Q2 2025 Heidrick & Struggles International Inc Earnings Call

Thank you and welcome to Hendrick and struggles 2025 second quarter conference, call participating on the call today, are companies CEO, Tom Monaghan and CFO neurop. Pam Sinha accompanying flies are posted on the IR homepage of the company's website at hendrick.com and you are encouraged to view these slides for additional context.

Please note that in the materials presented today management, May refer to non-gaap financial measures that the company believes provide additional insight to the underlying results. Reconciliations between these non-gaap Financial measures and the most comparable gaap measures may be found in the earnings press release. Also, certain, forward-looking statements may be made in Management's remarks,

Please refer to the safe harbor language included in today's press release. I will now turn the call over to Tom Monahan. Please go ahead.

Thank you for the kind introduction. Let me add my welcome and share an outline of the agenda for today's call.

I'll start by touching on our Q2 results and our strong current operating performance, provide some context for our outlook on the rest of 2025 and provide an update on our strategic priorities.

Then I'll hand the call over to Nirupam Sinha to walk us through a closer look at our Q2 results and our forward outlook. We'll both be available for Q&A.

We continue to stay close to clients as economic and geopolitical events. Remain very uncertain.

We quickly reflect on the macro trends that shape our business and strategy and comment on how they are currently affecting our business.

In the near to midterm, we see three big trends that affect our clients and provide us with a unique opportunity to grow our business and our impact.

the first is probably the least volatile, but the most important,

Rate leadership challenge is in chronically short supply.

But there are both short and long-term Tailwinds that make it scarcer than ever first. In the near term. The volatility that we all see is an increasing demand for great leaders capable of managing organizations through this period of complexity simply put clients need our help, both to discover new leaders and to enable existing leaders to lead differently.

Second, over the long-term demographic headwinds touch all our markets across the coming decades, which will obviously affect general labor availability, but squeeze the pool of top talent even further.

The second major trend is that for more than a decade. Now, dating back to brexit, if not earlier changing, geopolitics, and global economic relationships are reconfiguring business strategy.

Our clients aren't backing away from Global markets Supply chains for talent pools, but they do need to adjust strategy to reflect changing context.

This obviously continues to be a really important theme in client conversations.

Even as our overall business remains strong, we can and do see intermittent pockets of hesitancy as clients digest industry-specific implications of, say, tariffs or tax policy.

Finally new technologies continue to remake work. AI is the most obvious of these and clients continue to adapt their strategies to this powerful new asset.

And as we've learned in previous technology, revolutions fully realizing the potential of AI requires rethinking leadership, organization and work itself.

our job is to be their partner and transforming the promise of new technologies into progress against their goals, through great leaders teams and high performing organizations

And at the same time, we need to continue to leverage these technologies in our own organization to drive great client impact.

Against this backdrop, we saw growth in both revenue and confirmations across the firm and believe that we are entering the second half of the year in a great position to sustain and extend our impact on clients.

All three of our reported solution lines saw growth and contributed to profit throughout standing work in solving client problems against the backdrop of this complex environment.

In the near term, we know that our diverse business mix across sector region service lines and client-driven solutions gives our team, the ability to perform even against this complex environment.

In the medium and long term, this complexity and the growing client need for great leaders leading in the right way. Reminds us just how much white space we have available in our existing Core Business areas. We have an enormous opportunity, both to drive broader client relationships, and secure new client relationships in nearly every sector around the world. And we are working hard to grow the teams necessary to realize this opportunity.

As we have shared, the number one driver of growth in our business, or any professional services firm, is a simple formula: how many great people you have multiplied by how productive they are. Given the white space opportunity in our existing business areas, we are intensely focused on two things.

1 growing our talent base.

This, of course, begins with ensuring that we retain, develop, and inspire our incredible global community of outstanding hydric professionals.

Our great retention of top performers.

Combined with our track record of promoting from within, our evidence shows that we take this really seriously.

Achieving our goals, also demands that we bring great new people on board effectively at all levels of the firm.

Second driving, great enablement of those people buy a training development and importantly, Cutting Edge, analytic technology.

Those viewed investor days. Saw a few of the tools that we've developed, but we seen an opportunity to accelerate Innovation even further and faster.

This Focus governs, how we think about the consistent margin progression. We targeted at investor day. You can see that. We maintained a healthy margin in the first half.

Our hiring plans for the year.

Even with this Focus, we still anticipate making margin progress on an annual basis and setting ourselves up for continued expansion. Next year, a full year basis

Before I hand the call over to Nirupam Sinha, let me update you on our three areas of strategic priority.

First, we aim to build differentiated Relationships by being the most trusted leadership partner to the Sea suite and board.

The need here is great as illustrated by the most recent edition of our annual route to the top analysis that looks at the CEO succession across major markets globally.

The most surprising finding was that, although the majority of boards agreed that CEO succession was a critical strategic priority 30% of them admitted that time on this topic was crowded up by more urgent.

And likely less important tasks.

This creates a huge opportunity and a huge obligation for us to consistently partner with CEOs and boards to shape their leadership strategy on an ongoing basis.

Second.

We work to deepen client Relationships by partnering with them on transformation. In this new world of leadership. We've made great progress in standing up. Consultant toolkits for key. Recurring client, challenges like cost transformations.

These should allow us to bring a fuller set of our capabilities to Bear when clients are driving major work.

Finally, we aim to create durable client relationships through innovations, that embed our Solutions more consistently in client, work flows.

Adding great people, combined with an intense focus on our long-term strategic priorities, will enable us to create unrivaled value for clients, colleagues, and shareholders by fostering differentiated, deep, and durable client relationships.

In some areas, our strong $222 million results reflect our team's energy and focus on our compelling and integrated growth opportunities across executive search consulting and non-demand talent.

This performance gives us confidence in our medium-term through cycle. Target shared at our investor day.

Organic revenue growth of mid- to high-single digits and organic adjusted EBITDA growth between 5% and 8% per year.

While Topline growth and margins won't always move in a straight line. We see an attractive opportunity for our entire Suite of increasingly digitally enabled, Professional Services, as our clients move leadership strategy to the Forefront of their corporate initiatives.

With that.

I'll now hand the call over to Nero pom to provide a detailed review of our financial performance and Outlook.

Thank you, Tom. We delivered strong results in the second quarter of 2025, with performance and revenue that exceeded the high end of our outlook, as well as robust profitability.

In the next few minutes, I'll walk through the details of our performance along with our Q3 outlook.

Second quarter, Revenue reached approximately 317 million marking a 14% increase compared to Q2 2022 2424.

Adjusted Eva improved, 5 million to 34 million in adjusted, even a margin expanded 40 basis points to 10.7%.

Looking more deeply at operating expenses salary and benefits increase 17.6% from the prior year quarter.

6 competition increased 14.1 million in the second quarter of 2025 due to higher base. Salaries, in Peril taxes expenses related to our Deferred Compensation Plan, Town's acquisition, and retention costs, retirement and benefit costs, and stock compensation.

Variable compensation increased by $17.2 million, stemming from an increase in consulting productivity.

The percentage of net revenue for salary and benefits was 65.9%, compared to 63.8% in the year-ago period.

Excluding a $5.2 million change in the market base, deferred compensation salary and benefits would have been 64.3%.

Consistent with our prior commentary. For the full year to continue. Expect the normalized Run rate to be in the 65% range.

General and administrative expenses improved by $4.3 million to $42.2 million, or 9.2% from the prior year. Reporter includes the fair value of the earnout adjustment, which is excluded from our adjusted results.

As a percentage of net revenue, general administrative expenses improved 340 basis points from the prior year to 13.3%.

Obviously, this is a significant improvement. Part of the improvement is driven by the one-time fair value adjustment, but a major portion of the progress we're making across Enterprise and scaling GNA.

On these, spent to the second quarter was million dollars or 1.9% of net revenue. We continue to look for ways to maximize the return on our technology spend. Now let's turn to our service lines for further details.

An executive search revenue grew 13% to $238 million, looking at our regional performance compared to the prior year quarter. With our revenue increases of 9% in the Americas, 31% in Europe, and 12% in APAC.

As you know, we have a diversified practice platform with great clients. During the second quarter, we saw outperformance by the majority of our practice groups.

Consulting productivity analysis for the second quarter shows an increase to $2.3 million, up from $2 million on the same basis in the year-ago quarter. Additionally, we observed increases in confirmations and average revenue for executive search.

Executives continues to produce strong profitability with adjusted, Eva of 54.6 million and an adjusted e with a margin of 22.9%.

Turning to On-Demand Talent Revenue, it increased 14% to $48 million, demonstrating continued outperformance amid market dynamics.

We saw growth in both wins and project extensions on demand Talent, reported adjusted Eva of $1 million versus an adjustability but a loss of 1.6 million in the year ago. Period clients continue to benefit from our ability to address urgent needs which complements our search business, enhances, our ability to serve clients comprehensively

Looking at Hydro Consulting, we saw second quarter revenue increase 17% year-over-year to $31 million, driven by increases in leadership assessment as we implement a more intense focus, comparing assessments with different client solutions.

Adjusted Eva was positive at 0.6 million for the quarter.

Moving forward, we are focused on growing the business and ensuring continued efficiency gains.

We're refining and simplifying Hydro Consulting offerings to focus on its core strengths, including assessments leadership development and performance culture.

According to the bottom line performance, adjusted net income for the quarter was 18.1 million.

2025, second quarter, adjusted diluted EPS with 85 cents, which was 27% above last year's performance.

Now I'll turn to the balance sheet. We ended the second quarter in a strong cash position of $400 million, up $103 million from $297 million at the end of June 2024.

This balance, coupled with our credit, facility gives us great strength and flexibility to execute our strategic plan.

As you will know, we're heading into the higher watermark seasonality for cash.

Bonus payouts in q1 cash levels. Typically build across the rest of the year.

Moving forward. We expect third quarter Revenue to be within a range of 295 million to 315 million. This compares to 279 million in Q3 of 2024, with the midpoint being almost 10% growth

As we discussed previously, the current economic climate can heighten uncertainty.

Which may lead clients to delay, initiating new projects.

In most cases to underlying demand does not dissipate and this client work resumes. Once there's greater Clarity or stability in the macro environment. Similarly, we also find that client demand can accelerate quickly, critical client needs arise as Tom mentioned. We're also focused on ensuring continued growth into 2026 and Beyond. If you look for the second half of the Year, we'd expect to see margins at down as we make progress on a high plans, and subsequent expense comes online. We still anticipate making margin progress on an annual basis.

In inclusion, our performance underscores the ability to deliver for clients across a variety of market environments. We're fortunate that dedicated and focused global teams remain committed to serving our clients with excellence. As we look ahead, we remain confident in our ability to navigate the evolving landscape with discipline and continue to drive long-term value for our shareholders.

With that operator, please open the lines Tom and I will be happy to take questions.

Should you ask a question?

And our first question comes from the line of Mark Riddick with sidonie. Please go ahead.

Hello.

Oh, there we are. Sorry, Hi. Good evening. Um, I wanted to start with the hiring plan announcements, that, that you mentioned for, for the back half of the year and maybe, uh, you know, given the, um, you know, given the macro, uh, maybe we could get a little bit deeper into that and and give maybe some extra thoughts there as to uh, the thought process there, as well as maybe how many uh editions you're looking to add uh, and availability of maybe the, the, the right candidates if you will.

Growing our team is 1 of the 2 foundations for growing the business. The other of course is ensuring that you know those people are super productive through development uh making them great at their jobs and technology that undergirds how they can how they can be uh fantastic high impact client advisors. Yeah we're focused on this lever for 2 Reasons, first. When we plan the business, we see tons of white space in 2 directions.

Both existing clients we can grow faster across our service lines.

And lots of clients. We just haven't engaged in their first service line yet. So we see two ways to grow the business. We know that's by adding people. Secondly, we know that our people and culture are a source of competitive advantage. We have a distinctive culture which has yielded great retention of top performers at all levels and is mostly stable, laser-focused on this.

Um, but we know we also need to leverage this culture to add great talent and work consistently that we have in the past, we have a distinctive strategy for adding Talent at least for our sector. That means heavily on hiring folks early in their careers often from industry or other Professional Services sectors and growing them through development and apprenticeship. And of course, we always keep our eye out for great senior talent in all of our areas as well. But those combinations put us in a great place to go off and create marketing.

Your Clarity around. The strategy, lets us be more consistent, adding Talent lets us get after that white space quicker. I'll let your pilot just talk for a minute around with Quantum. You should be thinking about. Yeah. Hi Mark. Um, so in terms of the last part around dollars and cents and sort of think about the numbers of people, I mean it's not a huge number of relatively speaking. I think it's just important to note that some of the hiring we've done in the first half will come into the cost base in the second half of the year and that's not completely unexpected. Part of the strategy is Tomlin to ensure we're set up for 26 and Beyond and so I think you'll see this, you know, as not a huge imposition but just enough where, you know, we think it'll set us up well for the growth that we we have outlined for you. In terms of you, you asked about finding the talents

I know some people are really good at that. So, we're happy. We're happy to put our own skills, uh, to work on behalf of building firm,

Okay. And is there sort of a general time frame that that you we should think about as far as the the the the pace of adding? And then way be when those those expenses would would uh would take place through the year? Are we expecting that to sort of be as smooth process through the remainder of the year?

I think I think Mark, it's mostly a smooth through the end of the year and I think this is an evergreen kind of thing for us, right. I think we're just highlighting that. I think this year, particularly we've had a lot of hiring in the first half that it's just coming online in the second half, but it's a smooth. Uh, I think, uh, throughout the back half of the year and, and Evergreen for us in terms of our strategy. So,

Okay, great. And then Switching gears, I wanted to sort of touch a little bit as far as um uh, cash usage and prioritization, uh, beyond the um, internal Investments. Maybe what? You're what you're looking at is far as, um, um, as the prioritization changed or, uh, have you seen any opportunity sets that would would, uh, you know, sort of, um, maybe be a little bit more highlighted than it would have been at the beginning of the year.

Yeah, I think the broader team there's Market is just white space, you know, we we have, you know, you saw strength in our businesses, across the board, you know, and, and look, it's a very complex geopolitical environment right now. You know, every day, there's news in the US and around the world. Um, and as we said before, complexity is our friend, you know, no 1 ever called hydrogen struggles because they were completely happy or believe they had the great leadership team in place to address the challenges of hand. So, when there's more challenges, there's opportunities for our people to be out in front of our clients, creating great impact. And that's, that's what you see happening. You know, there's always going to be microclimates in the business Geo industry Etc. But 1 of the real

Strength of the business is strong across industries, strong across service lines, or strong across solutions areas, or strong geos. That gives us the ability to flex the business and lead clients where they are.

Thank you very much.

Your next question comes from the line of Kevin Stein. Key with barington research, please go ahead.

Hey, thank you and good afternoon. Uh, just wanted to start out, uh,

by uh, digging into the

Uh, third quarter Revenue, guidance range a little bit, obviously implies really solid year-over-year growth. Um, it does point to, uh, the sequential decline versus the second quarter. But I think that, you know, it's probably explained by typical

Summer seasonality around vacations, but beyond that, you know, given the...

The global uh, macro environment, you talked about with you know, continued uncertainty potential, um, project delays and pockets of hesitancy. Uh, among clients, have you attempted to, you know, kind of factored that into the guidance range in terms of some potential conservatism and you know, maybe could you talk about the assumptions behind? Uh what would you get you to the low end versus the high end of that, that range in terms of just you know, the macro?

Yeah, certainly Kevin. Um, so it's a very fair question for most. I think we feel good about the guidance of 295 to 315 for this quarter. We're trying to be proven, um, I think, you know, we've not witnessed a Slowdown in the business and as you point out, the sequential is, is just seasonality. That you would see normally but uncertainty of the macro, so it doesn't seem to be going away. And so if you think about it from the way you positioned it in terms of what can help us to the upper end,

I think it's continues to the demand that we're seeing that as soon as a bit of uncertainty as normal frankly. Um,

We've seen clients attempt to actually move more quickly to launch. A search is just client needs vary by sector and go. And I think, you know, every every week kind of bring something different there for certain clients, I think it continues to be the acceleration of the focus and Consulting, uh, around its strengths including assessments leadership development and performance culture, that continues to be and that pushes to the upper end and then the acceleration of the tides can search and interim search placements, with on demand. So I think if we continue to see what, what we've been seeing, I think we we, we feel good about the upper end. What can pull us down? The macarons are in the, you know, as we've said, and you kind of alluded to in the question. Um, we often can see client demand. Push back. Usually, as we talked about, it doesn't usually go away, but we can see it, push back. And so even with books business clients, get delayed as a startup project or making your offer to a candidate and that has an impact on us. So, I think the broader story here is, you know, our teams are staying close to clients.

Focusing very clearly on signed needs and and we feel good about about the range and and we feel good about the growth.

Great. Well, that's really helpful color. I appreciate it. Um, I wanted to follow up by asking about the executive search productivity in the quarter. It was really strong at $2.3 million annualized, and the company has historically talked in the past about kind of a target range of.

1.8 to 1.8 to 2.0 million there. Do you view that 2.3 is, is a little hot? And, you know, part of the reason you have to ramp up hiring or do you think there's potential longer term to maybe exceed that that range that's been discussed in the past?

Yeah. Um, I'm happy to take that Kevin. So I think you know, generally um, we did see the 2.3 million uh, for the quarter annualized, but if you look at trailing 12, it's still 2 million. And so I think we still see the range as sort of around that 2 million. Um, but part of what you say is, you know, when you start seeing a little bit of that, it just tells you how much white space you have and how much client demand can use to be there for our services. And so I think that does make us comfortable kind of moving forward on the hiring. Um but I think from a longer term Trend, you know, still around 2 million

Okay, great. Um, so, and you know, obviously also talked about the hiring investments you're making and, uh,

The uh, the the uh, impact that'll have on margins and the second half of the year. Should we think about that as

Across segments, you know, pretty broad-based hiring. Um, and then, you know, just the second part of that is, um, you did see some, uh,

Nice profitability, increase in the non search segments in the quarter. Um, do you think that continues or does in the second half or, you know, does the higher end kind of impact that?

Yeah, I think 1 is, I think most of the Investments are just across the business. I mean I in general, you know, we see as we've talked about before the Synergy is the process of service lines to serve clients. You know, clients in some ways, don't care, which service line things are coming at them, right? They they just linked to the client needs solved. So I think we see the demand across all 3, um, but having said that, I think what we saw in the non-service service line is the trajectory that we want. Um, and I think longer term, the guidance that we've given around, um, those 2 service lines, we can do feel good about that guidance. And I think from an annual basis, we continue to see progression towards it, and that's the goal to see that annual progression and and we feel good about the progression. We're seeing. Yeah, I think it's 05 said it's, it's

Yeah, we managed the business on an annual basis. So it won't be perfectly linear quarter to quarter, but we feel very comfortable with that and just getting to the numbers we pronounce.

Uh, at the investor base, that that's a long-term Target but it shows what makes it hard for us.

Okay, thanks and then.

This lastly, uh, more of a housekeeping question. I think in the year ago, second quarter, there were some expenses related to a...

Global Consultants conference that you held internally. Is there anything on the horizon like that?

Um, over the remainder of the year, that we should think about in terms of just the...

The GNA expense line.

When we don't do Global Consultants conferences, we tend to do regional things, but those are spread out more evenly across the year. So the reason it was notable last year in Q2 is that we kind of do it all at once—in one quarter—versus smoothing it out over the year. So, safely assume we believe getting our people together is a great idea because they connect with each other, they teach each other, they learn from each other, and they strategize around client solutions. So we'll still do that, but it doesn't all show up in one quarter; it spreads out for you.

Okay, thanks. Thanks for the insights and uh, I will turn it back over.

Thank you.

On our final question.

Of Toby, summer, with truist Securities. Please go ahead.

Thank you. Um, I was wondering if you could dig into some of the regional differences.

In executive search, Eva de Margin, with, you know, Europe and Asia, is increasing.

Sustainable. Um, the Americas contracting—I'm just kind of curious what's driving that, given that the top line across the GEOS is pretty good.

Yes, no, I think so. Um, so a couple of things going on there. So first and foremost, I mean, I think you saw, um, you know, suspiciously in Europe, right? Just kind of a great, uh, growth number, you know, 31%. And so, first and foremost is a process to the team for great execution there. But second, as we've seen that, I mean, there is a little bit of just, you know, scale built in there, and bonuses is, um, you know, people hitting targets earlier, which allows us to just have a little bit of room in the system. And so, I think what you're seeing in the non-US or non-North American region is just a little bit of the growth and the scale that's coming in there.

I think in, uh, the US, you have a phenomenon where, you know, obviously that is the largest and the most profitable where, um, we you have a, you have a basically, what we call the production, uh, where certain producers May produce more in the first half of the year, so they're creating higher tiers which means there's more bonuses going to to them that gets to catch up to the rest of the year. And so seeing that problem is why you've seen probably the order from down a little bit. Um we don't anticipate any structural changes in terms of what margins are

Uh, in any of these, uh, regions, we think long-term.

Margin. We put out there is going to be the right rate business as a whole and this also is a quarter, right? So yeah, I think we're we'll we'll say, well, I think we're seeing anything changes to the economic structure that we put out there.

Um, how are what are you hearing from customers?

Particularly those that that touch.

Capital markets, um, because we've seen some deal flow, uh, you know, be pretty good. I guess, last week, for example,

and um,

Customers.

yeah, I think I mean,

Right now, the world is a thousand different microclimates. Realistically, like, so I guess, you know, there's some um.

There are, there are places where there can be more enthusiasm due to a change in the regulatory environment. The flip side is there's still uncertainty in some cases, around tariff structures cost of inputs, tax treatments, Etc. So, so it's a complex time. I I don't think we get. See, we yeah, we again, complexities are friends, um, in that people need different types of help new sorts of help new roles Etc. Um, and uh, you know, as our teams have done, a great job, even when deal flow wasn't

You know, coming at the rate, it was, you know, it's going to be the next big thing in deal for for a couple of years now and our team's been doing a very good job, staying in front of clients, um, you know, who who aren't able to do deals, and still need to change out management teams or accelerate performance, or restructure, our business. And I think that's our, our job is to build an all weather firm that can be in front of our clients. No matter what external factors, they have because they always have challenges.

What what, uh industry verticals. Are you most optimistic about um, for the balance of of 25?

Yeah, look, I think, um, it tends to be, you know, you you, you saw, you've seen our business, good balance across industry verticals time, it tends to be more thematic, right? Where people say, you can imagine right now, pretty much every industry is thinking about,

Structure trying to move AI from promise to actual outcome. What talent do they need specifically to AI? What other Talent do they need in the business? How they organize around it. So I don't think we see uh necessarily kind of a spike in an industry. Although you see, you know, obviously you see if buying pockets of Frontier Technologies, Etc, that are growing quickly because people are investing them from a private Capital basis. But more broadly, it tends to be thematic within the existing client base rather than little segments popping here and there

And, and if I could sneak in the last one, I'd be remiss if I didn't.

Take the opportunity, just to to invite you to stay that, uh, margins and ODT and consulting, or on a trajectory that's durable, and is likely to be sustained here, uh, over a over the balance of the year. And in the next

I will accept your invitation um, I you know, look I think it it's a quarter. So we're pleased with the progress. I think we're probably. Um, rather than spiking the football, after 1 of the order, we're more pleased with the incredible, both growth and progress. Those teams are making and we feel very comfortable in the long term targets. We put out there for those businesses and those teams have taken those challenges and run at them very hard. So um, yeah. We're we're very pleased. We're not there by any stretch of the imagination and it won't be perfectly linear to those zones. And if I know these teams when we get to the Target zones, they'll uh they'll want to push Harder Faster and higher. That's that's who those people are. We we work with them. We know how ambitious they are, but it's 1 quarter, but it's a good dot point in the trajectory, we want to set in motion.

Thank you.

I'm with no further questions in queue. I will now turn the call back to Tom Monaghan for closing remarks. Thank you.

Thanks, Tina. Thanks, everyone, for joining us today.

We appreciate your continued interest in hydrogen struggles and I will keep you updated as we move through the second half of the year, please don't hesitate to reach out with an additional questions and I hope everyone enjoys their summer and I'm sure you're a problem and I will see you out on the road.

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.