Q3 2022 Heidrick & Struggles International Inc Earnings Call
Welcome to the third quarter 2020 to Heidrick <unk> struggles earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one.
As a reminder, today's conference is being recorded.
It is now my pleasure to turn the conference over to.
Suzanne Rosenberg Vice President of Investor Relations. Please go ahead Ms Rosenberg.
Thank you and welcome to our 2022 third quarter Conference call on today's call is our president and CEO Christian logical pollen and Chief Financial Officer, Mark Harris, We posted our third quarter slides on the IR homepage of our website at Heidrick Dot Com and we encourage you to view the slides for additional context. Please.
Please note that in the materials presented today, we may refer to non-GAAP financial measures that we believe provide additional insight into underlying results a reconciliation between GAAP and non-GAAP financial measures may be found in the earnings press release.
Also in our remarks, we may make certain forward looking statements. We ask that you. Please refer to the Safe Harbor language also contained in today's press release Krishnan I'll now turn the call over to you.
Thank you Suzanne and good afternoon, everyone.
We are pleased to report another set of strong results on both the top and bottom line compared to the record performance delivered last year.
This was achieved while we continued to make investments in digital assets and whether the unfavorable foreign exchange rates, along with an inevitable market slowdown.
Profitability near historic highs.
Specifically.
Our nine months year to date operating income of $92 million, which is already approaching full year 2021 operating income of $98 million.
Third quarter operating margins remain robust at.
At 11, 1%.
On the bottom line, we achieved third quarter diluted EPS of $1 <unk>.
On the top line constant currency net revenue of 266 million met our expectations and marked a new milestone as the highest third quarter revenue in the company's history.
Okay.
In addition to these strong results we ended the third quarter with our highest cash balance of $456 million, which provides us with great financial flexibility as we continue to invest in our diversification strategy, including the development of our digital assets.
As we've discussed for several quarters now.
Pace of business has been extraordinary over the past two years and as we expected. We are now beginning to see a market slowdown.
However at this stage, we believe we will continue to see revenue above the record years, we delivered pre pandemic in 2018 and 2019.
As Mark will discuss in his comments, our fourth quarter guidance reflects the market slowdown macro concerns and the normal seasonality of our business.
The advantage of our diversification strategy, which I'll discuss more in a minute is that it.
Anchor and a strong core executive search business and <unk>.
Ported by two large and growing complementary non search businesses.
On demand talent in Heidrick consulting.
Each of these segments continue to operate in higher demand environment, and we intend to invest appropriately behind these growth opportunities.
We believe on demand talent will continue to grow in relevance and demand, particularly as the labor market is still very tight and companies are operating in an environment, where variable versus fixed costs for priority.
Also historically the on demand talent business has been better at weathering economic downturn.
This was demonstrated most recently during the pandemic when this segment bounce back in late 2020, following a relatively short.
Similarly, Heidrick consulting continues to operate in a higher demand environment.
Tight labor market and a growing prioritization on succession planning.
Giving companies to invest more in leadership assessment and development of future leaders versus solely relying on the inflow of new external talent to build their leadership bench.
Bigger picture beyond a quarterly snapshot, we continue to see that the world of work is changing on a global scale.
They were talking about mobility and hybrid workplaces, the need for agile leaders identifying assessing and developing future ready leaders.
Eni imperatives.
And many other leadership in workplace shifts.
Importantly, we believe heidrick is strategically positioned to address these various areas.
Trusted premium brand gives us the permission to introduce new offerings and advise our clients to help solve for these increasingly complex issues.
It's truly gratifying that our differentiated strategy of building a virtuous cycle of leadership offerings working in tandem and synergistically across our business segments is resonating in the marketplace with an increasing number of clients availing themselves of multiple services.
In fact year to date over 40% of Heidrick consulting revenue was driven by referrals from executive search.
And roughly 17% of on demand talent was driven by the hydro channel.
We are building positive momentum for the future as our business becomes increasingly diversified with expanding cross collaboration opportunities that drive not only our client success, but also create long term shareholder value.
Our strategy is focused on growth and diversification and reflects what our clients are asking for a broader more comprehensive solutions for their talent and human capital challenges at the executive level.
Each one of our business supports the other in a very natural way.
Clients need a executive search also often have near term capacity challenges that can be solved with interim or project based on demand talent.
At the same time clients looking for new talent, particularly in this type of market. We're also looking for ways to better assess and develop their existing and future leaders as well as strengthening their workplace cultures and organizations overall.
In addition clients are looking for more powerful ways to leverage data and analytics to better attract.
<unk> develop and predict the potential of their talent.
While our business has historically had cyclicality because of its dependence on executive search we believe our non search businesses have counter cyclical attributes.
These businesses grow we will expect to be more resilient through future cycles.
We will continue to build out our global platform to bring in even Fuller suite of leadership advisory services to our clients, thereby creating broader more sustainable engagements, while helping them with their more pressing challenges.
In addition, we remain focused on developing digital assets that can help bring visibility to our clients on key leadership and development topics and transform how companies support their leaders.
Now, let me turn to each of our segments.
Executive search delivered a strong third quarter performance with constant currency revenue.
Lee up compared to its record performance last year.
Importantly, we believe we continue to gain market share and maintain an outstanding trailing 12 month productivity of $2 5 million per consultant.
As we've discussed on prior calls, we expect productivity levels to settle above pre pandemic levels around $2 million per consultant, reflecting sustainable gains from greater automation and efficiencies in the hiring process.
As anticipated given the market slowdown we did see global confirmations decrease in the quarter led by the Americas.
However year to date confirmations were slightly up from last year's incredible performance.
Globally, we remain focused on growing search efficiently by optimizing our go to market strategy and growing through deepening client relationships in all industries.
Regionally, we continue to assess expansion opportunities in new geographies and industry sectors and partner with our clients on burgeoning demand in areas such as D. Eni sustainability.
Sustainability and a variety of tech and digital hybrid roles that we continue to see emerging in every industry practice.
Next turning to on demand talent.
This growth segment continues to show great strength with year to date revenue up 60% to $69 million.
Compared to $43 million in 2021.
When looking at a trailing 12 month basis, we saw revenue grow to over $92 million demonstrating the strength of this business on the hybrid platform.
Clients response continues to be very positive as companies look for more leadership liquidity.
Whether that's through on demand access to interim executive leaders.
Our leadership on strategic project work.
Overall, the on demand talent space has a high tan it continues to grow as clients increasingly see the need for fast flexible talent.
Key drivers of this market growth include.
Increased ongoing client comfort with remote work.
The tight labor market driving the need for faster and more flexible talent solutions.
The growing awareness and openness to the on demand model, becoming enterprise wide and at the C suite level.
And the changing talent landscape with significant growth in the number of high end talent choosing to go independent.
External sources, who track this indicate that independent workers grew 34% in 2021.
We expect organic growth to continue as the market grows and client awareness continues to expand building on our leadership position in the space, where we're investing in future growth given the accelerating market opportunity for <unk>.
<unk> on additional investments in sales and marketing as well as geographic expansion outside the U S and UK.
We also expect to benefit from the accelerated growth through the <unk>.
Heidrick search channel as we add resources to this side of the business.
Yeah.
In Heidrick consulting we continue to focus on delivering impactful solutions to develop future ready leaders organizations and cultures.
In the third quarter. This segment delivered net revenue of $19 million up 14% on a constant currency basis.
Growth was seen across nearly all our services and demonstrates our ability to drive higher revenue by expanding client relationships across multiple areas. As we continue to increase our brand awareness and cross sell more of our offerings.
Importantly, we continue to see strong demand for our services as clients wrestle with strategic questions around talent such as.
Do we have the right leaders in place.
Who are our future leaders.
And does our culture aligned with our strategy and purpose.
In addition, we're advising clients as they confront return to office issues and how to navigate a challenging labor market and economic headwinds.
Lastly.
Another piece of our diversification strategy and a key future growth area for our firm as the development of our digital assets.
Today, many organizations like the visibility and leadership intelligence systems, they need to drive business impact current leadership solutions are often manual and fragmented.
Leadership data is limited.
<unk> lack an organization wide view of the experiences and capabilities of their leadership.
And as a result critical needs such as succession planning so on scale and companies can't effectively identify or map leaders two roles.
Drive internal mobility or build programs to address impactful development needs.
We have been working actively with our partner <unk> pulled AI on our first digital asset to address these unmet needs.
We have named at Heidrick navigate and we've been beta testing it with clients. The beta program has been positive with strong initial client reception. We're now beginning to expand our beta program to several additional clients.
The feedback from our early adopters will be incorporated into our product roadmaps over the course of the next six to nine months as we look to a full product launch.
We're excited about our progress and positive market response to date and look forward to sharing more as we advance our work over the coming quarters.
In closing.
Our results reflect continued growth successful execution and we're heading in the right direction with executive search is a strong cornerstone of our portfolio. We look forward to seeing faster paced growth from our non search businesses heidrick consulting on demand talent digital assets and other adjacency is still to come.
And as we continue on our multiyear journey, we are on an ambitious path to transform heidrick <unk> struggles and to the world's leading leadership advisory firm, providing a new generation of business services that will enable companies to achieve higher performance from their executive level talent in a fast changing world.
Before I turn the call over to Mark I'd like to close with how proud I am the contributions from our global team.
In November our team will participate in our annual global day of service, where we as a firm give back to the communities in which we serve.
I want to thank all of our employees in advance not only for their time and commitment to this important event, but also for their hard work and.
And many contributions they deliver each and everyday towards advancing our clients' success and generating long term shareholder value.
With that I'll turn the call over to Mark.
Thank you Christian and good afternoon, everyone. Thank you for joining our call today.
As Chris mentioned, given we anticipated this market slowdown we're very pleased to have kept pace with last year's phenomenal revenue trend on a constant currency basis as the strengthening dollar has hurt our reported currency in Europe and Asia markets.
Irrespective. This management team has steadfastly focused on delivering strong profitability through to the bottom line for our shareholders, which we achieved again this quarter by posting diluted EPS of $1.02.
This marks the fifth time over the past six quarters that this company has generated quarterly EPS in excess of $1.
It's also noteworthy that year to date 2022 operating income is only $6 million behind the record breaking operating income generated for the entire year of 2021, an incredible achievement before speaking to our performance in the third quarter, our fourth quarter guidance reflects continued moderation as the summer holidays are great vacation impact works its way through our revenue recognition model.
<unk> as well as the ongoing impact from the strengthening of the U S dollar.
While theres much chatter about looming global market downturn.
We believe we are well positioned to navigate through the challenging market dynamics as we have done in the past given our digital transformation and the diversity of our business along with key account growth and client stickiness, resulting from our IP technology global reach data and insights.
Now let me provide some details for our third quarter results.
Net revenue on a consolidated basis for the quarter was $255 2 million and on a constant currency basis net revenue was $265 8 million.
Compared to $263 $8 million last year.
Year to date net revenue increased to $837 7 million compared to year to date revenue of $717 5 million a 17% increase.
Let me first turn to executive search where quarterly net revenue declined about 4% year over year. However, excluding the fluctuations of currency search revenue was essentially flat with record levels last year.
Looking at our regions the Americas decreased three 4% versus a year ago period, reflecting an increase in the value of engagements offset by the number of engagements.
Europe decreased three 6% in Asia Pacific decreased seven 3%. However on a constant currency basis, Europe was up 12, 7% and Asia was essentially flat down <unk>, 6% versus last year, both driven by the value of engagements.
Consultant productivity $2 2 million was below last year, but remained strong and is beginning to reflect the new normal we are seeing in our business, where we expect this metric to settle in around $2 million over time, which is below the unsustainable post pandemic rate of $2 $6 million and above pre pandemic levels of $1 7 million in 2019.
On demand talent revenue of $23 $2 million was driven by an increase in average project size, which is reflective of the strategic initiatives to expand and penetrate key accounts, along with increasing project extensions all of which was offset by the anticipated seasonal slowdown.
Nevertheless, third quarter results were up 4% from the second quarter of 2022, but down four 3% from the third quarter of 2021.
Even on demand talent current size and scale. This business is still a bit choppy, but as we grow we expect increasing consistency over time.
I'd remind our investors that <unk> is a key component of our diversification strategy and not only serves as a rapidly growing niche in the business services space, but also provide some offset to the economic cyclicality sand in the executive search.
The environment for this business remains strong and we're seeing continued demand across all company sizes and industries as clients are focusing on growth, while recognizing and becoming more comfortable with the benefits of high end on demand talent and it's expanding yes.
We continue to invest to fuel the future growth of on demand talent and expect to continue to invest in this segment as long as the market conditions support our growth vision.
This means that we expect on demand margins to be dilutive as this segment becomes a higher percentage of our overall revenue, but margin dollars in the aggregate will be higher and most importantly accretive to our bottom line.
We continue to believe the true value of on demand talent would be missed if one were to apply an EBITDA or p/e multiples to today's results given the nascency of this business with trailing 12 month revenue of $93 million, but again, we see significant growth potential over time.
Let me turn to Heidrick consulting, where we're pleased to report Heidrick consulting quarterly revenue decreased six 9% or 14, 4% from the prior year period on a constant currency basis.
This is primarily driven by leadership assessment and development projects.
Head Count also increased year over year, and we anticipate additional hiring in heidrick consulting to capitalize on the market opportunities and demand we're seeing in particular in a tight labor market.
Importantly, heidrick consulting backlog remained strong near historical highs and this segment continues to benefit from cross collaboration within the company with over 40% of its third quarter revenue driven by the referrals from executive search.
Turning to operating expenses.
All of these benefits were lower in the quarter by $14 4 million or seven 8% compared to last year's third quarter.
Fixed compensation increased $3 $4 million due to base salary and payroll taxes and retirement and benefits, partially offset by decreases in deferred compensation plan and talent acquisition and retention costs.
Variable compensation decreased $17 $9 million related to lower production in the quarter.
As a result of salary and benefit expenses improved 330 basis points to 67, 2% of revenue compared to 75% in the third quarter of 2021.
General and administrative expenses were $32 2 million compared to $29 2 million in the third quarter of last year, primarily related to internal travel associated with business development.
Despite the increase as a percentage of revenue general and administrative expenses remains low at 12, 6%.
It was down sequentially from the $35 2 million in the second quarter of 2022.
In the third quarter, we reported $5 $4 million in research and development or two 1% of net revenue.
Year to date, we've expense $14 3 million, which is in line with the anticipated $20 million run rate for R&D on a full year spend basis, and we have capitalized $3 8 million that will be amortized upon product introduction into the market.
At this stage in 2023, we expect R&D investment to be similar to 2022, and we'll continue to evaluate it as part of our annual planning process. We're very pleased to report our continued focus on profitability was evident in our third quarter results and exceeded expectations, even as we continue to invest in our research and development initiatives for the future.
Specifically operating income was $28 3 million and operating income margin was strong at 11, 1%, even though we invested $5 $4 million in R&D discussed earlier.
This resulted in adjusted EBITDA was also strong at $33 $3 million with robust EBITDA margin of 13%.
Our third quarter effective tax rate was 29, 5% and year to date effective tax rate of 31, 3% continues our company's two year trend of a tax rate consistently in the low to mid 30% range.
Dissipate this to continue into the fourth quarter, such any actual changes.
Finally, net income for the quarter.
Was $20 8 million and diluted earnings per share was $1 two centers.
On a year to date basis, we're very pleased to report that net income rose to $63 4 million compared to $60 $1 million in the same period last year.
Now I'd like to turn to our balance sheet, which is the company's highest third quarter cash balance of $456 million as a reminder, our cash position typically builds through the year as employee bonuses accrued.
Employee bonuses are paid in the first quarter, along with the associated taxes and related costs.
With no debt on our balance sheet, we're well positioned to fund our growth initiatives and be very strategic about future opportunities.
We have complete access to our $200 million credit facility and robust cash and receivables, putting our liquidity in a strong position.
Looking at our fourth quarter revenue guidance, we expect the range to between $215 million to $235 million.
You will note that we broaden our range given the scale of our business, which is on pace to do another $1 billion in revenue and the diversification strategy that we've embarked upon.
We have built in an expectation for executive search the slowdown in the near term coupled with normal seasonality that impacts new businesses into the fourth quarter.
In summary, considering global market dynamics and the tremendous year ago comparisons were extremely pleased with both our third quarter and year to date performance.
Our management of the business continues to deliver meaningful improvements to our profitability on the bottom line.
We're within the range of a record setting company performance in 2021, which is a terrific accomplishment by everyone at the company.
Ron on an exciting path and we continue our transformation journey and focus on accelerating the growth of both our search and non search businesses, which in turn will give us more resilient business model in the future.
Lastly, given our market position and liquidity strength, we have great flexibility to be highly strategic and capitalizing on the right opportunities, which we expect will create further value for our shareholders.
With that Chris and I are happy to take your questions operator over to you.
At this time I would like to remind everyone. If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from the line of Tobey Sommer with <unk> Securities. Your line is open.
Okay.
Thanks.
Good afternoon in terms of executive search.
Yeah.
What are you expecting.
The annual productivity annual production to measure and settle out at.
On a per consultant basis, I felt like the confirmation is down sequentially about <unk>.
18%. So wondering where you were you kind of see that as you get in the next couple of quarters.
Hey, Tobey its mark here.
Here's the answer to the question.
First one is as you know in 2021 and into 2022, we've made comments that the rate of $2 five $2 6 million of productivity was just too high and not really sustainable over the long term. We also made comments that back at the $1 7 million productivity that we saw in 2018 2019, we still feel like we have gains achieve.
Either through technology.
Or just redevelopment of the process and how we do our executive search are going to be able to give us some permanent gains. Our view is still pretty consistent that we think trailing 12 months this will maintain around plus or minus $2 million.
As we kind of go into what we would consider probably more of a steady state, but as you know it would fluctuate a little bit between.
Our recessions expansions coming out of those recessions potentially et cetera and of course, our promotional is that we do in the first quarter, but I think that's a pretty safe range to be guiding our productivity levels. So I think we've gained some there Chris on or if you want to add to that.
No I think that look that makes sense to us.
The productivity levels.
Shot up by well over.
40% so.
That wasn't that's sustainable, but I think of about $2 million, we feel pretty comfortable.
Thanks.
We look at the geographic distribution.
Confirmation, we try to.
The model out.
Are there any.
Could you give us any color on the strengths or weakness on a relative basis, among the geographies within executive search.
Yes, let me, let me start with that and Martin.
I think relatively speaking we have been.
Very happy with Europe .
Europe is.
As maintained its pace and a very nice way so.
Remains to be seen with theirs award going on there still et cetera.
What happens, but we have been rather pleased with that.
We saw as we as we mentioned some declines in the Americas, which was a big growth engine, but look I think we're still forecasting really that.
If we kind of drew and boundary lines over here that we're not running at 100 miles an hour was still running faster than we were running in 2018 in 2019, there is still.
A good pace here.
For us in the executive search.
That's how we're looking at the business right now at least.
Mark I don't know if you want to add.
No. The only thing I would comment Avi, we are seeing a little bit of a dip.
Mix than usual, we've seen actually strength coming out of Europe .
Obviously, theres been a little bit less in the Americas, and some strength coming out of Asia. So as we kind of look through some of the mixes and theyre coming up I would imagine thats going to shop less a little bit differently, just because of the weight and the strength that we're getting from particular parts of those regions, but overall, there's still pretty consistent what we've been watching over the last 18 months.
Post Covid. So I don't think we've seen a big a big shift in that sense with the exception of minor inflationary MFS.
Okay.
How do you.
You indicated that the.
Capitalized investments and so forth and some of your transformational initiatives you expect to kind of.
Maybe.
Hey on stable as you look into next year and you're doing your planning.
How do you.
In this environment with.
Some forward indicators coming down your guidance sequentially.
Pretty meaningfully.
Do you shuffle.
Shuffle, the deck and in managing any of the emerging more rapid growing but money losing businesses any differently.
Yes, Tobey Christian here, Yes look I think the way.
We think about it is.
We think about it through a long lens.
The investments we need to make today for us to be able to see those returns we see markets in places that we think investment as is required we see the.
The on demand talent is being a reasonably strong market I mean, if we look at the.
At the macro it's a tight labor market.
We're entering a market, where we believe that variable talent variable costs are going to be valued.
We're seeing acceptance of that solution that hasn't existed before as well so awareness is going up.
And.
And external research shows is that large groups of people are opting into this model as well. So it leaves us bullish to say hey in investing in growing and scaling that is for the benefit of the shareholder in the enterprise over the long term. So we're going to continue to.
Two to focus on things like that we will have to.
We'll be thoughtful in managing our costs as we've been this quarter, Okay, and we will continue to do that but I think the investment thesis that we have.
We're going to be prudent on this.
And not get ahead of the market, but where we see the market.
We're going to continue to double down.
Okay.
I'll get back in the queue. Thank you.
Thank you thanks, David.
Your next question comes from the line of Kevin Steinke with Barrington Research. Your line is open.
Hey, good afternoon.
Yes.
So you talked about.
The inevitable market slowdown.
And that that was anticipated.
Yes, I'm, just trying to maybe parse out a little bit more.
Yes.
How do you think the slowdown is evolving here or is it.
More weighted towards just new coming off those.
Record high kind of unsustainable confirmation levels that you had seen in the first quarter of 2022 and dose kind of the market normalizing versus how much of the slowdown.
<unk> is related to macro concerns among your clients you mentioned.
In the press release, we remain recessionary concerns so.
Kind of wanted to get a sense of.
How you would wait those factors in terms of.
The market slowdown youre seeing.
Yes, So I think the first thing to remember on that Kevin is again when you are.
We're actually kind of taking a look at constant currency dollar clearly has been playing a very big part of that so when we take a look at.
The revenue side of it right. The revenue has actually been pretty flat compared to Q3 last year. When you look at it in terms of our performance. This year. So I don't want to underscore that too much because I think thats really kind of important is the dollar's been impacting both Asia Europe and they become a bigger part of our platforms as well with our on demand talent, who has got a.
European business in Heidrick consulting, which has a European slash as your business. So I think theres that element that the slowdown in and of itself wasn't unanticipated we were expecting it but it is just slower off the insanity of what we're watching in 2021 and 2020 to the levels that we're seeing and even these revenue multiples are still clearly very much higher than 2018 in 2019.
I think what that really does is put acute focus on us is to focus on the profitability side of it so which we've done I think a really good job, even Bakken and the insanity of the Covid crisis. This management team I think we did a really excellent job of maintaining strong single digit margins, making sure that we understand kind of the different levels levers excuse me that we can.
Paul which we did in real estate reshaped, our real estate strategy reshaped our technology play added on demand talent I think we've done a really good job on that.
To kind of buoy ourselves.
During the ebbs and flows of that so it is slowing down as expected.
And we again I think are playing a pretty good course.
How to maintain it and I think Chris Sean.
Certainly go into how we work with our relationships, which we think we've positioned ourselves.
To be much more attached to our clients. During these times versus maybe back in the historical days, we were much more transactional Chris Sean if I could say it like that.
No no no I think our accounts programs are are really working well.
We're able to.
We measure that in and the stickiness of the relationships over there I think are really outstanding.
We're able to introduce in the other service offerings, as well, which kind of allows us to be additionally, sticky.
I think fundamentally one of the things that gives us some confidence with where we are is that we are in a fundamentally tight labor market from a talent perspective, okay. So the.
The problems haven't changed people need to solve them and theyre looking for solutions and so it's a supply side there is a supply side issues still okay.
In terms of that so we're going to continue.
To be in the market and we're going to continue to be in demand as a result of it.
Alright, great. So yeah, I mean, I guess it.
And then I guess it sounds like.
Given the tight labor markets.
It continues to remain tight.
Do you think you could perform pretty well I guess.
Even even as the economy slows.
Yes.
As we said here I mean.
So again trying to draw some guardrails into this thing here, we see ourselves at this point in time as we as we look at the market when we talk to our clients now performing at.
At a level that's greater than 2018 in 2019. So we thought those were pretty heavy markets for us as well. So we think that'll be a good performance.
Okay.
Hey, Mark.
You mentioned currency, there and just trying to get a sense of.
Specific to the third quarter revenue results.
$255 2 million.
On a constant currency basis to 65, eight so that constant currency was within your range, but I mean does that does that imply that currency.
Weekend more than you expected as the quarter progressed.
My belief is that you already had some currency headwinds built into the $260 million to $270 million guidance range. So it is the $2 55 to imply that the headwinds were greater than you had expected.
No what I was trying to answer was I think two fundamentally different questions. The first one is how do we do compared to the same period last share in my comments as we look at these constant currency between those periods, we would've been at $2 $65 eight versus $2 63 to <unk>, which is our performance were actually revenue would've been up 1%.
That's important because when you look at 255 I think the first thing I think of is it's slowing down a lot and answers what currencies really aggravating the situations. So to speak and you can see that in search I think we on a constant currency basis would have done $222 million versus $222 million last year's third quarter almost identical flat. So that's all I'm trying to convey.
Is that the result actually Youre seeing this Q3, why it looks down to Q3 last year on a constant currency it was pretty flat.
I think the second part of your question, which are the first part of your question excuse me is how did the FX then change between the two periods and that's a different answer the answer there is we probably saw about $260 million.
From Q2 to Q3 FX, if we were to use Q2's FX rate versus the $2 55 that we actually reported so again it would have been at the bottom end of the range.
Some of our guidance and then we had about a $5 million impact that just really.
The rollout itself over to the currency situation. So it was a bit off now typically we'd like to try to be within the range somewhere but that slowness was because of the great vacation.
Lot of people took off in July the last two weeks in July which was a little bit unanticipated August is pretty much what we thought it was going to be with people pretty much shutting it down I think September rolled in very slow and I still think people rushed right back into it. So we were again I think we were caught off a little bit on that but they werent drastic number differentials that were early we were.
I think the real answer there is currency and then a little bit more of a great vacation drag and then again Q4 as you can imagine as is always the same and thats typically its a lighter quarter typically because you've got two major holidays in there with in the U S at least with Thanksgiving and the holidays of December .
We would normally see those those numbers go down about the same type of pace. So again, when I think about the $2 15 to $2 35 from.
The $2 55 that sounds about right for Q4 drop between Q3 and Q4, so nothing uncommon there or just a slowing of pace, but again at those rates. Please keep in mind Kevin.
Those are still very strong revenue is certainly far exceeding 2018 in 2019, where we did 716 and 707 I believe 706 million respectively.
We are still well above that even on those annual run rates at that quarterly basis.
Hope that helps okay, great Yeah, no yeah understood. Thank you that's helpful.
And so yes, the 17% decline in AR.
Search confirmations in the third quarter you called out.
You talked quite a bit there about the increase.
Vacation time.
Thank you can tie I don't know if you can how specifically you can do it but would you tie a meaningful proportion of their decline to this.
Eitan vacation time.
Relative to.
The year ago quarter.
I mean, when you look at the summer months that we had back.
Again, using a similar type of comparative excuse me.
When you take a look at kind of how.
We would have performance at similar levels. The answer is absolutely. We saw a very big difference. So we were probably again just kind of looking at that at the metrics.
Youre looking at about I would say, we were about 12, 15% higher than Q3 last year compared to what we saw in Q3. This year and I think a lot of that is just as we talked about that was really the the resignation side of the equation.
The vacation side of equation, the great vacation excuse me.
Yeah.
Alright, great, Okay and then.
I guess lastly, you talked about.
Heidrick navigator there.
Like.
Nearing a broader pilot error in an eventual launch in.
I guess.
Should we think about that is the first in a series of.
Product and services launches on the digital side, just trying to get a sense as to.
How broad the offering will be.
A number of.
Offerings that are going to maybe come out of.
The digital R&D spend.
That <unk> been doing in 2022 and going into 'twenty three.
Yes.
So look I think thats appropriate to think about it is the first of.
Several.
We're thinking about big chunky ones, though rather than small.
Little ones so.
Heidrick navigator is in beta right now.
And we've done the first amount of investment into that so youll kind of go to a cycle of learnings probably do a little additional investment going back into it.
Based on the learnings before.
Before we can really get up to product launch. So we've got a couple of other ideas. We're working on in parallel so which are which will be sequenced. Subsequently afterwards just to be clear okay.
So I think Thats right I think that's the right way to think about it but generally.
One is that our media and big is what we're going after here.
Okay. Thanks for taking the questions appreciate it.
Welcome.
Your next question comes from the line of Marc Riddick with Sidoti Your line is open.
Hi, good evening.
<unk>.
So I was wondering if you can touch a little bit about some of the differentiation youre seeing in.
Industry verticals.
Would you sort of have in the slides around sort of what's taking place in the.
And no financial debt.
And technology areas.
Ed commentary specifically.
<unk> Sciences, but this one if you could talk a little bit about what your expectations are going forward to be fairly similar as far as industry composition and contributions and maybe what youre seeing is maybe some potential areas that are maybe doing a little better or maybe you could bring us up to speed on that.
Sure.
Let me kick that off and then you probably got some thoughts to add so.
I think.
Broadly speaking are our industry sizing and structure will remain the same for the recent for at least if we look out a couple of quarters. I mean, we think we've got opportunities for growth clearly in healthcare life Sciences, and industrial where we'll continue to see some growth.
As well inside places like SaaS.
Fintech is still.
Relatively hot.
Asset management consumer finance transaction banking. These are the kinds of things that were.
Fairly robust for us.
In terms of the opportunities that we saw.
In technology.
Spike was probably closer to it services and things that we saw.
Recently, we continue expect that to continue.
You hear a lot about supply chain transportation and logistics.
It is an opportunity inside industrial the whole consumer products and hospitality space.
Sure.
Affords opportunity as well and inside healthcare life Sciences.
We've got strength in biotech and managed care as well, but we saw opportunities over there. So I expect some of these at least in the foreseeable future will continue.
I don't know Mark if you want to add to.
I'd say the only thing I would add there is when you look at kind of Q2 compared to Q3, we saw a pretty.
Hi.
Gradual slowdown in pretty much across the board I think the only one that was really kind of difference that was the consumer side that maintain some good strength through the summer months, but when you look at financial services GTS healthcare all of them were down.
Again, a reasonable proximity which was really just more of a fundamental.
The slowdown just during the summer months as I said last two weeks in July and certainly the month of.
August or very very very quiet again, and I think thats really kind of what was driving some of those so I don't think I can specify one I would specify as Chris rightly articulates that now as you go into 2023, depending on what your economic outlook is looking some industries will not perform as well as the other industries, but at least right.
We're not getting a good indication of which.
Which we're seeing as of yet into the Q4, it's just started but we will start to see kind of how things start to reshape themselves and have a better understanding of it.
Yeah, and I think.
I would just add we are beginning to clearly see.
Tech is a horizontal not only as a vertical cutting across consumer <unk> industrial center.
Fair Tech so big themes that are out there still.
Okay.
Great and then I was wondering if we could sort of touch a little bit on the.
Some of the activity as far as the types of.
Order flow or types of Av.
Simon says have those gradually change debate going into these these last few few weeks are you beginning to see clients sort of make sort of changes to those those those.
Top priorities.
Or is that still to come in <unk>.
Yes, that's still to come we have not.
Seen any.
Mark change in terms of the kinds of projects that we're getting I think theres still some that are quite hot.
If you double click becoming CFO .
Functional positions. These are all still remain quite hot and they were last quarter as well.
And then I was wondering if you touch a little bit about.
Head count expectations on your side I think.
That's what I remember seeing correctly and bear with me I've got too many windows open right now, but I think it's about up five 6% year over year sort of maybe what we're looking forward to end the year wisdom and sort of how youre planning going forward there.
Yeah. So.
<unk>.
If we look at it as different businesses.
I think we will.
On the.
Roughly January timeframe, we will continue with our promotion cycle.
It's been an important element of growth for us and so we'll have a new class of partners that will come through that process.
Our executive search hiring will be very strategic with that.
Some pockets in gaps that we see that's going to be pretty select from that perspective.
We've got opportunities as we've referenced in on demand talent to continue to grow that with sales additional sales head count. So we will continue to make those investments heidrick consulting.
Is this an opportunity to continue to grow as well.
Particularly along the lines of.
Of the leadership journey that we support so.
We're going to be very targeted in our in our growth.
As we look at it.
And so I.
I don't think that.
<unk> going to be enormous head count growth, but we still see it in target pockets.
And is there is there room for or maybe you can sort of update on your thoughts maybe sort of given the.
The current environment as to what maybe some potential acquisition opportunities. If you think there might be something that is desirable.
What your appetite would be or maybe if there is you know maybe you could sort of talk a little bit about what that pipeline might look like for you, maybe just sort of bring us up to speed on sort of how are you.
And in China.
I think there is there is there is kind of three different ways that we're looking at the acquisition I think the first one is.
<unk>, we're always looking and seeing what's going on in the markets and where we think we need extra air cover I think the element of it with heidrick consulting.
Could be in specific products that we really wanted to add to help benefit.
They do and allow us to continue.
Delivering on their services that they have into the market and I think the other one is again as Chris rightly pointed out which is heidrick digital and ancillary.
More of a investment and acquisition, it's just really again as we kind of see our path and really think that this is going to be an excellent part of our future and making that investment in working probably with partnerships and vendors versus acquisitions is probably how we're going to look at those so I think what's been really and triggering at this point Mark is that it's like the value.
<unk> spending.
Depending which day you kind of look at the market, but they have started to come down People's expectations, I think have become more normalized and I think it's engaging into interesting conversations.
The right answer is.
We really can get that one plus one equal three and then execute on that but always always willing to entertain conversations around the same.
Okay excellent I appreciate it thank you very much.
Okay.
There are no further questions I'd like to turn the call back to CEO Krishnan magical pollen for closing remarks.
Thank you everyone for your participation and ongoing support we're very pleased with the progress we're making on our diversification journey and we're excited to continue on our transformation and we look forward to updating you again next quarter. Thank you so much.
This concludes today's conference call you may now disconnect.
Okay.
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