SEC Filing | Heidrick & Struggles International, Inc.

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hsii-20220331

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 MARCH 31, 2022

☐ 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 Class	Trading Symbol	Name of Each Exchange On Which Registered
Common Stock, $0.01 par value	HSII	The 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 April 22, 2022, there were 19,717,804 shares of the Company’s common stock outstanding.

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX


		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021	1

	Unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021	2

	Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity for the three months ended March 31, 2022 and 2021	3

	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021	4

	Unaudited Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29

Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 6.	Exhibits	31

	SIGNATURE	32

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)


	March 31, 2022		December 31, 2021
	(Unaudited)
Current assets
Cash and cash equivalents	$	267,986	$	545,225

Accounts receivable, net of allowances of $6,278 and $5,666, respectively	186,220		133,750
Prepaid expenses	30,681		21,754
Other current assets	47,146		41,449
Income taxes recoverable	3,569		3,210
Total current assets	535,602		745,388

Non-current assets
Property and equipment, net	27,162		27,085
Operating lease right-of-use assets	69,344		72,320
Assets designated for retirement and pension plans	12,372		12,715
Investments	38,006		36,051
Other non-current assets	23,448		23,377
Goodwill	139,017		138,524
Other intangible assets, net	8,462		9,169
Deferred income taxes	42,159		42,169
Total non-current assets	359,970		361,410

Total assets	$	895,572	$	1,106,798

Current liabilities

Accounts payable	$	16,350	$	20,374
Accrued salaries and benefits	179,663		409,026
Deferred revenue	55,364		51,404
Operating lease liabilities	18,963		19,332
Other current liabilities	53,982		24,554
Income taxes payable	15,397		10,004
Total current liabilities	339,719		534,694

Non-current liabilities

Accrued salaries and benefits	71,235		73,779
Retirement and pension plans	57,076		55,593
Operating lease liabilities	62,439		65,625
Other non-current liabilities	14,338		41,087
Total non-current liabilities	205,088		236,084

Total liabilities	544,807		770,778

Commitments and contingencies (Note 17)

Stockholders’ equity
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at March 31, 2022 and December 31, 2021	—		—
Common stock, $0.01 par value, 100,000,000 shares authorized, 19,722,884 and 19,596,607 shares issued, 19,717,804 and 19,591,527 shares outstanding at March 31, 2022 and December 31, 2021, respectively	197		196
Treasury stock at cost, 5,080 shares at March 31, 2022 and December 31, 2021	(191)		(191)
Additional paid in capital	233,641		233,163
Retained earnings	116,525		101,177
Accumulated other comprehensive income	593		1,675
Total stockholders’ equity	350,765		336,020

Total liabilities and stockholders’ equity	$	895,572	$	1,106,798

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

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Revenue
Revenue before reimbursements (net revenue)	$	283,861	$	193,656
Reimbursements	1,676		1,075
Total revenue	285,537		194,731

Operating expenses
Salaries and benefits	201,445		141,363
General and administrative expenses	29,794		27,368
Cost of services	17,988		1,456
Research and development	4,402		—

Restructuring charges	—		3,861
Reimbursed expenses	1,676		1,075
Total operating expenses	255,305		175,123

Operating income	30,232		19,608

Non-operating income (expense)
Interest, net	110		82
Other, net	(2,471)		3,082
Net non-operating income	(2,361)		3,164

Income before income taxes	27,871		22,772

Provision for income taxes	9,404		7,940

Net income	18,467		14,832

Other comprehensive loss, net of tax
Foreign currency translation adjustment	(1,082)		(693)


Other comprehensive loss, net of tax	(1,082)		(693)

Comprehensive income	$	17,385	$	14,139

Weighted-average common shares outstanding
Basic	19,624		19,387

Diluted	20,511		20,171

Earnings per common share
Basic	$	0.94	$	0.77
Diluted	$	0.90	$	0.74

Cash dividends paid per share	$	0.15	$	0.15

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

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except per share amounts)

(Unaudited)


							Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
	Common Stock			Treasury Stock
	Shares	Amount		Shares	Amount
Balance at December 31, 2021	19,597	$	196	5	$	(191)	$	233,163	$	101,177	$	1,675	$	336,020
Net income	—	—		—	—		—		18,467		—		18,467

Other comprehensive loss, net of tax	—	—		—	—		—		—		(1,082)		(1,082)
Common and treasury stock transactions:
Stock-based compensation	—	—		—	—		3,698		—		—		3,698
Vesting of equity awards, net of tax withholding	126	1		—	—		(3,220)		—		—		(3,219)

Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,940)		—		(2,940)
Dividend equivalents on restricted stock units	—	—		—	—		—		(179)		—		(179)

Balance at March 31, 2022	19,723	$	197	5	$	(191)	$	233,641	$	116,525	$	593	$	350,765


							Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
	Common Stock			Treasury Stock
	Shares	Amount		Shares	Amount
Balance at December 31, 2020	19,586	$	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, 2021	19,586	$	196	88	$	(3,090)	$	225,998	$	52,742	$	2,724	$	278,570

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

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months ended March 31,
	2022		2021
Cash flows - operating activities
Net income	$	18,467	$	14,832
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	2,620		6,068
Deferred income taxes	(477)		(495)
Stock-based compensation expense	3,698		2,991
Accretion expense related to earnout payments	271		—
Gain on marketable securities	—		(1)
Loss on disposal of property and equipment	167		21

Changes in assets and liabilities:
Accounts receivable	(53,142)		(41,209)
Accounts payable	(4,156)		1,365
Accrued expenses	(227,424)		(116,327)
Restructuring accrual	—		(2,902)
Deferred revenue	4,137		963
Income taxes recoverable and payable, net	5,028		6,819
Retirement and pension plan assets and liabilities	3,497		1,235
Prepaid expenses	(9,081)		(7,894)
Other assets and liabilities, net	(5,801)		(8,037)
Net cash used in operating activities	(262,196)		(142,571)

Cash flows - investing activities

Capital expenditures	(1,804)		(945)

Purchases of marketable securities and investments	(5,011)		(1,354)
Proceeds from sales of marketable securities and investments	763		20,153
Net cash provided by (used in) investing activities	(6,052)		17,854

Cash flows - financing activities



Cash dividends paid	(3,119)		(3,072)
Payment of employee tax withholdings on equity transactions	(3,219)		(3,090)

Net cash used in financing activities	(6,338)		(6,162)

Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash	(2,671)		(1,539)

Net decrease in cash, cash equivalents and restricted cash	(277,257)		(132,418)
Cash, cash equivalents and restricted cash at beginning of period	545,259		316,489
Cash, cash equivalents and restricted cash at end of period	$	268,002	$	184,071

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

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 March 31, 2022 and December 31, 2021, the results of operations for the three months ended March 31, 2022 and 2021 and its cash flows for the three months ended March 31, 2022 and 2021 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, 2021, as filed with the SEC on February 28, 2022.

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, 2021.

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.

Research and development

Research and development consists of payroll, employee benefits, stock-based compensation, other employee expenses and third-party professional fees associated with new product development.

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 March 31, 2022 and 2021, and December 31, 2021 and 2020:


	March 31,				December 31,
	2022		2021		2021		2020
Cash and cash equivalents	$	267,986	$	184,055	$	545,225	$	316,473

Restricted cash included within other non-current assets	16		16		34		16
Total cash, cash equivalents and restricted cash	$	268,002	$	184,071	$	545,259	$	316,489

Earnings per Common Share

Basic earnings per common share is computed by dividing net income by weighted average common shares outstanding for the period. Diluted earnings 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 per share in periods in which they have an anti-dilutive effect.

The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended March 31,
	2022		2021
Net income	$	18,467	$	14,832
Weighted average shares outstanding:
Basic	19,624		19,387
Effect of dilutive securities:
Restricted stock units	650		589
Performance stock units	237		195
Diluted	20,511		20,171
Basic earnings per share	$	0.94	$	0.77
Diluted earnings per share	$	0.90	$	0.74

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. The reclassifications had no impact on net income, 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.

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.

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 Accounting Standards Codification 460 - Guarantees.

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.

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.

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 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, 2021 to March 31,

2022:


	March 31, 2022		December 31, 2021		Change
Contract assets
Unbilled receivables, net	$	19,348	$	17,947	$	1,401
Contract assets	21,725		18,995		2,730
Total contract assets	41,073		36,942		4,131

Contract liabilities
Deferred revenue	$	55,364	$	51,404	$	3,960

During the three months ended March 31, 2022, the Company recognized revenue of $51.1 million that was included in the contract liabilities balance at the beginning of the period. The amount of revenue recognized during the three months ended March 31, 2022, from performance obligations partially satisfied in previous periods as a result of changes in the estimates of variable consideration was $8.3 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, 2021	$	5,666
Provision for credit losses	2,154
Write-offs	(1,534)
Foreign currency translation	(8)
Balance at March 31, 2022	$	6,278

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 Months				Balance Sheet Classification
Balance at March 31, 2022	Fair Value		Unrealized Loss		Cash and Cash Equivalents		Marketable Securities
U.S. Treasury securities	$	51,984	$	1	$	51,984	$	—

There were no investments with unrealized losses at December 31, 2021.

5. Property and Equipment, net

The components of the Company’s property and equipment are as follows:


	March 31, 2022		December 31, 2021
Leasehold improvements	$	41,510	$	42,252
Office furniture, fixtures and equipment	14,515		14,933
Computer equipment and software	25,640		24,293
Property and equipment, gross	81,665		81,478
Accumulated depreciation	(54,503)		(54,393)
Property and equipment, net	$	27,162	$	27,085

Depreciation expense for each of the three months ended March 31, 2022 and 2021 was $1.8 million.

6. Leases

The Company's lease portfolio is comprised of operating leases for office space and equipment. The majority of the Company's leases include both lease and non-lease components, which the Company accounts for differently depending on the underlying class of asset. Certain of the Company's leases include one or more options to renew or terminate the lease at the Company's discretion. Generally, the renewal and termination options are not included in the right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal and termination options and when they are reasonably certain of exercise, includes the renewal or termination option in the lease term.

As most of the Company's leases do not provide an implicit interest rate, the Company utilizes an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company has a centrally managed treasury function and therefore, a portfolio approach is applied in determining the incremental borrowing rate. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a fully collateralized basis over a similar term in an amount equal to the total lease payments in a similar economic environment.

Office leases have remaining lease terms that range from less than one year to 11.3 years, some of which also include options to extend or terminate the lease. Most office leases contain both fixed and variable lease payments. Variable lease costs consist primarily of rent escalations based on an established index or rate and taxes, insurance, and common area or other maintenance costs, which are paid based on actual costs incurred by the lessor. The Company has elected to utilize the available practical expedient to not separate lease and non-lease components for office leases.

As part of the Company's restructuring plan, a lease component related to one of the Company's offices was abandoned and the useful life of the associated right-of-use asset was shortened to correspond with the cease-use date. As a result of the change in the useful life, approximately $4.0 million of right-of-use asset amortization was accelerated and recorded in Restructuring charges in the Condensed Consolidated Statements of Comprehensive Income and Depreciation and amortization in the Condensed Consolidated Statements of Cash Flows during the three months ended March 31, 2021.

Equipment leases, which are comprised of vehicle and office equipment leases, have remaining terms that range from less than one year to 4.7 years, some of which also include options to extend or terminate the lease. The Company's equipment leases do not contain variable lease payments. The Company separates the lease and non-lease components for its equipment leases. Equipment leases do not comprise a significant portion of the Company's lease portfolio.

Lease cost components included within General and Administrative Expenses in our Condensed Consolidated Statements of Comprehensive Income were as follows:


	Three Months Ended March 31,
	2022		2021
Operating lease cost	$	4,358	$	4,867
Variable lease cost	1,161		1,228
Total lease cost	$	5,519	$	6,095

Supplemental cash flow information related to the Company's operating leases is as follows for the three months ended March 31:


	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	5,044	$	7,566
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	281	$	791

The weighted average remaining lease term and weighted average discount rate for operating leases as of March 31, are as follows:


	2022		2021
Weighted Average Remaining Lease Term
Operating leases	6.3 years		5.9 years
Weighted Average Discount Rate
Operating leases	3.25	%	3.44	%

The future maturities of the Company's operating lease liabilities as of March 31, 2022, for the years ended December 31 are as follows:


	Operating Lease Maturity
2022	$	13,339
2023	18,688
2024	16,649
2025	8,764
2026	7,377
Thereafter	25,484
Total lease payments	90,301
Less: Interest	(8,899)
Present value of lease liabilities	$	81,402

7. Financial Instruments and Fair Value

Cash, Cash Equivalents and Marketable Securities

The Company's investments in marketable debt securities, which consist of U.S. Treasury bills, are classified and accounted for as available-for-sale. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument's underlying contractual maturity date. Unrealized gains and losses on marketable debt securities classified as available-for-sale are recognized in Accumulated other comprehensive income in the Condensed Consolidated Balance Sheets until realized.

The Company's cash, cash equivalents, and marketable securities by significant investment category are as follows:



	Cash and Cash Equivalents
Balance at March 31, 2022
Cash	$	145,982

Level 1(1):
Money market funds	28,026
U.S. Treasury securities	93,978
Total Level 1	122,004




Total	$	267,986



	Cash and Cash Equivalents
Balance at December 31, 2021
Cash	$	265,233

Level 1(1):
Money market funds	80,798
U.S. Treasury securities	199,194
Total Level 1	279,992

Total	$	545,225

(1)Level 1 – Quoted prices in active markets for identical assets and liabilities.

Investments, Assets Designated for Retirement and Pension Plans and Associated Liabilities

The Company has a U.S. non-qualified deferred compensation plan that consists primarily of U.S. marketable securities and mutual funds. The aggregate cost basis for these investments was $27.5 million and $22.9 million as of March 31, 2022 and December 31, 2021, respectively.

The Company also maintains a pension plan for certain current and former employees in Germany. The pensions are individually fixed Euro amounts that vary depending on the function and the eligible years of service of the employee. The Company’s investment strategy is to support its pension obligations through reinsurance contracts. The BaFin—German Federal Financial Supervisory Authority—supervises the insurance companies and the reinsurance contracts. The BaFin requires each reinsurance contract to guarantee a fixed minimum return. The Company’s pension benefits are fully reinsured by group insurance contracts with ERGO Lebensversicherung AG, and the group insurance contracts are measured in accordance with BaFin guidelines (including mortality tables and discount rates) which are considered Level 2 inputs.

The following tables provide a summary of the fair value measurements for each major category of investments, assets designated for retirement and pension plans and associated liabilities measured at fair value:


			Balance Sheet Classification
	Fair Value		Other Current Assets		Assets Designated for Retirement and Pension Plans		Investments		Other Current Liabilities		Retirement and Pension Plans
Balance at March 31, 2022

Measured on a recurring basis:
Level 1(1):
U.S. non-qualified deferred compensation plan	$	38,006	$	—	$	—	$	38,006	$	—	$	—

Level 2(2):
Retirement and pension plan assets	13,669		1,297		12,372		—		—		—
Pension benefit obligation	(19,066)		—		—		—		(1,297)		(17,769)
Total Level 2	(5,397)		1,297		12,372		—		(1,297)		(17,769)





Total	$	32,609	$	1,297	$	12,372	$	38,006	$	(1,297)	$	(17,769)


			Balance Sheet Classification
	Fair Value		Other Current Assets		Assets Designated for Retirement and Pension Plans		Investments		Other Current Liabilities		Retirement and Pension Plans
Balance at December 31, 2021

Measured on a recurring basis:
Level 1(1):
U.S. non-qualified deferred compensation plan	$	36,051	$	—	$	—	$	36,051	$	—	$	—

Level 2(2):
Retirement and pension plan assets	14,048		1,333		12,715		—		—		—
Pension benefit obligation	(19,594)		—		—		—		(1,333)		(18,261)
Total Level 2	(5,546)		1,333		12,715		—		(1,333)		(18,261)





Total	$	30,505	$	1,333	$	12,715	$	36,051	$	(1,333)	$	(18,261)

(1)Level 1 – Quoted prices in active markets for identical assets and liabilities.

(2)Level 2 – Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Contingent Consideration and Compensation

The former owners of the Company's acquired businesses are eligible to receive additional cash compensation based on the attainment of certain operating metrics in the periods subsequent to acquisition. Contingent consideration and compensation are valued using significant inputs that are not observable in the market, which are defined as Level 3 inputs pursuant to fair value measurement accounting. The Company determines the fair value of contingent consideration and compensation using discounted cash flow models.

The following table provides a reconciliation of the beginning and ending balance of Level 3 liabilities for the three months ended March 31, 2022:


	Earnout		Contingent Compensation
Balance at December 31, 2021	$	(35,654)	$	(4,141)

Earnout accretion	(271)		—
Compensation expense	—		(1,089)


Foreign currency translation	—		(760)

Balance at March 31, 2022	$	(35,925)	$	(5,990)

Earnout accruals of $26.9 million and zero were recorded within Other current liabilities as of March 31, 2022 and December 31, 2021, respectively, and earnout accruals of $9.0 million and $35.7 million were recorded within Other non-current liabilities as of March 31, 2022 and December 31, 2021, respectively. The contingent compensation accruals are recorded within non-current Accrued salaries and benefits at both March 31, 2022 and December 31, 2021.

8. Goodwill and Other Intangible Assets

Goodwill

The Company's goodwill by segment is as follows:


	March 31, 2022		December 31, 2021
Executive Search
Americas	$	91,989	$	91,463
Europe	1,499		1,532

Total Executive Search	93,488		92,995
On-Demand Talent	45,529		45,529



Total goodwill	$	139,017	$	138,524

Changes in the carrying amount of goodwill by segment for the three months ended March 31, 2022, are as follows:


	Executive Search						On-Demand Talent
	Americas		Europe		Asia Pacific				Total
Goodwill	$	91,463	$	26,007	$	8,495	$	45,529	$	171,494
Accumulated impairment losses	—		(24,475)		(8,495)		—		(32,970)
Balance at December 31, 2021	91,463		1,532		—		45,529		138,524




Foreign currency translation	526		(33)		—		—		493

Goodwill	91,989		25,974		8,495		45,529		171,987
Accumulated impairment losses	—		(24,475)		(8,495)		—		(32,970)
Balance at March 31, 2022	$	91,989	$	1,499	$	—	$	45,529	$	139,017

Other Intangible Assets, net

The Company’s other intangible assets, net by segment, are as follows:


	March 31, 2022		December 31, 2021
Executive Search
Americas	$	103	$	103
Europe	389		463
Asia Pacific	30		33
Total Executive Search	522		599



On-Demand Talent	7,940		8,570
Total other intangible assets, net	$	8,462	$	9,169

The carrying amount of amortizable intangible assets and the related accumulated amortization are as follows:


	Weighted Average Life (Years)	March 31, 2022						December 31, 2021
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Client relationships	10.6	$	22,052	$	(16,691)	$	5,361	$	22,127	$	(16,495)	$	5,632
Trade name	3.1	2,474		(1,446)		1,028		2,441		(1,237)		1,204
Software	3.0	3,110		(1,037)		2,073		3,110		(777)		2,333
Total intangible assets	7.8	$	27,636	$	(19,174)	$	8,462