Q3 2023 Heidrick & Struggles International Inc Earnings Call

[music].

Good afternoon, ladies and gentlemen, and welcome to the Heidrick <unk> struggles Q3 2023 earnings conference call. At this time all participants are in a listen only mode. Please be advised that this call is being recorded.

After the Speakers' prepared remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone keypad.

I would like to withdraw your question simply press Star one again.

Now at this time I would like to turn things over to Mr. Steve Horowitz interim head of Investor Relations. Please go ahead, Sir Thank you and welcome to our 2023 third quarter conference call before we begin we'd like to congratulate VP of IR Suzanne Rosenberg on our newborn and a wonderful addition to our heidrick family. While she is on maternity leave.

For the quarter and year end I will be serving as the interim headed by our having been placed through the on demand talent group.

Moving on to the business of the day joining me on today's call is our president and CEO Krishnan, and Roger Gabon, and Chief Financial Officer, Mark Harris.

We posted our accompanying slides on the IR homepage of our website at Heidrick Dot com and we encourage you to beauty slides for additional context to our prepared remarks.

Please note that in the materials presented today, we may refer to non-GAAP financial measures that we believe provide additional insight into our underlying results reconciliations between these non-GAAP financial measures and the most comparable GAAP measures may be found in the earnings press release.

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.

Steve Good afternoon, everyone.

Thank you for joining us today.

Before we turn to our results.

I'd like to take a moment technology terrorist attacks on Israel that occurred a few weeks ago and the tragic events continue to unfold in Israel in Gaza.

Our thoughts go out to the countless people, whose lives have been lost and change forever.

As a firm we condemn all acts of terror and violence and reject all forms of racism and hate.

We continue to focus on ensuring the safety and wellbeing of our colleagues and supporting friends and families around the world who has been impacted by these devastating events.

Now turning to our financial results.

We're very pleased with our third quarter results, where we delivered $263 million of revenue, which was at the upper end of guidance and within $1 million from being the largest third quarter in our history.

Our revenue was 3% stronger than last year's third quarter, a return to year over year growth.

With our continued focus on robust profitability. We're also proud to have achieved our 13th consecutive quarter of double digit adjusted EBITDA margin.

Our execution this quarter was impressive, especially given the uncertain macro environment in which we have been operating.

Clearly geopolitical risk is also meaningfully increased over the past few weeks, which will make our markets harder to navigate but we're prepared to do so just as we have in the past.

It is important to note however that while we have historically demonstrated our ability to execute in difficult environments.

These factors among many others make it difficult for anyone to accurately predict exactly what business conditions will look like over the coming few quarters and beyond.

In response to current conditions, our clients are creating a wide range of scenario planning expectations based on a range of outcomes.

As we are as well.

With that as a backdrop I want to be explicitly clear that regardless of how the economy moves in the short to medium term, we will remain relentlessly focused on executing our one heidrick strategy.

As I mentioned before this strategy encompasses the two main areas, we focus on with our clients.

Global leadership advisor.

First we bring the best talent to their companies, whether it's permanent executive level talent.

On demand talent.

And second we help leadership and organization be more effective through our consulting and now our digital offering.

In doing so we are continuing our decade long position as a global market leader within executive search while also investing in the diversification of our product offerings.

Alongside our executive search services, we have a clear set of diversified solutions, which includes offerings and on demand talent heidrick consulting and the relatively soon to be contributor Heidrick digital.

These diversified solutions now represent nearly 25% of our revenues providing higher growth potential for the broader heidrick <unk> struggles enterprise, while also beginning to lessen the impact of revenue cyclicality that have always existed within executive search.

<unk> diversified solutions also makes us a stronger partner to our clients is we're able to provide them with a more comprehensive suite of talent leadership and human capital offerings.

Critically our diversified approach is more important than ever.

Clients talent and human capital needs are continuing to grow and evolve and at a much faster pace.

For example, rapid business transformations, including more recent AI driven ones are putting even more demands on leadership talent.

Topics, such as cyber security and sustainability are growing in importance for boards and companies.

And there is a continued push pull around leader in employee expectations and culture related to remote hybrid and traditional workplace environments.

As our clients navigate through these needs, we're working closely with them advising them on these issues and providing them with a set of integrated talent and human capital Advisory services in ways that previously have not been available to them.

Now turning to each of our businesses.

Beginning with executive search there hasnt been a moderate slowdown, reflecting macro and portfolio mix changes within the verticals in which we operate.

While global Technology services and financial services experienced some headwinds all other practice groups grew year over year.

Generally the search business has been somewhat stabilized over the last few quarters and our pricing remains strong.

<unk> has been more resilient with CEO divisional CEO supply chain financial officers and board of director roles.

Now as we talk about demand stabilization, we should keep in mind that in the last few years have included an abnormally low demand period. During the pandemic followed by an abnormally high demand environment as companies began to refocus on future leadership needs.

To more effectively measure our progress it makes sense to take a longer term view and a more comprehensive look at the growth patterns.

From the beginning of 2017 until now we've delivered a very respectable seven 5% compound annual growth rate.

Additionally, the business has been meaningfully profitable producing north of $50 million and adjusted EBITDA in eight of the last 10 quarters, including nearly $52 million this quarter.

This profitability is very important to us as it helps us drive investments into our diversified solutions.

Turning to our diversified solutions on demand talent, we're very excited that our strategic acquisition of <unk> continues to drive outsized growth and we now have a larger presence in Europe as a result of the acquisition.

Additionally, demand in the Americas is showing strength.

As I mentioned last quarter, we realigned our sales efforts to more directly pursue target market opportunities and this realignment has enabled us to focus on the large talent constraints impacting our clients in areas such as <unk>.

AI.

HR.

CFO.

And CFO roles.

For example, we're seeing an increased number of opportunities enrolls for AI business applications for interim finance leaders for event, driven strategic implementations and for leadership in uncertain situations.

While the labor market remains very tight and we're able to fill these interim positions effectively because of our expansive network of on demand talent.

At the same time.

Talent application volume is at the highest level ever.

Diving deeper into the tight labor market, our ability to combine executive search and on demand talent.

One powerful illustration of our one heidrick strategy, where we're providing our clients with an expanded set of complementary talent offerings. For example, if a companys rapidly expanding they may have difficulty quickly filling all of their positions.

By partnering with us while they are working towards the placement of a permanent executive. They can also tap into our vast network of senior independent talent to fill vacant roles on an interim basis.

In addition, there are numerous opportunities to help with high priority project related work.

Another key component of our diversified solutions offering is the heidrick consulting segment.

As a reminder, the focus of our consulting business is to help clients with leadership assessment and development to help them align around purpose culture and strategy and to provide pragmatic Eni solutions.

This quarter, the consulting business achieved solid organic year over year growth and inorganic growth right in the business for zero or <unk> business.

As I mentioned last quarter, our backlog was fairly encouraging and that strength continued through the third quarter. We did see some of those projects that were on hold begin to flow through the business and that execution has been a positive driver of our revenues.

In addition to the nice growth of confirmations compared to last year, we increased our consultant head count from 72% to 19.

This helped drive the meaningful revenue growth, we achieved compared to last year to a purpose driven culture and leadership projects.

As part of the one heidrick strategy and similar to our on demand talent business with significant amount of these projects were referred by our search business.

And finally, I'll discuss heidrick digital.

As we know this business has the opportunity to be a large contributor to our diversified solutions.

It further down the road.

Feel strongly that the opportunity for our digital offerings, especially heidrick navigator.

We will be significant and companies take a systematic approach to viewing their talent.

They can make better leadership decisions.

Whether it's in identifying leaders to promote internally more effectively aligning leadership talent to business needs.

Gaining top talent, ensuring the diversity equity and inclusion goals are being met our offering enables companies to maximize the value of their human capital.

To that end, we're excited to share that we converted one of our first early access partners from our Heidrick navigator pilot program into a three year subscription.

This is great early proof of concept success measure.

Looking ahead through 2024 will be focused on our early adopters and we are responding to their feedback with periodic opportunity to convert them into subscription clients. We're excited that the feedback for navigator has been universally positive.

The success of the digital offering has also allowed us to target higher volume assessment engagements for Heidrick consulting.

Again, we're still very early in our Heidrick digital business journey, we're excited by some of our early successes.

And you've all heard me speak quite a bit today about the one heidrick strategy and how all of our businesses are strategically linked.

Before we conclude I'll share a client example that illustrates how our different businesses work together to provide a more diversified comprehensive solution.

This example is that of a large company that recently IPO Ed.

The goals were to drive expansion into new markets accelerate the pace of change and innovation transform their culture to pursue a more strategic growth opportunities reshape their leadership team to further globalize their business.

Research team introduced the client to our consulting team performance estimates on potential COO successors from within their organization.

After conducting the assessment they decided that they would continue their search externally with us.

The comprehensive nature of our approach coupled with our clear analysis gave this client confidence in our ability to be their leadership advisor and has led to a stronger partnership.

Now have multiple projects in place with them to drive organization wide culture change.

Executive team acceleration and CEO succession planning.

This example, really gets to the heart of what we're accomplishing with so many of our clients, which has to be their leadership advisor guiding them to be a stronger company.

So in closing.

<unk>, we continue to be a market leader and we are relentlessly focused on our 100 strategy, bringing clients divest permanent executive and on demand talent and helping leadership be more effective through our consulting and digital offerings.

Looking ahead, we will continue to develop our diversified solutions has been provided broader more comprehensive offerings for talent and human capital challenges at the executive level. The fundamentals of the business are solid and we're excited by the opportunities in front of us.

Finally, a big thank you to the heidrick team for their continued hard work and incredible dedication to our clients.

I would now like to turn the call over to Mark.

Thank you Krishna and good afternoon, and evening to everyone on today's call.

I will start off with a review of our third quarter results, which came in at the upper end of our guidance demonstrating strong execution by our team in all business segments.

As Christian mentioned growth through our diversified solutions.

Continued strong profitability remain at the forefront of what we're trying to accomplish for our shareholders in 2023 and beyond.

Before I dive in the consolidated results for the quarter I'd like to highlight some numbers associated with our diversified solutions as.

As Chris mentioned this platform consists of our on demand talent and Heidrick consulting businesses and will soon include hydro digital these.

These businesses now represent nearly 25% of total revenue a considerable change from the 9% when we embarked upon this journey in 2018 and.

In fact, our diversified solutions quadrupled in that time going from $63 million.

To $257 million on an annualized basis today or an annual growth rate of 32%.

Our strategy will be to continue to invest in these businesses and we expect they will become increasingly part of our bottom line profitability.

Moving on to this quarter results on a consolidated basis third quarter revenue was $263 2 million or three 1% above revenue for the third quarter of 2022.

More specifically executive search revenue decreased six 6% from Q3 2020 to $298 $8 million.

Looking at our regional performance compared to the prior quarters, we saw Americas search revenue was down 8% Europe was up 8% and Asia Pacific was down 22%.

This performance was in line with our expectations due to normal seasonality.

Compared to last year's third quarter, we saw a 5% reduction in confirmations.

Consultant productivity on a trailing 12 month basis in the third quarter was $1 9 million and compares to $2 $5 million in the trailing 12 months of the third quarter of 2022.

This is right in the middle of the range, we expect in a post pandemic environment, where technology has been enhanced embrace and accepted by the market.

Turning to on demand talent revenue was $41 1 million up 77% compared to the third quarter of 2022.

As we have previously discussed this growth was driven by the positive effects of our <unk> acquisition.

Backing out the acquisition for a more comparative result, we saw our legacy on demand talent business revenue fall by approximately 16% compared to the same period last year.

While we saw drops in wins average project sizes and the number of extensions. These seems consistent with the market.

However, we are expecting to see strength in our markets in the short to medium term.

Heidrick consulting third quarter revenue grew 22% year over year to $23 $3 million, partially due to the acquisition of <unk>.

And even without their contributions our legacy HVAC business was up nearly 10% or.

Our business is benefiting from the approach to invest in both organic and inorganic growth.

One plus one equals three or greater.

In addition to revenue growth, we delivered a 17% increase in confirmations from the previous quarter and we increase the number of consultants by 25% to 90%, which we believe will have strong returns in the future.

Thus we.

We're currently MD investment and scaling phase and we look forward to delivering continued success with the combination of organic of the heidrick consulting business, along with future acquisitions that fit within our strategic vision.

Turning to operating expenses, including recent acquisitions, we saw salary and benefits increased two 5% from the third quarter of 2022.

Variable compensation decreased $13 $5 million year over year due to a decrease in production.

Fixed compensation increased $9 $2 million.

Over the third quarter of 2022 due to base salary and payroll taxes, the deferred compensation plan and other costs, partially offset by decreases in rsum amortization and retirement benefits.

As a percentage of net revenue salary and benefits were 63, 5% versus 67, 2% last year.

General and administrative expenses.

<unk> to $37 6 million or 14, 3% of net revenue compared to 12, 6% of net revenue in the third quarter of 2022.

The increase is due to intangible amortization and accretion cost from acquisitions office occupancy costs and marketing, partially offset by a decrease in other costs.

Lasse will remain focus on progressing the development of heidrick navigator or other digital assets through R&D spending.

R&D spend for the third quarter was $5 $6 million or two 1% of net revenue versus $5 4 million or two 1% of net revenue in the third quarter of 2022.

Overall, the spending is consistent with prior quarters.

As we continue to incorporate M&A activity into our business. So unless also record noncash charges related to purchase accounting.

Therefore in terms of underlying profitability and consistent with comments, we made in the previous quarter, we view adjusted EBITDA as the best proxy of our operating performance in the business and we will use this going forward as we are doing internally.

In the third quarter, adjusted EBITDA was $32 3 million compared to $33 3 million in the third quarter of 2022.

As Christian mentioned, we recorded our 13th consecutive double digit adjusted EBITDA margin of 12, 3%, which compares to 13% last year.

On a segment basis executive search remains very profitable even with the decrease in revenue with an adjusted EBITDA of $51 9 million compared to $51 $5 million in the third quarter of 2022 or.

Our margin of 26, 1% compared to 24, 2% respectively.

On demand talent recorded an adjusted EBITDA loss of $6 million versus a gain of <unk> 2 million in the third quarter of 2022. However.

However, as we've discussed we expect EBITDA margins to continue to be negligible, while we both reposition ourselves in the market and invest in people and technology to capture more of this expanding market.

Finally in Heidrick consulting posted an adjusted EBITDA loss of $2 2 million compared to a $1 $4 million loss in the same quarter last year as we continue to invest in the business to build scale.

Finally, adjusted net income for the quarter was $15 million and adjusted diluted earnings per share was <unk> 73.

Which is down from the $25 million and adjusted diluted EPS of $1 in the same quarter last year due to the factors just discussed.

Operator: Please stand by, we're about to begin.

Operator: Good afternoon, ladies and gentlemen, and welcome to the Hydrick & Struggles Q3 2023 earnings conference call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad, and if you would like to withdraw your questions, simply press star one again.

Now I'll turn to the balance sheet.

At the end of the third quarter, our cash and marketable securities increased sequentially by $95 million to $334 million from the previous quarter, but was down $100 million to $122 million by the same quarter last year.

Yes.

The year over year decrease is due to our acquisition of BTG <unk> Z Atreus in executive search expansions in Finland, South Africa, and South America.

Steve Horwitz: Now at this time, I'd like to turn things over to Mr. Steve Horwitz, Interim Head of Investor Relations. Please go ahead, sir. Thank you, and welcome to our 2023 third quarter conference call.

Taking a closer look at how we prioritize the uses of cash we first take care of our current operations and then we believe our next credits returns will come from reinvesting our cash in inorganic opportunities that accelerate our strategy and are accretive to our shelter in the bottom line.

Steve Horwitz: Before we begin, we'd like to congratulate VP of IR, Suzanne Rosenberg, on her newborn and a wonderful addition to our Hydrick family. While she is on maternity leave for the quarter, and year end, I will be serving as the Interim Head of IR, having been placed through the on-demand town group.

When we believe we have discretionary cash that isn't needed for the previous mentioned priorities. We will then review our dividend policy followed by potential stock repurchases.

Moving forward, while there is pressure on corporate spending in the market, we're still seeing the demand signals and strong fundamentals across our business lines and therefore, we expect the fourth quarter to be strong compared to last year, allowing us to finish another year north of $1 billion in revenue.

Steve Horwitz: Moving on to the business of the day, joining me on today's call is our president and CEO, Krishnan Rajagabalan, and chief financial officer, Mark Harris. We posted our accompanying slides on the IR homepage of our website at Hydrick.com, and we encourage you to view these slides for additional context to our prepared remarks. Please note that in the materials presented today, we may refer to non-GAAP financial measures that we believe provide additional insight into our underlying results.

That said turning to our fourth quarter 2023 revenue guidance, we expect to range between $240 million and $260 million.

As I mentioned last quarter, we will continue to leverage our leading executive search business and grow our diversified solutions segment as they carry different macro risks, which tend to be less cyclical and more predictable.

Steve Horwitz: Reconciliation between these non-GAAP financial measures and the most comparable GAAP 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.

While they generally carry lower margins versus executive search and therefore will put pressure on our enterprise EBITDA margins I would point out that they are expected to grow aggregate dollars in both EBITDA and bottom line, which is expected to expand our EPS in the future.

Krishnan Rajagopalan: Krishnan, I now turn the call over to you. Thank you, Steve. Good afternoon, everyone, and thank you for joining us today.

With that Christian and I will be glad to take your questions.

Thank you Mr. Harris, ladies and gentlemen at this time do you have any question simply press Star One and just a reminder, if you find your question has been addressed you can remove yourself from the queue by pressing star one again, and we'll pause for just a moment to assemble the queue.

Krishnan Rajagopalan: Before we turn to our results, I'd like to take a moment to acknowledge the terrorist attacks on Israel that occurred a few weeks ago, and the tragic events continue to unfold in Israel and Gaza. Our thoughts go out to the countless people whose lives have been lost can change forever. As a firm, we condemn all acts of terror and violence and reject all forms of racism and hate. We continue to focus on ensuring the safety and well-being of our colleagues and supporting friends and families around the world who have been impacted by these devastating events.

We will take our first question. This afternoon from Kevin Stankey at Barrington Research.

Yes.

Hey, good afternoon, Chris and Mark.

Hey, Kevin.

I wanted to start out by.

Krishnan Rajagopalan: Now, turning to our financial results. We're very pleased with our third-quarter results, where we delivered 263 million of revenue, which was at the upper end of guidance and within a million dollars from being the largest third-quarter in our history. Our revenue was 3% stronger than last year's third-quarter, a return to year-over-year growth. With our continued focus on robust profitability, we're also proud to have achieved our 13th consecutive quarter of double-digit adjusted EBITDA margin.

You're asking about your.

Comments about.

A moderate slowdown in executive search.

This is.

I guess, you've mentioned that in the last couple of calls, but I. Just was wondering if that comment was meant to indicate that.

Things have slowed down meaningfully since.

Your second quarter call or is it kind of.

As it was several months ago in terms of.

Krishnan Rajagopalan: Our execution this quarter was impressive, especially given the uncertain macro-environment in which we have been operating. Clearly, geopolitical risk has also meaningfully increased over the past few weeks, which will make our markets harder to navigate, but we're prepared to do so. Just as we have in the past. It's important to note, however, that while we've historically demonstrated our ability to execute in difficult environments.

The overall.

Because of the demand environment and search.

Yes.

Kevin Thanks Luke.

I would say that we.

Have been in a choppy environment for a bit of time.

And it kind of feels the same to us though there are any more macro things we're talking about today than we were even a month ago. So.

Krishnan Rajagopalan: These factors, among many others, make it difficult for anyone to accurately predict exactly what business conditions will look like over the coming few quarters and beyond. In response to current conditions, our clients are creating a wide range of scenario planning expectations based on a range of outcomes, as we are as well.

It's a choppy environment, we think talented constrained still in this choppy environment decision, making is a little bit slower than what we've seen in the past.

I don't want to say that it's worse than in the second quarter and sort of feels the same to me in and it feels like it's going to continue a little bit as well.

Okay.

That's good to hear thanks.

Krishnan Rajagopalan: With that as the backdrop, I want to be explicitly clear that regardless of how the economy moves in the short to medium term, we will remain relentlessly focused on executing our one hydric strategy. As I mentioned before, this strategy encompasses the too many areas we focus on with our clients as their global leadership advisor. First, we bring the best talent to their companies, whether it's permanent executive level talent or on demand talent.

And you did mention on the consulting side of the business that.

Some projects that had some delayed <unk>.

Started up.

Maybe could you just talk about <unk>.

<unk> now from the client side.

I to start up those projects or what might have been.

To put this to move forward that that might have.

<unk> gotten them fast.

The hurdles that they had been.

Krishnan Rajagopalan: And second, we help leadership in organizations be more effective to our consulting and our digital offering. In doing so, we are continuing our decades-long position at the global market leader within executive search while also investing in the diversification of our product offerings. Alongside our executive search services, we have a clear set of diversified solutions, which includes offerings and on-demand talent, hydric consulting, and the relatively soon to be contributor of hydric digital.

And are concerned about before.

Yes look I would say the majority of those hurdles look like.

To prioritize their own business.

And the first and second quarters.

Clearly wanting to go on particularly culture and leadership journeys with us, but getting their priorities together getting their teams together and so they signed up for the project work thinking that they can kick it off and I think they are far more comfortable about where their own teams are and what their priorities were to be able to engage with us on these projects.

Krishnan Rajagopalan: These diversified solutions now represent nearly 25% of our revenues, providing higher growth potential for the broader hydric and struggles enterprise, while also beginning to lessen the impact of revenues hit locality that have always existed within executive search. These diversified solutions also make us a stronger partner to our clients that are able to provide them with a more comprehensive suite of talent, leadership, and human capital offerings. Critically, our diversified approach is more important than ever.

I think it was nothing more than that but just how do you prioritize.

Okay, great. Thank you.

And you mentioned again there.

The realignment and the on.

Demand talent sales efforts.

Yes, maybe.

I know, it's still early days, but any indications.

Indications early on of some of the benefits of that realignment or what.

Krishnan Rajagopalan: Our clients' talent and human capital needs are continuing to grow and evolve and at a much faster pace. For example, rapid business transformations, including more recent AI-driven ones, are putting even more demands on leadership talent. Topics such as cybersecurity and sustainability are growing in importance for boards and companies. There's a continued push-pull around leader and employee expectations and culture related to remote, hybrid, and traditional workplace environments. As our clients navigate through these needs, we're working closely with them, advising them on these issues, and providing them with a set of integrated talent and human capital advisory services in ways that previously have not been available to them.

What you would hope to.

Accomplish going forward with that initiative.

Temporary yeah look way, we definitely feel we are beginning to see green shoots from that initiative. So we've got a lot of metrics in place that we look at it.

Conversations people are having opportunity pipelines et cetera, and those are all pointed way up now from where they were in the middle. So we're feeling good about that we're able to bring sales and the talent side of the equation together a little bit closer we've got a couple of very targeted projects as well on on on initiatives that we.

We see out there where talent is scarce and we have that opportunity.

Ill.

Let's call them.

Our greenhouse projects AI would be one of them and we're seeing great piano, we're seeing nice momentum in there as well.

Krishnan Rajagopalan: Now, turning to each of our businesses. Beginning with executive search, there has been a moderate slowdown, reflecting macro and portfolio mix changes within the verticals in which we operate. While global technology services and financial services experience some headwinds, all other practice groups grew year over year. Generally, the search business has been somewhat stabilized over the last few quarters and our pricing remains strong. Demand has been more resilient with CEO, divisional CEO, supply chain, financial officers, and board of director roles.

To be able to put.

Part time and range from.

People in place on those kinds of projects. So that's why we're feeling pretty good about that sales realignment.

Okay. Thank you and I also wanted to ask about.

Digital.

And congratulations on converting one of the pilot programs too.

Three year subscription.

Just.

Can you give any sense about.

How are you.

Look to establish subscription prices I mean is that complete.

Krishnan Rajagopalan: Now, as we talk about demand stabilization, we should keep in mind that the last few years have included an abnormally low demand period during the pandemic, followed by an abnormally high demand environment that companies began to refocus on future leadership needs. To more effectively measure a progress, it makes sense to take a longer-term view and a more comprehensive look at the growth patterns. From the beginning of 2017 until now, we've delivered a very respectable 7.5% compound annual growth rate.

We fixed or is there any.

No variation based on volume or usage or.

I guess any insight into kind of a pricing model.

That you can provide.

Sure, let me give it a try Kevin So I think the first one is there'll be the typical fee upfront <unk> all for installing and making sure that everything kind of goes at the outset of putting everything in place then you'll have a subscription fee. That's really based update user count and theres two different elements to the first one obviously is the number of users that you have.

Krishnan Rajagopalan: Additionally, the business has been meaningfully profitable, producing north of $50 million in adjusted EBITDA in eight of the last 10 quarters, including nearly $52 million this quarter. This profitability is very important to us as it helps us drive investments into our diversified solutions.

Obviously, the more in the per pricing would come down and the other thing that we do is we do benchmark data some other SaaS companies to see what the pricing and the market really is.

In terms of a fair value of what we charge for it so we kind of get our nods. If you will from the market as well as the upfront fee in order to put everything kind of in place. So to combo you can figure that again typically.

Krishnan Rajagopalan: Turning to our diversified solutions, an on-demand talent was very excited that our strategic acquisition of Atreas continues to drive outsized growth, and we now have a larger presence in Europe as a result of the acquisition. Additionally, demanding the Americas is showing strength. As I mentioned last quarter, we re-aligned our sales efforts to more directly pursue target market opportunities, and this re-alignment has enabled us to focus on the large talent constraints impacting our clients in areas such as AI, HR, CFO, and CFO roles.

Whatever we put in place with more or less have a two or three year runway in front of it in terms of how we would.

Build the business and expectations of how we build that business.

Okay perfect. That's helpful and just lastly, I wanted to ask about.

The acquisition pipeline.

You mentioned there that.

Acquisitions continue to be.

Top priority for capital allocation and maybe what Youre seeing in this environment.

And as the pipeline is.

Krishnan Rajagopalan: For example, we're seeing an increased number of opportunities and roles for AI business applications, for interim finance leaders, for event-driven strategic implementations, and for leadership in uncertain situations, while the labor market remains very tight, and we're able to fill these interim positions effectively because of our expansive network of on-demand talent. At the same time, talent application volume is at the highest level ever. Driving deeper into the tight labor market, our abilities to combine executive search and on-demand talent is one powerful illustration of our one-hydrix strategy, where we're providing our clients with an expanded set of complementary talent offerings.

Changed at all just based on the macro.

The macro outlook.

The only thing I'd say on the pipeline as the pipeline always continues to be quite strong I mean, just to be cleared the first priority as always are internal.

Our organic operations right and we still believe that we've got things to do in terms of technology development for on demand talent Heidrick consulting some embedded there et cetera. So don't please don't underestimate. The fact that we are spending money rightfully on what we currently hold today, an inorganic was kind of the second priority on the second party of inorganic pipeline is strong.

Ron It's still somethings are probably outside our reach in terms of pricing structure et cetera.

Krishnan Rajagopalan: For example, if a company is rapidly expanding, they may have difficulty quickly filling all of their positions. By partnering with us, while they're working towards the placement of a permanent executive, they can also tap into our vast network of senior independent talent to fill vacant roles on an interim basis. In addition, there are numerous opportunities to help with high-priority project-related work.

Don't believe really what we've seen even though we've seen an increase in interest rates I think I saw somewhere that said credit cards, we're talking of 28% Department credit card interest rates that isn't really impacted a lot of the financings that I would've expected to see as of yet in terms of people going back trying to get their series G and H onset of stake.

That will most likely I think start to come to focus in Q4 Q1, and two next year and I think then real valuations probably come within striking distance of where we think we can be accretive to our shareholders. So that's kind of the way that we set.

Krishnan Rajagopalan: Another key component of our diversified solutions offering is the hydric consulting segment. As a reminder, the focus of our consulting business is to help clients with leadership assessment and development, to help them align around purpose, culture, and strategy, and to provide pragmatic DE and I solutions. This quarter, the consulting business achieved solid, organic year-over-year growth, and inorganic growth via the business for zero or B4Z business. As I mentioned last quarter, a backlog was fairly encouraging, and that strength continued through the third quarter.

Okay. Thanks for all the color I will turn it over.

Thanks, Tim.

Thank you and the next now to Tobey Sommer at tourists, it's amount of call.

Hello.

I was wondering if you could.

Help bridge us to profit profitability in some of the smaller businesses that you're investing in and managing for growth given the market opportunity that you see.

Krishnan Rajagopalan: We did see some of those projects that were on hold begin to flow through the business, and that execution has been a positive driver of our rep- In addition to the nice growth of confirmations compared to last year, we increased our consultant head count in 72 to 19. This helped drive the meaningful revenue growth we achieved compared to last year to a purpose-driven culture and leadership projects. As part of the One Hydrix Strategy, it's similar to our on-demand talent business, the significant amount of these projects were referred by our surge of business.

I think investors kind of want to understand what that looks like and need more information to construct.

Although our vision of sort.

What the company's future financial profile will be.

I'll try and let me see if I can try to answer that.

Sure.

What you are currently seeing look in terms of executive search and our EBIT margins in that side of the business. I think you have it and it's obviously, a very scaled business and thats always going to kind of remain in there.

Mid Twenty's context, I think youre asking the long term.

I'll answer it both ways long term and short term I think long term on demand talent.

Krishnan Rajagopalan: And finally, I'll discuss Hydric Digital. As we know, this business has the opportunity to be a large contributor to our diversified solutions. I'll be further down the road. We feel strongly that the opportunity for our digital offerings, especially Hydric Navigator, will be significant. When companies take a systematic approach to viewing their talent, they can make better leadership decisions. Whether it's an identifying leaders to promote internally, more effectively aligning leadership talent that business needs, retaining top talent, ensuring the diversity equity and inclusion goals are being met, are offering enables companies to maximize the value of their human capital.

As we discussed is an 8% to 12% margin business, depending on the weighting between the U S and Europe on how those kind of forces play out I think in terms of heidrick consulting as we've talked about where we're at that near breakeven point and again as we get scale into the business should be a 10% to 12% maybe a little bit higher.

Severe scaling that business.

And that's where we would expect to come out and then I think on the digital side. Once it kind of goes scales, we get the amortization kind of covered off and moving ourselves past that point would be what I'll call. The low <unk> in terms of what that margin on SaaS.

And because we have the upfront fees and everything else that we really we don't try to get a lot of margin on we're trying to get them up and thats the benefits in the back of that so.

Krishnan Rajagopalan: To that end, we're excited to share that we converted one of our first early access partners from our Hydric Navigator pilot program into a three-year subscription. This is great early proof of concept success measure. Looking ahead through 2024, we'll be focused on our early adopters, and we're responding to their feedback with periodic opportunities to convert them into subscription clients. We're excited that the feedback for Navigator has been universally positive. The success of the digital offering has also allowed us to target higher volume assessments, engagements for Hydric Consulting. Again, we're still very early in our Hydric Digital Business journey. We're excited by some of our early successes.

That's where we would expect it to be I think the overall EBIT margins long term for our business.

We're still probably mid teens, because you've got a couple of those that would have gone way down from what we have in executive search and then you've got the digital side that'll wake you up.

From executive search so long term vision Thats, where were trying to see I think of your next question, which is embedded is when are we going to get there.

My honest.

Assessment as I think on the on demand side.

Still very much in two different forces one getting the salesforce correlated correctly.

Which is really what's the whole REIT transition of what we're trying to do in the second element is looking at the technology side of it and really putting an investment into that because I think thats going to pay dividends down the road in terms of our ability to scale that and really try to help the margins kind of released themselves.

Krishnan Rajagopalan: Now, you've all heard me speak quite a bit today about the one Hydric Strategy and how all our businesses are strategically linked. Before we conclude, I'll share a fine example that illustrates how our different businesses work together to provide a more diversified comprehensive solution. This example is that of a large company that recently IP owed. Their goals were to drive expansion into new markets, accelerate the pace of change and innovation, transform their culture to pursue a more strategic growth opportunities, reshape their leadership team, and further globalize their business.

And the Heidrick consulting I think it's there as we've talked about a million times, it's really all about scale.

And again, I think thats going to be.

10% to 12% hopefully revenue growth long term.

Business and then you can figure out really in terms of how we get to.

150 $200 million of revenue, what it's going to take to get there outside of inorganic and of course inorganic can accelerate us but it's.

It's about the best line of sight I can give you don't know if that helps you a bunch.

Sure I appreciate that.

Krishnan Rajagopalan: Our research team introduced the client to our consulting team to perform assessments on potential COO successors from within their organization. After conducting the assessments, they decided that they would continue their search externally with us. The comprehensive nature of our approach coupled with our clear analysis gave this client the confidence in our ability to be their leadership advisor and has led to a stronger partnership. We now have multiple projects in place with them to drive organization-wide culture change, executive team acceleration, and CEO succession planning.

Perspective in that color.

With respect to.

The executive search business, particularly in the North American geography could you speak to the degree to which.

Being residents in the city, where a company is headquartered.

Is required at this point I'm sure there's been a decent amount of ebb and flow in recent years as a result of the pandemic, but I kind of wanted to get a snapshot of where that is currently.

Are there any implications of that for the business and demand and sort of the aperture of that you can do to.

Krishnan Rajagopalan: This example really gets to the heart of what we are accomplishing with so many of our clients, which is to be their leadership advisor guiding them to be a stronger. Company. So in closing, we continue to be a market leader and we're relentlessly focused on our one-hydrate strategy, bringing clients to best permanent executive and on-demand talent and helping leadership be more effective through our consulting and digital offerings. Looking ahead, we will continue to develop our diversified solutions as we provide broader, more comprehensive offerings for talent and human capital challenges at its executive level. The fundamentals of the business are solid, we're excited by the opportunities in front of us.

Do your recruiting and do you have a good expectation for trend along those lines going out in the future.

Yes.

Is your question for on the candidate side or on the hydraulic side.

<unk>.

On the candidates and a customer employer side, not specifically your internal preferences, but more market related.

Sure, Yes, we are seeing.

Lot more flexibility.

On that.

In terms of.

However, recruitment and the ability to look across particularly the U S for talent.

Krishnan Rajagopalan: Finally, a big thank you to the Heidrick team for their continued hard work and incredible dedication to our clients.

I think that.

Many leadership roles.

Change from five days a week too.

Mark Harris: I would now like to turn the call over to Mark. Thank you, Krishnan. And yeah, afternoon and evening to everyone on today's call.

Expecting somebody's Benioff as two to three days a week so to adapt movement, which supports that so we're definitely looking.

Mark Harris: Today we'll start off with a review of our third quarter results which came in at the upper end of our guidance demonstrating strong execution by our team in all business segments. As Krishnan mentioned, growth through our diversified solutions and continuing strong profitability remain at the forefront of what we're trying to accomplish for our shareholders in 2023 and beyond. Before I dive in the consolidated results of the quarter, I'd like to highlight some numbers associated with our diversified solutions.

More across the U S, having said that.

People want people to have a home office and want people to commit.

Particularly on our leadership jobs to be resident in that home office as well so that requirement is still there, but flexibility more than ever before.

And is it.

Have you felt that change in any demand or customer conversations.

Mark Harris: As Krishnan mentioned, this platform consists of our on-demand talent and Heidrick consulting businesses and will soon include Heidrick digital. These businesses now represent nearly 25% of total revenue, the considerable change from the 9% when we embarked upon this journey in 2018. In fact, our diversified solutions quadrupled in that time, going from $63 million to $257 million on an annualized basis today or an annual growth rate of 32%. Our strategy will be to continue to invest in these businesses and we expect they will become increasingly part of our bottom-line profitability.

As a result of.

The emerging middle East conflict I'm sure, it's not necessarily <unk>.

Large exposure for the firm geographically, but where you are present could you speak to.

What the last three weeks.

It looks like for your business.

Yes, I mean look I think.

We have a small team in Israel and there are projects there that are clearly.

People evaluating and getting delayed but that's.

Mark Harris: Moving on to this quarter results, on a consolidated basis, third quarter revenue was $263.2 million or $3.1% above revenue for the third quarter of 2022. More specifically, executive search revenue decreased 6.6% from Q3 2022 to $298.8 million. Looking at our regional performance compared to the prior quarters, we saw America's search revenue was down 8%, Europe was up 8%, and Asia Pacific was down 22%. This performance was in line with our expectations due to normal seasonality.

The small bit of work and the rest of the world, we haven't seen an impact yet.

And the last couple of weeks, we've got are where iron that we're talking to the teams and we haven't seen anything yet.

Thank you very much.

Thank you well go next to now to Marc Riddick Sidoti.

Hi, good evening.

My questions have been answered I was just sort of curious if you could maybe elaborate a little bit more on some of the AI driven opportunities and.

Your prepared remarks, you talked a bit about and maybe you could share a little bit about maybe how you feel as though you are positioned from a talent standpoint too to begin to work.

Mark Harris: Compared to last year's third quarter, we saw a 5% reduction in confirmations. Consultant productivity on a trillion 12 month basis in a third quarter was $1.9 million and compares to $2.5 million in the trillion 12 months of the third quarter of 2022. This is right in the middle of the range we expect in a post-endemic environment where technology has been enhanced, embraced and accepted by the market.

The work on those opportunities and how they may evolve going forward.

Sure Yeah. So look we've got AI as we think about it.

In three buckets.

The first bucket.

Obviously is.

Our service offering that we offered to clients on helping them.

Mark Harris: Turning to on-demand talent, revenue was $41.1 million, up 77% compared to the third quarter of 2022. As we have previously discussed, this growth was driven by the positive effects of our driest acquisition. Backing out the acquisition for a more competitive result, we saw a legacy on-demand talent business revenue fall by approximately 16% compared to the same period last year. While we saw drops in wins, average project sizes, and a number of extensions, these seems consistent with the market. However, we are expecting to see strength in our markets in the short-term medium term.

With their AI.

AI need 10.

And that conversation, we had tons of conversations and project work.

That's emerging as a result of that so that's the first bucket.

The second bucket is is basically into our tools that we use with clients and others.

And being able to leverage AI for that we already do that and I mean, so for example on the digital side in Heidrick Navigator AI.

AI.

As a component to that which is why we partnered with eightfold AI.

Mark Harris: Heidrick consulting third quarter revenue, grow 22% year-over-year to $23.3 million, partially due to the acquisition of B4Z, and even without their contributions, our legacy HC business was up nearly 10%. Our business has benefitted from the approach to invest in both organic and inorganic growth, where 1 plus 1 equals 3 are greater. In addition to revenue growth, we delivered a 17% increase in confirmations from the previous quarter, and we increased the number of consultants by 25% to 90, which we believe will have strong returns in the future.

And we're looking at a whole host of other things that we are piloting now inside the firm.

To figure out.

How does that how does that impact.

<unk>, how does it impact a whole host of other things and a third leg to our AI is all of our business processes that we've got that enable us to run more efficiently.

We're looking at.

It all different approaches over there from.

Simply data and analytics and taking that to the next level with Gen. AI, we'd already kind of established a pretty good platform on technology for search, but now how can we leverage that.

Mark Harris: Thus, we're currently in the investment and scaling phase, and we look forward to delivering continued success with the combination of organic and the hydric consulting business, along with future acquisitions that fit within our strategic vision. Turning to operating expenses, including recent acquisitions, we saw salary and benefits increase 2.5% from the third quarter of 2022. Variable compensation decreased $13.5 million year-over-year due to a decrease in production. Fixed compensation increased $9.2 million over the third quarter of 2022 due to base salary and payroll taxes, the deferred compensation plan, and other costs, partially offset by decreases in RSU memorization and retirement benefits. As a percentage of net revenue, dollaring benefits were 63.5% versus 67.2% last year.

Even further.

Can we combine our databases.

Using AI to leverage information people are gathering on individuals and bring that to one spot.

Far easier way. So there is all kind of technology. That's out there I think the advantage or where I feel good about our our team and talent hearings, we're working very collaboratively on it we've got lots of pilots going we're reporting out on it regularly and we're sharing it with the firm as well and.

And what things are working with things arent, what kind of prompts can people be using how do you create greater efficiency. So that's kind of the approach that we're taking on this end and probably more to come on in <unk>.

Yes, that's very helpful. I appreciate that and I was wondering if you can also then a quick follow up is too.

Mark Harris: General and administrative expenses increased to $37.6 million or 14.3% of net revenue compared to 12.6% of net revenue in the third quarter of 2022. The increase is due to intangible amortization and accretion costs from acquisitions, off-effectivity costs and marketing, partially offset by decrease in other costs.

Maybe what we're seeing with visibility with the projects assignments and the like I was wondering if.

Granted we're going into sort of the fourth quarter and the seasonality of holidays and what have you, but I was wondering if you're seeing much of a.

Any.

Difference in and that level of visibility that you would normally have or if it's similar to what you would see at this time of year.

Mark Harris: Last, we remain focused on progressing the development of hydric navigator or other digital assets through R&D spending. R&D spend to the third quarter was $5.6 million or 2.1% of net revenue versus $5.4 million or 2.1% of net revenue in the third quarter of 2022. Overall, the spending is consistent with prior quarters. As we continue to incorporate M&A activity into our business, we must also record non-cash charges related to purchase accounting.

Yes.

It's fairly similar I think.

We have macro concerns that are out there that are emerging.

Day to day, so we're keeping an eye on that to figure out how does that impact.

Going back to the previous question as well our visibility and thoughts on markets does it hit.

Now.

By changes in net oil and what does it do so so we're keeping an eye on that right now.

Mark Harris: Therefore, in terms of underlying profitability and consistent with comments we made in the previous quarter, we view adjusted EBITDA as the best proxy of our operating performance of the business and we'll use this going forward as we're doing internally. In the third quarter, adjusted EBITDA was $32.3 million compared to $33.3 million in the third quarter of 2022. As Krishna mentioned, we recorded our 13th consecutive double digit adjusted EBITDA margin at 12.3%, which compares to 13% last year.

Excuse me I would say that it's pretty <unk>.

Consistent to what we've seen before and throughout the year, we've been pleased to see that in.

I referenced we've seen.

More CEO searches this year than ever before.

So we're tracking trend lines like that and.

And.

AI searches and things like that that we can keep our eye on that our markers for where the market is growing as well.

Great. Thank you very much.

Mark Harris: On a segment basis, executive search remains very profitable, even with the decrease in revenue, with an adjusted EBITDA $51.9 million compared to $51.5 million in the third quarter of 2022. Or a margin of 26.1% compared to 24.2%, respectively. On demand talent, recorded adjusted EBITDA loss of $0.6 million versus a gain of $0.2 million in the third quarter of 2022. However, as we've discussed, we expect EBITDA margins to continue to be negligible while we both reposition ourselves in the market and invest in people and technology to capture more of this expanding market. Finally, Heidrick Consulting Post-Unadjusted Abid Laws of $2.2 million, compared to a $1.4 million loss in the same quarter last year as we continue to invest in a business to build scale.

Thank you, we'll take a follow up question from Tobey Sommer.

Thanks, I just wanted to ask a question about that.

CEO search comment and sort of a year to date demand.

Do you have good data.

In your executive search marketplace to indicate whether there is simply going to be.

And elevated.

Velocity of turnover.

As a result of the baby boomers are on the cusp of it. This is something we've talked about and in and around the industry for gosh decades.

Decades.

And I'm wondering if you've got sort of.

Evident.

And a basis for describing.

Mark Harris: Finally, Adjusting an income for the quarter was $15 million in adjusted deluded earnings per share with 73 cents, which is down from the $20.5 million in adjusted deluding EPS of $1 in the same quarter last year, due to the factors just discussed.

A change that could last for a period of years.

Yes.

Sort of.

The way I think about that is that we werent surprised.

With seeing.

Mark Harris: Now, I'll turn to the balance sheet. At the end of third quarter, our cash and marketable securities increased sequentially by $95 million to $334 million in the previous quarter, but was down $122 million by the same quarter last year. The year-on-a-year decrease is due to our acquisition of BTG, B4Z, Atreus, and executive search expansions in Finland, South Africa, and South America.

Seeing elevated number of CEO searches this year just based on conversations that we have understanding the demographics.

Et cetera, and also people kind of having run the race on Cobra Division experienced a great resignation of there potentially their teams as to where people work at this stage. So so so we weren't surprised by that.

If we forecast ahead.

Mark Harris: Taking a closer look at how we prioritize the uses of cash, we first take care of our current operations, and then we believe our next greatest returns will come from reinvesting our cash in inorganic opportunities that accelerate our strategy and are accretive to our shoulder of bottom line. When we believe we have discretionary cash that isn't needed for the previous mentioned priorities, we will then review our dividend policy followed by potential stock rate purchases.

We would imagine and would expect to see is changes on teams as a result of that often seo changes lead to changes among the executive teams as well so we would be forecasting that.

That talent is shortened.

There may be changes that happened over there as to how much longer the CEO change wave glass I'm probably.

I don't think I can predict that too much better than what we are seeing today.

Mark Harris: Moving forward, while there is pressure on corporate spending in the market, we're still seeing demand signals in strong fundamentals across our business lines. Therefore, we expect the fourth quarter to be strong compared to last year, allowing us to finish another year north of the $1 billion in revenue.

Okay. Thank you.

You're welcome.

Thank you and ladies and gentlemen, just a final reminder, star one police for any further questions. This afternoon.

Mark Harris: That said, turning to our fourth quarter, 2023 Revenue Guidance, we expect to range between $240 million and $260 million. As I mentioned last quarter, we'll continue to leverage our leading executive search business and grow our diversified solution segment as they carry different macro risks, which tend to be less cyclical and more predictable. While they generally carry lower margins versus executive search, and therefore we'll put pressure on our enterprise EBITDA margins, I would point out that they are expected to grow aggregate dollars in both EBITDA and bottom line, which is expected to expand our EPS in the future.

And gentlemen, it appears we have no further questions today, Mr. Roger Copel and I'd like to hand things back to you for any closing comments.

Great. Thank you.

Thank you everyone for your participation and continued support.

We're very encouraged by our results and continued to see good demand signals. Despite this broader macro uncertainty maintaining with navigating the economic challenges we remain focused on growing our business and continue to execute on our diversification strategy.

Mark Harris: With that, Christian and I, we'll be glad to take your questions.

We look forward to speaking with you again next quarter. Thank you very much.

Operator: Thank you, Mr. Harris. Ladies and gentlemen, at this time, if you have any questions, simply press star one, and just a reminder if you find your question has been addressed, you can remove yourself from the queue by pressing star one again, and we'll call for you just a moment to assemble the queue.

Thank you and ladies and gentlemen that will conclude the heidrick <unk> struggles Q3 2023 earnings call again, we'd like to thank you all so much for joining us and wish you all acreage evening Goodbye.

[music].

Yes.

Yes.

Yes.

Kevin Steinke: We'll take our first question this afternoon from Kevin Steinke, at Barrington Research. Good afternoon, Chris Nanomark. Thank you. I want to start out by asking about your comment about a moderate slowdown in executive search. You know, this is something, I guess you mentioned on the last couple calls, but I just was wondering if that comment was meant to indicate that things have slowed down, meaningfully since your second quarter call or is it kind of as it was several months ago in terms of the overall pace of the demand environment in search.

Okay.

Okay.

Okay.

Kevin Steinke: Yeah, Kevin, thanks. Yeah, look, I would say that we have been in a choppy environment for a bit of time, and it kind of feels the same to us, though there are many more macro things we're talking about today than we were even a month ago. So we think it's a choppy environment. We think talent is constrained still in this choppy environment. Decision-making is a little bit slower than what we've eaten in the past, but I don't want to say that it's a worse than in the second quarter, it sort of feels the same to me and it feels like it's going to continue a little bit as well.

Krishnan Rajagopalan: Okay, that's good to hear. Thanks. And you did mention on the consulting side of the business that some projects that had been delayed started off, maybe could you just talk about the rationale from the client side to start up those projects or what might have been the impetus to move forward that might have gotten them past the hurdles that they had been at a concern about before. Yeah, I would say the majority of those hurdles look like trying to prioritize their own business, and the first and second quarters clearly wanting to go on particularly culture and leadership journeys with us, but getting their priorities together, getting their teams together, and so they find out for the project work, thinking that they could kick it off, and I think they felt far more comfortable about where their own teams were, and what their priorities were to be able to engage with us on these projects. I think there's nothing more than that, but just how do you prioritize?

Krishnan Rajagopalan: Okay, great. Thank you. And you mentioned, again, their re-alignment in the on demand talent sales efforts. Maybe I know it's still early days but any indications early on of some of the benefits of that re-alignment or what you would hope to accomplish going forward with that initiative. Super, yeah. Look, we definitely feel we're beginning to see green shoots from that initiative, so we've got a lot of metrics in place that we look at the number of conversations people are having, the opportunity pipelines, et cetera, and those are all pointed way up now from where they were in the middle, so we're feeling good about that.

Krishnan Rajagopalan: We're able to bring sales and the talent side of the equation together a little bit closer. We've got a couple of very targeted projects as well on initiatives that we see out there were talented scares, and we've got opportunity with them, you know, our greenhouse projects. AI would be one of them and we're seeing, you know, we're seeing nice momentum in there as well to be able to put hard time and interim people in place on those kinds of projects, so that's why we're feeling pretty good about that sales re-alignment.

Kevin Steinke: Okay, thank you. I also wanted to ask about Digital and congratulations on converting one of the pilot programs to a three-year subscription. I don't know if you have any sense about how you look to establish subscription prices. I mean, is that completely fixed? Is there any variation based on volume or usage or, I guess, any insight in just kind of the pricing model that you could provide? Let me give it a try, Kevin.

Kevin Steinke: So I think the first one is there'll be the typical fee if you all are installing and making sure that everything kind of goes at the outset of putting everything in place. Then you'll have a subscription fee. That's really based off the user count and there's two different elements to that. The first one obviously is the number of users that you have. Obviously the more and the per pricing would come down.

Kevin Steinke: And the other thing that we do is we do benchmark that off some other SaaS companies to see what the pricing and the market really is in terms of a fair value of what we charge for it. So we try to get our nods, if you will, from the market as well as the upfront fee in order to put everything kind of in place. So it's a combo. You can figure that again, typically, whatever we put in place with more or less have a two or three year runway in front of it in terms of how we would build a business and expectations of how we build that business.

Kevin Steinke: Okay, perfect. That's helpful.

Krishnan Rajagopalan: And just lastly, I wanted to ask about the acquisition pipeline. You mentioned there that the acquisitions continue to be a top priority for capital allocation and maybe what you're seeing in this environment. And if the pipeline has changed it all just based on the macro, the macro outlook.

Krishnan Rajagopalan: The only thing you see on the pipeline is that the pipeline always continues to be quite strong. I mean, just to be clear, the first priority is always our internal or organic operations, right. And we still believe that we've got things to do in terms of technology development, brand demand talent, hydro consulting, some embed there, etc. So don't please don't underestimate the fact that we are spending money rightfully on what we currently hold today in organic with kind of the second priority on the second priority of an organic pipeline is strong.

Krishnan Rajagopalan: It's still some things are probably a federal reaching terms pricing structure, etc. And I don't believe really what we see even though we've seen an increase in interest rates. I think I saw some where they said credit cards were talking at 28% department credit card interest rates. That isn't really impacted a lot of the financing that I would have expected to see as of yet in terms of people going back trying to get their series G and H down so to speak.

Krishnan Rajagopalan: So that will most likely I think start to come to focus in Q4 Q1 and 2 next year. And I think then real valuations probably come within striking distance over where we think we can be a credit to our shareholder. So that's kind of the way that we say it. Okay, thanks for all the color.

Tobey Sommer: I will turn it over. Thanks, Jim.

Tobey Sommer: Thank you. We're going to next now to Toby Summer at Jerusalem. I might have called.

Krishnan Rajagopalan: Hello, I was wondering if you could help bridge us to profitability and some of the smaller businesses that you're investing in and managing for growth, given the market opportunity that you see. I think investors kind of want to understand what that looks like and need more information to construct a vision of what the company's future financial profile will be. Let me see if I can try to answer that, Sobey. I think what you're currently seeing, look, in terms of executive search and even of margins on that side of the business, I think you have it and it's obviously a very skilled business and that's always going to kind of remain in that mid-20s context.

Krishnan Rajagopalan: I think if you're asking me long-term, I'll answer both ways, long-term and short-term. I think long-term, long-term, long-term, long-term, demand, talent, as we've discussed, is an 18-12% margin business depending on the weighting between the U.S, and Europe and how those kind of forces play out. I think in terms of Heidrick consulting, as we talked about, we're at that near-break-even point. And again, as we get scale into the business, should be a 10-12%, maybe a little bit higher if we get to severe scale into that business.

Krishnan Rajagopalan: And that's where we expect to come out. And then I think on the digital side, once it kind of goes, scales, we get the improvisation kind of covered off. I'm moving ourselves past that point. We'd be in a, what I'll call the low 30s in terms of what that margin on a staff. And because we have the upfront fees and everything else, but we really, we don't try to get a lot of margin on.

Krishnan Rajagopalan: We're trying to get them up, and that's the benefits in the back of that. So that's where we would expect it to be. I think the overall even margins, long-term for our business, are still probably mid-teens, because you've got a couple of those that would go way too down from what we have in executive search. And then you've got the digital side that will weight you up from executive search. So long-term vision, that's what we're trying to see.

Krishnan Rajagopalan: I think your next question, which is embedded, is, when are we going to get there? My honest assessment is, I think on the on-demand talent side, it's still very much in two different forces. One, getting the sales force correlated correctly, which is really what's the whole re-transition of what we're trying to do. And the development is looking at the technology side of it, and really putting an investment into that. I think that's going to pay dividends down the road in terms of our ability to scale that and really try to help the margins kind of release themselves.

Krishnan Rajagopalan: And then hydro consulting, I think it's there, as we've talked about a million times, it's really all about scale. And again, I think that's going to be a 10 to 12 percent, hopefully revenue growth, long-term business. And then you can figure out, really, in terms of how we get to, you know, $152 million of revenue, what it's going to take to get there outside of, and organic, and of course, and organic can accelerate us. It's about the best line of side I can give you. I don't know if that helps you a bunch. Sure. I appreciate that perspective in that color.

Krishnan Rajagopalan: With respect to the executive search business, particularly in the North American geography, could you speak to the degree to which being resident in the city where a company is headquartered is required at this point. And I'm sure there's been a decent amount of Evan flow in recent years as a result of the pandemic, but I kind of wanted to get a snapshot of where that is currently, if there are any implications of that for the business in demand and sort of the aperture that you can do to do your recruiting.

Krishnan Rajagopalan: And if you have an expectation for a trend along those lines going out in the future. Yeah, and then use your question for on the Kennedy side or on the Heidrick side of where are all on the the candidate and a customer and employer side, not not specifically your internal preferences but more market related. Sure, yeah, look, we're seeing a lot more flexibility on that in terms of recruitment and the ability to look across particularly the US for talent.

Krishnan Rajagopalan: I think that many leadership roles have came from five days a week to you know, expecting somebody's meeting office two to three days a week. So that movement would support that so we're definitely looking more across the US having said that you know people want people to have a home office and want people to commit. Particularly on our leadership jobs to be resident in that home office as well so that requirement is still there but flexibility more than ever before.

Krishnan Rajagopalan: And is it, have you felt a change in any demand or customer conversations as a result of the emerging Middle East conflict? I'm sure it's not necessarily a large exposure for the firm geographically but but where you are present could you speak to what the last three weeks have sort of looked like for your business. Yeah, I mean, look, I think we have a small team in Israel and there are projects there that are clearly, you know, people evaluating and getting delayed but that's the small bit of work. In the rest of the world we haven't seen an impact yet. In the last couple of weeks we've got our where I own that we're talking to the teams and we haven't seen anything yet.

Tobey Sommer: Thank you very much.

Krishnan Rajagopalan: Thank you, we're going to have to mark Riddick Eccidori. I get evening. A lot of my questions have been answered, I was just sort of curious if you could maybe elaborate a little bit more on some of the AI driven opportunities and and your prepare the marks that you talked a bit about and maybe share a little bit about maybe how you feel is though you're a position from a talent stand point to to begin to to to, you know, to work on those opportunities and how they may evolve going forward.

Krishnan Rajagopalan: Sure, so look, we've got AI as we think about it in three buckets. The first bucket obviously is a service offering that we offer to clients on helping them with their AI needs and and in that conversation we have tons of conversations and project work that's emerging as a result of that so that's the first bucket. The second bucket is is basically into our tools that we use with clients and others and being able to leverage AI for that we already do that.

Krishnan Rajagopalan: I mean, so for example, on the digital side with hydrognavigator, you know, AI is a is a component to that, which is why we've partnered with a full day eye and we're looking at a whole host of other things that we are piloting now inside the firm. To figure out, you know, how how does that impact matching how does it impact a whole host of other things and a third leg to our AI is all of our business processes that we've got that enable us for more efficiently and and we're looking at at all different approaches over there from.

Krishnan Rajagopalan: Simply, you know, data and analytics and taking that to the next level with Gen AI we've already kind of established a pretty platform on technology for search but now how can we leverage that. Even further, you know, how can we combine our databases using AI to leverage information people are gathering on individuals and bring that to one spot in a far easier way. So there's all kinds of technology that's out there.

Krishnan Rajagopalan: I think the advantage or what I where I feel good about our team and talent here is. We're working very collaboratively on it. We've got lots of pilots going, we're reporting out on it regularly and we're sharing it with the firm as well. You know, what things are working, what things aren't, what kind of prompts can people be using, how do you create greater efficiency. So that's kind of the approach that we're kicking on this and and probably more to come on.

Tobey Sommer: That's very helpful. I appreciate that.

Krishnan Rajagopalan: I was wondering if you could also then a quick follow-up as to maybe what we're seeing with visibility with projects assignments and the like. I was wondering if granted we're going into sort of the fourth quarter and the seasonality of holiday and what have you, but I was wondering if you're seeing much of any difference in that level of visibility that you would normally have or if it's similar to what you would see at this time of year.

Krishnan Rajagopalan: Thank you. Yeah, look, I think it's fairly similar. I think we have macro concerns that are out there that are emerging today, so we're keeping an eye on that to figure out how does that impact going back to the previous question as well. Our visibility and thoughts on markets, does it hit supply chain, does it hit oil, what does it do. So we're keeping an eye on that right now. Excuse me, I would say that it's pretty consistent to what we've seen before and throughout the year.

Krishnan Rajagopalan: We've been pleased to see that as I referenced, we've seen more CEO searches this year than ever before. So we're tracking trend lines like that and AI searches and things like that that we can keep our eye on that are markers for where the market's going as well. Thank you very much. Thank you.

Tobey Sommer: We'll take a follow-up question now from Toby Tom. Thanks. Just wanted to ask you a question about that CEO search comment in sort of a year-to-day command. Do you have good data on in your executive search marketplace to indicate whether there's simply going to be an elevated velocity of turnover as a result of the baby boomers around the cusp of it. This is something we've talked about in and around the industry for gosh decades.

Operator: And I'm wondering if you've got sort of evidence and basis for describing a change that could last for a period of years. Yeah, you know, sort of the way I think about that is that we weren't surprised with seeing elevated number of CEOs who are just based on conversations that we have, understanding the demographics, etc. And also people kind of having run the race on COVID a bit and experienced a great resignation of their teams as to where people were at the stage.

Operator: So we weren't surprised by that. If we forecast ahead, we would imagine and we would expect to see changes on teams as a result of that. You know, often, CEO changes lead to changes among the executive teams as well. So we would be forecasting that that talent is shortened. There may be changes that happen over there as to how much longer the CEO change wave lasts. I'm probably, I don't think I could predict that too much better than what we kind of seen today. Thank you and ladies and gentlemen, just to find a reminder, Star One, please, for any further questions, it's afternoon And gentlemen, it appears we have no further questions today.

Krishnan Rajagopalan: Mr. Rajagopalan, I'd like to hand things back to you for any closing comments. Thank you. Thank you, everyone, for your participation and continued support. But we're very encouraged by our results and continue to see good demand signals despite this broader macro uncertainty. So in tandem with navigating the economic challenges, we remain focused on growing our business and continue to execute on our diversification strategy.

Operator: We look forward to speaking with you again next quarter. Thank you very much.

Operator: Thank you, ladies and gentlemen, that will conclude the Heidrick & Struggles 2-3-20-23 earnings call.

Operator: Again, we'd like to thank you all so much for joining us and wish you all a great evening. Goodbye.