind of coming into that early stage on.
If you will in terms of being plugged into our engine et cetera. So my overarching comment would be I think youre going to see.
Is that on growth obviously, we think its very strong growth the ability to do so but 50% is a pretty pretty lofty target I don't think we can achieve that 1.
Alright got you well thanks, so much for the insights and for taking my questions No problem.
Im sorry, our next question, we have Tobey Sommer from service.
Securities Tobey your line's open.
Thanks.
I was wondering if you could.
Catch us up and just remind us of how many partnerships like BTG. The company has entered into in recent years, because it seems like you're kind.
Kind of learned how to work together.
C or coming together.
Yes.
We don't obviously disclose that externally.
Have partnerships again, if you think about it this partnership was probably a little bit more of tell me, what I would kind of call a third lane or in Adjacencies, something very similar to what we do but in a different way partnership.
Partnerships that we also look at our what we'll call vendor type partnerships technology partnerships et cetera that really won't become part of us. It really is partnering and potential revenue share strained back and forth on.
So in terms of the way that we kind of categorize our partnerships that can get either land in.
In alignment it can land in technology can land in on.
Again processing, and making us much more efficient, which again kind of goes into that 25% reduction in days to complete methodologies. So those are the types of things that we kind of look at on in terms of our partnerships, but we don't really.
I want to go out with how many partnerships we have because we think it's just.
That's less concerning more than when.
When we get something and we talked to you about it.
And like we did with BTG, we talked we announced the partnership Youre going to hear those and those ones we will announce when we have.
Okay.
Could you talk about.
What.
Remote work.
Might mean in terms of the executive search business are you seeing search confirmations for seniors C suite people that are more flexible geographically now in <unk>.
If so if there is.
Client.
Not on sort of a top.
City.
If there if their C suite could potentially work in different locations at least primarily what are they implement implications for your business.
Well I think that's exactly right I think the idea is it's opened up the market to a much greater population because.
What I would say the.
It's on.
And assistance, if you will on having to be in a set price heidrick is probably a good example of that you have myself and the.
The New York Stanford area, you have Christian on in D C.
Conor he sits on up in Boston.
We're all on different locations, yet we've been very I think we have.
The current active and are working and I think a lot of companies are more like that growing to that model, where it is less important on where the C is located probably more about.
We'll travel is going to be more of the topic, but we are in that of course opens up a lot more on the population where if there is lack of insistence of the person needs to move to wherever.
The headquarters is.
It really allows you to kind of interview more candidates and I think thats also helping us get the placements little bit quicker because.
On the quality of candidates may not be actually in the cities, where youre looking at your headquarter. So we've seen that quite a bit on we're continuing to see that trend quite a bit.
I don't think thats going to slowdown.
Varian is it also a contributor to the uptick because if you're able to recruit out of market theoretically might be recruiting from a city with a higher cost of living than where the headquarters of your client maybe it is.
I had a similar question and here's what it kind of get first 1 on the board work it is kind.
And I think you agree with that on the CEO or CFO or where are we kind of look at that it's not I would imagine as much of a differential as you would think right. If you have.
As CEO of a fortune 500 is pretty much going to be on par with the CEO of fortune 500.
And all of US, it's really dramatic but.
For the most.
We really see that kind of space that industry that sick is really going to be what youre competing against are competing again.
The Coke Pepsi right, they're both competing potentially from the same type of resource and that's really what drives it more than where the location of that role is so I think thats probably.
Most part less agnostic towards that end of it obviously that will play a little bit of role, especially in London, where it's very expensive I would imagine that would play versus somebody Inc.
Ireland, Ireland so.
Again, we do see it a little bit, but I think overall I don't think thats, a real differential in terms of the big difference on price.
Okay.
Probably a couple more from me how do you view the the company's performance versus growth in the end markets that you have exposure to to the extent, you're able to benchmark or or communicate with competitors on what they're seeing.
An example, Toby just help me understand the question.
Are.
Just taking share or keeping share or losing share based on your growth rates.
That's it directly in a secondary question on Venezuela, I will try to answer it in non if Chris wants to jump in he can but in terms of market share. It's always a very difficult for us to measure as you know there's only 1 other public company and the rest is private and some of the industry data we get.
This.
Are your base, then I don't put a lot of a lot of weight on it.
Overall based on the growth that we're seeing based on what we can benchmark ourselves too.
I definitely know, we're holding our own highly suspect on that were doing better on.
In terms of some market trends, but on.
Without really again.
I am very specific on actually having <unk>.
<unk> numbers that are <unk>.
<unk>, if you will it gets to be quite difficult, but we do see it on and a lot of the other metrics that we kind of manage in terms of wins in terms of things that we're competing against in terms of what we know and what we're seeing out in the market.
We have a.
Survey fill Christian I don't know if you want to jump in on that as well sure Hi apologies.
Good to see the <unk>.
Fire <unk> emergency systems continue to work in these buildings.
Look we entered the.
We track this last year and I think we held our own with more than held our own last year based on the information.
Positive drill to grabbing as Mark says.
It's hard to see debt. So we felt we had excellent positive momentum.
On share. So we continue to do well so I think we're in a good spot on it though we don't have yet the numbers so.
It will probably take 6 months or so on this business to understand that a bit more but feeling pretty good about it.
Thanks, and last 1 from me.
How are you thinking about internal head count growth in executive search and consulting going forward.
Because the productivity has been surging I don't know whether that has continued room to run or what have you, but at the end of the day, it's still still a people business and over the long term you got to you got to.
Okay.
Yes, yes look we're going to.
We're going to continue to add strategically which is what we've done actually we've.
We've been very strategic in our in our hiring filling in gaps in geographies and practice areas and we're going to continue to do that so heidrick.
Heidrick will be.
Doing that it's going to be unlimited basis, it's going to be great culture fits.
And and just going back to productivity look debt.
Productivity number is very heady right now and I think on average.
If we look at it we're going to be.
And over time, I think of annualized to back to the 2019 if.
Those are above that $2 million level. So given everything that we've done we feel good that we can continue to drive productivity as well.
Thank you very much.
And again, if you would like to ask a question press star 1 on your telephone again, if you'd like to ask a question press star 1 on your telephone.
Great Day next question, we have Kevin Spanky from Barrington Research Kevin Your line is open.
Thank you good afternoon. So I wanted to just continue on the discussion about BTG a little bit.
How you go about growing and scaling that business.
Over the longer term I know.
Now we will.
As part of your business, you're introducing it to your clients.
But do you have the number of independent on demand professionals.
In the network needed to meet current and long term.
Or do you how do you go about continuing to attract.
That independent talent to the network that you need to.
Grow over the longer term.
Yes.
Let me start with debt and Mark if you want to add to that as well look we've got a.
On BTG, we've got.
<unk> domestic asset and the talent as well.
It was always at the high end Premier destination for executive talent that debt level, and we continue to grow that and we think the relationship with heidrick only helps that as well.
So we are.
There is a process in place and we continue to augment.
We continue to grow that and as the market growth that needs to grow as well and it will so that that isn't the limited right now so.
So we're not worried about it and we will continue to grow the asset.
Okay, Great and then are there other.
Would you see this as an area for other potential.
<unk> acquisition opportunities the independent on demand talent space to further scale that debt area of the business.
Yes.
Okay first I want to say that I think BTG is doing a great job of just organic growth. So we.
We look to BTG to continue.
To do that number.
Number 2.
Look to the heidrick channel to be able to continue to augment that growth and then.
Clearly in some markets will be open to look at.
Different ways to grow that business as well.
BTG is in Europe.
<unk> not everywhere in Europe, so there could be opportunities. There. So there are many other opportunities like that but <unk> done a great job.
We will be open to looking at various avenues for growth here.
Okay. Thanks, and then I guess, just finally on BTG can you just talk a little bit more about.
But it's not that you need to scale there too.
You need to leverage to.
To get to those.
<unk> targeted margin levels over the longer term is it kind of a sales and marketing investment youre, leveraging or some sort of back office G&A.
Internal head count.
Turning.
The color or sense of.
How you drive scale and leverage in that business over the expense.
<unk> expense base.
Sure I mean again remember that the cost of sales is always going to be that percentage plus or minus so thats, you really playing with kind of what's leftover and the answer to your question is there's always going to be minor scale.
Turning to sales.
Leadership side of it potentially some here and there, but this is where again at this level and above we should start seeing where the margin improvement start coming in.
As you kind of let's call. It double the business is where you would be able to see those margins really starting to kind of come true hold in terms of what we kind.
On a discusses the early part of the call. So.
It's marginal it's incremental it'll be a bit of a pud over time, but.
As you know again just for sake of argument for fund analytics doubling the business you would expect that would move you up into the margin kind of again getting closer and closer to the.
The sustainable side of it which are kind of those margin that we were discussing.
It's not going to happen overnight that that would be my comment.
Okay, Great that's helpful.
Mark you mentioned.
G&A getting closer to 12% 13% of revenues.
Should we think about that as kind of a longer term target or where you think it will.
Trend.
Coming quarter, or just any more color around that yes.
Yes, I mean, when I saw on at some 0.4% I just wanted to make sure that people understood is that was 1 heck of a revenue number on the top line and even though on a growth.
Dollar value, we did a heck of a job <unk> been cutting into that so.
The real estate shift in the strategy, we did last year as well as kind of rebalancing ourselves et cetera, I think we've done a really good job at maintaining that.
At a reasonable expectation I think when the reason it will go off for the most part as we would expect.
On a time and expense and.
And meals to kind of start coming back a little bit as people travel a little bit more.
Hopefully.
And other components occupancy costs as well as potentially from professional services costs those will come back into the mix and that's why when it makes that people understood. It don't hold me at the time I mean look it's a heck of a lot better than last year at 19 and our.
Our peak of 25% so.
So I do thinking on when we're talking about are holding in that 12%, 13% is really kind of on objective.
But as you know all too well that is a function of revenue too.
So this revenue maintained we'd have no problem maintaining that.
The question is is the market really long at this level and that's the part.
That I'm sure like all of us were eager to win.
To find out.
Okay. Thanks, that's helpful and then just lastly.
Krishnan I believe you mentioned in your prepared comments you made a reference to.
Potential for elongated future cycles.
I think related to some of the just the demand drivers.
Market drivers Youre seeing can you maybe just expand upon.
What you meant by that in terms of.
Maybe a future demand cycle being elongated or longer lasting or.
What youre thinking about.
In terms of the market Youre seeing right now.
Absolutely.
Talking about a lot of the thematic thing that on.
Our shaping society.
Well and we think are influencing.
Our business as opposed to simply economic cycles. So give you 2 examples I mean, if you look.
D Eni.
We see that as a journey that's going to continue.
For a while.
Outside of purely economic cycles, if you look at whats starting to happen with ESG sustainability.
Sustainability side, we're going to see that.
Continue.
We're seeing digital transformation, which actually.
We started several years ago continue as well. So this is what I was referring to when I was talking about elongated cycles really macro themes that are impacting and driving our business as well.
Positive way that go a bit outside of the traditional GDP scenario.
Okay. Thanks.
That's helpful commentary I appreciate you taking the questions.
Problem. Thank you.
There are no further questions at this time I would like to turn the call over back to Krishnan for closing comments.
Great. Thank you and thank you everyone for joining the call.
Let me just close by acknowledging.
The great work of our team, but these are still somewhat uncertain times ahead.
For all of US we are encouraged by progress.
We see with vaccine Rollouts in some places, but also recognize that it's not universally positive news yet I.
I think our global.
<unk> team has done an incredible job and remain focused on the things we can control, particularly focused on taking care of our clients and that hard effort, we've been putting in as a team to transform our business is also paying off not only for our clients, but also for us in performance.
So thanks, all of you for participating.
Trading today and your interest in Heidrick <unk> struggles have a great week, and we reported catching up with you again soon thank you.
This.
Today's conference call. Thank you all for participating you may now disconnect.
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