ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as other sections of this Annual Report on Form 10-K contain forward-looking statements within the meaning of the federal securities laws. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements are not historical facts or guarantees of future performance, but instead represent only our beliefs, assumptions, expectations, estimates, forecasts and projections regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Forward-looking statements may be identified by the use of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," “outlook,” "projects," "forecasts," "aim," and similar expressions. These statements include statements other than historical information or statements of current condition and may relate to our future plans and objectives and results. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed under the Section heading “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.
Factors that may cause actual outcomes and results to differ materially from what is expressed, forecasted or implied in the forward-looking statements include, among other things, our ability to attract, integrate, develop, manage, retain and motivate qualified consultants and senior leaders; our ability to prevent our consultants from taking our clients with them to another firm; our ability to maintain our professional reputation and brand name; our clients’ ability to restrict us from recruiting their employees; our heavy reliance on information management systems; risks arising from our implementation of new technology and intellectual property to deliver new products and services to our clients; our dependence on third parties for the execution of certain critical functions; the fact that we face the risk of liability in the services we perform; the fact that data security, data privacy and data protection laws and other evolving regulations and cross-border data transfer restrictions may limit the use of our services and adversely affect our business; any challenges to the classification of our on-demand talent as independent contractors; the fact that increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks could pose a risk to our systems, networks, solutions, services and data; the fact that our net
revenue may be affected by adverse macroeconomic or labor market conditions, including impacts of inflation and effects of geopolitical instability; the aggressive competition we face; the impact of foreign currency exchange rate fluctuations; our ability to access additional credit; social, political, regulatory, legal and economic risks in markets where we operate, including the impact of the ongoing war in Ukraine and the conflict in Israel and the Gaza strip, the risks of an expansion or escalation of those conflicts and our ability to quickly and completely recover from any disruption to our business; the impact from actions by the new U.S. presidential administration and Congress; unfavorable tax law changes and tax authority rulings; our ability to realize the benefit of our net deferred tax assets; the fact that we may not be able to align our cost structure with net revenue; any impairment of our goodwill, other intangible assets and other long-lived assets; our ability to maintain an effective system of disclosure controls and internal control over our financial reporting and produce accurate and timely financial statements; our ability to execute and integrate future acquisitions; and the fact that we have anti-takeover provisions that make an acquisition of us difficult and expensive. We caution the reader that the list of factors may not be exhaustive. The forward-looking statements contained in this Annual Report on Form 10-K speak only as of the date hereof. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for years 2024 and 2023. For the discussion of changes from 2023 to 2022 and other financial information related to 2022, refer to "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on February 27, 2023.
Executive Overview
Our Business
We are a human capital leadership advisory firm providing executive search, on-demand talent and consulting services.
Our Executive Search services help our clients build leadership teams by facilitating the recruitment, management and development of senior executives. We believe focusing on top-level services offers us several advantages that include access to and influence with key decision makers, increased potential for recurring search consulting engagements, higher fees per search, enhanced brand visibility and a leveraged global footprint, which create added barriers to entry for potential competitors. Working at the top of client organizations also allows us to attract and retain high-caliber consultants.
Our On-Demand Talent business is a market-leader in sourcing high-end, on-demand independent talent and provides clients seamless on-demand access to top independent talent, including professionals with deep industry and functional expertise for interim leadership roles and critical, project-based initiatives.
As a complement and extension of our search services, we partner with organizations through Heidrick Consulting to provide advisory services related to leadership assessment and development, organization and team effectiveness, and culture shaping. Our tools and experts use data and technology designed to bring science to the art of human capital development and organizational design. Our services allow our clients to accelerate their strategies and the effectiveness of individual leaders, teams and organizations as a whole.
Heidrick Consulting offers our clients impactful approaches to human capital development through a myriad of solutions, ranging from leadership assessment and development, team and organization acceleration, digital acceleration and innovation, diversity and inclusion advisory services, and culture shaping. Applying our deep understanding of the behaviors and attributes of leaders across many of the world’s premier companies, we guide our clients as they build a thriving culture of future-ready leadership. These premium services and offerings, which complement our Executive Search expertise, significantly contribute to our ability to deliver a full-service human capital consulting solution to our clients.
We provide our services to a broad range of clients through the expertise of over 500 consultants located in major cities around the world. Our Executive Search services are provided on a retained basis. Revenue before reimbursements of out-of-pocket expenses (“net revenue”) consists of retainers and indirect expenses billed to clients. Typically, we are paid a retainer for our executive search services equal to approximately one-third of the estimated first-year compensation for the position to be filled. In addition, if the actual compensation of a placed candidate exceeds the estimated compensation, we often are authorized to bill the client for one-third of the excess. Indirect expenses are calculated as a percentage of the retainer with certain dollar limits per search.
The Company has five operating segments. The executive search business operates in the Americas, Europe (which includes Africa) and Asia Pacific (which includes the Middle East), and the Heidrick Consulting and On-Demand Talent businesses operate globally.
Key Performance Indicators
We manage and assess our performance through various means, with primary financial and operational measures including net revenue, Adjusted EBITDA (defined below; non-GAAP) and Adjusted EBITDA margin (non-GAAP). These non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared in accordance with GAAP (defined below). Executive Search and Heidrick Consulting performance is also measured using consultant headcount. Specific to Executive Search, confirmed search (confirmation) trends, consultant productivity and average revenue per search are used to measure performance. Productivity is as measured by annualized Executive Search net revenue per consultant.
Revenue is driven by market conditions and a combination of the number of executive search engagements, consulting projects, on-demand projects and the average revenue per search or project. With the exception of compensation expense and cost of sales, incremental increases in revenue do not necessarily result in proportionate increases in costs, particularly operating and administrative expenses, thus creating the potential to improve Adjusted EBITDA and Adjusted EBITDA margins.
The number of consultants, confirmation trends, number of searches or projects completed, productivity levels and the average revenue per search or project will vary from quarter to quarter, affecting net revenue, Adjusted EBITDA and Adjusted EBITDA margin.
The Company evaluates performance and allocates resources based on the chief operating decision maker’s review of (1) net revenue and (2) net income before interest, taxes, depreciation and amortization, as adjusted, to the extent they occur, for earnout accretion, earnout fair value adjustments, contingent compensation, deferred compensation plan income or expense, certain reorganization costs, impairment charges and restructuring charges ("Adjusted EBITDA"). Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue in the same period.
Consolidated and the subtotal of Executive Search Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and have limitations as analytical tools. They should not be viewed as a substitute for financial information determined in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. In addition, they may not necessarily be comparable to non-GAAP performance measures that may be presented by other companies.
We believe the presentation of these non-GAAP financial measures provides meaningful supplemental information and a more complete understanding of our ongoing operating results, including underlying trends. These non-GAAP financial measures are used by management in their financial and operating decision making because management believes they reflect our ongoing business in a manner that allows for meaningful period-to-period comparison and evaluation. We also believe that these non-GAAP financial measures, when considered together with our GAAP financial measures, provide management and investors with additional information for comparison of our operating results with the operating results of other companies.
Our Compensation Model
At the consultant level, there are fixed and variable components of compensation. Individuals are rewarded for their performance based on a system that directly ties a portion of their compensation to the amount of net revenue for which they are responsible. A portion of the reward may be based upon individual performance against a series of non-financial measures. Credit towards the variable portion of a consultant’s compensation is earned by generating net revenue for winning and executing work. Each quarter, we review and update the expected annual performance of all consultants and accrue variable compensation accordingly. The amount of variable compensation that is accrued for each consultant is based on a tiered payout model. Overall Company performance determines the amount available for total variable compensation. The more net revenue that is generated by the consultant, the higher the percentage credited towards the consultant’s variable compensation and thus accrued by the Company as expense.
The mix of individual consultants who generate revenue can significantly affect the total amount of compensation expense recorded, which directly impacts operating margin. As a result, the variable portion of the compensation expense may fluctuate significantly from quarter to quarter. The total variable compensation is discretionary and is based on Company-wide financial targets approved by the Human Resources and Compensation Committee of the Board of Directors.
Historically, a portion of the Company’s consultant and management cash bonuses were deferred and paid over a three-year vesting period. The portion of the bonus was approximately 15% depending on the employee’s level or position. The compensation expense related to the amounts being deferred was recognized on a graded vesting attribution method over the requisite service period. This service period began on January 1 of the respective fiscal year and continued through the deferral date, which coincided with the Company’s bonus payments in the first half of the following year and for an additional three-year vesting period. The deferrals were recorded in Accrued salaries and benefits within both Current liabilities and Non-current liabilities in the Consolidated Balance Sheets.
In 2020, the Company terminated the cash bonus deferral for consultants and, in 2021, terminated the cash bonus deferral for management. The Company now pays 100% of the cash bonuses earned by consultants and management in the first half of the following year. Consultant and management cash bonuses earned prior to 2020 and 2021, respectively, were paid under the terms of the cash bonus deferral program. The deferrals were recorded in Accrued salaries and benefits within both Current liabilities and Non-current liabilities in the Consolidated Balance Sheets. The final cash bonus deferrals were paid during the year ended December 31, 2023.
2024 Overview
Consolidated net revenue increased $71.7 million, or 7.0%, to $1.1 billion in 2024 from $1.0 billion in 2023. Foreign exchange rates positively impacted results by $0.4 million, or less than 0.1%. Executive Search net revenue was $818.4 million in 2024, an increase of $38.3 million, or 4.9%, compared to 2023. The increase in Executive Search net revenue was primarily due to an increase in the average revenue per executive search compared to the prior year. On-Demand Talent net revenue was $168.3 million in 2024, an increase of $15.8 million, or 10.4%, compared to 2023. The increase in On-Demand Talent revenue was primarily due to an increase in the volume on-demand projects and the timing of the Atreus acquisition in February 2023. Heidrick Consulting net revenue was $111.9 million in 2024, an increase of $17.6 million, or 18.6%, compared to 2023. The increase in Heidrick Consulting revenue was primarily due to an increase in leadership assessment and development consulting engagements compared to the prior year and the timing of the businessfourzero acquisition in April 2023.
The number of Executive Search and Heidrick Consulting consultants was 418 and 85, respectively, as of December 31, 2024, compared to 414 and 89, respectively, as of December 31, 2023. Executive Search productivity, as measured by annualized net Executive Search revenue per consultant, was $2.0 million and $1.9 million for the years ended December 31, 2024, and 2023, respectively. Executive search confirmations increased 0.1% in 2024 compared to 2023. The average revenue per executive search increased to $146,000 in 2024 compared to $140,000 in the prior year.
Adjusted EBITDA as a percentage of revenue was 10.1% in 2024, compared to 12.2% in 2023. The change in Adjusted EBITDA was primarily due to increases in salaries and benefits expense, general and administrative expense, and cost of services, partially offset by an increase in net revenue of $71.7 million. Salaries and benefits expense as a percentage of net revenue was 65.1% in 2024, compared to 63.9% in 2023. General and administrative expense as a percentage of net revenue was 15.2% in 2024, and 2023. Cost of services expense as a percentage of net revenue was 10.8% in 2024, compared to 10.6% in 2023. Research and development costs as a percentage of net revenue was 2.1% in 2024, compared to 2.2% in 2023.
We ended the year with combined cash, cash equivalents, and marketable securities of $563.5 million, an increase of $85.4 million compared to $478.2 million at December 31, 2023. We pay the majority of bonuses in the first half of the year following the year in which they were earned. Employee bonuses are accrued throughout the year and are based on the Company’s performance and the performance of the individual employee. We expect to pay approximately $317.8 million in bonuses related to 2024 performance in March and April 2025.
Results of Operations
The following table summarizes, for the periods indicated, the results of operations (in thousands, except per share data):
Year Ended December 31,
Revenue
Revenue before reimbursements (net revenue)
Reimbursements
Total revenue
Operating expenses
Salaries and benefits
General and administrative expenses
Cost of services
Research and development
Impairment charges
Restructuring charges
Reimbursed expenses
Total operating expenses
Operating income
Non-operating income (expense)
Interest, net
Other, net
Net non-operating income
Income before taxes
Provision for income taxes
Net income
Weighted-average common shares outstanding
Basic
Diluted
Earnings per common share
Basic
Diluted
Cash dividends paid per share
The following table summarizes, for the periods indicated, our results of operations as a percentage of revenue before reimbursements (net revenue):
Year Ended December 31,
Revenue
Revenue before reimbursements (net revenue)
Reimbursements
Total revenue
Operating expenses
Salaries and benefits
General and administrative expenses
Cost of Services
Research and development
Impairment charges
Restructuring charges
Reimbursed expenses
Total operating expenses
Operating income
Non-operating income (expense)
Interest, net
Other, net
Net non-operating income
Income before income taxes
Provision for income taxes
Net income
Note: Totals and subtotals may not equal the sum of individual line items due to rounding.
The following table sets forth, for the periods indicated, a reconciliation of Adjusted EBITDA to net income:
December 31,
Revenue before reimbursements (net revenue)
Net income
Interest, net
Other, net
Provision for income taxes
Operating income
Adjustments
Depreciation
Intangible amortization
Earnout accretion
Earnout fair value adjustments
Acquisition contingent consideration
Deferred compensation plan
Reorganization costs
Impairment charges
Restructuring charges
Total adjustments
Adjusted EBITDA
Adjusted EBITDA margin
The Company has five operating segments. The executive search business operates in the Americas, Europe (which includes Africa) and Asia Pacific (which includes the Middle East), and the Heidrick Consulting and On-Demand Talent businesses operate globally (See Note 18, Segment Information ).
Revenue and Adjusted EBITDA, by segment, are as follows:
December 31,
Revenue
Executive Search
Americas
Europe
Asia Pacific
Total Executive Search
On-Demand Talent
Heidrick Consulting
Revenue before reimbursements
Reimbursements
Total revenue
Adjusted EBITDA
Executive Search
Americas
Europe
Asia Pacific
Total Executive Search
On-Demand Talent
Heidrick Consulting
Total segments
Research and development
Global Operations Support
Total adjusted EBITDA
Year ended December 31, 2024, compared to year ended December 31, 2023
Total revenue. Consolidated total revenue increased $74.5 million, or 7.2% to $1.1 billion in 2024 from $1.0 billion in 2023. The increase in total revenue was primarily due to the increase in revenue before reimbursements (net revenue).
Revenue before reimbursements (net revenue) . Consolidated net revenue increased $71.7 million, or 7.0%, to $1.1 billion in 2024 from $1.0 billion in 2023. Foreign exchange rates positively impacted results by $0.4 million, or less than 0.1%. Executive Search net revenue was $818.4 million in 2024, an increase of $38.3 million, or 4.9%, compared to 2023. The increase in Executive Search net revenue was primarily due to an increase in the average revenue per executive search compared to the prior year. On-Demand Talent net revenue was $168.3 million in 2024, an increase of $15.8 million, or 10.4%, compared to 2023. The increase in On-Demand Talent revenue was primarily due to an increase in the volume of on-demand projects and the timing of the Atreus acquisition in February 2023. Heidrick Consulting net revenue was $111.9 million in 2024, an increase of $17.6 million, or 18.6%, compared to 2023. The increase in Heidrick Consulting revenue was primarily due to an increase in leadership assessment and development consulting engagements compared to the prior year and the timing of the businessfourzero acquisition in April 2023.
The number of Executive Search and Heidrick Consulting consultants was 418 and 85, respectively, as of December 31, 2024, compared to 414 and 89, respectively, as of December 31, 2023. Executive Search productivity, as measured by annualized net Executive Search revenue per consultant, was $2.0 million and $1.9 million for the years ended December 31, 2024, and 2023, respectively. Executive search confirmations increased 0.1% in 2024 compared to 2023. The average revenue per executive search increased to $146,000 in 2024 compared to $140,000 in the prior year.
Salaries and benefits . Consolidated salaries and benefits expense increased $59.6 million, or 9.1%, to $715.6 million in 2024, from $656.0 million in 2023. Fixed compensation increased $6.8 million due to increases in base salaries and payroll taxes, stock-based compensation, and talent acquisition and retention costs, partially offset by decreases in separation costs, retirement and benefits, and deferred compensation plan expenses. Variable compensation increased $52.8 million due to due to higher bonus accruals related to increased consultant productivity. Foreign exchange rate fluctuations negatively impacted salaries and benefits expenses by $0.3 million, or less than 0.1%.
In 2024, we had an average of 2,195 employees, compared to an average of 2,208 employees in 2023.
As a percentage of net revenue, salaries and benefits expense was 65.1% in 2024, compared to 63.9% in 2023.
General and administrative expenses . Consolidated general and administrative expenses increased $10.5 million, or 6.7%, to $167.0 million in 2024 from $156.5 million in 2023. The increase in general and administrative expenses was due to increases in office occupancy costs, expenses related to information technology, business development travel, professional fees, hiring fees, and marketing expenses, partially offset by decreases in bad debt, intangible amortization, external third-party consultants, insurance and bank fees, taxes and licenses, and communication services costs. Foreign exchange rate fluctuations negatively impacted general and administrative expenses by $0.3 million, or 0.2%.
As a percentage of net revenue, general and administrative expenses were 15.2% in 2024, and 2023.
Cost of services . Consolidated cost of services increased $9.9 million, or 9.1%, to $119.0 million in 2024, from $109.0 million in 2023. The increase in cost of services was primarily due to an increase in the volume of On-Demand and consulting projects. Foreign exchange rate fluctuations negatively impacted cost of services by $0.3 million, or 0.3%.
Research and development. Due to the rapid pace of technological advances and digital disruption many of our clients are experiencing, we believe our ability to compete successfully depends increasingly upon our ability to provide clients with timely and relevant technology-enabled products and services. As such, we are focused on developing new technologies to enhance existing products and services, and to expand the range of our offerings through research and development (“R&D”), licensing of intellectual property and acquisition of third-party businesses and technology. The benefits from our R&D efforts will be utilized to develop and enhance new and existing services and products across our current offerings in Executive Search, Heidrick Consulting, On-Demand Talent and for products and services in new segments that we may embark upon in the future from time to time, such as our new Heidrick Navigator platform. Consolidated R&D expense increased $0.4 million, or 1.6%, to $23.1 million in 2024, from $22.7 million in 2023. R&D expense consists of payroll, employee benefits, stock-based compensation, other employee expenses and third-party professional fees associated with new product development.
Impairment charges. During the three months ended June 30, 2024, as a result of the Company's mid-year forecasting process, it was determined that a reduction in the On-Demand Talent reporting unit forecast was required. Due to the reduction in the forecasted results for the reporting unit, in addition to the 6% passing margin in the most recent impairment analysis conducted as of October 31, 2023, the Company determined that it was more likely than not that the fair value of the reporting unit was less than its carrying value. As a result, the Company identified a triggering event and performed an interim goodwill impairment evaluation during the three months ended June 30, 2024. Based on the results of the 2024 interim impairment evaluation, the Company determined that the goodwill within the On-Demand Talent and Europe reporting units were impaired, which resulted in impairment charges of $14.8 million and $1.5 million, respectively, during the three months ended June 30, 2024. In October 2024, the Company performed its annual goodwill impairment analysis, and determined that goodwill within the On-Demand Talent reporting unit was impaired, which resulted in an impairment charge of $43.3 million to write-off goodwill related to the excess of book value compared to fair value. In 2023, the Company acquired businessfourzero and recorded approximately $7.1 million of goodwill in the Heidrick Consulting reporting unit. Due to the inclusion of goodwill in a reporting unit with a pre-existing fair value shortfall, the Company evaluated the recent and anticipated future financial performance of the Heidrick Consulting reporting unit and determined that it was more likely than not that the fair value of the reporting unit was less than its carrying value. As a result, the Company identified a triggering event and performed an interim goodwill impairment evaluation during the three months ended June 30, 2023. Based on the results of the of the impairment evaluation, the Company recorded an impairment charge of $7.2 million in Heidrick Consulting to write-off all of the goodwill associated with that reporting unit. The impairment charges are recorded within Impairment charges in the Consolidated Statement of Comprehensive Income (Loss) for the twelve months ended December 31, 2024, and 2023, respectively, and the Consolidated Statements of Cash Flows for the twelve months ended December 31, 2024, and 2023, respectively. The impairment was non-cash in nature and did not affect our current liquidity, cash flows, borrowing capability or operations, nor did it impact the debt covenants under our credit agreement.
Adjusted EBITDA. Consolidated Adjusted EBITDA was $111.2 million in 2024, a decrease of $14.4 million, or 11.4%, compared to $125.6 million in 2023. Adjusted EBITDA margin was 10.1% in 2024, compared to 12.2% in 2023.
Net non-operating income . Net non-operating income was $23.1 million in 2024, compared to $13.3 million in 2023.
Interest, net was $14.4 million of income in 2024, compared to $11.6 million in 2023, with the increase primarily due to a higher volume of short-term investments and an increase in interest on cash balances on bank accounts.
Other, net was $8.7 million of income in 2024, compared to $1.7 million in 2023. The increase is primarily due to foreign exchange gains in the current year as compared to foreign exchange losses in the prior year, partially offset by a decrease in unrealized gains on the deferred compensation plan. The Company's investments, including those held in the Company’s deferred compensation plan, are recorded at fair value.
Income taxes. See Note 16 , Income Taxes .
Executive Search
Americas
The Americas segment reported net revenue of $556.9 million in 2024, an increase of 6.5% from $523.0 million in 2023. The increase in net revenue was due to a 7.1% increase in the number of executive search confirmations. All practice groups exhibited growth in revenue over the prior period. Foreign exchange fluctuations negatively impacted net revenue by $1.2 million or 0.2%. There were 215 Executive Search consultants as of December 31, 2024, compared to 213 as of December 31, 2023.
Salaries and benefits expense increased $32.4 million, or 10.4%, in 2024, compared to 2023. Fixed compensation increased $0.1 million due to increases in stock-based compensation, and talent acquisition and retention costs, partially offset by decreases in base salaries and payroll taxes, retirement and benefits, and the deferred compensation plan. Variable compensation increased $32.4 million due to higher bonus accruals related to increased consultant productivity.
General and administrative expenses decreased $1.9 million, or 4.0%, in 2024, compared to 2023, due to decreases in bad debt, the use of external third-party consultants, marketing, and taxes and licenses, partially offset by increases in expenses related to information technology, professional fees, business development travel, and office occupancy costs.
The Americas reported Adjusted EBITDA of $174.3 million in 2024, an increase of $0.9 million, or 0.5%, compared to $173.4 million in 2023. Adjusted EBITDA margin was 31.3% in 2024, compared to 33.1% in 2023.
Europe
The Europe segment reported net revenue of $165.0 million in 2024, a decrease of 0.8% from $166.4 million in 2023. The decrease in net revenue was due to a 9.7% decrease in the number of executive search confirmations, partially offset by an increase in the average revenue per executive search compared to the prior year . All practice groups exhibited growth over the prior year, with the exception of Consumer and Industrial. Foreign exchange rate fluctuations positively impacted net revenue in 2024 by $1.8 million, or 1.1%. There were 124 Executive Search consultants as of December 31, 2024, and 2023.
Salaries and benefits expense increased $0.8 million, or 0.7%, in 2024, compared to 2023. Fixed compensation decreased $3.8 million due to talent acquisition and retention costs, separation costs, and retirement and benefits costs, partially offset by increases in base salaries and payroll taxes, and stock-based compensation. Variable compensation increased $4.7 million due to increased Company performance and an increase in talent acquisition and retention costs qualifying as variable compensation.
General and administrative expenses increased $2.2 million, or 7.8%, in 2024, compared to 2023, due to office occupancy costs, business development travel, hiring fees, and bad debt, partially offset by decreases in professional fees, the use of external third-party consultants, and taxes and licenses.
Impairment charges for 2024 were $1.5 million as a result of an interim impairment evaluation on the goodwill of the Europe reporting unit. The impairment charge is recorded within Impairment charges in the Consolidated Statements of Comprehensive Income (Loss) and the Consolidated Statements of Cash Flows for 2024.
Europe reported Adjusted EBITDA of $14.8 million in 2024, a decrease of $7.5 million, or 33.5%, compared to $22.2 million in 2023. Adjusted EBITDA margin was 9.0% in 2024, compared to 13.4% in 2023.
Asia Pacific
The Asia Pacific segment reported net revenue of $96.4 million in 2024, an increase of $5.7 million, or 6.3%, compared to $90.7 million in 2023. The increase in net revenue was due to an increase in average revenue per executive search, partially offset by a 2.5% decrease in the number of executive search confirmations. All practice groups, with the exception of Social Impact, Consumer, and Industrial contributed to the increase in revenue. Foreign exchange rate fluctuations negatively impacted net revenue in 2024 by $1.4 million, or 1.5%. There were 79 Executive Search consultants as of December 31, 2024, compared to 77 as of December 31, 2023.
Salaries and benefits expense increased $2.6 million, or 4.1%, in 2024, compared to 2023. Fixed compensation decreased $0.1 million due to decreases in base salaries and payroll taxes, and separation, partially offset by increases in talent acquisition and retention costs, and stock-based compensation. Variable compensation increased $2.8 million due to higher bonus accruals related to increased consultant productivity.
General and administrative expenses increased $0.7 million, or 4.1%, in 2024, compared to 2023, due to increases in bad debt, taxes and licenses, and business development travel, partially offset by decreases in professional fees, hiring fees, and office occupancy costs.
Asia Pacific reported Adjusted EBITDA of $13.3 million in 2024, an increase of $2.3 million, or 20.4%, compared to $11.1 million in 2023. Adjusted EBITDA margin was 13.8% in 2024, compared to 12.2% in 2023.
On-Demand Talent
The On-Demand Talent segment reported net revenue of $168.3 million in 2024, an increase of 10.4% compared to $152.5 million in 2023. The increase in On-Demand Talent revenue was primarily due to an increase in the volume of on-demand projects and the timing of the Atreus acquisition in February 2023. Foreign exchange rate fluctuations positively impacted net revenue in 2024 by $0.3 million, or 0.2%.
Salaries and benefits expense increased $5.6 million, or 11.8%, in 2024, compared to 2023. Fixed compensation increased $1.6 million due to base salaries and payroll taxes, talent acquisition and retention costs, and stock-based compensation, partially offset by decreases in separation costs, and retirement and benefits costs. Variable compensation increased $4.0 million due to higher bonus accruals related to increased productivity.
General and administrative expenses increased $3.4 million, or 15.7%, in 2024, compared to 2023, due to hiring fees, an adjustment to increase the earnout accrual for Atreus, office occupancy costs, business development travel, expenses related to information technology, and taxes and licenses, partially offset by decreases in intangible amortization, marketing expenses, and professional fees.
Cost of services increased $8.8 million, or 8.8%, in 2024, compared to 2023, primarily due to an increase in the volume of on-demand talent projects.
Impairment charges for 2024 were $58.0 million as a result of an interim impairment evaluation and the annual impairment evaluation on the goodwill of the On-Demand Talent reporting unit. The impairment charge is recorded within Impairment charges in the Consolidated Statements of Comprehensive Income (Loss) and the Consolidated Statements of Cash Flows for 2024.
On-Demand Talent reported an Adjusted EBITDA loss of $2.0 million in 2024, a decrease of $3.4 million compared to Adjusted EBITDA of $1.4 million in 2023. Adjusted EBITDA margin was (1.2)% in 2024, compared to 0.9% in 2023.
Heidrick Consulting
The Heidrick Consulting segment reported net revenue of $111.9 million in 2024, an increase of 18.6% compared to $94.3 million in 2023. The increase in net revenue was due to a 25.5% increase in confirmations and the timing of the businessfourzero acquisition in April 2023. Foreign exchange rate fluctuations positively impacted results in 2024 by $0.8 million, or 0.8%. There were 85 Heidrick Consulting consultants as of December 31, 2024, compared to 89 as of December 31, 2023.
Salaries and benefits expense increased $12.9 million, or 16.9%, in 2024, compared to 2023. Fixed compensation increased $5.1 million due to increases in base salaries and payroll taxes, and retirement and benefits costs, partially offset by decreases in stock-based compensation, talent acquisition and retention costs, separation costs, and the deferred compensation plan. Variable compensation increased $7.8 million due to an increase in production due to higher bonus accruals related to increased consultant productivity.
General and administrative expenses increased $3.5 million, or 17.1%, in 2024, compared to 2023, due to increases in office occupancy costs, business development travel, intangible amortization, and expenses related to information technology, partially offset by decreases in professional fees and an adjustment to decrease the earnout accrual for businessfourzero.
Cost of services increased $1.1 million, or 12.2%, in 2024, compared to 2023, due to an increase in the volume of consulting engagements requiring third-party consultants.
Impairment charges for 2023 were $7.2 million as a result of an interim impairment evaluation on the goodwill of the Heidrick Consulting reporting unit. The impairment charge is recorded within Impairment charges in the Consolidated Statements of Comprehensive Income (Loss) and the Consolidated Statements of Cash Flows for 2023.
Heidrick Consulting reported an Adjusted EBITDA loss of $6.2 million in 2024, a decrease of $0.4 million, or 7.1% compared to an Adjusted EBITDA loss of $5.8 million in 2023. Adjusted EBITDA margin was (5.6)% in 2024, compared to (6.2)% in 2023.
Global Operations Support
Salaries and benefits expenses increased $5.1 million, or 14.5%, in 2024, compared to 2023, due to an increase in base salaries and payroll taxes, stock-based compensation, variable compensation, retirement and benefits, and separation costs, partially offset by a decrease in talent acquisition and retention costs.
General and administrative expenses increased $2.6 million, or 12.4%, in 2024, compared to 2023, due to increases in professional fees, expenses related to information technology, marketing expenses, business development travel, and office occupancy costs, partially offset by decreases in taxes and licenses, insurance and bank fees, hiring fees, and communication services.
Global Operations Support reported an Adjusted EBITDA loss of $63.9 million in 2024, a decrease of $7.8 million compared to an Adjusted EBITDA loss of $56.1 million in 2023. Adjusted EBITDA margin was (5.8)% in 2024 compared to (5.5)% 2023.
Liquidity and Capital Resources
General . We continually evaluate our liquidity requirements, capital needs and availability of capital resources based on our operating needs. We believe that our available cash balances, funds expected to be generated from operations and funds available under our committed revolving credit facility will be sufficient to finance our operations for at least the next 12 months and the foreseeable future, as well as to finance the cash payments associated with our cash dividends and stock repurchase program.
We pay the non-deferred portion of annual bonuses in the first half of the year following the year in which they are earned. Employee bonuses are accrued throughout the year and are based on our performance and the performance of the individual employee.
Lines of credit. On February 24, 2023, the Company entered into the Second Amendment (the “Second Amendment”) to the Credit Agreement, dated as of October 26, 2018 (the “Credit Agreement” and, as amended by the First Amendment to Credit Agreement, dated as of July 13, 2021, and the Second Amendment, the "Amended Credit Agreement") by and among the Company, Bank of America, N.A., as administrative agent, and the lenders party thereto. The Second Amendment changed the interest rate benchmark, from the London Interbank Offered Rate to the Secured Overnight Financing Rate (“SOFR”). At the Company's option, borrowings under the Amended Credit Agreement will bear interest at one-, three- or six-month term SOFR, or an alternate base rate as set forth in the Amended Credit Agreement, in each case plus an applicable margin. Additionally, the Second Amendment provided the Company with a committed unsecured revolving credit facility in an aggregate amount of $200 million, increased from $175 million as set forth in the Credit Agreement, which includes a sublimit of $25 million for letters of credit and a sublimit of $10 million for swingline loans, with a $75 million expansion feature. Other than the foregoing, the material terms of the Amended Credit Agreement remain unchanged. The Amended Credit Agreement matures on July 13, 2026.
Borrowings under the Amended Credit Agreement may be used for working capital, capital expenditures, permitted acquisitions, restricted payments and for other general corporate purposes of the Company and its subsidiaries. The obligations under the Amended Credit Agreement are guaranteed by certain of the Company’s subsidiaries.
As of December 31, 2024, and 2023, the Company had no outstanding borrowings. The Company was in compliance with the financial and other covenants under the Amended Credit Agreement and no event of default existed.
Cash, cash equivalents, and marketable securities. Cash, cash equivalents and marketable securities at December 31, 2024, were $563.5 million, an increase of $85.4 million compared to $478.2 million at December 31, 2024. The $563.5 million of cash, cash equivalents, and marketable securities at December 31, 2024, includes $238.5 million held by our foreign subsidiaries. A portion of the $238.5 million is considered permanently reinvested in these foreign subsidiaries. If these funds were required to satisfy obligations in the United States, the repatriation of these funds could cause us to incur additional foreign withholding taxes. We expect to pay approximately $317.8 million in bonuses related to 2024 performance in March and April 2025.
Cash flows provided by (used in) operating activities. For the year ended December 31, 2024, cash provided by operating activities was $150.4 million, primarily reflecting net income net of non-cash charges of $80.1 million, accrued expenses of $47.0 million and income taxes recoverable of $12.3 million. The increase in accrued expenses is primarily due to 2024 bonus accruals of $317.8 million, partially offset by cash bonus payments related to 2023 of $289.8 million.
For the year ended December 31, 2023, cash used in operating activities was $26.8 million, primarily reflecting a decrease in accrued expenses of $145.1 million, partially offset by net income net of non-cash charges of $101.7 million. The decrease in accrued expenses is primarily due to cash bonus payments related to 2022 and prior year cash bonus deferrals of $422.0 million, partially offset by 2023 bonus accruals of $289.8 million.
Cash flows provided by (used in) investing activities. For the year ended December 31, 2024, cash used by investing activities was $14.6 million, primarily due to purchases of available for sale investments of $163.6 and capital expenditures of $26.3 million, partially offset by the proceeds from the maturity and sale of available for sale investments of $175.3 million. The cash outflow for capital expenditures is primarily the result of office build-outs and software capitalization related to new product development.
For the year ended December 31, 2023, cash provided by investing activities was $133.6 million, primarily due to proceeds from the maturity and sale of available for sale investments of $337.9 million, partially offset by purchases of available for sale
investments of $141.0 million, acquisition of businesses, net of cash acquired, of $49.9 million, and capital expenditures of $13.4 million. The cash outflow for capital expenditures is primarily the result of office build-outs and software capitalization related to new product development.
Cash flows used in financing activities. For the year ended December 31, 2024, cash used in financing activities was $16.7 million, primarily due to cash dividend payments of $12.9 million, and payment of employee tax withholdings on equity transactions of $3.8 million.
For the year ended December 31, 2023, cash used in financing activities was $53.5 million, primarily due to acquisition earnout payments of $35.9 million, cash dividend payments of $12.5 million, payment of employee tax withholdings on equity transactions of $4.1 million, and common stock repurchases of $0.9 million.
Stock repurchase program. On February 11, 2008, we announced that our Board of Directors authorized management to repurchase shares of our common stock with an aggregate purchase price of up to $50 million (the "Repurchase Authorization"). We may from time to time and as business conditions warrant purchase shares of our common stock on the open market or in negotiated or block trades. No time limit has been set for completion of this program. During the year ended December 31, 2023, the Company purchased 36,000 shares of common stock for $0.9 million. There were no purchases of shares of common stock in 2024, and prior to the 2023 purchase, the most recent purchase of the Company's shares of common stock occurred during the year ended December 31, 2012. As of December 31, 2024, we have purchased 1,074,670 shares of our common stock pursuant to the Repurchase Authorization for a total of $29.2 million and $20.8 million remains available for future purchases under the Repurchase Authorization.
Contractual obligations . Our lease portfolio is comprised of operating leases for office space and equipment. As of December 31, 2024, we had lease payment obligations of $100.8 million, with $17.7 million payable within 12 months. Associated with our lease portfolio, we have asset retirement obligations for the retirement of tangible long-lived assets related to our obligation at the end of the lease term to return office space to the landlord in its original condition. As of December 31, 2024, we had asset retirement obligations of $3.6 million, with $0.2 million payable within 12 months.
In addition to lease related contractual obligations, we also have liabilities related to certain employee benefit plans. These liabilities are recorded in our Consolidated Balance Sheet at December 31, 2024. The obligations related to these employee benefit plans are described in Note 12, Employee Benefit Plans , and Note 13, Pension Plan and Life Insurance Contract, in the Notes to Consolidated Financial Statements . As of December 31, 2024, we did not have a liability for uncertain tax positions.
Application of Critical Accounting Policies and Estimates
General. Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared using accounting principles generally accepted in the United States of America. Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies and Note 3, Revenue , in the Notes to Consolidated Financial Statements. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, we have not made significant changes to the methods for determining these estimates as our actual results have not differed materially from our estimates. We do not believe it is reasonably likely that the estimates and related assumptions will change materially in the foreseeable future; however, actual results could differ from those estimates under different assumptions, judgments or conditions. If actual amounts are ultimately different from previous estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, there are different estimates that reasonably could have been used, or if changes in the accounting estimates are reasonably likely to occur periodically, that could materially impact the financial statements. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of the Consolidated Financial Statements.
Revenue recognition. In our Executive Search segment, revenue is recognized as we satisfy our performance obligations by transferring a good or service to a client. Generally, each of our executive search contracts contains one performance obligation which is the process of identifying potentially qualified candidates for a specific client position. In most contracts, the transaction price includes both fixed and variable consideration. Fixed compensation is comprised of a retainer, equal to
approximately one-third of the estimated first year compensation for the position to be filled, and indirect expenses, equal to a specified percentage of the retainer, as defined in the contract. We generally bill our clients for the retainer and indirect expenses in one-third increments over a three-month period commencing in the month of a client’s acceptance of the contract. If actual compensation of a placed candidate exceeds the original compensation estimate, we are often authorized to bill the client for one-third of the excess compensation. We refer to this additional billing as uptick revenue. In most contracts, variable consideration is comprised of uptick revenue and direct expenses. We bill our clients for uptick revenue upon completion of the executive search, and direct expenses are billed as incurred.
As required under Accounting Standards Update ("ASU") No. 2014-09, we now estimate uptick revenue at contract inception, based on a portfolio approach, utilizing the expected value method based on a historical analysis of uptick revenue realized in the Company’s geographic regions and industry practices, and initially record a contract’s uptick revenue in an amount that is probable not to result in a significant reversal of cumulative revenue recognized when the actual amount of uptick revenue for that contract is known. Differences between the estimated and actual amounts of variable consideration are recorded when known. We do not estimate revenue for direct expenses as it is not materially different than recognizing revenue as direct expenses are incurred.
Revenue from our executive search engagement performance obligation is recognized over time as our clients simultaneously receive and consume the benefits provided by our performance. Revenue from executive search engagements is recognized over the expected average period of performance, in proportion to the estimated personnel time incurred to fulfill our obligations under the executive search contract. Revenue is generally recognized over a period of approximately six months.
Our executive search contracts contain a replacement guarantee which provides for an additional search to be completed, free of charge except for expense reimbursements, should the candidate presented by us be hired by the client and subsequently terminated by the client for performance reasons within a specified period of time. The replacement guarantee is an assurance warranty, which is not a performance obligation under the terms of the executive search contract, as we do not provide any services under the terms of the guarantee that transfer benefits to the client in excess of assuring that the identified candidate complies with the agreed-upon specifications. We account for the replacement guarantee under the relevant warranty guidance in ASC 460 - Guarantees.
In our On-Demand Talent segment, we enter into contracts with clients that outline the general terms and conditions of the assignment to provide on-demand consultants for various types of consulting projects, which consultants may be independent contractors or temporary employees. The consideration we expect to receive under each contract is dependent on the time-based fees specified in the contract. Revenue from on-demand engagement performance obligations is recognized over time as clients simultaneously receive and consume the benefits provided by our performance. We have applied the practical expedient to recognize revenue for these services in the amount to which we have a right to invoice the client, as this amount corresponds directly with the value provided to the client for the performance completed to date. For transactions where a third-party contractor is involved in providing the services to the client, we report the revenue and the related direct costs on a gross basis as we have determined that we are the principal in the transaction. We are primarily responsible for fulfilling the promise to provide consulting services to our clients and we have discretion in establishing the prices charged to clients for the consulting services and are able to contractually obligate the independent service provider to deliver services and deliverables that we have agreed to provide to our clients.
In our Heidrick Consulting segment, revenue is recognized as performance obligations are satisfied by transferring a good or service to a client. Heidrick Consulting enters into contracts with clients that outline the general terms and conditions of the assignment to provide succession planning, executive assessment, top team and board effectiveness and culture shaping programs. The consideration the Company expects to receive under each contract is generally fixed. Most of the Company's consulting contracts contain one performance obligation, which is the overall process of providing the consulting service requested by the client. The majority of our consulting revenue is recognized over time utilizing input methods. Revenue recognition over time for the majority of our consulting engagements is measured by total cost or time incurred as a percentage of the total estimated cost or time on the consulting engagement.
Each of our contracts with clients has an expected duration of one year or less. Accordingly, we have elected to utilize the available practical expedient related to the disclosure of the transaction price allocated to the remaining performance obligations under our contracts. We have also elected the available practical expedients related to adjusting for the effects of a significant financing component and the capitalization of contract acquisition costs. We charge and collect from our clients, sales tax and value added taxes as required by certain jurisdictions. We have made an accounting policy election to exclude these items from the transaction price in our contracts.
Income taxes. Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves judgment. As a global company, we calculate and provide for income taxes in each of the tax jurisdictions in which we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgments regarding the recoverability of deferred tax assets. Tax exposures can involve complex issues and may require an extended period to resolve. Changes in the geographic mix or estimated level of annual income before taxes can affect the overall effective tax rate.
The recognition of deferred tax assets is based on management’s belief that it is more likely than not that the tax benefits associated with temporary differences, net operating loss carryforwards and tax credits will be utilized. We assess the recoverability of the deferred tax assets on an ongoing basis. In making this assessment, we consider all positive and negative evidence, and all potential sources of taxable income including scheduled reversals of deferred tax liabilities, tax-planning strategies, projected future taxable income and recent financial performance.
Deferred taxes have been recorded for U.S. income taxes and foreign withholding taxes related to undistributed foreign earnings that are not permanently reinvested. Annually, we assess material changes in estimates of cash, working capital and long-term investment requirements in order to determine whether these earnings should be distributed. If so, an additional provision for taxes may apply, which could materially affect our future effective tax rate.
Goodwill . We perform assessments of the carrying value of goodwill at least annually and whenever events occur or circumstances indicate that a carrying amount of goodwill may not be recoverable. These circumstances may include a significant change in business climate, attrition of key personnel, changes in financial condition or results of operations, a prolonged decline in our stock price and market capitalization, competition, and other factors.
We operate five reporting units: the Americas, Europe (which includes Africa), Asia Pacific (which includes the Middle East), On-Demand Talent, and Heidrick Consulting. The goodwill impairment test is completed by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The fair value of each of our reporting units is determined using a discounted cash flow methodology. The discounted cash flow approach is dependent on a number of factors including estimates of future market growth and trends, forecasted revenue and costs, capital investments, appropriate discount rates, certain assumptions to allocate shared costs, assets and liabilities, historical and projected performance of our reporting units, the outlook for the executive search industry and the macroeconomic conditions affecting each of our reporting units. The assumptions used in the determination of fair value were (1) a forecast of revenue growth in the near and long term; (2) the discount rate; and (3) a forecast of operating expense growth in the near and long term. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. The fair value of our reporting units is also impacted by our overall market capitalization and may be impacted by volatility in our stock price and assumed control premium, among other factors. As a result, actual future results may differ from those estimates and may result in a future impairment charge. These assumptions are updated annually, at a minimum, to reflect information concerning our reportable segments. We recognized an aggregate goodwill impairment charge of $59.5 million in 2024. We continue to monitor potential triggering events including changes in the business climate in which we operate, our market capitalization compared to our book value, and our recent operating performance. Any changes in these factors could result in an impairment charge. An impairment charge is recognized for the amount by which the carrying value of a reporting unit exceeds its fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit.
We believe that the accounting estimate related to goodwill impairment is a critical accounting estimate because the assumptions used are highly susceptible to changes in the operating results and cash flows of our reportable segments.
Contingent consideration. The former owners of certain of the Company's acquired businesses are generally eligible to receive additional cash consideration based on the attainment of certain operating metrics in the periods subsequent to acquisition. The fair value of these obligations is based on the present value of the expected future payments to be made to the former owners of the acquired entities in accordance with the provisions outlined in the respective purchase agreements, which is a Level 3 fair value measurement. We assess the fair value of these liabilities at each balance sheet date based on the expected performance of the associated business and any changes in fair value are recorded in General and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss). In determining fair value, we use a variation of the income approach, known as the real options method. The significant unobservable inputs utilized in the real options method include (1) revenue forecasts; (2) operating expense forecasts; (3) the discount rate; and (4) volatility. Changes in revenue forecasts, operating expense forecasts, the discount rate, or volatility, would result in a change in the fair value of recorded earnout obligations. To the extent that our estimates change in the future regarding the likelihood of achieving these targets, we may need to record material adjustments to our accrued contingent consideration.
Recently Issued and Adopted Financial Accounting Standards
The information presented in Note 2, Summary of Significant Accounting Policies , to our Consolidated Financial Statements within this Annual Report on Form 10-K is incorporated herein by reference.
