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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 MARCH 31, 2023

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 April 21, 2023, there were 20,027,637 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)
March 31,
2023		December 31,
2022
 (Unaudited) 
Current assets
Cash and cash equivalents$204,691 $355,447 
Marketable securities— 266,169 
Accounts receivable, net of allowances of $7,248 and $6,643, respectively
160,092 126,437 
Prepaid expenses31,529 24,098 
Other current assets42,830 40,722 
Income taxes recoverable7,190 10,946 
Total current assets446,332 823,819 
Non-current assets
Property and equipment, net32,517 30,207 
Operating lease right-of-use assets69,589 71,457 
Assets designated for retirement and pension plans11,479 11,332 
Investments42,547 34,354 
Other non-current assets31,666 25,788 
Goodwill197,711 138,361 
Other intangible assets, net25,263 6,333 
Deferred income taxes34,361 33,987 
Total non-current assets445,133 351,819 
Total assets$891,465 $1,175,638 
Current liabilities
Accounts payable$16,975 $14,613 
Accrued salaries and benefits140,056 451,161 
Deferred revenue43,345 43,057 
Operating lease liabilities20,584 19,554 
Other current liabilities33,318 56,016 
Income taxes payable5,896 4,076 
Total current liabilities260,174 588,477 
Non-current liabilities
Accrued salaries and benefits48,138 59,467 
Retirement and pension plans56,882 48,456 
Operating lease liabilities60,851 63,299 
Other non-current liabilities36,778 5,293 
Deferred income taxes7,530 — 
Total non-current liabilities210,179 176,515 
Total liabilities470,353 764,992 
Commitments and contingencies (Note 18)
Stockholders’ equity
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at March 31, 2023 and December 31, 2022
— — 
Common stock, $0.01 par value, 100,000,000 shares authorized, 20,037,959 and 19,866,287 shares issued, 20,027,637 and 19,861,207 shares outstanding at March 31, 2023 and December 31, 2022, respectively
200 199 
Treasury stock at cost, 10,322 and 5,080 shares at March 31, 2023 and December 31, 2022, respectively
(354)(191)
Additional paid in capital244,341 246,630 
Retained earnings180,671 168,197 
Accumulated other comprehensive loss(3,746)(4,189)
Total stockholders’ equity421,112 410,646 
Total liabilities and stockholders’ equity$891,465 $1,175,638 
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
(In thousands, except per share amounts)
(Unaudited)
 
 Three Months Ended
March 31,
 20232022
Revenue
Revenue before reimbursements (net revenue)$239,317 $283,861 
Reimbursements2,802 1,676 
Total revenue242,119 285,537 
Operating expenses
Salaries and benefits158,859 201,445 
General and administrative expenses34,327 29,794 
Cost of services22,832 17,988 
Research and development5,528 4,402 
Reimbursed expenses2,802 1,676 
Total operating expenses224,348 255,305 
Operating income17,771 30,232 
Non-operating income (expense)
Interest, net3,249 110 
Other, net1,809 (2,471)
Net non-operating income (expense)5,058 (2,361)
Income before income taxes22,829 27,871 
Provision for income taxes7,243 9,404 
Net income15,586 18,467 
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment402 (1,082)
Net unrealized gain on available-for-sale investments41 — 
Other comprehensive income (loss), net of tax443 (1,082)
Comprehensive income$16,029 $17,385 
Weighted-average common shares outstanding
Basic19,904 19,624 
Diluted20,569 20,511 
Earnings per common share
Basic$0.78 $0.94 
Diluted$0.76 $0.90 
Cash dividends paid per share$0.15 $0.15 

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, except per share amounts)
(Unaudited)

   Additional
Paid in
Capital		Retained EarningsAccumulated
Other
Comprehensive
Income (Loss)		Total
Common StockTreasury Stock
SharesAmountSharesAmount
Balance at December 31, 202219,866 $199 5 $(191)$246,630 $168,197 $(4,189)$410,646 
Net income— — — — — 15,586 — 15,586 
Other comprehensive income, net of tax— — — — — — 443 443 
Common and treasury stock transactions:
Stock-based compensation— — — — 1,853 — — 1,853 
Vesting of equity awards, net of tax withholding172 1 — — (4,142)— — (4,141)
Clawback of equity awards— — 5 (163)— — — (163)
Cash dividends declared ($0.15 per share)
— — — — — (3,006)— (3,006)
Dividend equivalents on restricted stock units— — — — — (106)— (106)
Balance at March 31, 202320,038 $200 10 $(354)$244,341 $180,671 $(3,746)$421,112 

   Additional
Paid in
Capital		Retained EarningsAccumulated
Other
Comprehensive
Income (Loss)		Total
Common StockTreasury Stock
SharesAmountSharesAmount
Balance at December 31, 202119,597 $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 withholding126 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, 202219,723 $197 5 $(191)$233,641 $116,525 $593 $350,765 

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

3


HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 Three Months ended
March 31,
 20232022
Cash flows - operating activities
Net income$15,586 $18,467 
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization3,873 2,620 
Deferred income taxes6,669 (477)
Stock-based compensation expense1,853 3,698 
Accretion expense related to earnout payments191 271 
Gain on marketable securities(1,645)— 
Loss on disposal of property and equipment130 167 
Changes in assets and liabilities:
Accounts receivable(24,332)(53,142)
Accounts payable(1,137)(4,156)
Accrued expenses(325,975)(227,424)
Deferred revenue147 4,137 
Income taxes recoverable and payable, net(3,083)5,028 
Retirement and pension plan assets and liabilities6,070 3,497 
Prepaid expenses(7,135)(9,081)
Other assets and liabilities, net(8,243)(5,801)
Net cash used in operating activities(337,031)(262,196)
Cash flows - investing activities
Acquisition of business, net of cash acquired(29,907)— 
Capital expenditures(3,808)(1,804)
Purchases of marketable securities and investments(6,172)(5,011)
Proceeds from sales of marketable securities and investments267,965 763 
Net cash provided by (used in) investing activities228,078 (6,052)
Cash flows - financing activities
Cash dividends paid(3,112)(3,119)
Payment of employee tax withholdings on equity transactions(4,141)(3,219)
Acquisition earnout payments(35,946)— 
Net cash used in financing activities(43,199)(6,338)
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash1,396 (2,671)
Net decrease in cash, cash equivalents and restricted cash(150,756)(277,257)
Cash, cash equivalents and restricted cash at beginning of period355,489 545,259 
Cash, cash equivalents and restricted cash at end of period$204,733 $268,002 

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

4


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, 2023 and December 31, 2022, the results of operations for the three months ended March 31, 2023 and 2022 and its cash flows for the three months ended March 31, 2023 and 2022 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, 2022, as filed with the SEC on February 27, 2023.

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, 2022.

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 (“R&D”) expense consists of payroll, employee benefits, stock-based compensation, other employee expenses and third-party professional fees associated with the development of new technologies to enhance existing products and services and to expand the range of the Company's offerings. The benefits from the Company's R&D efforts are intended to be utilized to develop and enhance new and existing services and products across the Company's current offerings in Executive Search, Heidrick Consulting and On-Demand Talent, and for products and services in new segments that the Company may embark upon in the future from time to time.

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, 2023 and 2022, and December 31, 2022 and 2021:
5


March 31,December 31,
2023202220222021
Cash and cash equivalents$204,691 $267,986 $355,447 $545,225 
Restricted cash included within other non-current assets42 16 42 34 
Total cash, cash equivalents and restricted cash$204,733 $268,002 $355,489 $545,259 

Earnings per Common Share

Basic earnings per common share are 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,
20232022
Net income$15,586 $18,467 
Weighted average shares outstanding:
Basic19,904 19,624 
Effect of dilutive securities:
Restricted stock units501 650 
Performance stock units164 237 
Diluted20,569 20,511 
Basic earnings per share$0.78 $0.94 
Diluted earnings per share$0.76 $0.90 

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 the Company's 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.

6


Recently Issued Financial Accounting Standards

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update 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, 2024. The Company is currently evaluating the impact of this accounting guidance. The new guidance is not expected to have a material effect on the Company's financial statements.

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
7


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 the Company's 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 receivables 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.
8



The following table outlines the changes in the contract asset and liability balances from December 31, 2022 to March 31, 2023:
March 31,
2023		December 31,
2022		Change
Contract assets
Unbilled receivables, net$13,322 $13,940 $(618)
Contract assets20,164 21,348 (1,184)
Total contract assets
33,486 35,288 (1,802)
Contract liabilities
Deferred revenue$43,345 $43,057 $288 

During the three months ended March 31, 2023, the Company recognized revenue of $28.5 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, 2023 from performance obligations partially satisfied in previous periods as a result of changes in the estimates of variable consideration was $9.5 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 activity in the allowance for credit losses on the Company's trade receivables is as follows:
Balance at December 31, 2022
$6,643 
Provision for credit losses1,970 
Write-offs(1,374)
Foreign currency translation9 
Balance at March 31, 2023
$7,248 






9



There were no investments with unrealized losses at March 31, 2023. At December 31, 2022, 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 December 31, 2022Fair ValueUnrealized LossCash and Cash EquivalentsMarketable Securities
U.S. Treasury securities$194,056 $56 $11,918 $182,138 

The unrealized loss on one investment in U.S. Treasury securities at December 31, 2022 was caused by fluctuations in market interest rates. The contractual cash flows of these investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the investments would not be settled at a price less than the amortized cost basis. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before the recovery of the amortized cost basis.

5.    Property and Equipment, net

The components of the Company’s property and equipment are as follows:
March 31,
2023		December 31,
2022
Leasehold improvements$41,671 $40,829 
Office furniture, fixtures and equipment14,531 14,322 
Computer equipment and software32,436 30,085 
Property and equipment, gross88,638 85,236 
Accumulated depreciation(56,121)(55,029)
Property and equipment, net$32,517 $30,207 

Depreciation expense for the three months ended March 31, 2023 and 2022 was $2.0 million and $1.8 million, respectively.

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 of the lease 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 10.3 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.

10


Equipment leases, which are comprised of vehicle and office equipment leases, have remaining terms that range from less than one year to 5.3 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 the Condensed Consolidated Statements of Comprehensive Income were as follows:
Three Months Ended
March 31,
20232022
Operating lease cost$4,525 $4,358 
Variable lease cost1,916 $1,161 
Total lease cost$6,441 $5,519 

Supplemental cash flow information related to the Company's operating leases is as follows for the three months ended March 31:
20232022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$4,811 $5,044 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$2,570 $281 

The weighted average remaining lease term and weighted average discount rate for operating leases as of March 31, are as follows:
20232022
Weighted Average Remaining Lease Term
Operating leases6.3 years6.3 years
Weighted Average Discount Rate
Operating leases3.49 %3.25 %

The future maturities of the Company's operating lease liabilities as of March 31, 2023, for the years ended December 31 are as follows:
Operating Lease Maturity
2023$14,468 
202419,988 
202512,448 
202610,926 
20278,311 
Thereafter24,693 
Total lease payments90,834 
Less: Interest9,399 
Present value of lease liabilities$81,435 

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 (loss) in the Condensed Consolidated Balance Sheets until realized.

11


The Company's cash, cash equivalents, and marketable securities by significant investment category are as follows:
Cash and Cash Equivalents
Balance at March 31, 2023
Cash$154,519 
Level 1(1):
Money market funds50,172 
Total Level 150,172 
Total$204,691 

Amortized CostUnrealized GainsUnrealized LossesFair ValueCash and Cash EquivalentsMarketable Securities
Balance at December 31, 2022
Cash$247,198 $— 
Level 1(1):
Money market funds62,338 — 
U.S. Treasury securities$312,121 $15 $(56)$312,080 45,911 266,169 
Total Level 1312,121 15 (56)312,080 108,249 266,169 
Total$312,121 $15 $(56)$312,080 $355,447 $266,169 

(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 $35.2 million and $29.1 million as of March 31, 2023 and December 31, 2022, 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.

12


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 ValueOther Current AssetsAssets Designated for Retirement and Pension PlansInvestmentsOther Current LiabilitiesRetirement and Pension Plans
Balance at March 31, 2023
Measured on a recurring basis:
Level 1(1):
U.S. non-qualified deferred compensation plan$42,547 $— $— $42,547 $— $— 
Level 2(2):
Retirement and pension plan assets12,748 1,269 11,479 — — — 
Pension benefit obligation(14,132)— — — (1,269)(12,863)
Total Level 2(1,384)1,269 11,479 — (1,269)(12,863)
Total$41,163 $1,269 $11,479 $42,547 $(1,269)$(12,863)

Balance Sheet Classification
Fair ValueOther Current AssetsAssets Designated for Retirement and Pension PlansInvestmentsOther Current LiabilitiesRetirement and Pension Plans
Balance at December 31, 2022
Measured on a recurring basis:
Level 1(1):
U.S. non-qualified deferred compensation plan$34,354 $— $— $34,354 $— $— 
Level 2(2):
Retirement and pension plan assets12,584 1,252 11,332 — — — 
Pension benefit obligation(13,951)— — — (1,252)(12,699)
Total Level 2(1,367)1,252 11,332 — (1,252)(12,699)
Total$32,987 $1,252 $11,332 $34,354 $(1,252)$(12,699)

(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 contingent consideration or additional cash compensation based on the attainment of certain operating metrics or performance criteria 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.

13


The following table provides a reconciliation of the beginning and ending balance of Level 3 liabilities for the three months ended March 31, 2023:
EarnoutContingent Compensation
Balance at December 31, 2022
$(36,010)$(8,192)
Acquisition earnout (See Note 8, Acquisitions)
(31,995)— 
Earnout accretion(191)— 
Compensation expense— (1,659)
Earnout payments35,946 — 
Foreign currency translation14 (339)
Balance at March 31, 2023
$(32,236)$(10,190)

Earnout accruals of zero and $36.0 million were recorded within Other current liabilities as of March 31, 2023 and December 31, 2022, respectively, and earnout accruals of $32.2 million and zero were recorded within Other non-current liabilities as of March 31, 2023 and December 31, 2022, respectively. Contingent compensation accruals of $6.1 million and $1.5 million are recorded within current Accrued salaries and benefits as of March 31, 2023 and December 31, 2022, respectively, and contingent compensation accruals of $4.1 million and $6.7 million are recorded within non-current Accrued salaries and benefits as of March 31, 2023 and December 31, 2022, respectively.

8.    Acquisitions

On February 1, 2023, the Company acquired Atreus Group GmbH ("Atreus"), a leading provider of executive interim management in Germany. The Company paid $33.4 million in the first quarter of 2023, with a subsequent estimated payment of between $9.0 million and $13.0 million to be paid in 2023 upon the completion of Atreus' statutory audit for the year ended December 31, 2022, for all of the outstanding equity of Atreus. The former owners of Atreus are eligible to receive additional cash consideration, which the Company estimated on the acquisition date to be between $30.0 million and $40.0 million, based on the achievement of certain revenue and operating income milestones for the period from the acquisition date through 2025. When estimating the present value of future cash consideration, the Company accrued an estimated $32.0 million as of the acquisition date for the earnout liability. The Company recorded an estimated $11.3 million for customer relationships, $6.9 million for software, $2.5 million for a trade name and $59.2 million of goodwill. Goodwill is primarily related to the acquired workforce and strategic fit and is not deductible for tax purposes. The consideration transferred was allocated on a preliminary basis to the assets acquired and liabilities assumed on their estimated fair values at the date of acquisition. The measurement period for purchase price allocation ends when information on the facts and circumstances becomes available, not to exceed twelve months, and the Company expects to finalize its measurements for the acquisition during the second quarter of 2023. As of March 31, 2023, the allocations remain preliminary with regard to customer relationships, software, trade name, goodwill and earnout liability.

9.    Goodwill and Other Intangible Assets

Goodwill

The Company's goodwill by segment (for the segments that had recorded goodwill) is as follows:
March 31,
2023		December 31,
2022
Executive Search
Americas$91,527 $91,383 
Europe1,468 1,449 
Total Executive Search92,995 92,832 
On-Demand Talent104,716 45,529 
Total goodwill$197,711 $138,361 
14



Changes in the carrying amount of goodwill by segment (for the segments that had recorded goodwill) for the three months ended March 31, 2023, are as follows:
Executive SearchOn-Demand Talent
AmericasEuropeTotal
Balance at December 31, 2022
91,383 1,449 45,529 138,361 
Atreus acquisition— — 59,219 59,219 
Foreign currency translation144 19 (32)131 
Balance at March 31, 2023
$91,527 $1,468 $104,716 $197,711 
In February 2023, the Company acquired Atreus and recorded an estimated $59.2 million of goodwill related to the acquisition in the On-Demand Talent operating segment.

Other Intangible Assets, net

The Company’s other intangible assets, net by segment, are as follows:
March 31,
2023		December 31,
2022
Executive Search
Americas$44 $51 
Europe179 216 
Asia Pacific11 15 
Total Executive Search234 282 
On-Demand Talent25,029 6,051 
Total other intangible assets, net$25,263 $6,333 

In February 2023, the Company acquired Atreus and recorded estimated customer relationships short-term, customer relationships long-term, software and trade name intangible assets in the On-Demand Talent operating segment of $6.0 million, $5.3 million, $6.9 million and $2.5 million, respectively. The combined estimated weighted-average amortization period for the acquired intangible assets is 6.2 years with estimated amortization periods of 5.0, 14.0, 3.0 and 3.0 years for the customer relationships short-term, customer relationships long-term, software and trade name, respectively.

The carrying amount of amortizable intangible assets and the related accumulated amortization are as follows:
 Weighted
Average
Life (Years)		March 31, 2023December 31, 2022
 Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Client relationships9.7$22,072 $(7,036)$15,036 $10,720 $(6,164)$4,556 
Trade name3.04,501 (1,857)2,644 2,406 (1,925)481 
Software