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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

OR

 ☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number: 0-25837
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-2681268
(State or Other Jurisdiction of
Incorporation or Organization)		 (I.R.S. Employer
Identification Number)
233 South Wacker Drive-Suite 4900
Chicago, Illinois
60606-6303
(Address of Principal Executive Offices)

(312) 496-1200
(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange On Which Registered
Common Stock, $0.01 par valueHSIIThe NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer 
¨
  Accelerated filer ☒
Non-Accelerated filer 
¨
  Smaller reporting company 
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 22, 2021, there were 19,591,527 shares of the Company’s common stock outstanding.


HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
 
  PAGE
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 6.


PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30,
2021		December 31,
2020
 (Unaudited) 
Current assets
Cash and cash equivalents$348,292 $316,473 
Marketable securities— 19,999 
Accounts receivable, net of allowances of $7,562 and $6,557, respectively
181,167 88,123 
Prepaid expenses26,624 18,956 
Other current assets34,447 23,279 
Income taxes recoverable4,386 5,856 
Total current assets594,916 472,686 
Non-current assets
Property and equipment, net20,939 23,492 
Operating lease right-of-use assets74,744 92,671 
Assets designated for retirement and pension plans13,672 14,425 
Investments34,738 31,369 
Other non-current assets25,852 24,439 
Goodwill137,047 91,643 
Other intangible assets, net10,223 1,129 
Deferred income taxes36,501 35,958 
Total non-current assets353,716 315,126 
Total assets$948,632 $787,812 
Current liabilities
Accounts payable$18,119 $8,799 
Accrued salaries and benefits305,186 217,908 
Deferred revenue45,284 38,050 
Operating lease liabilities18,992 28,984 
Other current liabilities22,723 23,311 
Income taxes payable14,742 1,186 
Total current liabilities425,046 318,238 
Non-current liabilities
Accrued salaries and benefits52,623 56,925 
Retirement and pension plans55,804 53,496 
Operating lease liabilities63,336 86,816 
Other non-current liabilities28,567 4,735 
Total non-current liabilities200,330 201,972 
Total liabilities625,376 520,210 
Commitments and contingencies (Note 18)
Stockholders’ equity
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at September 30, 2021 and December 31, 2020
— — 
Common stock, $0.01 par value, 100,000,000 shares authorized, 19,596,607 and 19,585,777 shares issued, 19,591,527 and 19,359,586 shares outstanding at September 30, 2021 and December 31, 2020, respectively
196 196 
Treasury stock at cost, 5,080 and 226,191 shares at September 30, 2021 and December 31, 2020, respectively
(181)(8,041)
Additional paid in capital229,115 231,048 
Retained earnings92,058 40,982 
Accumulated other comprehensive income2,068 3,417 
Total stockholders’ equity323,256 267,602 
Total liabilities and stockholders’ equity$948,632 $787,812 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
1


HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)
 
 Three Months Ended September 30,Nine Months Ended
September 30,
 2021202020212020
Revenue
Revenue before reimbursements (net revenue)$263,825 $143,544 $717,462 $460,628 
Reimbursements1,490 957 3,819 6,555 
Total revenue265,315 144,501 721,281 467,183 
Operating expenses
Salaries and benefits185,904 103,893 513,321 329,640 
General and administrative expenses29,155 28,899 83,876 91,122 
Cost of services18,686 870 34,817 2,848 
Impairment charges— — — 32,970 
Restructuring charges(3,262)48,115 3,792 48,115 
Reimbursed expenses1,490 957 3,819 6,555 
Total operating expenses231,973 182,734 639,625 511,250 
Operating income (loss)33,342 (38,233)81,656 (44,067)
Non-operating income (expense)
Interest, net90 (180)207 160 
Other, net145 1,819 6,260 460 
Net non-operating income235 1,639 6,467 620 
Income (loss) before income taxes33,577 (36,594)88,123 (43,447)
Provision for (benefit from) income taxes9,079 (10,416)28,028 (202)
Net income (loss)24,498 (26,178)60,095 (43,245)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment(661)849 (1,349)(1,381)
Net unrealized gain (loss) on available-for-sale investments— 1 — (14)
Other comprehensive income (loss), net of tax(661)850 (1,349)(1,395)
Comprehensive income (loss)$23,837 $(25,328)$58,746 $(44,640)
Weighted-average common shares outstanding
Basic19,569 19,351 19,489 19,281 
Diluted20,240 19,351 20,259 19,281 
Earnings (loss) per common share
Basic$1.25 $(1.35)$3.08 $(2.24)
Diluted$1.21 $(1.35)$2.97 $(2.24)
Cash dividends paid per share$0.15 $0.15 $0.45 $0.45 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
2


HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
   Additional
Paid in
Capital		Retained EarningsAccumulated
Other
Comprehensive
Income		Total
Common StockTreasury Stock
SharesAmountSharesAmount
Balance at December 31, 202019,586 $196 226 $(8,041)$231,048 $40,982 $3,417 $267,602 
Net income— — — — — 14,832 — 14,832 
Other comprehensive loss, net of tax— — — — — — (693)(693)
Common and treasury stock transactions:
Stock-based compensation— — — — 2,991 — — 2,991 
Vesting of equity awards, net of tax withholdings— — (138)4,951 (8,041)— — (3,090)
Cash dividends declared ($0.15 per share)
— — — — — (2,905)— (2,905)
Dividend equivalents on restricted stock units— — — — — (167)— (167)
Balance at March 31, 202119,586 $196 88 $(3,090)$225,998 $52,742 $2,724 $278,570 
Net income— — — — — 20,765 — 20,765 
Other comprehensive income, net of tax— — — — — — 5 5 
Common and treasury stock transactions:
Stock-based compensation— — — — 2,861 — — 2,861 
Vesting of equity awards— — (23)808 (808)— — — 
Re-issuance of treasury stock— — (9)280 65 — — 345 
Cash dividends declared ($0.15 per share)
— — — — — (2,926)— (2,926)
Dividend equivalents on restricted stock units— — — — — (67)— (67)
Balance at June 30, 202119,586 $196 56 $(2,002)$228,116 $70,514 $2,729 $299,553 
Net income— — — — — 24,498 — 24,498 
Other comprehensive income, net of tax— — — — — — (661)(661)
Common and treasury stock transactions:
Stock-based compensation— — — — 2,820 — — 2,820 
Vesting of equity awards11 — (51)1,821 (1,821)— — — 
Cash dividends declared ($0.15 per share)
— — — — — (2,939)— (2,939)
Dividend equivalents on restricted stock units— — — — — (15)— (15)
Balance at September 30, 202119,597 $196 5 $(181)$229,115 $92,058 $2,068 $323,256 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
3


HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
   Additional
Paid in
Capital		Retained EarningsAccumulated
Other
Comprehensive
Income		Total
Common StockTreasury Stock
SharesAmountSharesAmount
Balance at December 31, 201919,586 $196 420 $(14,795)$228,807 $91,083 $3,824 $309,115 
Net income— — — — — 8,666 — 8,666 
Adoption of accounting standards— — — — — (332)— (332)
Other comprehensive loss, net of tax— — — — — — (3,746)(3,746)
Common and treasury stock transactions:
Stock-based compensation— — — — 2,614 — — 2,614 
Vesting of equity awards, net of tax withholdings— — (109)3,838 (5,388)— — (1,550)
Cash dividends declared ($0.15 per share)
— — — — — (2,876)— (2,876)
Dividend equivalents on restricted stock units— — — — — (126)— (126)
Balance at March 31, 202019,586 $196 311 $(10,957)$226,033 $96,415 $78 $311,765 
Net loss— — — — — (25,733)— (25,733)
Other comprehensive income, net of tax— — — — — — 1,501 1,501 
Common and treasury stock transactions:
Stock-based compensation— — — — 1,320 — — 1,320 
Vesting of equity awards— — (48)1,685 (1,685)— — — 
Re-issuance of treasury stock— — (15)529 (183)— — 346 
Cash dividends declared ($0.15 per share)
— — — — — (2,891)— (2,891)
Dividend equivalents on restricted stock units— — — — — (105)— (105)
Balance at June 30, 202019,586 $196 248 $(8,743)$225,485 $67,686 $1,579 $286,203 
Net loss— — — — — (26,178)— (26,178)
Other comprehensive income, net of tax— — — — — — 850 850 
Common and treasury stock transactions:
Stock-based compensation— — — — 3,212 — — 3,212 
Vesting of equity awards— — (22)702 (702)— — — 
Cash dividends declared ($0.15 per share)
— — — — — (2,905)— (2,905)
Dividend equivalents on restricted stock units— — — — — (116)— (116)
Balance at September 30, 202019,586 $196 226 $(8,041)$227,995 $38,487 $2,429 $261,066 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
4


HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 Nine Months Ended
September 30,
 20212020
Cash flows - operating activities
Net income (loss)$60,095 $(43,245)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization16,576 20,638 
Deferred income taxes(1,486)700 
Stock-based compensation expense8,672 7,146 
Accretion expense related to earnout payments363 — 
Gain on marketable securities(1)(144)
Loss on disposal of property and equipment127 289 
Impairment charges— 32,970 
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable(84,877)(9,616)
Accounts payable2,931 2,809 
Accrued expenses89,405 (77,776)
Restructuring accrual(5,024)6,289 
Deferred revenue6,453 (3,892)
Income taxes recoverable and payable, net14,937 (11,460)
Retirement and pension plan assets and liabilities1,443 1,304 
Prepaid expenses(7,724)(1,229)
Other assets and liabilities, net(37,114)2,312 
Net cash provided by (used in) operating activities64,776 (72,905)
Cash flows - investing activities
Acquisition of business, net of cash acquired(31,969)— 
Capital expenditures(3,902)(7,121)
Purchases of marketable securities and investments(1,997)(118,668)
Proceeds from sales of marketable securities and investments20,653 111,633 
Net cash used in investing activities(17,215)(14,156)
Cash flows - financing activities
Proceeds from line of credit— 100,000 
Payments on line of credit— (100,000)
Cash dividends paid(8,927)(9,019)
Payment of employee tax withholdings on equity transactions(3,090)(1,550)
Acquisition earnout payments— (2,789)
Net cash used in financing activities(12,017)(13,358)
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash(3,707)(723)
Net increase (decrease) in cash, cash equivalents and restricted cash31,837 (101,142)
Cash, cash equivalents and restricted cash at beginning of period316,489 271,719 
Cash, cash equivalents and restricted cash at end of period$348,326 $170,577 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

5


HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except per share figures)
(Unaudited) 

1.    Basis of Presentation of Interim Financial Information

The accompanying unaudited Condensed Consolidated Financial Statements of Heidrick & Struggles International, Inc. and subsidiaries (the "Company") have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Significant items subject to estimates and assumptions include revenue recognition, income taxes, interim effective tax rate and the assessment of goodwill, other intangible assets and long lived assets for impairment. Estimates are subject to a degree of uncertainty and actual results could differ from these estimates. In the opinion of management, all adjustments necessary to fairly present the financial position of the Company at September 30, 2021 and December 31, 2020, the results of operations for the three and nine months ended September 30, 2021 and 2020 and its cash flows for the nine months ended September 30, 2021 and 2020 have been included and are of a normal, recurring nature except as otherwise disclosed. These financial statements and notes are to be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 24, 2021.

2.    Summary of Significant Accounting Policies

A complete listing of the Company’s significant accounting policies is discussed in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Revenue Recognition

See Note 3, Revenue.

Cost of Services

Cost of services consists of third-party contractor costs related to the delivery of various services in the Company's On-Demand Talent and Heidrick Consulting operating segments.

Marketable Securities

The Company’s marketable securities consist of available-for-sale debt securities with original maturities exceeding three months.

Restricted Cash

The following table provides a reconciliation of the cash and cash equivalents between the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Cash Flows as of September 30, 2021 and 2020, and December 31, 2020 and 2019:
September 30,December 31,
2021202020202019
Cash and cash equivalents$348,292 $170,577 $316,473 $271,719 
Restricted cash included within other non-current assets34 — 16 — 
Total cash, cash equivalents and restricted cash$348,326 $170,577 $316,489 $271,719 

6


Earnings (Loss) per Common Share

Basic earnings (loss) per common share is computed by dividing net income (loss) by weighted average common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Common equivalent shares are excluded from the determination of diluted earnings (loss) per share in periods in which they have an anti-dilutive effect.

The following table sets forth the computation of basic and diluted earnings (loss) per share:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Net income (loss)$24,498 $(26,178)$60,095 $(43,245)
Weighted average shares outstanding:
Basic19,569 19,351 19,489 19,281 
Effect of dilutive securities:
Restricted stock units524 — 584 — 
Performance stock units147 — 186 — 
Diluted20,240 19,351 20,259 19,281 
Basic earnings (loss) per share$1.25 $(1.35)$3.08 $(2.24)
Diluted earnings (loss) per share$1.21 $(1.35)$2.97 $(2.24)
Weighted average restricted stock units and performance stock units outstanding that could be converted into approximately 315,000 and 63,000 common shares, respectively, for the three months ended September 30, 2020, and 454,000 and 98,000 common shares, respectively, for the nine months ended September 30, 2020, were not included in the computation of diluted earnings (loss) per share because the effects would be anti-dilutive.

Reclassifications

Certain prior year amounts have been recast as a result of the Company's presentation of Cost of services in the Condensed Consolidated Statements of Comprehensive Income (Loss). The reclassifications had no impact on net income (loss), net cash flows or stockholders' equity.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in Operating Lease Right-of-Use Assets, Operating Lease Liabilities - Current and Operating Lease Liabilities - Non-Current in our Condensed Consolidated Balance Sheets. The Company does not have any leases that meet the finance lease criteria.

Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, an incremental borrowing rate based on the information available at the commencement date is used in determining the present value of lease payments. The operating lease right-of-use asset also includes any lease payments made in advance and any accrued rent expense balances. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components. For office leases, the Company accounts for the lease and non-lease components as a single lease component. For equipment leases, such as vehicles and office equipment, the Company accounts for the lease and non-lease components separately.

7


Recently Issued Financial Accounting Standards

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance is intended to provide temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this accounting guidance. The effect is not known or reasonably estimable at this time.

Recently Adopted Financial Accounting Standards

On January 1, 2021, the Company adopted ASU No. 2019-12, Simplifying the Accounting for Income Taxes. The guidance simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification ("ASC") 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The adoption had no impact on the Condensed Consolidated Statements of Comprehensive Income (Loss), Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Changes in Stockholders' Equity in any period presented.

3.    Revenue

Executive Search

Revenue is recognized as performance obligations are satisfied by transferring a good or service to a client. Generally, each executive search contract 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. The Company generally bills 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, the Company is often authorized to bill the client for one-third of the excess compensation. The Company refers to this additional billing as uptick revenue. In most contracts, variable consideration is comprised of uptick revenue and direct expenses. The Company bills its clients for uptick revenue upon completion of the executive search, and direct expenses are billed as incurred.

The Company estimates 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 records 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 the contract is known. Differences between the estimated and actual amounts of variable consideration are recorded when known. The Company does not estimate revenue for direct expenses as it is not materially different than recognizing revenue as direct expenses are incurred.

Revenue from executive search engagement performance obligations is recognized over time as clients simultaneously receive and consume the benefits provided by the Company's 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 the obligations under the executive search contract. Revenue is generally recognized over a period of approximately six months.

The Company's 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 the Company 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 the Company does 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. The Company accounts for the replacement guarantee under the relevant warranty guidance in ASC 460 - Guarantees.

8


Heidrick Consulting

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 both input and output methods. Contracts that contain coaching sessions, training sessions or the completion of assessments are recognized using the output method as each session or assessment is delivered to the client. Contracts that contain general consulting work are recognized using the input method utilizing a measure of progress that is based on time incurred on the project.
The Company enters into enterprise agreements with clients to provide a license for online access, via the Company's Culture Connect platform, to training and other proprietary material related to the Company's culture shaping programs. The consideration the Company expects to receive under the terms of an enterprise agreement is comprised of a single fixed fee. The enterprise agreements contain multiple performance obligations, the delivery of materials via Culture Connect and material rights related to options to renew enterprise agreements at a significant discount. The Company allocates the transaction price to the performance obligations in the contract on a stand-alone selling price basis. The stand-alone selling price for the initial term of the enterprise agreement is outlined in the contract and is equal to the price paid by the client for the agreement over the initial term of the contract. The stand-alone selling price for the options to renew, or material right, are not directly observable and must be estimated. This estimate is required to reflect the discount the client would obtain when exercising the option to renew, adjusted for the likelihood that the option will be exercised. The Company estimates the likelihood of renewal using a historical analysis of client renewals. Access to Culture Connect represents a right to access the Company’s intellectual property that the client simultaneously receives and consumes as the Company performs under the agreement, and therefore the Company recognizes revenue over time. Given the continuous nature of this commitment, the Company utilizes straight-line ratable revenue recognition over the estimated subscription period as the Company's clients will receive and consume the benefits from Culture Connect equally throughout the contract period. Revenue related to client renewals of enterprise agreements is recognized over the term of the renewal, which is generally twelve months. Enterprise agreements do not comprise a significant portion of the Company's revenue.

On-Demand Talent

The Company enters 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 the Company expects 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 the Company's performance. The Company has applied the practical expedient to recognize revenue for these services in the amount to which the Company has 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, the Company reports the revenue and the related direct costs on a gross basis as it has determined that it is the principal in the transaction. The Company is primarily responsible for fulfilling the promise to provide consulting services to its clients and the Company has discretion in establishing the prices charged to clients for the consulting services and is able to contractually obligate the independent service provider to deliver services and deliverables that the Company has agreed to provide to its clients.

Contract Balances

Contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. Contract assets and liabilities are classified as current due to the nature of the Company's contracts, which are completed within one year. Contract assets are included within Other Current Assets on the Condensed Consolidated Balance Sheets.

Unbilled receivables: Unbilled revenue represents contract assets from revenue recognized over time in excess of the amount billed to the client and the amount billed to the client is solely dependent upon the passage of time. This amount includes revenue recognized in excess of billed executive search retainers, Heidrick Consulting fees, and On-Demand Talent fees.

Contract assets: Contract assets represent revenue recognized over time in excess of the amount billed to the client and the amount billed to the client is not solely subject to the passage of time. This amount primarily includes revenue recognized for
9


upticks and contingent placement fees in executive search contracts.

Deferred revenue: Contract liabilities consist of deferred revenue, which is equal to billings in excess of revenue recognized.

The following table outlines the changes in the contract asset and liability balances from December 31, 2020 to September 30, 2021:
September 30,
2021		December 31,
2020		Change
Contract assets
Unbilled receivables, net$16,584 $9,907 $6,677 
Contract assets13,886 9,745 4,141 
Total contract assets
30,470 19,652 10,818 
Contract liabilities
Deferred revenue$45,284 $38,050 $7,234 

During the nine months ended September 30, 2021, the Company recognized revenue of $33.6 million that was included in the contract liabilities balance at the beginning of the period. The amount of revenue recognized during the nine months ended September 30, 2021, from performance obligations partially satisfied in previous periods as a result of changes in the estimates of variable consideration was $26.0 million.

Each of the Company's contracts has an expected duration of one year or less. Accordingly, the Company has elected to utilize the available practical expedient related to the disclosure of the transaction price allocated to the remaining performance obligations under its contracts. The Company has also elected the available practical expedients related to adjusting for the effects of a significant financing component and the capitalization of contract acquisition costs. The Company charges and collects from its clients sales tax and value added taxes as required by certain jurisdictions. The Company has made an accounting policy election to exclude these items from the transaction price in its contracts.

4.    Credit Losses

The Company is exposed to credit losses primarily through the provision of its executive search, consulting, and on-demand talent services. The Company’s expected credit loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of clients' trade accounts receivables. Due to the short-term nature of such receivables, the estimate of amount of accounts receivable that may not be collected is primarily based on historical loss-rate experience. When required, the Company adjusts the loss-rate methodology to account for current conditions and reasonable and supportable expectations of future economic and market conditions. The Company generally assesses future economic conditions for a period of sixty to ninety days, which corresponds with the contractual life of its accounts receivables. Additionally, specific allowance amounts are established to record the appropriate provision for clients that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of clients' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted.

The activity in the allowance for credit losses on the Company's trade receivables is as follows:
Balance at December 31, 2020
$6,557 
Provision for credit losses4,622 
Write-offs(3,523)
Foreign currency translation(94)
Balance at September 30, 2021
$7,562 
10



The fair value and unrealized losses on available for sale debt securities, aggregated by investment category and the length of time the security has been in an unrealized loss position, are as follows:
Less Than 12 MonthsBalance Sheet Classification
Balance at September 30, 2021Fair ValueUnrealized LossCash and Cash EquivalentsMarketable Securities
U.S. Treasury securities$36,198 $1 $36,198 $— 

Less Than 12 MonthsBalance Sheet Classification
Balance at December 31, 2020
Fair ValueUnrealized LossCash and Cash EquivalentsMarketable Securities
U.S. Treasury securities$31,997 $1 $31,997 $— 

5.    Property and Equipment, net

The components of the Company’s property and equipment are as follows:
September 30,
2021		December 31,
2020
Leasehold improvements$35,980 $40,320 
Office furniture, fixtures and equipment13,858 14,816 
Computer equipment and software24,714 25,544 
Property and equipment, gross74,552 80,680 
Accumulated depreciation(53,613)(57,188)
Property and equipment, net$20,939 $23,492 

Depreciation expense for the three months ended September 30, 2021 and 2020 was $1.8 million and $