Q4 2021 Heidrick & Struggles International Inc Earnings Call

[music].

Good afternoon, I'm Nora today's conference call operator, welcome to the Heidrick <unk> struggles 2021 fourth quarter and fiscal year end conference call joined.

Joining today's call the company's president and CEO Krishnan, Rodrigo pollen and Chief Financial Officer, and Mark Harris The company I Suppose said fourth quarter slides on the IR home page of its website I tried to dot com.

<unk> encourages you to view the slides for additional context.

At least not that Indian materials presented today management may refer to non Dell financial measures. They believe provide additional insight into underlying results.

A reconciliation between GAAP and non-GAAP financial measures may be found contained in the evenings press release.

Also in their remarks management may be making forward looking statements and they ask that you. Please refer to the Safe Harbor language also contained in today's press release.

Mr. Rodrigo pollen I'll now turn the call over to you.

Yeah.

Thank you operator.

Good afternoon, everyone.

Today, we announced an important financial milestone for heidrick, <unk> struggles achieving more than $1 billion in net revenue in 2021 with dramatically higher profitability and meaningfully exceeding consensus expectations.

It is clear that with our strategy and the choices, we've been making on our transformation journey along with the benefit of some macro tailwind we are delivering exceptional results.

Our intense strategic focus included aggressive expansion in 2021.

Number one gained market share and geographic scope and executive search with an industry, leading 12 month productivity of a remarkable $2 4 million per consultant in 2021.

Number two grew the value add leadership advisory work of Heidrick consulting.

Number three.

Our significant revenue growth from our newest segment on demand talent.

And number four made our first moves forward in developing an innovative tech enabled digital offering.

More to come on that later this year.

All of this has us excited about heidrick future growth and the opportunities for success.

Our guidance for a record first quarter of this year reinforces our confidence in our transformation and delivering for our shareholders.

Today I'll start with some highlights from our fourth quarter and year ended 2021, then I'd like to share some perspectives on the high end differentiated on demand talent business segment, which we entered into with the acquisition of BTG last April .

Finally, before handing the call over to Marc I'll close with some thoughts about how our three lines of business purposefully and powerfully reinforce each other.

Each contributing to the growth and success of the others, thereby making the whole greater than its parts uniquely among our peers heidrick is the only firm that is focused on the top end and accelerating this kind of wider and perpetuating multiplier effect.

On the macro fund 2021 was a revolutionary year in terms of leadership and human capital.

Around the world the ways in which we lead our organization, how we did our work and the effective functioning of our office environments and cultures, where forever change and amplified by disruptions from Covid.

Companies today, not only face the war for talent, even at the top end, where hybrid plays but Theyre also face increasingly important new business imperatives, such as the wellbeing of their teams first and foremost.

Diversity, he sense of fairness inclusion sustainability and the privacy of the quality and scope of the human capital in their organizations.

All in the midst of disruption to their business models.

This massive disruption causes tremendous opportunity for heidrick.

For example, just a year or two ago. It would have been hard to imagine that a hybrid work model would be successful for companies large and small or the C suite professionals could live in a city far from corporate headquarters with an experienced executives would be needed on an on demand basis for any number of interim or project base.

Signed wins, such as an organization's IPO or digital transformation.

At Heidrick, we never forget our responsibility to serve and empower our clients to develop high performing leaders.

As an organization.

In executive search Heidrick, one and closed more searches in 2021 than at any other time in our history, putting up extraordinary results with net revenue one five times last year's figure.

This is the result of a number of factors, including not only the perseverance and industry, leading productivity of our professionals, but also the expansion of our global footprint plus strong demand from our clients around the world.

Here's some additional color.

First we saw a lot of change at the top of organizations in 2021 due to different business conditions, changing leadership styles and senior leadership turnover.

This was true for placing Ceos as well as roles across the C suite, including for example, CTO CFO and supply chain executives.

One an impressive number of assignments to fill these roles.

Secondly, hydrates corporate clients thought diverse talent.

Last year diverse placements tracked at 51% of our total placements in the U S and we expect this kind of trajectory to continue.

At the board level hybrids placement of diverse directors was at 73% in the U S.

Third the pace of business transformation continued to accelerate new business models emerged.

Digital transformation has continued and themes like sustainability and ESG gained more traction driving the needs for top talent across the board.

We expect this to continue.

For Heidrick consulting in 2021, we serve clients across many facets of their human capital journeys and key assignments reflected growing corporate needs in three primary areas.

Number one with the recognition that top talent is an imperative for success, we had strong demand from clients for heidrick guidance on matters of leadership assessment and development is shaping a future ready leaders and follow on support and organization design.

Number two culture assessment in culture, shaping where critical as companies manage through hybrid and return to work environment and begin to Reenergize and realign their teams.

And number three D. Eni clients look for help defining and aligning on diversity strategies and embedding new ways of working that are equitable and inclusive.

Expanding our geographic footprint, where we find opportunities also front and center at Heidrick last year in executive search we expanded by acquisition in Finland.

And Heidrick consulting grew its international presence as well specifically in Australia, Brazil, Canada.

Germany, Singapore and the UAE.

Turning now to our third business segment on demand talent.

With the acquisition of BTG Heidrick dot on the map as a market leader in the growing on demand talent space.

As you know many companies stumble at the integration of an acquired entity, but kudos to our heidrick team for making the integration of BTG seamless and accretive from day one.

Not only has our on demand talent business exceeded our financial expectations on its own but we anticipate its impact on the organization as a whole will build significant value over the long run.

On our on demand talent capabilities set heidrick apart from others in the executive search business.

And now allow us to play at the high end and C suite portion of rapidly expanding independent freelance or gig revolution.

Our on demand talent business helps companies quickly find executive talent to fill unexpected gaps or lend expertise to our client specific issues.

Actions or transformations.

Once our corporate clients recognize the power of our on demand offering.

<unk> senior level talent for either interim for project work, many keep coming back to us to fill more roles.

Broadly in a recent survey 85% of corporate executives plan to increase their use of independent talent in the coming year.

We expect that the talent shortages, we are seeing in the market will continue and provided additional impetus to consider on demand solutions.

The demographics of the available talent to fill these on demand rolls is strong.

While we play in the C suite and executive space today, 41% of pro schedules in the U S are freelancing.

And remarkably over 50% of the U S workforce are projected to be freelancers by 2027.

This big wave is dramatically changing the way in which companies work with the availability of talent in the U S. Independent work sector, increasing 34% to 51 million workers in total last year.

Trend that is expected to continue.

Heidrick alone among the large global executive search firms is positioned to ride the wave with its on demand talent capabilities firmly established.

As we anticipated the mutually reinforcing and complementary businesses, we combined uniquely at Heidrick, where one business segment can provide performance accelerators for another segment are working well and creating lasting value.

When we can drive the interconnectivity such as leads on talent assessment on leaders teams and cultures and new digital solutions. Our overall success is redoubled.

For example, in 2021, 70% of our partners and principals at Heidrick consulting.

<unk> been selling at least one search.

Reciprocally approximately 45% of Heidrick consulting revenue included search support.

Additionally, about 30% of on demand talent revenue came directly from the Heidrick organization through internal referrals.

This expanding cycle of collaboration is an engine for heidrick overall long term performance, making each of our business segments stronger as a part of the whole.

Then it could ever be as a standalone effort.

That is why finding terrific adjacencies like our on demand talent business and the upcoming addition of innovative digital capabilities through our partnership with Eightfold, AI, which we will be ready to talk about more fully later this year when so much to the greater success and greater value of the organization and its entirety.

Each business line is reinforcing and helping to drive the success of the other we think this sets heidrick meaningfully apart from others in our talent and human capital sector.

Our diversification strategy is underway at heidrick <unk> struggles and we're seeing the results we.

We do expect the executive search business still more than 80% of our total net revenues today to continue on our path of aggressive growth.

At the same time, our non search business.

Heidrick consulting on demand talent, plus other adjacencies still to come is likely to grow even faster.

It is exciting to look back and note that heidrick non search business has gone from just $61 million in net revenue in the pre COVID-19 year of 2019 to more than doubling to $134 million in 2021.

We think this deliberate approach to the diversification of our business model will prove valuable to shareholders.

2021 was an outstanding year for us achieving efficiency and productivity that showed up in the success of our firm's culture as well as in our expanding market share profitability metrics and margins.

In addition to financial results. We also made important strides in ESG publishing our first ever ESG report, providing an in depth look into our sustainability efforts, while also outlining a firm commitment to offset our carbon impact.

<unk> is the first in our indiscreet issues that you report and I Hope Youll take a look at it online at Heidrick Dot com.

On our own human capital upfront I'd like to note. The appointment late last year of Tracy heating is heidrick, <unk>, new Chief legal officer and corporate Secretary.

Trace he comes to US most recently from a leading global payments technology company and brings to the firm significant M&A and international experience.

And more news from our own C suite earlier today, we announced the addition of Cecilia Nelson hurt as our Chief diversity officer here at Heidrick Cecilia joins us from a leading global beauty brand and brings a proven D Eni and strategy experience to further strengthen our firm's diversity and inclusion efforts.

And drive deeper employee engagement and community outreach.

We continue to maintain a strong culture developing terrific talent in house and promoting from within I'm pleased to share that we recently named 23 exceptional individuals to partner and 29% principle, making this one of the largest classes of principles promoted in recent years. These are incredible.

Talented colleagues, who already appreciate what it takes to run fast and deliver results I could not be more excited about the quality of the team at heidrick.

In closing the results, we released today show the impact of our deliberate strategic focus on growth and diversification and the tremendous resiliency and professionalism of our team here at heidrick amid an environment, where demand for our services and offerings is strong.

I'm proud of the amazing agility and exceptional capacity of our professionals.

We ran hard in 2021, and we enter 2022 with a solid outlook to the future.

At Heidrick, we're on our front foot moving forward.

With that over to Mark.

Thank you Christian and good afternoon, everyone welcome to our yearend and fourth quarter earnings call. Today, one that is very special given our achievements.

Sean spoke about the high level accomplishments execution and vision. So allow me to overlay that with some financial context around the figures we reported today.

Before going on to our financials, let me start by reinforcing some of the revenue drivers behind our $1 billion revenue achievement in 2021, first and foremost our team's relentless focus on driving growth, which cannot be understated second how we coupled this with our increased cross collaboration in advance as a value added products and services, we deliver on four.

Lions.

Third how all of these tied to our investment in digital innovation.

These are key factors that have led to our outsized productivity market share increases and record fourth quarter and year end 2021 results, which we hope to continue into and through 2022.

Please I have no doubt, we still have many miles to go to the finish line of where we want to be.

With that I'll start this afternoon with a run through some of the key yearend performance comments given the incredible year that Heidrick team delivered then roll on into our fourth quarter financial results make comments on a few balance sheet items share our Q1 outlook and finally close with some perspective on our shareholder value creation following that.

We're happy to take your questions.

Is there a 2021 year end results are impressive just does not do the performance justice in terms of the year that we had.

The revenue contribution from all three of our verticals was record setting or near record setting with incredible work being done by our teams.

Revenue of just over $1 billion is a monumental achievement for heidrick and we're all very proud to be a part of it.

However, this is not a normal revenue record setting year.

Historically pre COVID-19 , our revenue grew around 4% per annum on average for the last 20 years and right before Covid, our five year revenue growth was 8% per annum on average.

2021, However is a special year, where revenue increased 61% over the prior year, but to put this in perspective, given 2020 was recession here when we compare 2021 to our previous record of 2018, we beat that by 40%.

When looking at our year over year achievements.

We noticed in executive search we saw confirmation has increased by 45% are upticks increased 43% our billings increased 52%.

In Heidrick consulting we saw confirmation values increased 46% average client value increased 14%.

Search referred work was up 48% and the value of Heidrick consulting confirmations from search collaborations were up 52%.

Every measurement has demonstrated the incredible achievement our team delivered this year, but nothing shows us more than saying, our adjusted EBITDA increased 89% and adjusted EBIT margins expanded 210 basis points in 2021 over the year before as for our shareholders. We're very happy to share with you our annual adjusted diluted earnings per share of $4 11 nearly.

40% ahead of our 2007 record of $2 97 per share.

Congratulations to everyone on this call, whether you're an employee client shareholder or stakeholder. We thank you. So much for your contributions and support in 2021, a pivotal year for Heidrick <unk> struggles.

With that now let me turn to the quarter.

Our net revenue reached $285 $5 billion, our fifth consecutive quarter of record growth, which was remarkable 77% higher than the previous year.

Net revenue growth was driven by all regions in executive search and Heidrick consulting and the successful integration of our on demand talent demonstrating that we're hitting on all cylinders. It's truly an exciting time in our growth cycle, which we see continuing into the near future as our guidance will provide.

Let me give you some insights on the performance by turning to our three business segments.

An executive search net revenue was $243 4 million in the fourth quarter of 2021, 66% higher than the prior year looking at our search results geographically all regions demonstrated growth. The Americas region was up by 75% Europe was up 40% in Asia grew by 66% when compared to the prior year core.

Order all industry practices showed growth year over year as well combining for an increase in billings of over 50% with all of that regionally and industrial sector success, we've put an astonishing $2 4 million productivity per consultant on the board from 2021.

As a reminder, in 2019, just before the 2020 recession, we saw our year and productivity at $1.7 million per consultant. However, when looking ahead at what we expect to become the post Covid norm, we believe productivity will modulate between one eight and $2 million per consultant when factoring in promotions, we recently announced new hires in general.

<unk> of sustainability, which will still be a substantial improvement from our pre COVID-19 levels of 2019.

With regards to heidrick consulting their fourth quarter net revenue rose $18 5 million up 26% compared to the prior year.

As Christian mentioned consulting continues to benefit from collaboration within the company, while also bringing new business opportunities to executive search enter on the mend talent segment as well our greatest gains in the quarter were in the areas of team and board effectiveness, followed by culture, shaping and leadership development and leadership assessment.

Ratifying to see our ongoing strength in heidrick consulting backlog numbers with your own backlog up 27% since December 2020.

We believe heidrick consulting is momentum sets us up nicely for more success in 2022.

Finally, with regards to on demand talent. This business has exceeded expectations, yet again with revenues of $23 $6 million in the fourth quarter. This is more than 80% higher than last year. When BTG was a standalone company.

On a fiscal year basis, we saw large account penetration increased more than 120% and project wins increased 45% with higher than normal average project size when compared to the previous year.

Given the large total addressable market for heidrick on demand services, coupled with the results already achieved by this business segment. We believe we will see growth here for the foreseeable future now let me turn to the operating expenses.

With record setting quarterly net revenue and higher volumes of work naturally this comes with higher compensation and other variable costs, which was expected.

On a positive when overlaid with our revenue performance. For example, we saw consolidated salaries and benefit expense of $204 $1 million in the quarter more than one five times higher than the prior year, but slightly lower as a percentage of net revenue at 71, 5% in the fourth quarter of 2021 versus 75% for the same period last year.

When looking at General Motors joined up expenses, we saw $46 $9 million in the fourth quarter compared to $25 9 million in the prior year quarter.

This increase in the fourth quarter of 2021 stem largely from the onetime adjustment of $11 $4 million to the earn out payment due to the higher expectations resulted from our on demand talent segment, which should be received positively.

In short the segment is outperforming our initial expectations and we needed to increase the earn out amount accordingly.

As a percentage of revenue G&A expense was 12, 4% for the quarter after backing out the earn out impact which was a strong improvement over the 16, 1% shown in the prior year quarter.

Finally, we saw cost of services expense increased $18 million in the fourth quarter compared with $1 5 million in the previous year quarter, which was due to the acquisition of on demand talent. As a reminder, this is where we expense the payments to consultants, who performed project an interim work and on demand talent.

We're very pleased to report our adjusted operating income of $28 million in the fourth quarter of 2021 more than twice that of the $12 8 million in the prior year.

We like what we're seeing in our long term trend of expanding margins. When we look at our trailing 12 month consolidated adjusted operating margin, which is at an all time high except for last year's disruption due to Covid. Since 2014, our margins have been building steadily over the last 31 quarters, expanding a full 790 basis points over that timeframe and achievement, we're very proud.

Would a at Heidrick. This has translated to adjusted EBITDA of $36 8 million and adjusted EBITDA margin of 12, 9% in the fourth quarter of 2021, an increase of 70% when compared to adjusted EBITDA of $21 $7 million with adjusted EBITDA margin of 13, 5% in the previous year's quarter.

We finished the fourth quarter with an effective tax rate of 33% leading to adjusted net income of $28 million up 78, 5% from the previous year quarter and adjusted diluting earnings per share of $1.02 up from 59 since the previous quarter or an increase of 73%.

On the balance sheet at December 31, we ended the quarter with cash and cash equivalents in marketable securities of $545 $2 million.

She has over 200 million more dollars in the same time last year.

As we've discussed before the Companys cash position typically build through the year as employee bonuses are accrued.

Boy bonuses are paid out in the first quarter, along with the associated tax and related costs.

Our balance sheet, coupled with a renewed and expanded hydro credit facility of $200 million shows we have the strength and flexibility to meet our future investment objective to pursue continued growth.

We ended the year with nearly $750 million of liquidity, which again was another record for heidrick.

Now, let me turn to the first quarter of 2022 guidance given the continued strong heidrick projected volumes and effective productivity, we're seeing so far and with the macro tailwind still supporting our efforts in the marketplace. We believe our first quarter net revenue will be in the range of $270 million to $280 million, which would be a heidrick record for the first quarter and set up solid momentum.

Entering into the new year.

However, I would be cautious to conclude that this level could sustain for the entire year as we anticipate some moderation in the second half of 2022, an executive search, but irrespective. We still expect this to be a strong year for heidrick <unk> struggles of course, we'll have more insights on these and other developments, including any margin compression due to wage inflation market trend shifts and investment initiatives in our next.

Orderly call in April .

Please be reminded our guidance can be impacted by unforeseen inflation responses by central banks global conflicts and other unforeseen events that this management team will continue to monitor those situations and ensure we're always planning the best course through any challenge.

With regards to our valuation please keep in mind, while our foundational businesses, namely executive search and Heidrick consulting are valued on an adjusted EBITDA and adjusted EPS multiples the value of our on demand talent business would be missed using those same metrics is that segment is in a high growth cycle with negative to low EBITDA and adjusted EPS. This is why our on demand talent peer.

Ours are valued on a revenue multiple at this point in their life cycles.

We believe that until on demand talent market matures.

<unk> way to view, our diversified strategy is a sum of the parts method as this would more accurately reflect the value of heidrick in the aggregate.

In conclusion as Christian and I noted at the outset, we're very pleased with our performance.

We are successful delivering against our diversified strategy and have shown tremendous year over year growth, which in turn is providing us with the flexibility needed to invest further in future value creation, we have.

Implementing our strategic initiatives across our core search and consulting businesses, while also expanding into growth areas through our on demand talent acquisition. In addition, while it's still early days in our partnership with <unk> AI. We are excited about the new digital capabilities that we're investing in which we'll share more on later this year.

Bringing all of these initiatives together and driving a continuous virtuous cycle.

We're creating a strong springboard for heidrick as continued success.

With that Christian I would be happy to take your questions.

Ladies and gentlemen to ask a question you will need to press star one on your telephone until we drive question first a bounty please standby, while we compile the Q&A roster.

Your first question comes from the line of Tobey Sommer the tourists Securities. Your line is open.

Thank you.

I'd like to start off.

Can you offer some color around your technology or digital enabled approach from two vantage points.

How they may increase your total addressable markets and second.

How the cost of service delivery may become more efficient just that's one of the goals as well.

Yes, Tobey Hi, it's Christian.

So let me let me speak to.

To that.

The digital platforms that we've got in place to conduct a search you are already seeing the impact of that on our productivity and our ability. So we kind of started putting that in 2017 2018, and you've seen the productivity lift that we've seen as a result of that so.

We continue to push on that and so.

That is a very very positive thing for us as well.

Where we will see the impact of the digital platforms.

More on the addressable market is likely in the work that we're doing with equal the AI.

And the technology.

We're working on with them on on artificial intelligence machine learning and bringing different products.

To the table, that's where we're going to see a larger addressable market.

Beyond search for us on that.

There's lots of other opportunities there as well for the on demand talent and others opportunities too.

We continue to invest in technology to enable.

Those platforms as well.

How do we think about the long term revenue margin and leverage profile of the company and anything you could share at this point would be helpful. Because.

Investors in the space I think are looking at record performance.

At the company.

In many kind of.

Adjacent businesses in stocks as well and trying to put that in context about what things could look like in.

Two or three years. Thanks.

Sure I'll try to take that one for HIV.

So let's talk about the three core businesses that we have today right. We've talked about how in executive search and we can break it down more granularly, but we would expect us to maintain kind of what we're seeing in the Americas region, So that $25, 26% margin basis and in Europe that is again, we get scale, we would expect that to get up into the mid teens as well.

Asia Pacific, which we achieved obviously in 2021, so I think overall executive search we're always maintain that again, 20% plus or minus overall margin business I think when we take a look and again youre asking about long term on the scale with heidrick consulting.

What we would normally see in that type of a business model is that 10% to 12% type margin business as well once we have scale into that and we've obviously seen margin improvement between 'twenty and 2021 and we expect that trend to continue SBA and scale up in that business.

Demand in Thailand on demand talent excuse me.

Are they still very much in the beginning part of their lifecycle margins will be compressed there for some time as they continue their growth or high growth and what theyre able to achieve.

And again I would say a steady state we've talked about that we would expect those margins to come in around that 10%, 8%, 10% excuse me threshold. So I still think strongly.

I'll at least of what we have today and what we're showing in the market that would still be able to put us in that 12%, 10% to 12% cadence.

But on a much bigger pie I think that's what's important doing it without significant leverage or equity infusion, which means that should be able to fall all the way down and I think thats. The one nice part about 2021, where it really demonstrated is as we can achieve bigger scale in the market was there, allowing us to do so you really see it come through EPS quite nice.

Say going from again, the old peak of 297 to.

So we're we kind of finished up in up to 411 Mark So.

That's how we would see it and of course, those Christiane talked about the new businesses. When those kind of come online I can give you better insights, but I think thats what were really trying to drive is constant less cyclical.

<unk> and our margin profile on the up and downs in the markets.

That nice diversified.

Book of business in terms of how we want to really run the human capital side of it.

Okay.

Two more for me and I'll get back into queue.

What are your thoughts around where consultant productivity settles.

Yes.

When that settling occurs I know over the last.

Four six quarters, you've kind of given a marker, but you've kind of measure has inched higher. So I was wondering if you have any changes there.

Secondly, if you could give us a sense for what.

Net spendable cash looks like once you pay out bonuses.

Yes.

Mark let me start off with the productivity why don't you add to that and then you can finish up on this as well, but we see productivity.

Inching up.

From our historic levels I mean, you got to remember if we go back to 2017 were probably about one five.

Well look we're going to continue to hire from it and we're going to continue to expand we think somewhere between $1 80 and to point out is where productivity.

Will will move towards over time over a much larger base.

And we continue to drive that with technology, we can continue to drive that with leverage and where we hire and how we support teams.

You'll see that we havent.

Added significant consultants to be able to drive a new level of revenue as well so.

That's kind of where we see the number going I mean, I think with the.

Additional technology infusion, we may be able to get to something higher but until we kind of see that we're projecting between one eight and two.

Tobey to answer your second question I did put in a slide for you. This time so on slide 26 in the Investor deck Youll see our total cash their bonus payments going out of three to $3 one.

So we've got business operations working capital another currency constraints, if you will.

As you know, sometimes it's hard to move cash around from different jurisdiction. So we finished with discretionary cash of about $97 $1 million after those payments.

Thank you very much mark I'll get back in the queue.

Your next question comes from the line of Kevin Steinke of Barrington Research. Your line is open.

Hey, good afternoon.

You highlighted.

Youre collaboration efforts.

And how that's helping the.

Drive revenue.

Collaborating across segments, and we do have incentives in place to drive that or whats the structure or are you kind of have to try and make the collaboration happen.

Yes.

Kevin Good to hear from you as well.

We've got <unk>.

Tentative plans in place to drive that collaboration.

Between the various businesses so it's rather clear as to how that operates each of the consultants is aware of it. We also do a lot of joint planning on our accounts. Okay. So so between the two we know where we want to target and how we want to operate so.

As seamless sort of simplified our incentive system for collaborations and make it easier for the field as well and we're seeing the benefits of that.

In the last 12 months.

Okay and.

You mentioned a lot of change happening at the top of organizations in 2021.

I mean.

How do you view.

That pace of change going forward I mean is it.

Less sustainable in 2022, and if so is that kind of why we're thinking about you know maybe a bit of a moderation in search in the second half is a.

Mark referenced.

Yes.

Fair question, Yeah. So look we have just seen so much if I look backwards in 2021.

The frenzy in the market the level of change.

It's been terrific using.

It continues right now is what I would say.

And Thats why are our first quarter guidance is where it's at.

But look having been in the industry for a while and having seen all of this we're running 100 miles an hour right now and I fully expect that when we talk about moderation and I look out it's going to be 90 to 95 miles per hour.

It isn't.

<unk> slowdowns that we've seen before there is a lot of momentum there is lots of themes that are that are out there still the eni.

Still digital transformation sustainability is only beginning really to have an impact. So there are many many things and new businesses private equity is still rather flush. So there's lots of things that will continue to drive this but.

With any of these cycles once you.

Higher you have to digest and you have to take some time.

And that's where the other service offerings that we've got really come in play for us.

As well to be able to continue to continue those relationships.

Work with those clients.

Okay great.

Yeah, when we talk about.

Both the on demand talents segment in Heidrick consulting.

You talked about your goals there to scale those businesses up and some target margin ranges.

Can you talk about the opportunities and challenges in both of those businesses to driving greater scale and you know when we think about these margin targets.

Are we thinking kind of like a three to five year timeframe or how do you think about it.

Kind of in your strict strategic roadmap.

Yes, So let me take some of that and then Mark can come back with.

Maybe some additional thoughts on margin so look the challenges I think to growing.

First let me just look at it on demand for a second.

But there is a great market, we've got a great brand, we've got a preeminent position. So we've got something obviously to build on.

There are opportunities to build internationally.

This as well so.

Those will have to be.

That very very carefully to make sure that they're the right fit how do we want to grow into those segments can we do that organically or inorganically. So those will be conversations.

That we're having every single day regarding that.

There is again massive opportunity over there.

For us to continue to push the lever of Heidrick consulting.

At some level it will come.

Two focuses that will come to talent and continuing to onboard talent and partners and developing partners as well who can help us.

Some focus areas, we think that we're really working well on culture.

Future ready leaders D. Eni, so sort of doubling down on each of those and being able to drive that but that'll be a talent opportunity for us over there Mark you want to talk to the margins side a little bit.

Sure.

So unlike the heidrick consulting side of it Kevin.

Yes, we were on a really good trajectory and then COVID-19 kind of set us back a little bit which actually.

Wasn't all terrible there was about a 7% drop in the revenue.

Matt back plus some and I think the team has just done a terrific job here.

A heroic job of really building that revenue side of it we always talked about the breakeven margin for heidrick consulting being around that $80 million to $85 million platform and then we'd start to see the incremental scale come in.

Always hard to speak to in terms of where that revenue can take itself off too but.

Our view is again its always difficult on timing, because it's going to be a function of the market and being there.

110, $120 million category is where I think we'd really see some good margins strong margins come through and really start to get scale into the platform or that would be able to demonstrate it on demand talent.

Different pivot it's in a high growth cycle. The addressable market is continuing to grow quite nicely Christiane made some real interesting references about people coming out of school and how theyre going into that side of the equation versus the old school.

The full time equivalent side of it all we can really watch those trends and the team is executing flawlessly.

See that come through in the numbers so.

That side of it again I think right now were just what I would call.

Qualify as in the reinvestment side of it every dollar we're making we're putting back into the business and rewarding the team and making sure that they continue to grow.

The market opportunity I think when that plateaus out, we'll see where we're at but that one again.

Can be a $200 million plus type of business for us, especially when we think about it potentially.

But the contingent of Europe , and Asia Pacific and everybody else moving to this type of platform. Those numbers can go up quite significantly which is really what excites us and then we'll see where that kind of comes out but.

That's really where you really start to see those margins I would imagine is one the investment kind of starts to slow itself down and again, we've got public companies that are very similar.

Adjacent types of the market likes upwards in fiber doing the exact same thing taking every dollar reinvesting into the business because everybody has seen this great growth opportunity.

Certainly I would say COVID-19 has changed that to be a real part of.

Where are we kind of see the human capital going so.

It's really good that were a part of and we're excited by what it has in front of us.

Okay great.

How are you.

Thinking about are managing through.

Compensation and inflation in your business is do you view that as a meaningful challenge going forward and.

Is the ability to develop and promote people internally kind of a way to.

Offset that or just any thoughts on how you see.

Inflation compensate decision side affecting your business going forward.

Yes, so clearly there is.

The war for talent that occurs in some great businesses like cars as well.

We benchmark our compensation.

We built in some.

Nice increases this year, we believe we pay very competitively and we're creating new opportunities on compensation as well as career opportunities for people, including some of this collaboration including closure bonuses all kinds of different mechanisms, we've got in place, which we think.

Allow us to compensate people.

Very fairly as well as near the top of the heap. So.

We continue to look at every single thing over there so.

I don't rest easy thinking we've got all the answers.

But I think we've got lots of things that we are definitely looking at and.

And I think we've got tremendous career opportunity to offer people as well.

Talked about our promotion classes and what we just did so there's wonderful career opportunities here at Heidrick, we've got multiple platforms now that we've got.

Well, so it's a terrific place to be a leadership advisor and we hope that our teams will all run towards that as well.

Alright, and just lastly, I wanted to ask about.

Upticks.

Mentioned up 43%.

In 2021.

No.

I assume that's something that.

Maybe starts to normalize maybe comping.

Compensation levels get set higher initially.

Of course, I guess thats beneficial to you as well, but just.

Is there kind of an extraordinary number.

I think with moderate I, suppose or how you're thinking about how that kind of flows through for you going forward.

So I think in terms of a historical achievement, yes. It was definitely a higher number I think thats kind of a little bit more reflective.

And a couple of different aspects right number one is the mix and that's typically where we saw much stronger in the Americas side of it than we saw in Europe , and Asia Pacific side of it we saw it in terms of.

The value probably more stemming from.

You go in with an original assumption of what it's going to cost to fill the role and then what youre seeing especially in a market like this Kevin which I'm sure you can imagine.

A lot of people bidding for that same talent driving up price and then the realization of what it's going to cost to actually kind of get that person onboard is higher.

And that's really we see the uptick comment so I think everybody starts and again, just using fictitious math $100, that's where we thought we could get the person onboard it turns out it's a 115 waiver $50 uptick too.

Torque trial, so it's probably more of a function of the market and the fact that.

Supply and demand clearly are not in equilibrium.

We're seeing even though the supply is out there on the demand obviously is coming in very very strong.

And I think Thats, where were just thought in 2021, I would expect that to normalize a bit and that was kind of embedded in the guidance number that I gave as well as the outlook I kind of gave them, saying look I would expect this especially in executive search.

To moderate a bit that does not mean, it's still not going to be a heck of a year for us that will be it just.

Don't take the quarter guidance that I gave and multiply it by four I think that would be what I would always hope for that but I suspect, it's going to modulate a bit on that so we'll see but I think that's really what that uptick was about and as you know, especially when you give out guidance numbers uptick is the one variable that is just the.

It's a crazy curve ball trying to hit it because it's just really difficult to predict because you really don't know until the client pulled the trigger and makes the decision to either step up I'm trying to get the person art.

When we look at the work that we're doing to see if there's another way to make it within what they had as a quantifiable budget.

Sure absolutely that makes sense.

I appreciate you taking the questions. Congratulations on the strong results really appreciate that Kevin. Thank you.

Yes, the follow up question from the line of Tobey Sommer at <unk> Securities.

Your line is open.

Thank you.

Just a few more.

What are you thinking that the impact is either on your addressable market our average fee per search.

Of being able to recruit executives from different geographies, given our remote work and that that acceptance how does it.

Impacts the market in your company financially.

Yes.

That phenomenon actually.

It does a couple of things I don't know about if it increases the marketed increases the availability of talent on number one.

It might increase the speed, which we can execute searches on so I think those are the dimensions that it helps them I think it helps our on demand talent business by the way, Okay in particular, where.

People are excited to be able to access talent outside of.

There are geographies, even their regions. So I think it helps that business as well.

In your what you've seen so far have you been able to discern if it's more secondary markets recruiting.

From the larger cities that are typically maybe deeper.

Deeper pools of talent and higher prices or is it the other way around large markets recruiting talent from.

From medium and smaller sized cities.

Cause that could give us a sense for average fee impact.

Yes.

I don't think its sort of like that I don't think people think about it that way and where where we operate I. Just think they think about it is as wherever the talent may have migrated to at this stage okay.

So I am not sure I could draw the conclusion on on the average fee per search I think the compensation that theyre going to offer that individual.

He is going to be highly competitive.

For the company that we work with so no matter, where they come from they're going to be paying them.

Kind of money.

Okay.

Do you have a sense for retirements as a driver in the business in the executive search side specifically.

Yeah look we definitely saw that occurring more in 2021 than we did in 2020 people in 2020 as pandemic started or getting ready to retire wanted to stay with their teams and I think 2021.

Though we still felt.

Covid overall, there was a bit more stabilization. So there clearly was some retirements that occurred.

At that time period, and I think they will continue to be retirements that will occur.

Some of it now driven by.

How we work and how comfortable people are to be working and those work environments being virtual and trying to lead teams that way or not and.

So I think the future of work will will drive.

Wave of retirements as well as people elect to say, okay, I don't want to.

To lead that way and maybe im not suited to lead that way as well and so youll continue to see at the same levels we have.

This last quarter was kind of a small detailed questions. So I think it's us.

Pretty immaterial exposure, but could.

Could you quantify the company's exposure to the markets that are sort of recently in the news and under under sanctions.

Sure.

Russia business as Youre spot on Tommy Russia.

Russia is about one $9 five dollar revenue business for us.

It's not very material, we don't have Ukraine operations.

We don't have Belarus et cetera, we do have Paul and operations and our volunteers has been doing just a magnificent job helping out over there in terms of what's going on we're getting a lot of reports from our team members.

And all sides of it just given us updates.

And it's being led by an extraordinary person that we have also in Italy, that's in charge of our.

Growth markets side of the business so.

Overall, we don't expect really any impact on our financials don't material impacts on our financials. We've made sure that we've got all of our treasuries buttoned up and situated for a potential launch they have this.

And the team is really all leaning in on itself overall.

So a nice way to say this is selling as well as one can be expected in a difficult situation.

Thank you very much.

Sure.

Ladies and gentlemen that does conclude tonight's Q&A session and I will hand, it back to Mr. Rodrigo fallen for closing remarks.

Thank you for joining our call today, but clearly the results that we announced today were outstanding and we're working hard to continue to deliver value to heidrick clients growth to heidrick shareholders and our employees.

And all within the framework of the strategic vision that we've got outlined we look forward to updating you again next quarter and look forward to catching up thank you.

Yeah.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Yes.

Yes.

Yes.

Understood.

Yes.

Okay.

Yes.

Yes.

Okay.

All right.

Yes.

In the past.

Thank you.

Yes.

Yes.

Yes.

Okay.