Operator: Thank you, and welcome to Heidrick & Struggles’ 2025 First Quarter Conference Call. Participating on the call today are the company’s CEO, Tom Monahan; and CFO, Nirupam Sinha. Accompanying slides are posted on the IR home page of the company’s website at heidrick.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 into 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 also included in today’s press release. I will now turn the call over to Tom Monahan.

Tom Monahan: Thank you for the kind introduction. Let me add my welcome and share an outline of the agenda for today’s call. Today, I’ll start by touching on our Q1 results and our strong operating performance. I’ll reflect quickly on what has become a suddenly tumultuous operating environment and comment on the threats and opportunities it presents for our business. I’ll reaffirm our strategy to create unrivaled client value, particularly in times like these. Then finally, I’ll hand the call over to Nirupam to walk us through a closer look at our Q1 results, our go-forward guidance, and we’ll both be available for Q&A. Both our first quarter results and the momentum we are carrying into the second quarter are reflective of the ever-expanding need for organizations to engage and enable world-class leadership talent.

In short, we delivered strong results in the first quarter of 2025 with outperformance on the top line and exceeded the high end of our outlook, coupled with robust profitability. This performance reinforced by the Q2 guidance, which Nirupam will share, reflects the relevance of our strategy, the resilience of our business model and the ability of our world-class team to create value for and with clients. I want to spend just one moment to reflect on that last point. Think about the economic environment our clients expected in 2025 and compare it to what they actually encountered. Our team showed a remarkable ability to stay close to clients and pivot to serve their rapidly changing needs. Our outcomes are a reflection of their professional excellence and deep client focus.

Turning to the second topic of my remarks. That mix of professional excellence and client focus will be vital to our success in a considerably more complex operating environment. Let me spend a minute sharing what we hear in client conversations, how we are responding and how it might shape our performance. First, I’ll state the obvious. This is not a business that benefits from the status quo. In simple terms, not a single client meeting in the last 72 years has ended with the following client quote, “Things are going perfectly right now, and we are well set up for the future. Let’s call Heidrick.” Our opportunity to create value springs from the simple client need to drive great business outcomes by getting the right leaders in the right roles working in the right way.

This need becomes more pronounced, more visible and more urgent during times of economic chop. That said, this incredible opportunity for impact can sometimes be balanced by client caution in initiating, proceeding or completing work. The net result is the dynamic we shared at Investor Day, where although we demonstrate consistent growth across time, individual quarters can show periods of volatility and periods of economic difficulty. As you can see from our strong results and forecast, we aren’t seeing that dynamic. That said, we could obviously imagine a world where caution creeps into client decision-making and the second half of the year looks different than the first half. We are staying very close to clients and monitoring activities, tone and outcome really closely right now.

Our resulting strategy for this environment is quite simple, stay close to clients and arm our teams with the tools and resources to drive great client impact. We know that in times of uncertainty, clients look for help on a different set of issues, and we are putting in place tools and resources so that teams rapidly deliver on these needs. In this category, we are putting in place great resources to help them adapt leadership strategies to changing supply chain networks, link people strategies to the opportunities and risks of AI and drive resilient performance cultures in times of rapid change. That said, every client and every client strategy is unique, and it’s our job to stay in constant touch with them to shape their response and our support for these complex times.

This client focus is enabled by some really attractive business model attributes that allow us to focus on client outcomes rather than financial engineering. These include revenue that is well diversified across geographies, industries and solution areas, 0 client concentration, a variable cost structure, low CapEx and 0 debt. These factors, combined with our incredible people and unique set of assets and capabilities, gives us great confidence in our medium-term through-cycle targets 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. This is a great place to transition to one more topic. Achieving these through-cycle growth targets requires us to relentlessly focus on our long-term strategic priorities.

Together, these will enable us to create unrivaled value for clients, colleagues and shareholders by creating differentiated deep and durable client relationships. Let me reshare these with you. First, we want to be the most trusted leadership partner to the C-suite and Board. We believe that our focus on leadership talent differentiates us. We remain committed to consistently growing our executive search and assessment capabilities, which are the cornerstone of our enterprise. This work not only immediately inflects client performance, it gives us unmatched access to leaders and their priorities, allowing us to build valuable insights and rich data sets. We believe one of the most important C-suite roles that we help define and support is the Chief People Officer.

It’s a role that has undergone dramatic transformation in the past decade, and CPOs have been at the center of the most challenging issues of our time from pandemic response to the hybrid work debate to the rapidly shifting dialogue about inclusion to the challenges posed by changing immigration approaches. But even as headlines whipsaw their daily agenda, CPOs are on the hook for architecting corporate strategies that reflect several of the most important challenges to the C-suite, remaking work to best leverage the interplay of human and digital workers in the age of AI, creating leadership and talent strategies for a world where demographic and labor mobility headwinds create real scarcity in leadership talent, assuring the performance of leaders and leadership teams in a world where volatility is the norm to name just a few.

We’ve launched deep research and an event series to help CPOs balance this complex mandate and to help CEOs and Boards select and leverage the next generation of key people partners. Second, to help clients lead transformation in the new world of leadership. As we shared at Investor Day, relationship size and stickiness correlates strongly with our ability to support clients in multiple ways. This isn’t some boiler room cross-selling effort. It’s leveraging the access and insight of our exceptional consultants to accelerate client performance in new ways. We enjoy a substantial tailwind in this work. Every leader in every role in every industry has a transformation mandate. It might be to leverage AI or enter new markets or drive cost advantage.

Regardless of the destination, this transformation invariably requires new leaders and new ways of leading and creates an opportunity for us to partner with them to drive great outcomes. Obviously, the environment right now is leading to a reprioritization of key initiatives with topics like creating a cost-focused culture and rationalizing the corporate portfolio rising in prominence. In response, we have assembled toolkits that help our teams guide clients through this work and allow us to partner with them to accelerate their outcomes. We know that we grow larger and more impactful client relationships by linking our work to ambitious client goals. And no matter the environment, clients always have, indeed, clients always need ambitious goals.

Third, we’re innovating to create continuous client engagement. In working with leading CEOs, boards and Chief People Officers, we continue to see an important theme emerging. Leadership and talent decisions are becoming an always-on activity. This shouldn’t be surprising as there has been a step function increase in annual report language devoted to the economic importance of talent, culture and succession. And yet historically, the process for managing this risk has lacked consistency and rigor. We don’t expect every company to change how they work overnight, but we also can’t imagine a world in which a topic as important as top-of-the-house leadership will be a continued afterthought in ongoing corporate management. And we know that embedding this work at scale in companies will require just the type of at-scale digital tooling that our investments are targeting.

In sum, while we confront a volatile market, we see enormous opportunities to grow our impact on clients and thereby our business. Our fast start to 2025 reflects our team’s ability to create real value for clients in the face of this complex environment. That said, we know that this complexity can slow down client decision-making, but never eliminates the need to perform at a high level. Our road map for executing on our strategy of creating differentiated, deep and durable relationships will allow unrivaled value for clients, colleagues and shareholders. With that, I will now hand the call over to Nirupam to provide a detailed review of our financial performance and outlook.

Nirupam Sinha: Thank you, Tom. In a highly dynamic environment, we delivered strong results in the first quarter of 2025 with outperformance in the top line that exceeded the high end of our outlook and robust profitability. In the next few minutes, I’ll walk through the details of our performance along with our Q2 outlook. First quarter revenue reached approximately $284 million, marking a 7% increase compared to Q1 2024. Adjusted EBITDA improved $3.3 million to $29.1 million and adjusted EBITDA margin expanded 50 basis points to 10.3%. Looking more deeply at operating expenses, salary and benefits increased 8.6% from the prior year quarter. Fixed compensation increased $4.2 million in the first quarter of 2025 due to higher separation, base salaries and payroll taxes, retirement and benefits and talent acquisition and retention costs, partially offset by decreases in the deferred compensation plan and stock compensation.

Variable compensation increased $10.9 million, benefiting from an increase in consultant productivity. As a percentage of net revenue, salaries and benefits was 66.8% versus 65.8% in the year ago period. Excluding a $3.7 million operational reorganization charge, salaries and benefits would have been 65.5%. Consistent with our prior commentary, for the full year, we continue to expect the normalized run rate to be in the 65% range. General and administrative expenses of $41.4 million were relatively flat versus the year ago period and include a fair value earn-out adjustment, which is excluded from our adjusted results. As a percentage of net revenue, general and administrative expenses improved 100 basis points from the prior year to 14.6%.

With respect to R&D, as we have described previously, we continue to invest in the future of Heidrick. At the core of this investment is IP that powers all our businesses, including Search, Heidrick Consulting and our Digital Product Portfolio. R&D spend for the first quarter was $6.4 million or 2.3% of net revenue. Now let’s turn to each of our businesses for further details. In Executive Search, revenue grew 6% to $213 million. Looking at our regional performance compared to the prior year quarter, we saw revenue increases of 6% in the Americas, 9% in Europe and 1% in APAC. As you know, we have a diversified practice platform with great client engagement. During the first quarter, we saw outperformance by the majority of our practice groups.

Consultant productivity annualized in the first quarter at $2 million compared to $1.9 million on the same basis in the year ago quarter, and we saw increases in confirmations and average revenue per Executive Search. We’re also very pleased with Executive Search improving its already strong profitability with adjusted EBITDA of $52.3 million and an adjusted EBITDA margin of 24.5%. Turning to On-Demand Talent. Revenue increased 12% to $43 million, marking a continued outperformance amid market dynamics. We saw increases in volume in both wins and project extensions. On-Demand Talent recorded adjusted EBITDA of $0.4 million versus an adjusted EBITDA loss of $0.9 million in the year ago period. This business addresses an urgent client need, complements our search business and enhances our ability to serve clients comprehensively.

We’re continuing to foster innovation in our products and services as we pivot and accelerate growth, particularly on the interim talent side of our on-demand business. Looking at Heidrick Consulting, we saw first quarter organic revenue increased 7% year-over-year to $28 million, driven by increases in leadership assessment as we implement a more intense focus on pairing assessments with Executive Search. Adjusted EBITDA loss was $2.1 million for the quarter. Moving forward, we are focused on growing the business while benefiting from efficiency gains as we refine and simplify Heidrick Consulting’s offerings and focus on its core strengths. Turning to the bottom line performance. Adjusted net income for the quarter was $14.2 million, which includes a fair value adjustment related to the On-Demand Talent business versus $14 million last year.

2025 first quarter adjusted diluted EPS was $0.67, consistent with the year ago period. Now I’ll turn to the balance sheet. We ended the first quarter in a strong cash position of $325 million, up $72 million from $253 million at the end of March 2024. This balance, coupled with our credit facility, gives us great strength and flexibility to execute our strategic plan and return capital to our shareholders. Moving forward, we expect second quarter revenue to be within the range of $285 million to $305 million. This compares to $279 million in Q2 of 2024. As we discussed previously, the current economic climate can heighten uncertainty, which may lead clients to delay initiating a few projects or to temporarily pause ongoing ones. In most cases, the underlying demand does not dissipate and this client work resumes once there is greater clarity or stability in the macro environment.

In conclusion, our performance underscores the strength and diversification of our business model, which continues to enable us to deliver for clients across a variety of market environments. These results are a testament to the dedication and focus of our global teams who remain committed to serving our clients with excellence amid ongoing macroeconomic uncertainty. As we look ahead, we remain confident in our ability to navigate the evolving landscape with discipline while continue to drive long-term value for our shareholders.

Operator: [Operator Instructions] Your first question comes from the line of Marc Riddick with Sidoti & Company.

Marc Riddick: So given all the headlines and what have you, I was wondering if you could talk a little bit about what we’re thinking and given the past disruptions and recessions that Heidrick has gone through, I was wondering if there are any that were specifically or particularly relevant in assessing how things might downturn here in 2025 and how that could impact the business? Or put another way, do you view today’s circumstances as being unique? Or can we draw on any meaningful parallels in the past?

Tom Monahan: That’s obviously something we talk about internally. Like pretty much every other business, there are segments of what we do that slow down during periods of economic distress. To the good, as you can see from our results and our forecast, we’re not seeing them yet. And as the adage goes, if you’ve seen one economic downturn, you’ve seen exactly one economic downturn. Just think for a second about the contrast between the global financial crisis and the COVID era. The first one was sector-focused and long, the second, broad-based with a fast snapback. So even over the last 2 decades, the economic uncertainty periods have looked very different. And look, we like boom times as much as anyone else. But our business does have some attributes that allow us to weather these storms better than others and certainly better than the past.

First, great economic attributes. No debt, little CapEx, embedded flexibility due to variable cost. We have a business mix that is well diversified across region, industry and service line. And most importantly, we have a laser-like focus on client value that gives clients the fastest return of any advisory category. It’s worth remembering across all our service lines, our projects don’t require years of work or tens of million dollars in cost like, let’s say, a major software implementation or digital rearchitecture. You can move quickly at a fraction of the cost of some of those major transformations to really lift performance. So by staying close to clients, we can make ourselves highly relevant, and that’s our job. But yes, more broadly, we’re not seeing any of this yet, as you can see from our outcomes, but we are — we keep our eyes very closely on activity levels and client tone.

Marc Riddick: Great. And then I was wondering if you could talk a little bit about the — it’s obviously a good time to have a strong balance sheet and 0 debt. I was wondering if you could talk a little bit about your thoughts on use of cash and maybe more broadly, maybe what you’re seeing out there in the — as a potential acquisition pipeline, whether much has changed given the headlines that we’ve seen over the last few months?

Nirupam Sinha: Thanks, Mark. It’s Nirupam here. So as a quick reminder, we still have earn-out payments in 2026 from some of our past acquisitions. So as we think about the cash, we’re obviously managing cash flow to pay those out. And so cash kind of usage and how we think about cash, certainly, that factor will play in. Now as always, we’re constantly ensuring we can make the right organic investments into our service lines, and we continue to see that as the overall priority. Now as we’ve noted in the past, in our business and as people will know in any professional service business, often, as you think about organic investments or a hiring conversation, that sometimes turns into an acquisition or a lift out, especially talking about boutiques or smaller players.

And so we view that as a matter of regular business to evaluate those opportunities to have be in those dialogues and to ensure we’re staying ahead of opportunities that could help us. So that’s how we kind of think about M&A at this point and cash usage. So number one, we have earn-outs to pay. Number two, we think organic investments is still a priority. And then three, some of those organic investments turn into acquisitions, and that’s life of what we do here.

Marc Riddick: Okay. And then sort of pivoting a bit on the — in a way on the M&A kind of conversation, could you sort of share any thoughts as to what you’re seeing thus far as far as M&A being a driver of client demand? We’ve seen sort of an interesting wave of global M&A activity year-to-date. And I was maybe wondering if you could give sort of an update as to what you’re seeing or whether it was similar to or met your expectations at the beginning of the year?

Tom Monahan: Look, I think M&A falls right in that category of every client is working on something, right? And M&A scale or tuck-in creates a lot of opportunities for us to engage them around making sure they have the right team? Are they harmonizing their culture? How do they assess when you combine 2 companies, who gets what role? So there’s a lot of activities that spring out of that, either at scale or think about just restructuring a cap table, whatever it is. And it’s one of a bunch of things where you look and say, gosh, pretty much anything that if you could look inside the folder where any Your line is now open. carries around their MBOs, you could look at the 5 or 6 things they have absolutely got to get done and they all have significant implications for leadership because even if they’re not doing integrating M&A, they might be doing a cost out, they might be doing the digital transformation, they might be doing it going the other direction on M&A and carving out a business.

And every one of them has lots of places for us to bring our expertise to bear to help them be successful.

Operator: Your next question comes from the line of Kevin Steinke with Barrington Research.

Kevin Steinke: I wanted to ask about a comment you made in your prepared remarks as it relates to Heidrick Consulting. I believe you mentioned simplifying their operations and maybe how that relates to increasing the profitability of that business as we move forward. I don’t know if there’s any more color or flavor you could add to that.

Nirupam Sinha: Yes. I’m happy to take that, Kevin. It’s Nirupam. So a couple of things here. I think, one, just there were some onetime items in Q1 that impacted EBITDA, including a reorganization charge. And so on a quarter-to-quarter basis, there can be a timing issue. So as you think about sort of profitability in that business, so if you look back to and think about Q1 last year, the business was in a very different spot than it is today. And so you can imagine that bonus accruals were also in a different perspective than they are right now. So assuming the business sustains momentum, we’ll hit more normalized comps in the back half of the year. So that’s kind of the first thing to just keep in mind. I think second, we continue to see improvements in how we perform in that business.

And I think longer term, we’re still very focused on hitting the long-term guidance that we gave back in Investor Day. So 11% to 13% for consulting that we shared then is still sort of what we expect, and we’re making progress on that on a steady basis daily.

Kevin Steinke: Okay. Great. So can you just refresh us on organic investments? And you mentioned that obviously is a capital allocation priority. I guess, beyond hiring, is there anything you’re focused on specifically that you could update us on?

Tom Monahan: I think the good news is our business is pretty straightforward. It’s how many great people do we have and how are we making them even more successful. So think of — any organic growth investment is going to fit comfortably into one of those 2 buckets. First and foremost, adding great people, either growing them in our system or putting great people on the Heidrick platform so they can be more successful. And then investments in, obviously, some of our digital tools, some of our intellectual property, marketing and development to help everyone get stronger and better and make them — yes. It’s an easy business. I know May 4 has passed, but it’s more Jedi Knights and better lightsabers, right? That’s kind of — when we think about growing this business, that’s what it comes down to.

Kevin Steinke: Okay. Great. And when we think about the current environment we’re in — I know you were talking about Chief People Officers as an example, but have you seen any sort of particular type of search going on or consulting project or type of talent being sourced in on-demand talent? Has there been any kind of meaningful change in the types of activities that clients are seeking from you across the segments?

Tom Monahan: The short answer is there’s always little peaks and valleys, right? There’s stuff that goes on. I think if you work,` sort of see through some of what’s going on short term, there are some longer-term themes that are driving how companies are thinking about their top talent. One is look, set aside whatever is going on in tariffs, we’ve been on a long cycle stretching back to Brexit and beyond, where borders matter more indifferently than they had for sort of 20 years before. And so people are asking questions like how do I organize at the top of the house? How do I want to think about my supply chain? Do I need resilience? People looked at the supply chain challenges during COVID. And so thematically, that sometimes shows up as your regional org structure.

Sometimes it shows up as where you’re locating work. It — sometimes it shows up as I need new and different supply chain talent. It may show up as new and different finance talent, right? The theme tends to be the issue that each company actualizes differently. Similarly, we went through a long, long time of interest rates being really low. And now we’re seeing a cycle where interest rates are higher and people, particularly, let’s say, in private equity or any sort of capital allocation method are thinking about, okay, what’s the sort of talent I need there? Do I need different I profiles? Do I need different CFO profiles? How do I think about different skill sets? We highlighted the CPO because every one of these problems from the — what’s our expectation for office attendance on Monday, all the way up to how do digital workers interface with human workers, lands on their desk So they are absolutely really busy right now, and we’re trying to partner with them to make them incredibly successful so they can drive value.

But yes, I think the thematic, it tends to be more a set of themes that show up and then present differently at different clients in terms of how they decide what to go to work on.

Operator: Your next question comes from the line of Tobey Sommer with Truist.

Tyler Barishaw: This is Tyler Barishaw on for Tobey. Could you discuss some of your trends in Europe? Revenue up like 9% and EBITDA close to 50%. Just curious, could you discuss what are some of the drivers of that? And any changes going on post the Liberation Day with changes in trends in Europe?

Nirupam Sinha: Yes. Happy to start there, Tyler. So in general, I mean, I think we’ve seen across the board sort of Europe perform pretty well. I mean there’s not one particular sector that’s kind of standing out for us. You see it across technology, financial services, industrial, consumer. I mean — I think across the board, we’ve seen pretty good performance there. Now how much is that attributed back to Liberation Day exactly? I don’t know if I can exactly tell you that. I mean, Tom, maybe you can comment on that. But generally, I think it’s good performance across the board.

Tom Monahan: Yes. I mean, first of all, Liberation Day was in this quarter. So look, you have seen some stimulative activity by a couple of European governments, and that on balance gives people confidence. You’ve seen if — certain sectors are becoming — getting — coming in focus, I think European aerospace and defense, which obviously feels there’s going to be a lot of resourcing heading their way. So — but I think it’s more just — again, our business is not unlike all of our clients, having a great team in place is number one. And having that team working and focused the right way is the second big piece of that. So I think we’re just seeing a great team building that has gone on over there continuing to pay dividends. But I don’t think there’s one thing necessarily.

Tyler Barishaw: Got it. And just transitioning to some of the other segments, On-demand Talent and Consulting. Can you just talk about maybe profitability expectations for the year? Should we expect them both to be profitable — finish the year profitable?

Nirupam Sinha: I think as I said about Consulting a second ago, I think the same would be true for On-Demand Talent. I mean I think we saw On-Demand Talent break into profitability this quarter, which we’re pleased by. But I think for us, it’s less of the focus quarter-by-quarter. It’s more are we kind of marching towards the guidance that we’ve given. And I think we feel good about the guidance that we’ve given and sort of marching towards the longer-term profitability goals. So for us, that’s how we sort of think about it with On-Demand Talent 7% to 9% and Consulting at 11% to 13% as we’ve shared previously.

Tyler Barishaw: Got it. And then just one final one. Can you discuss any difference in demand trends among different end markets and maybe particularly financial services, if there’s anything to call out there?

Tom Monahan: Could you repeat the question? I got a little blurred on this side, sorry.

Tyler Barishaw: Yes, sir. Just wondering if you could talk about demand trends in different key end markets and particularly financial services?

Nirupam Sinha: I mean — I think we’ve sort of seen good demand across. I mean if I look at us by sector, it’s been pretty broad-based this past quarter. And we’ve seen it across financial services, global technology and services, industrials, consumer. So there’s no one real part standing out for us. And I think financial services has been part of what’s performed pretty well globally for us.

Operator: I will turn the call back over to Tom Monahan for closing remarks.

Tom Monahan: Thank you, Kate. We appreciate everyone dialing in today. We look forward to keeping you posted as we move through the year, and we know we’ll see many of you at upcoming investor conferences or out on the road. In the meantime, please don’t hesitate to reach out with any questions, and hope folks enjoy the evening and have a great, although I’m guessing a busy week given what you all do. So thanks very much. Bye now.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.

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HEIDRICK & STRUGGLES INTERNATIONAL INC

Q1 2025

Earnings Transcript

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