Heidrick & Struggles International Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 29, 2024

There are 8 speakers on the call.

Operator

Thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Heidrick and Struggles Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I will now turn the conference over to Suzanne Rosenberg, Vice President of Investor Relations. Suzanne, you may begin.

Speaker 1

Thank you, and welcome to our 2024 Second Quarter Conference Call. Joining me today is our CEO, Tom Monahan and CFO, Mark Harris. We posted our accompanying slides on the IR homepage of our website athrydrick.com, and we encourage you to view these slides for additional context. Please note that in the materials presented today, we may refer to non GAAP financial measures that we believe provide additional insight into underlying results. Reconciliations between these non GAAP financial measures and the most comparable GAAP measures may be found in the earnings press release.

Speaker 1

Also in our remarks, we may make certain forward looking statements. We ask that you please refer to the Safe Harbor language also included in today's press release. Tom, I'll now turn the call over to you.

Speaker 2

Thank you, Suzanne, and greetings to everyone joining our Q2 call. Today, I'm eager to update you on our robust performance and the work we are doing to drive clients and investor value. In the quarter, we generated solid top line growth, exceeded the high end of the outlook range we provided on our last call. Our results underscore both the need for corporations to discover, assess and enable exceptional leadership talent and the outstanding work of our teams. We also took important steps to position the company for sustained growth and impact.

Speaker 2

I want to recognize the dedication of our colleagues who contribute to the success of our clients and our company day in and day out. Importantly, we've leveraged our current momentum to move quickly in resetting key aspects of our operations. Tom Murray, myself and the rest of our leadership team have keyed in on 3 levers of performance compelling leadership, clear strong value propositions and client alignment. Let me share a bit more about each. First, we have made a series of leadership changes to put great new leaders on top of each of our non search business areas.

Speaker 2

Last quarter, we welcomed Sami Akerman to lead our on demand talent business. More recently, we asked Clara Skinner to step out of her Europe and Africa leadership role to lead Heidrick Consulting with a clear mandate for growth, impact and profitability. With this move, we have asked Jenny Hibbert to expand her portfolio beyond global go to market integration to include Europe and Africa. 2nd, we have begun the process of tightening and amplifying our core value propositions outside of search. Notably, Heidrick Consulting has been focused on its core strength with an emphasis on assessment, leadership and performance solutions.

Speaker 2

3rd, we have realigned how we engage clients and transform our entire business, particularly in our emerging digital areas. To affect this, we've realigned the teams and products into our global go to market team to ensure tight links between our powerful digital tools and our outstanding professional teams globally. We've also realigned our technology, data and R and D assets to better support the digital enablement of all our work. Finally, we've asked Dan Ryan to step up into a newly created role entitled Global Managing Partner, Client Coverage and Development. One of Heidrick's signature assets is our access to the C suite, but we see even more opportunities to have at scale impact at this level.

Speaker 2

With apologies to Lin Manuel Miranda, Dan's role is to ensure that our colleagues globally are always in the room where it happens whether that be in client boardrooms or key events and forums. Affecting all of this change quickly did require us to conduct a small reduction in force during the Q2. Mark will share more detail in a minute, but I want to stress that we do not take such decisions easily or lightly. In a quest for tighter alignment between our teams and our objectives, we said goodbye to some very capable colleagues who played a key role in building Heidrick. That said, we wanted to on the side of speed and focus.

Speaker 2

We know that Heidrick's near and mid term growth will come from our ability to clarify what we do for clients, simplify work for our people and amplify our message in the marketplace. I'm highly confident that these moves will enable us to accomplish these three objectives and more importantly, accelerate growth and returns from our investments and thus enable us to create substantial value for clients, colleagues and shareholders. At our first ever Investor Day on December 3 in New York City, we'll have the opportunity to meet many of our new leaders firsthand and learn more about our solutions and impact. Let me quickly highlight our 2nd quarter performance before Mark provides more detail. Despite a mixed economic environment and varying decision making conditions in the near term, our overall business is thriving.

Speaker 2

Our strong top line performance reflects contributions from each of our businesses. Our core executive search business delivered excellent results led by the Americas region. On demand talent grew its revenue despite the slowdown in the broader temporary staffing space and Heidrick Consulting gains were accompanied by strong confirmation increases. As importantly, overall second quarter top line growth translated into robust profitability as we delivered a strong adjusted EBITDA performance. Stepping back to assess our quarterly performance, we continue to benefit from strong underlying demand drivers, reflecting favorable long term secular trends for our businesses and our strategic initiatives will further amplify these trends.

Speaker 2

Every action we take at Heidrick links to one critical goal, creating unmatched economic value for our clients, colleagues and investors. We have a huge opportunity to help clients and a unique set of assets which give us a right to win. It's our job to convert those assets into value for our constituents. We are blessed with the unique opportunity to accomplish this objective. We know that the single most important lever for corporate and organizational performance is having the right leaders leading in the right way.

Speaker 2

The opportunity to help clients accomplish this is massive and it grows every day. With our world class professional colleagues, supported by our distinctive brand, powerful technology and valuable intellectual property, We have a strong platform to grow in scale and impact. We set 3 strategic priorities to accomplish this. First, to be the most trusted leadership partner to the C suite and Board. We will continue to grow our search and executive assessment capabilities and we'll find new ways to convert this expertise into ongoing client impact and more holistic revenue streams.

Speaker 2

In particular, we're seeing more clients treat leadership and succession as an ongoing corporate discipline rather than a periodic vote of emergency surgery. We're calling this leadership assurance as companies invest consistently across time with the discipline and rigor of financial assurance processes. You see evidence of this focus in our strong performance in the executive search business year to date. 2nd, to help clients master the new world of leadership. The very nature of leadership talent is changing and clients need to change their leadership strategies to reflect that.

Speaker 2

Each of the seismic events we've seen across the past 5 years has reshaped the way leaders must lead and changed how companies must develop and enable leaders. The pandemic changed the world of work forever. The advent of Gen AI has begun to reshape operate and organize. Ongoing geopolitical dynamics have complicated international strategies for every single client. Existing leaders need new support to lead in this environment, to change and grow the way they lead, and companies need to shape the next generation of leaders and access talents in new ways.

Speaker 2

Our Heidrick Consulting and on demand talent assets are built to help clients in this now permanently complex world. From world class assessment and development capabilities to help leaders lift performance through cultural change, our Heidrick Consulting platform is well matched to client needs. And our on demand talent business gives clients a new weapon in their performance arsenal. The ability to engage and leverage new sources of talent in a work world, world by the aftermath of the pandemic and ongoing demographic change. You see evidence of this focus through strength in the on demand talent business against a wealth of headwinds in the temporary and contingent labor space.

Speaker 2

3rd, to be a bionic innovator. As I've said, we are pleased with the digitization of our business, but understandably not yet satisfied. The needs of our clients and people and the richness of available technology are changing far too quickly to be satisfied. The next horizon is compelling as we further develop into a tech enabled services business and differentiate our services across all lines of business with a diversified portfolio of proprietary, data enabled and digital solutions. We have made important foundational investments such as the Navigator platform, which will allow us to roll out new offers quickly.

Speaker 2

We've also seen success with a next generation enterprise assessment and development solution on the Navigator platform and see more innovation to come. But this is just the beginning of a commitment to leveraging advances in technology and AI to lift the work of our world class colleagues and mine our rich IP. Underneath these strategic pillars is a deep commitment to building a culture of excellence, entrepreneurship and collaboration. Common items that are most important responsibility as leaders is to make Heidrick the place where the best people can do their best work. In conclusion, what holds true for our clients also applies to us.

Speaker 2

Our ability to create value for clients, investors and colleagues is contingent on having exceptional leaders who set strategy and drive outcomes for our most critical corporate priorities. The proactive moves we implemented during the Q2 will enable us to achieve our future growth plans by fostering innovation, enhancing efficiency and improving overall performance. We accomplished a great deal in a relatively short time to set us up for the next phase of growth. In addition to delivering positive clients' impact and value, last month, our firm celebrated 6th Annual Global Day of Service, which unites our offices around the world to give back to the communities where we live and work. The energy around this event was just incredible, and I'm thrilled that this year we experienced the highest level of firm impact and engagement thus far.

Speaker 2

Our employees volunteered their time and talents, exemplifying the true spirit of the firm, embodying our core values and demonstrating our commitment to creating positive change for our clients and beyond. Before I hand it over to Mark, I want to say that I appreciate not only his years of service and excellent stewardship of our finances, but also that he agreed to stay on and assist with the transition as Tom, Larry and I completed our new organizational platform for Heidrick. Finance is the backbone of corporate integrity. And as Mark embarks on his next adventure, I am confident that we will identify the next world class CFO to help create unmatched value for clients, colleagues and shareholders. With that, I'll now hand the call over to Mark to provide a detailed review of our financial performance and outlook.

Speaker 3

Thank you, Tom, for the very kind words. That was unexpected, but very appreciated. So on the call today, good morning, afternoon and evening. We appreciate you joining us today. Today, I'll provide you with a thorough review of our Q2 results, which reflects strong top line performance across all of our businesses that allowed us to exceed the high end of our guidance range and achieve a solid adjusted EBITDA performance in the quarter.

Speaker 3

However, before doing so, let me begin with 2 standout items in our quarterly results. First, during the Q2 of 2024, we recorded a non cash one time goodwill impairment of $16,200,000 related to both our on demand talent and our search businesses. As I will discuss in more detail later in my prepared remarks, the main culprit was higher interest rates that moved our discount rate to 16.25 percent, well above our more reasonable WACC and discount rates used in our acquisitions. Irrespective, we had to take a partial impairment to ensure conformity to accounting principles, an issue which I would imagine other companies are facing as well. 2nd, we also recorded a one time restructuring charge of $6,900,000 related to leadership changes and reduction in force mentioned earlier to align to the new growth strategy implemented in the Q2.

Speaker 3

Therefore, my comments today will adjust for these unusual items in both periods, so they're on a like for like basis and give you a better indication of the true underlying operating performance of the business. One last point, the results for the quarter are fully organic as both the Q2 2024 and the year ago period now include the full quarter results of both Atrius and Business Four 0. Looking at our performance on a consolidated basis, 2nd quarter revenue was $279,000,000 or 3% above Q2 2023 results, driven by all of our businesses. Adjusted EBITDA of $28,800,000 compares to $34,900,000 in the Q2 of 2023 and adjusted EBITDA margin was 10.3% compared to 12.9% last year. While adjusted EBITDA performance appears to be underperforming at similar revenue levels as last year, it's important to call out that the Q2 of 2024 adjusted EBITDA was impacted by higher general and administrative expenses related to our April Global Consultant Conference and a dual London lease as we're moving offices.

Speaker 3

Excluding these 2 nonrecurring items for comparative purposes, adjusted EBITDA margin would have been 12% with a smaller difference due to a combination of a regional performance and product mix. Now let's turn to each of our businesses for further details. In Executive Search, revenue grew 1.5% from the Q2 of 2023 to $210,000,000 Looking at our regional performance, we saw revenues increase in the Americas and Asia Pacific of 6.1% and 0.7% respectively, while Europe was down 12% given the current operating environment I commented on in previous quarter. On a constant currency basis, Europe was down 11.7% and Asia Pacific was up 3.3%. Last quarter, most groups experienced growth over the period, except for the consumer and industrial practices.

Speaker 3

We also saw consultant productivity annualized in the Q2 of $2,000,000 compared to $1,900,000 on the same basis in the year ago quarter, which is within the long term range of $1,800,000 to $2,000,000 we have commented on previously. We're also very pleased with Executive Search maintaining strong profitability with adjusted EBITDA $52,700,000 compared to $53,200,000 in the same quarter last year or a margin of 25.1% compared to 25.7%. Excluding the 2 non recurring costs, Q2 2024 adjusted EBITDA would have been $56,500,000 and adjusted EBITDA margin would have been 26.9 percent, 100 basis points better than the Q2 of 2023. Turning to On Demand Talent, revenue was $42,000,000 up 7% compared to the Q2 of 2023. While we've had several different product offerings within on demand talent, we're particularly pleased with the top line performance given the market dynamics we are seeing and the comparative temporary staffing space.

Speaker 3

Over time, we expect to deliver faster growth in areas with less cyclicality, which should slingshot us onto the growth curve. Currently, we are seeing demand increase in the Americas and in the second quarter we saw increases in total contract values reflecting longer duration projects along with higher extension values. On Demand Talent recorded adjusted EBITDA loss of 1 point $6,000,000 versus a gain of $2,600,000 in the Q2 of 2023. The year over year difference in adjusted EBITDA was primarily related to geographical and product mix, coupled with external professional fees for the implementation of global standardized systems to streamline on demand talent's operational performance. Let me reiterate, the growth potential for on demand talent continues to expand as companies increasingly internalize on demand talent across all areas of their operations.

Speaker 3

With a new leader and a plan in place, we have streamlined the business and made changes to the model to improve operating efficiency, while fostering innovation in our products and services as we pivot and accelerate growth. Looking at Heidrick Consulting, we saw 2nd quarter revenue grow 6% year over year to $27,000,000 driven by increase in leadership assessment and development engagements along with some of our newer offerings that came to us through our Business 4 0 acquisition. Adjusted EBITDA loss was $1,400,000 versus a loss of 1 point $7,000,000 in the Q2 of 2023. Excluding the 2 non recurring costs, Q2 2024 adjusted EBITDA would have been a loss of $800,000 a 50% reduction compared to the prior year period. This was driven by confirmations growing 19% and continued strong demand for leadership solutions with our late stage pipeline full of higher margin attractive offerings.

Speaker 3

Now with new leadership, along with nimble organizational structure, Heidrick Consulting is focused on its core strength as we refine and simplify our solutions. Turning to operating expenses, salary and benefits increased 1% from the prior quarter. As a percentage of net revenue, salary and benefits was 63.8% versus 66% in the year ago period. Fixed compensation decreased $3,000,000 in the Q2 of 2024, partially reflected reduction in force being implemented during the quarter. General and administrative expenses increased $5,900,000 to $46,400,000 or 16.7 percent of net revenue compared to 14.9 percent net revenue in the Q2 of 2023.

Speaker 3

The increase versus the year ago period is primarily due to the 2 non recurring expenses I cited earlier. In addition, 2nd quarter G and A included a fair value earn out adjustment due to the enhanced performance of an acquisition, which is excluded from our adjusted results. To get a better sense of our G and A based run rate, excluding these costs, G and A would have been 14.6% of net revenue compared to 14.9% in the Q2 of 2023. We continue to expect G and A will remain slightly inflated while the earn out expenses run off over the next 24 to 30 6 months and down to a more normalized level of approximately 14% given our revenue expectations for that timeframe. Turning cost of services, we saw an increase of $4,400,000 to $29,700,000 in the Q2 of 2024 versus $25,300,000 in the previous quarter, a 17% increase.

Speaker 3

This increase primarily reflects our on demand talent business, which typically has approximately 65% to 68% of the segment's revenue and cost of services. As discussed, the increase in the Q2 of 2024 was due to geographic and product mix in the period. Lastly, we remain on progressing the development of our digital product portfolio, including Heidrick Navigator and assessments, while advancing our enterprise platform through digital enhancements. R and D spend for the Q2 was $5,600,000 or 2% of net revenue versus $5,700,000 or 2.1 percent of net revenue the Q2 of 2023. The spending is consistent with our prior quarters and for the full year we continue to expect R and D to be approximately $25,000,000 Moving on to bottom line profitability.

Speaker 3

Adjusted net income for the quarter was $14,100,000 and adjusted diluted EPS was $0.67 which compares to adjusted net income of $15,000,000 and adjusted diluted EPS of $0.73 in the same quarter last year. On a pro form a basis, excluding the 2 non recurring costs, our EPS would have been $0.81 per share. As a reminder, moving forward, we expect our tax rate in 20242025 temporarily be around 38%, driven by the non deductibility of acquisition earn out costs. However, once these acquisition costs run off, we expect our tax rates to be back in the low 30% range assuming no other statutory tax changes. Now, I'll turn to the balance sheet.

Speaker 3

We ended the 2nd quarter with a strong cash position of $296,900,000 up $58,000,000 from the $239,000,000

Speaker 4

at the end of June 2023.

Speaker 3

The year over year improvement was mainly driven by payments for earn outs and acquisitions, which we did not have this year. As we've discussed before, our cash position typically builds through the year as employee bonuses are accrued. Employee bonuses are paid out in the Q1 along with their associated tax and related costs. Our strong cash position with no debt along with our $275,000,000 accordion credit facility or over $500,000,000 of liquidity gives us great strength and flexibility to execute our strategic plan and return of capital to shareholders. Moving forward, while we continue to navigate choppy macro environment, we still see good demand signals across our business lines.

Speaker 3

Therefore, we expect 3rd quarter revenue to range between $260,000,000 $280,000,000 Our guidance anticipates continued strong performance in executive search, coupled with a continued slowdown in Europe and potential volatility in APAC given the operating environment, along with stronger performances in both Heidrick Consulting and On Demand Talent Businesses. In closing, as this is my last earnings call with Heidrick and Struggles, I wanted to say what a pleasure been to work for such an iconic company and with such a terrific team. I first came to Heidrick in early 2018 and can honestly say that it's been a privilege to work with such dedicated and outstanding professionals. The people at Heidrick are truly world class and have thoroughly enjoyed the entirety of my tenure with the firm. I hope I played at least a small role in setting the company up for even greater success and I see bright days ahead for Heidrick and Struggles under the leadership of both Tom Monahan and Tom Murray with the support of the team, including a world class Finance and IT groups.

Speaker 3

With that operator, if you could please open the lines, Tom and I would be happy to take questions.

Operator

Thank you. We will now begin the question and answer session. Your first question comes from Tobey Sommer with Truist Securities. Please go ahead.

Speaker 5

Thank you very much. First one I wanted to ask was on demand talent. I think the profitability improved or the losses narrowed based on efforts on both sides in terms of getting better revenue growth and expense management. Where is that aiming and how are you managing that business for margin and profit going forward?

Speaker 2

Hey, Tobey. Let me talk a little bit about how we're thinking about obviously we're pleased in a pretty difficult economic environment that ODT really performed well on the top line and obviously, we're focused now on getting it to strength on the bottom line. We're pleased it's holding up in a world where peers are coming under real pressure. We do see our way to, I'd say, high single digit margins And we'd expect to see that across 6 to 8 quarters, give or take. This will come from really 2 buckets, scaling key solution areas and benefits from the integration of Atrius.

Speaker 2

So with those 2 important pathways to profitability, the growth we showed in the quarter was particularly important and the progress we continue to make on integrating Atrius was particularly important. But I think the top line performance shows that we're meeting a real and distinct market need right now in what otherwise is a tough time for that sector.

Speaker 5

Thanks. In your conversations on the executive search side with multinational companies? What is demand like? We've heard some reticence and elongation of decision making timelines, particularly on the multinational side. Is that consistent or inconsistent with what you experienced?

Speaker 2

Yes, this is a double edged sword for us, right? We have 1400 clients in 65 countries. So you can safely imagine each one of them is a snowflake with its own issues consuming the C suite. That's a few basic themes coming out. I don't think any of them necessarily headwinds or riddance to our work.

Speaker 2

First, there is political and geopolitical uncertainty, no surprise. Elections across the world, give or take nearly half the world is going to vote this year. And that creates near term and societal divisions in the near and mid term start to change how people are thinking about the global economy. One of the issues on the ballot in a lot of countries side, my implication is what's the role what's our role as a nation in the global economy involving trade policy, investment policy, all that stuff. So that shows up a lot.

Speaker 2

And that changes less whether they need lots of great new leadership and more kind of the agility and mindset of the new leaders they're putting in place, elevating or bringing in. 2nd, this is going to be completely unsurprising, a massive technology driven remaking of work. It's obviously stimulated by the AI revolution. But again, it was already there, intense client focus on having the right people and right organization to capture the benefits of technology broadly in Gen AI in particular. And 3rd, there is this demographic reality that is out there that even as labor markets have cooled a little bit, people are confronting this the reality that most every market we serve, critical talent is scarce due to skill mixes, due to geography, due to the difficulty of moving people around that this is due to demography factors beyond companies' control, demand is going to exceed supply for the talent they need to lead and grow their businesses.

Speaker 2

So, though it's a complex operating environment, we really see those dynamics actually being long term tailwinds for our business and we really feel we're uniquely positioned to help them confront those challenges. And last one for me and I'll

Speaker 4

get back in the queue. Could you give us

Speaker 5

an update on Navigator, where that stands an actual sort of dollars and cents perspective? And I know it still might be

Speaker 3

a little bit early, but

Speaker 5

if you could speak to how you're going to manage that for growth versus profitability, how you're solving for that, that'd be helpful.

Speaker 2

Sure. And Tobey, as you know, we're not talking about the actual size of the Navigator product per se. Let me kind of pull back and talk about our philosophy on digital more broadly. Like every one of our clients, as I just said, we're making investments in technology platforms that scale our impact on clients. We see enormous opportunity for technology already infuses key parts of our work and will continue to do so more and more.

Speaker 2

This investment really takes 2 forms. One is just call it straightforward digital enablement of our core business through new tools, which enable our great teams to perform at highest level. We think we can move even faster here. There are tremendous data assets at the core of our business. There are workflows that are repeatable.

Speaker 2

There are things that make this an exciting place to put resource and energy. The second is new solutions that connect our work directly to client work. We've already built a great platform. We're launching these solutions, which we've Chris and Navigator, and we're already in market with 2 beta solutions. The target different but closely related client needs.

Speaker 2

1 is our digital assessment platform. The second is our leadership intelligence platform. They both resonate with clients, but right now digital assessment is closer to existing client workflows. So therefore, it's just an easier, shorter sales cycle. Leadership intelligence, which is the core of the Navigator platform, is a really powerful AI based tool that really catches client attention.

Speaker 2

But since it's a brand new category for them, it faces a longer and more complex sales cycle. So you think about the 2 products, right now it is quicker to market with our digital assessment platform, but we see such great interest in the leadership intelligence platform on the navigator platform that we think there's a huge opportunity there. We're just back to my previous point, clients are learning to reorganize themselves around some of the new tools and technology and that's every bit is true for leadership and succession processes inside the HR organization. So we're excited about these investments, allows us to invest against both client impact and value for investors. And we're sure we'll earn a great return from these investments.

Speaker 2

But and of course, you know that I won't miss the shameless plug, say that we're going to be demoing some of our coolest stuff at our Investor Day. Of course, we can only do that for those who come live. So there are a lot of good reasons to be in New York in December, but I think this is one of the best.

Speaker 3

Thank you.

Operator

Your next question comes from the line of Kevin Steinke with Barrington Research. Please go ahead.

Speaker 6

Hey, good afternoon. You talked about in your prepared remarks realigning how you engage with clients, particularly on the digital side. Wondering if you could maybe just delve into that a little bit more, provide a little bit more color on what you're doing in there and what you hope to accomplish?

Speaker 2

Sure. It's pretty straightforward actually. We it won't come as any surprise that the place we have the greatest receptivity to our innovative platforms in the digital space under the Navigator banner places where we already have great relationships. We understand the companies, we understand their succession and leadership development processes, we know the people and we get a running start. Now that's since we don't do business with every company everywhere on the face of the earth, we have to be great both at leveraging our existing relationships to get clients onto our platforms and go use our digital products as a point of the spear to introduce Hydrick to them so other service lines can come in behind it.

Speaker 2

But in the near term, we saw an opportunity to link the work of our digital products and go to market teams around our existing global go to market platform, which is focused very much on integrating our solutions in ways that our great teams in our different businesses can put them to work and they can flow seamlessly into the conversations we're having with So this was a great opportunity to accelerate. What we're already seeing is the most important and most compelling market dynamic.

Speaker 6

Okay, great. And I guess that would probably be directly tied to your comments about looking to accelerate the growth in returns from your recent investments or recent investment cycle. Are you primarily talking about the digital products there or what other investments are you looking to accelerate growth and returns from?

Speaker 2

Look, I would also put the as I just responded in the previous question, the build out of our ODT platform has been an area of investor and investment focus. And obviously, we have a highly resonant product area. And as we continue to see growth there, we see an opportunity to accelerate profitability there. And certainly in Heidrick Consulting, we see opportunities by scaling our most powerful value propositions within the Heidrick Consulting portfolio. We see opportunity to arrive at scale economics in portions of that portfolio faster.

Speaker 6

Okay, thanks. And then, just circling back on on demand talent, it had some pretty nice growth this quarter, in the Q2. And you even talked about the kind of market backdrop there that the headwinds facing that particular part of the market. But it seems like last few quarters, you're kind of tracking along with the market. And here in the second quarter, it seems like maybe you decoupled a bit and had a positive variance.

Speaker 6

So I don't know if there's anything more in particular you'd want to highlight there, just in terms of what seems like a bit of an outperformance relative to where the market is trending.

Speaker 2

Well, obviously, it was mostly due to Tom, Marie and I being new in the Leadership Chair and just I'm kidding, obviously. Look, I think given the on demand talent, the real news isn't at the macro level, it's at the value proposition by value proposition levels. So think about if you look inside the on demand talent portfolio, there's a series of use cases that are tightly tied to really urgent client need, The easiest example, yes, are interim Chief Information Security Officer. No leadership team is going to want to wake up and say, our Chief Information Security Officer quit. We don't have one.

Speaker 2

So the ability to kind of tap our team and get a great interim executive for information security or finance, etcetera, critical project talent. If you're a big pharma company and you've got a drug, you've got to get to market, you want team place that's done that 3 times. Again, so I think we create power in our model, not so much at the number of use cases we serve, we do serve a number of them, but the specificity and value we create when we target known workflows, target known pain points and create a solution that no one else has.

Speaker 6

Right, understood. Thanks. And then just lastly, as you talked about the last quarter or 2, some choppiness in the overall macro environment demand environment. It sounds like that's pretty much the case or what you're continuing to see. Obviously, you put up some solid performance here in the second quarter and a good outlook for the Q3.

Speaker 6

But just any changes in how you would characterize the overall macro environment from what you've been seeing over the last quarter or 2?

Speaker 2

I think it's very consistent through the year so far. There are always pockets of real strength and pockets of chops either by industry, by geo. It's worth remembering that it's choppy, but our teams are really exceptional at finding client need. And Lord knows, clients have more need when times are complex than they do when times are simple. So it's testament to our teams being out there doing great work.

Speaker 2

It is also worth noting that the long term macro headwinds behind this business are incredibly powerful. The single most important lever for great corporate performance is great talent, great leadership, great leaders in the right roles doing the right thing. And as more and more companies are aware that we're entering an era where the who is more important, the who and how are more important than the what. We'll believe we've got a great opportunity to grow this business and grow our impact and create value for 1st and foremost for clients, but then for colleagues and shareholders as well.

Speaker 6

Okay. Thanks for the comments. I'll turn it over. Appreciate it.

Operator

Your next question comes from Marc Riddick with Sidoti. Please go ahead.

Speaker 4

Hey, good evening. Just wanted to start. First of all, Mark, thank you for everything. It's been a pleasure working with you and certainly appreciate all the help that you've given over the time that we've had the chance to work together. So and best in for everything moving forward there.

Speaker 3

Thanks, Mark.

Speaker 4

I did want to touch a little bit on one of the things you had made comment, I think if I caught this right as far as R and D, you were looking at that being around $25,000,000 for the year. That seems as though that would be a little bit of a pickup in the back half. Is there anything we should be thinking about there? Anything as far as timing of what you're working on? Anything lumpy?

Speaker 4

How should we be thinking about the timing of that R and D spend for the remainder of the year?

Speaker 7

Sure. I'll try to weigh on that one, Mark. So we've been running around between 5 and 5 point in the first half of the year. So

Speaker 2

call it 100,

Speaker 7

it's also going to be a very marginal increase in the second half of the year. The second half as we start to launch some of the projects, which we have done, will start to bleed through. So we've been capitalizing some on the balance sheet. And when we launch it, then that amortization will have to start flowing through the P and L. So that's where you'll see a little bit of pickup.

Speaker 7

So keep in mind, it won't really be cash that will be hitting. It'll be more just an amortization on the balance sheet.

Speaker 4

Right. Okay. All right. That makes sense. And then the other is more bigger picture and I sort of I wanted to touch on the decision to host an Investor Day.

Speaker 4

It certainly is nice to see, but I was wondering if you maybe could touch a little bit on that and the thoughts behind that. I know you've made some commentary on that. But certainly, with all the uncertainty that's out there, what have you, I just wanted to sort of get a sense of maybe the thought process around the Investor Day. It's certainly appreciated, but I just wanted to get some thoughts as to the why.

Speaker 2

Sure. I think there are three reasons that in my mind, it's always a good day for an Investor Day. I love we love communicating with our shareholders around what we're doing and giving you a real look at the business. I think there are three reasons that now is a good time.

Speaker 6

I'll lay them out, which is

Speaker 2

I think you can't help but be impressed by the quality of our leadership. And I'm excited to have our leaders up in front of that room sharing how they're building our business and creating value for our clients. And that's very exciting. Secondly,

Speaker 3

we've done

Speaker 2

a set of we've created a set of newer businesses that the traditional quarterly format doesn't let us get into as much detail about. So our ability to just kind of unpack them a little bit more, get down as I think just now, get down to the use case level, what client problems do we solve and why are those problems so valuable for us to solve them is a real it's something you do more in an Investor Day format than you can do in a normal quarterly call. And third, as I mentioned, we have invested in some innovative technology tools and platforms, both for our own use and for direct client use. And really the only way to showcase those is to gather people in a room

Speaker 6

and let them see them live.

Speaker 2

So I think for those three reasons, chance to engage with our exceptional leadership team, chance to get a little deeper into the client pain points that we solve and a chance to kind of put fingers on keyboards and see what we do with our R and D and digital Sounds good. Looking forward to it. Thank you very much.

Speaker 4

Sounds good. Looking forward to it. Thank you very much.

Operator

Your next question comes from the line of Tobey Sommer with Truist Securities. Please go ahead.

Speaker 5

I just wanted to ask a question on the executive search business forward closeout here. The headcount is down a little bit sequentially, looks kind of like a mid single digit decline sequentially in search confirmation and productivity is more modest. How do we think about that particular business on a sequential basis for revenue within the guide?

Speaker 7

Tobey, I'll to answer that for you.

Speaker 3

So I think we see it

Speaker 7

in a couple of different ways. Please always remember in Q1 is when we do our promotions. So it's not uncommon that Q2 will start to drag down a little bit. And I think you absolutely hit it right, which is just a little bit of downward motion. We would expect in Q3 and Q4 probably to bring in some talent as well.

Speaker 7

So I would say neutral to better in terms of the headcount. I would also comment on the productivity. Again, coming at the very high end of that 1.8 $2,000,000 range is starting to show a little bit of heat overall. And what's really generating that is, again, the strength in Americas, which is obviously where we get the more upsized agreements, is where you would see that come in a lot harder with Europe falling down. Those two moves generally would make it overall on the average hotter, which is why sometimes I don't trust averages, but that is what we're saying.

Speaker 7

So just think it's just normal course of stuff. There's nothing in there that we looked at the data in terms of all of our locations that it's just an interesting time for the Americas to be so bloody hot and Europe coming down a bit, but we would expect Europe to be more or less modulating in terms of what we saw in Q2. So nothing to worry about. It was nice to see Asia Pacific show some good pickup. So congratulations to that region.

Speaker 7

They've done a really good job of what they had to in the Greater China region and really taking advantage in other parts of it.

Speaker 1

Thank you. And that concludes

Operator

our question and answer session. I will now turn the call back over to Tom Monahan for closing remarks.

Speaker 2

Let me just extend our collective thanks everyone for dialing in and listening today. We're excited to share the story of our work here at Heidrick and Struggles to accomplish the most important objective we have, which is to create unmatched value for our clients, our colleagues and our investors. And it wouldn't be me if I didn't make one more shameless plug for our December Investor Day. And if you haven't gotten an invitation yet or haven't blocked in your calendar, please do so. And if you need details, just reach out to us and we'll get you all patched in.

Speaker 2

Thanks so much.

Operator

This concludes today's conference call. Thank you for your participation and you may disconnect.

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Earnings Conference Call
Heidrick & Struggles International Q2 2024
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