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

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

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.    Yes  ¨    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.    Yes  ¨    No  ☒

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  ☒    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  ☒    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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. ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15. U.S. C 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    Yes  ☒    No  ¨

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of the registrant’s Common Stock held by non-affiliates (excludes shares held by executive officers, directors and beneficial owners of 10% or more of the registrant’s outstanding Common Stock) on June 30, 2023 was approximately $427,408,808 based upon the closing market price of $26.47 on that date of a share of Common Stock as reported on the Nasdaq Global Stock Market. As of March 1, 2024, there were 20,122,792 shares of the Company’s Common Stock outstanding.

Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 23, 2024, are incorporated by reference into Part III of this Form 10-K.

 

 

Heidrick & Struggles International, Inc. (“Heidrick & Struggles”) is a human capital leadership advisory firm providing executive search, consulting and on-demand talent services to businesses and business leaders worldwide to help them to improve the effectiveness of their leadership teams. When we use the terms “Heidrick & Struggles,” “the Company,” “we,” “us” and “our,” in this Form 10-K, we mean Heidrick & Struggles International, Inc. a Delaware corporation, and its consolidated subsidiaries. We provide our services to a broad range of clients through the expertise of over 500 consultants located in major cities around the world. Heidrick & Struggles and its predecessors have been leadership advisors for more than 70 years. Heidrick & Struggles was formed as a Delaware corporation in 1999 when two of our predecessors merged to form Heidrick & Struggles.

Our service offerings include the following:

Executive Search. We partner with our clients - respected organizations across the globe - to help them build and sustain the best leadership teams in the world, with a specialized focus on the placement of top-level senior executives. Through our unique relationship-based, data-driven approach, we help our clients find the right leaders, set them up for success, and accelerate their and their team’s performance.

We believe focusing on top-level senior executives provides the opportunity for several competitive advantages including access to and influence with key decision makers, increased potential for recurring search and consulting engagements, higher fees per search, enhanced brand visibility, and a leveraged global footprint. Working at the top of client organizations also facilitates the attraction and retention of high-caliber consultants who desire to serve top industry executives and their leadership needs. Our executive search services derive revenue through the fees generated for each search engagement, which generally are based on the annual compensation for the placed executive. We provide our Executive Search services primarily on a retained basis.

We employ a global approach to executive search built on better insights, more data and faster decision making facilitated by the use of our Heidrick Leadership Framework and Heidrick Connect. Our Heidrick Leadership Framework allows clients to holistically evaluate a candidate's pivotal experience and expertise, leadership capabilities, agility and potential, and culture fit and impact, thereby allowing our clients to find the right person for the role. We supplement our Heidrick Leadership Framework through a series of additional online tools including our Leadership Accelerator, Leadership Signature and Culture Signature assessments. Heidrick Connect, a completely digital, always available client experience portal, allows our clients to access talent insights for each engagement, including the Heidrick Leadership Framework and other internally developed assessment tools. In response to working remotely, our Executive Search teams employed Heidrick Connect to operate effectively and efficiently while engaging virtually with our clients. Additionally, we have introduced upgrades to Heidrick Connect, resulting in greater flexibility, increased productivity and the ability to deliver more insights to our clients.

The executive search industry consists of several thousand executive search firms worldwide. Executive search firms are generally separated into two broad categories: retained search and contingency search. Retained executive search firms fulfill their clients’ senior leadership needs by identifying potentially qualified candidates and assisting clients in evaluating and assessing these candidates. Retained executive search firms generally are compensated for their services regardless of whether the client employs a candidate identified by the search firm and are generally retained on an exclusive basis. Typically, retained executive search firms are paid a retainer for their services equal to approximately one-third of the estimated first year compensation for the position to be filled. In addition, if the actual compensation of a placed candidate exceeds the estimated compensation, executive search firms often are authorized to bill the client for one-third of the excess. In contrast, contingency search firms are compensated only upon successfully placing a recommended candidate.

We are a retained executive search firm. Our search process typically consists of the following steps:

 

•Analyzing the client’s business needs in order to understand its organizational structure, relationships and culture, advising the client as to the required set of skills and experiences for the position, and identifying with the client the other characteristics desired of the successful candidate;

•Selecting, contacting, interviewing and evaluating candidates on the basis of experience and potential cultural fit with the client organization;

•Presenting confidential written reports on the candidates who potentially fit the position specification;

•Scheduling a mutually convenient meeting between the client and each candidate;

•Completing reference checks on the final candidate selected by the client; and

•Assisting the client in structuring compensation packages and supporting the successful candidate’s integration into the client team.

On-Demand Talent. Our on-demand services provide clients seamless on-demand access to top independent talent, including professionals with deep industry and functional expertise for interim leadership roles and critical, project-based initiatives. Our unique model delivers the right independent talent on demand by blending proprietary data and technology with a dedicated Talent Solutions team. In February 2023, we acquired Atreus Group GmbH ("Atreus"), a leading provider of executive interim management in Germany, allowing us to establish and grow our on-demand talent presence in continental Europe. The On-Demand Talent segment represented approximately 15% of our net revenue in 2023.

Heidrick Consulting. We partner with organizations through Heidrick Consulting to unlock the power of their people. Our tools and experts use data and technology designed to bring science to the art of human capital development and organizational design. Our services allow our clients to accelerate their strategies and the effectiveness of individual leaders, teams and organizations as a whole. In April 2023, we acquired businessfourzero, a next generation consultancy specializing in developing and implementing purpose-driven change, which complements our existing culture shaping services to offer a broader, more robust set of leadership advisory solutions.

Our consulting services generate revenue primarily through the professional fees generated for each engagement which are generally based on the size of the project and scope of services. Our Heidrick Consulting teams have pivoted to create new digital solutions for Leadership Assessments, Team Acceleration, and Organization and Culture Acceleration that can be delivered virtually. The Heidrick Consulting segment represented less than 10% of our net revenue in 2023.

Our organizational structure, which is arranged by geography, service offering and industry and functional practices, is designed to enable us to better understand our clients’ cultures, operations, business strategies, industries and regional markets for leadership talent.

Geographic Structure. We provide senior-level executive search and consulting services to our clients worldwide through a network of 61 offices in 30 countries. Each office size varies; however, major locations are staffed with consultants, research associates, administrative assistants and other support staff. Administrative functions are centralized where possible, although certain support and research functions are situated regionally because of variations in local requirements. We face risks associated with political instability, legal requirements and currency fluctuations in our international operations. Examples of such risks include difficulties in managing global operations, social and political instability, regulations and potential adverse tax consequences. For a more complete description of the risks associated with our business see the Section in this Form 10-K entitled “Risk Factors”.

Information by Geography. We operate our Executive Search services in three geographic regions, each of which is reported as a separate reporting segment: the Americas (which includes the countries in North and South America); Europe (which includes the continents of Europe and Africa); and Asia Pacific (which includes Asia and the region generally known as the Middle East). Our On-Demand Talent and Heidrick Consulting reporting segments operate globally.

Americas Executive Search. As of December 31, 2023, we had 213 consultants in our Americas segment. The largest offices in this segment, as defined by net revenue, are located in New York, Chicago, and Boston.

Europe Executive Search. As of December 31, 2023, we had 124 consultants in our Europe segment. The largest countries in this segment, as defined by net revenue, are the United Kingdom, Germany, and France.

Asia Pacific Executive Search. As of December 31, 2023, we had 77 consultants in our Asia Pacific segment. The largest countries in this segment, as defined by net revenue, are Australia, China (including Hong Kong), and the United Arab Emirates.

On-Demand Talent. The largest countries in this segment, as defined by net revenue, are the United States, Germany and the United Kingdom.

Heidrick Consulting. As of December 31, 2023, we had 89 consultants in our Heidrick Consulting segment. The largest countries in this segment, as defined by net revenue, are the United States, the United Kingdom, and United Arab Emirates.

The relative percentages of net revenue attributable to each segment were as follows:

For financial information relating to each segment, see Note 18, Segment Information, in the Notes to Consolidated Financial Statements.

Global Industry Practices. Our executive search and consulting businesses operate in six broad industry groups listed below. These industry categories and their relative sizes, as measured by billings for 2023, 2022 and 2021, are as follows:

Within each broad industry group are a number of industry sub-sectors. Consultants often specialize in one or more sub-sectors to provide clients with market intelligence and candidate knowledge specific to their industry. For example, within the Financial Services sector, our business is diversified amongst a number of industry sub-sectors including Asset & Wealth Management, Consumer & Commercial Finance, Commodities, Corporate and Transaction Banking, Global Markets, Hedge Fund, Infrastructure, Investment Banking, Insurance, Private Equity Investment Professionals and Real Estate.

We service our clients with global industry interests and needs through unified global executive search teams who specialize in industry practices. This go-to-market strategy allows us to leverage our global diversity and market intelligence and is designed to provide better client service. Each client is served by one global account team, which we believe is a key differentiator from our competition.

Global Functional Practices. Our Executive Search consultants also specialize in searches for specific “C-level” functional positions, which are roles that generally report directly to the chief executive officer.

Our Global Functional Practices include Chief Executive Officer & Board of Directors; Human Resources Officers; Financial Officers; Digital Officers; Technology Officers; Legal, Risk, Compliance & Government Affairs; Marketing, Sales and Strategy Officers and Supply Chain and Operations Officers.

Our team of Executive Search consultants may service clients from any one of our offices around the world. For example, an executive search for a chief financial officer of an industrial company located in the United Kingdom may involve an executive search consultant in the United Kingdom with an existing relationship with the client, another executive search consultant in the United States with expertise in our Industrial practice and a third executive search consultant with expertise in recruiting chief financial officers. This same industrial client may also engage us to perform skill-based assessments for each of its senior managers, which could require the expertise of one of our leadership advisory consultants trained in this service.

For many of our clients, our global access to and knowledge of regional and functional markets and candidate talent is an important differentiator of our business. Our clients generally fall into one of the following categories:

 

•Fortune 1000 companies;

•Major U.S. and non-U.S. companies;

•Middle market and emerging growth companies;

•Private equity firms;

•Governmental, higher education and not-for-profit organizations; and

•Other leading private and public entities.

Our consultants market the firm’s executive search and consulting services through two principal means: targeted client calling and industry networking with clients and referral sources. These efforts are supported by proprietary databases, which provide our consultants with information as to contacts made by their colleagues with particular referral sources, candidates and clients. In addition, we benefit from a significant number of referrals generated by our reputation for high quality service and successfully completed assignments, as well as repeat business resulting from our ongoing client relationships.

In support of client calling and networking, the practice teams as well as individual consultants also author and publish articles and white papers on a variety of leadership and talent topics and trends around the world. Our consultants often present research findings and talent insights at notable conferences and events as well. Our insights are sometimes acknowledged by major media outlets and trade journalists. These efforts aid in the marketing of our services as well.

Either by agreement with the clients or to maintain strong client relationships, we may refrain from recruiting employees of a client, or possibly other entities affiliated with that client, for a specified period of time but typically not more than one year from the commencement of a search. We seek to mitigate any adverse effects of these off-limits arrangements by strengthening our long-term relationships, allowing us to communicate our belief to prospective clients that we can conduct searches effectively notwithstanding certain off-limits arrangements.

No single client accounted for more than 1% of our net revenue in 2023, 2022 and 2021. As a percentage of total revenue, our top ten clients in aggregate accounted for approximately 7% in 2023 and 6% in 2022 and 2021.

We rely on technology to support our consultants and staff in the search process. We employ a global approach to executive search built on better insights, more data and faster decision making facilitated by the use of our proprietary Heidrick Leadership Framework and Heidrick Connect. Our Heidrick Leadership Framework allows clients to holistically evaluate a candidate's pivotal experience and expertise, leadership capabilities, agility and potential, and culture fit and impact, thereby allowing our clients to find the right person for the role. We supplement our Heidrick Leadership Framework through a series of additional online tools including our Leadership Accelerator, Leadership Signature and Culture Signature assessments. Heidrick Connect, a completely digital, always available, client experience portal allows our clients to access talent insights for each engagement, including the Heidrick Leadership Framework and other proprietary assessment tools.

In response to working remotely, our Executive Search teams employed Heidrick Connect to operate effectively and efficiently while engaging virtually with our clients. Additionally, we have introduced upgrades to Heidrick Connect, resulting in greater flexibility, increased productivity and the ability to deliver more insights to our clients.

Our consulting business’ proprietary Web-based system, Culture Connect, is integral to the culture-shaping process. This technology platform enables our consultants to administer, analyze and interpret online Corporate Culture Profiles™ surveys to develop clarity around team and organizational need and desired outcomes. In addition, we gather data using our online Culture Impact Survey™ to determine which culture-shaping concepts are being utilized by individuals and the team as a whole. Our Heidrick Consulting teams have pivoted to create new digital solutions for Leadership Assessments, Team Acceleration, and Organization and Culture Acceleration that can be delivered virtually.

The executive search industry is highly competitive. While we face competition to some degree from all firms in the industry, we believe our most direct competition comes from four established global retained executive search firms that conduct searches primarily for the most senior-level positions within an organization. In particular, our competitors include Egon Zehnder International, Korn Ferry, Russell Reynolds Associates, and Spencer Stuart. To a lesser extent, we also face competition from smaller boutique firms that specialize in certain regional markets or industry segments and Internet-based firms. Additionally, our clients or prospective clients may decide to perform executive searches using in-house personnel. Each firm with which we compete is also a competitor in the marketplace for effective search consultants.

Overall, the search industry has relatively few barriers to entry; however, there are higher barriers to entry to compete with global retained executive search firms that can provide leadership consulting services at the senior executive level. At this level, clients rely more heavily on a search firm’s reputation, global access and the experience level of its consultants. We believe that the segment of executive search in which we compete is more quality-sensitive than price-sensitive. As a result, we compete on the level of service we offer, reflected by our client services specialties and, ultimately, by the quality of our search results. We believe that our emphasis on senior-level executive search, the depth of experience of our search consultants and our global presence enable us to compete favorably with other executive search firms.

Competition in the leadership consulting markets in which we operate is highly fragmented, with no universally recognized market leaders.

There is no discernible seasonality in our business, although as a percentage of total annual net revenue, the first quarter is typically the lowest. Revenue and operating income have historically varied by quarter and are hard to predict from quarter to quarter. In addition, the volatility in the global economy and business cycles can impact our quarterly revenue and operating income.

As a premier provider of global leadership advisory services including executive search, consulting, on-demand talent and digital services, we hold the core belief that our employees’ growth fuels our company’s success. Building an engaged, diverse and inclusive firm is a strategic priority, and our culture is a key differentiator we have to attract, develop and retain the highest-performing talent.

Employee Summary. As of December 31, 2023, we employed 2,212 individuals, represented on geographic basis by 1,190 in the Americas, 718 in Europe, and 304 in Asia Pacific. Within our operating segments, we employed 664 individuals in the Americas, 402 in Europe, 244 in Asia Pacific, 229 in On-Demand Talent, 335 in Heidrick Consulting and 274 in Global Operations Support. Our headcount includes 503 consultants (414 related to Executive Search and 89 related to Heidrick Consulting), 585 associates and engagement managers, and 1,124 other search, consulting, on-demand talent, support, and Global Operations Support employees.

Within Executive Search and Heidrick Consulting, our professionals are generally categorized either as consultants or associates. Associates support consultants by providing research assistance, coordinating candidate contact and performing other engagement-related functions. We promote outstanding associates to consultant levels during the annual consultant promotion process, initially to Principals and ultimately to Partners. We also recruit consultants from other executive search or human capital firms. In the case of Executive Search, we sometimes recruit consultants new to executive search who have worked in industries or functions represented by our practices.

In the latter case, these are often seasoned executives with extensive contacts and outstanding reputations who are entering the search profession as a second career and whom we train in our methodologies. Our Heidrick Consulting consultants are recruited for their executive business experience, as well as their skills in consulting and leadership advisory services and often are former clients who are familiar with our consulting methodology.

In On-Demand Talent and Heidrick Digital, we seek employees with relevant skills and technical capabilities and with potential to grow into more senior roles within the firm. We are not a party to any U.S. collective bargaining agreement, and we consider relations with our employees to be good. Approximately 5.0% of employees, all of whom are located outside the U.S., are covered by industry-level or national-level collective bargaining agreements. We are committed to respecting our employees’ freedom of association, allowing them the right to bargain to establish terms and conditions of employment and to conclude their work commitment with proper notice, all free from any kind of coercion.

Diversity Equity and Inclusion (“DE&I”). At Heidrick & Struggles, we are committed to nurturing a culture that actively champions our DE&I efforts internally. We firmly believe in embedding DE&I principles throughout our organization and business relationships, including our hiring practices, business development and internal learning and development. Our dedication to DE&I is steadfast, with the aim of fostering an environment where everyone feels valued, respected and empowered. By cultivating a culture that brings a spectrum of ideas and experiences to our work with clients around the world, we believe we create better solutions for our clients’ business challenges and win as one firm.

As part of this commitment, we strive to cultivate an inclusive workforce, where professionals from diverse backgrounds are represented, engaged and empowered to make meaningful contributions. Our long-term DE&I commitments span multiple years, and we hold ourselves accountable by measuring our corresponding achievements year over year. We closely monitor and track our progress, and our commitment to accountability is reflected in our accomplishments as of December 31, 2023:

•Women represent 63% of our overall workforce, 66% of our new hires(1) for the year and 64% of our promotions globally for the year.

•People of color(2) represent 27% of our overall U.S. workforce, 30% of our new hires(1) for the year and 20% of our promotions for the year.

•38% of our Board of Directors members are women and 25% of its members are people of color.

•Our Management Committee, a global body, is 31% gender diverse, and 23% racially/ethnically diverse.

•43% of the Chief Executive Officer's direct reports are women.

•We have strong gender and racial/ethnic representation across the senior teams leading our business units, regional organizations, and practice groups around the globe.

(1) Excludes temporary employees deployed to clients in our on-demand talent business

(2) United States employees only

Additional data measurements include the following statistics and inform our DE&I strategic priorities towards our firm’s commitment to a diverse and inclusive workforce.

The following table summarizes the self-identified diversity statistics of our employee population that are vice presidents(1) and above, including consultants, as of December 31, 2023:

The following table summarizes the self-identified diversity statistics of our employee population that are below the vice president level as of December 31, 2023:

* Heidrick & Struggles employees align to gender identities beyond men and women. Less than 1% of employees who chose to disclose gender identify information identified as non-binary

† United States employees only

Diversity, equity and inclusion are imperative for our internal culture and integral to driving our firm’s innovation and future growth. We have committed substantial time and resources to advance diversity in our workforce and create a culture of inclusion, where everyone feels equitably valued, supported and encouraged to meaningfully contribute to our success through authentic engagement. In 2023, our DE&I efforts were comprised of many initiatives, including:

•Developing a comprehensive strategic roadmap that serves as a guiding framework to strengthen our organization's commitment to achieving DE&I goals. This roadmap, aligned with our Strategic Pillars, outlines specific, actionable areas of focus. It systematically details tactical steps, initiatives, and aspirational goals to advance our mission of cultivating diversity, supporting equity, and promoting inclusion across all areas of our organization.

•Continuing to support our Accelerating Women’s Excellence program as part of our ongoing commitment to advance the development and inclusion of top professional women at Heidrick & Struggles and foster a strong culture of sponsorship by both men and women.

•Continuing and expanding our Advancing Professionals of Color program designed to honor the unique experiences of our junior and mid-level ethnically diverse talent in the workplace, while also accelerating their professional development and readiness to take on more challenging roles and facilitating internal peer networking.

•Launching the “Mitigating Bias in Recruiting” Learning & Development program for global Human Resources, people managers and Search Analysts, Associates, Senior Associates and Engagement Managers. The goal of the training is to educate those who attract and hire internal talent to recognize the importance of minimizing bias at every stage of the recruiting lifecycle.

•Continuing to promote our Employee Resource Groups ("ERGs"), which embody our people-first approach and represent a safe space for employees to promote and celebrate affinity, community and allyship while providing the firm a window into what the groups represented need. The various ERGs at the Company offer educational programming and networking opportunities to engage and develop employees. The DE&I team actively assesses employee interest and engagement, identifying opportunities for new ERGs. Recently, we launched “Veterans@Heidrick,” creating a space for veterans, military families, and allies to collaborate, support, and engage.

•Implementing a biased language analysis software in partnership with our Talent Acquisition team to improve our diversity recruiting approach at the job description stage. Our integration of this tool allowed us to consistently modify our open position postings to avoid restricting our talent pool and to attract a broader pool of applicants. The tool provides neutral language alternatives and identifies and eliminates outdated or unreliable indicators of skill.

•Establishing new external partnerships with Disability:IN, AARP, PFLAG and others. Our DE&I team strategically leverages external partnerships as powerful allies in advancing our DE&I efforts, enabling us to tap into expertise, best practices, and diverse perspectives beyond our organization's boundaries.

Talent Management & Development. We invest in ongoing learning and development for employees of all levels by applying a talent management framework to grow our people and deliver on the firm's strategic objectives.

Employee Engagement. We believe an engaged workforce is crucial to our success and our culture. To that end, we are keenly focused on creating an environment where employees are acknowledged, valued and supported. Employee engagement is a key element to attracting, developing, promoting and retaining the highest-performing talent and building a more diverse, equitable and inclusive workplace.

A key component of our employee engagement strategy is to promote a culture of continuous and candid feedback. In June 2022, we launched a new Voice of Employee pulse survey tool. These surveys offer employees the opportunity to regularly and anonymously comment on their experience at Heidrick & Struggles. We use the tool to evaluate three areas of the employee experience: Engagement, Diversity & Inclusion, and Health & Well-being. We leverage the results to evaluate, inform and drive relevant programs. Data from the surveys is shared anonymously with key leaders across geographies, practices and businesses, and leaders are encouraged to engage with their teams to celebrate the positive themes and address the challenging issues and opportunities expressed through the survey results. In 2023, we launched four firm-wide surveys with a total aggregate employee participation of 87%.

Talent Management. As part of our talent management framework, we have a mid-year review and a thorough performance review process at year-end, conducted with all permanent employees. In addition, we conduct talent reviews across various groups and departments across the firm, including for our Partners and Principals in Executive Search and Heidrick Consulting, which are designed to enable the identification of development needs and succession potential for leadership roles. In addition, this process helps us identify any talent gaps that our talent acquisition team can focus on related to future hiring needs. Finally, with Heidrick Pathways, our employees have a platform for internal career mobility, offering additional flexibility with their career path and development opportunities within the firm.

Learning & Development. We are committed to the professional development of our employees and promoting a continuous learning culture within our firm. Our learning and development programs have been created with the goal of building leadership, business development, account management, client service, and change leadership skills among our employees. In addition to building personal and professional capabilities, these programs set a standard for the behaviors we believe will help us realize our business goals and strategies.

In 2023, our Learning & Development team delivered over 10,500 hours of facilitated training to our colleagues globally, and employees completed over 5,000 self-paced courses. Our programming was deployed in both virtual and in-person formats. Our learning catalog outlines dozens of live and virtual programs as well as thousands of on-demand eLearning courses designed to help build and enhance employee leadership, business acumen and business development skills. These programs are regularly updated to reflect best practices and feedback received from employees.

As we strive to build an unrivaled culture for high-performing talent at Heidrick & Struggles, our firm’s leaders continue to play a central role in this work, and we are further investing in our firm’s own leadership capabilities. This includes a transformational leadership development program, which is designed to help our leaders maximize their impact in the rapidly evolving workplace and build upon existing leadership skills and experiences, focusing on resilience, vulnerability, trust, and living our firm’s values. In 2023, we held four cohorts and 83 senior level employees went through the leadership development program. The program is a multi-year investment in our leadership that we cascade across multiple cohorts throughout the organization.

Participation in our Communities. We are proud members and eager participants in supporting the communities where we live and work. We know first-hand from our client work the positive effects that strong leaders can bring to both organizations and communities and encourage employees to contribute to our communities as well.

The Company formed a Global Philanthropic Committee in 2019 to establish a coordinated, global approach to supporting the philanthropic causes and endeavors that impact our employees, clients and communities. In 2023, employees participated in our 5th Global Day of Service where 780 colleagues in over 43 offices around the world donated over 2,900 hours to 45 non-profit organizations. We also support our employees who bring attention to philanthropic causes and organizations that they engage with independently.

Total Rewards. We are committed to supporting our employees both professionally and personally as they continue to navigate a rapidly changing world on multiple fronts. One of the objectives of our benefits program is to help our employees in their efforts to achieve a healthy work-life balance. Benefits offered to our employees may include annual leave and other paid time off, medical, dental and vision benefits, prescription drug benefits, flexible spending accounts, employee assistance programs, 401(k) and deferred compensation retirement programs, short and long-term disability insurance, critical illness insurance and life insurance.

We are committed to compensating our employees fairly and equitably at all levels, based on demonstrated capabilities and achievements, experience and superior performance, irrespective of gender, race, or other demographic factors. Our compensation practices are designed to ensure that pay is determined fairly and consistently. We regularly benchmark our compensation practices against industry standards and best practices to ensure that we remain competitive while upholding our commitment to pay equity. We believe achieving and sustaining pay equity is critical to helping our company attract, develop, promote and retain top-performing talent.

Employee Well-being and Hybrid Work. Employee well-being continues to be a significant area of focus for us. We learned from our pulse surveys that our employees highly value some flexibility and choice in the way they work, so we crafted a hybrid approach which allows employees to work remotely part of the time, with variations depending upon location and role. We believe that this approach supports both employee well-being and collaboration and we encourage our teams to structure their schedules to allow for purposeful time in the office together. We believe stronger bonds are formed in person and that bringing teams together in person facilitates collaboration that comprehensively supports our client services standards and go-to-market strategy.

For more information about our approach to human capital management as part of our broader ESG efforts, please see our 2022 ESG Report which can be found here: https://www.heidrick.com/en/about-us/esg-at-heidrick-struggles. The information contained in our 2022 ESG Report, or otherwise on or connected to the Company’s website, is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed with the U.S. Securities and Exchange Commission ("SEC").

Ethics. At Heidrick & Struggles, we foster a “Speak Up” culture where employees are encouraged to speak to their colleagues, managers or representatives from Legal and Human Resources whenever an ethical dilemma or situation arises. As an integral part of our ethics program, we maintain the Heidrick & Struggles EthicsLine, a service that provides a mechanism for reporting alleged breaches of any legal or regulatory obligations, financial fraud, including with respect to accounting, internal controls and auditing, or any alleged violation of the Code of Ethics or corporate policies to the Company. The EthicsLine is a web-based and telephonic reporting hotline available to all Company employees, contractors, vendors, stockholders, clients, or other interested parties. The EthicsLine is administered by an independent third party that specializes in running whistleblower hotline programs for companies across the globe. Calls are not recorded and callers have the option to remain anonymous. The EthicsLine is operational 24 hours a day, seven days a week. To contact the EthicsLine, you may visit heidrick.ethicspoint.com or dial 800-735-0589 toll-free in the U.S. For outside the U.S. you may dial one of our local lines, 800 94 50 54 (France); 0800 1819941 (Germany); 0800 048 5486 (UK); or 704-731-7242 (Global).

We are subject to the U.S. securities laws and general corporate and commercial laws and regulations of the locations which we serve. These include regulations regarding anti-bribery, privacy and data protection, intellectual property, data security, data retention, personal information, economic or other trade prohibitions or sanctions, and classification of workers as employees or independent contractors, which is especially relevant to our On-Demand Talent segment. In particular, we are subject to federal, state, and foreign laws regarding privacy and protection of people's data. Foreign data protection, privacy, and other laws and regulations can be more restrictive than those in the United States. Most notably, certain aspects of our business are subject to the EU's and UK's General Data Protection Regulation ("GDPR"). We have a global privacy program to facilitate our ongoing efforts to comply with global privacy regulations, including GDPR and other rapidly emerging privacy and data protection laws in countries such as Brazil and China, or states in the U.S such as California. U.S. federal and state and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can be subject to change.

We maintain an Internet website at http://www.heidrick.com. We make available free of charge through the investor relations section of our website annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934 ("Exchange Act"), as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”). Also posted on our website, and available in print upon request of any shareholder to our Investor Relations Officer, are our certificate of incorporation and by-laws, charters for our Audit and Finance Committee, Human Resources and Compensation Committee and Nominating and Board Governance Committee, our Director Independence Standards, our Corporate Governance Guidelines, our Policy on Resolution of Conflicts of Interest for Directors and Executive Officers, our Related Party Transactions Policy, our Misconduct Clawback Policy, our Policy on Recoupment of Incentive Compensation, our Insider Trading Policy, and our Code of Ethics governing our directors, officers and employees. Within the time period required by the SEC, we will post on our website any amendment to the Code of Ethics and any waiver applicable to any executive officer, director or senior financial officer.

In addition, our website includes information concerning purchases and sales of our equity securities by our officers and directors, as well as disclosure relating to certain non-GAAP financial measures (as defined in the SEC’s Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time. The information contained on or accessible through our website or any other website that we may maintain is not incorporated by reference into and is not part of this Form 10-K or any other report filed with the SEC.

Our Investor Relations Officer can be contacted at Heidrick & Struggles International, Inc., 233 South Wacker Drive, Suite 4900, Chicago, Illinois, 60606, Attn: Investor Relations Officer, telephone: 312-496-1200,

e-mail: InvestorRelations@heidrick.com.

In addition to other information in this Form 10-K, the following risk factors should be carefully considered in evaluating our business because such factors may have a material impact on our business, operating results, cash flows and financial condition. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties of which we are unaware, or that we currently believe are not material, may also become important factors that adversely affect our business.

Our success depends upon our ability to attract, develop, integrate, manage, retain and motivate quality consultants with the skills and experience necessary to fulfill our clients’ needs and achieve our operational and financial goals. We must be able to successfully hire, develop, retain and motivate appropriate numbers of talented people with diverse skills in order to serve clients across the globe, respond quickly to rapid and ongoing changes in demand, technology, industry and the macroeconomic environment, and continuously innovate to grow our business. Our ability to hire, develop, retain and motivate qualified consultants could be impaired by any diminution of our reputation, disparity in compensation relative to our competitors, modifications to our total compensation philosophy or competitor hiring programs. If we cannot attract, hire, develop and retain qualified consultants, our business, financial condition and results of operations may suffer. Our future success also depends upon our ability to integrate newly hired consultants successfully into our operations, to manage the performance of our consultants, and to train and incentivize them to introduce new services and solutions to clients. Failure to successfully integrate newly hired consultants or to manage the performance of our consultants could affect our profitability by causing operating inefficiencies that could increase operating expenses and reduce operating income. Our ability to integrate, train and motivate our consultants and senior leaders in a manner that protects and enhances our culture could be negatively impacted by the Company’s current hybrid work arrangements, and hybrid and remote working arrangements have also expanded the pool of other firms that may compete with us for our consultants and consultant candidates. There is also a risk that unanticipated turnover in senior leadership could stall Company activity, interrupt strategic vision or lower productive output, any of which may adversely affect our business, financial condition and results of operations. As a result, any failure to attract, integrate, develop, manage, retain and motivate qualified consultants and senior leaders could cause our business, financial condition and results of operations to suffer.

Our success depends upon our ability to develop and maintain strong, long-term relationships with our clients. Although we work on building these relationships between our firm and our clients, in many cases one or two consultants have primary responsibility for a client relationship. When a consultant leaves one executive search firm and joins another, clients who have established relationships with the departing consultant may move, and in the past have moved, their business to the consultant’s new employer. We may also lose, and in the past have lost, clients if the departing consultant has widespread name recognition or a reputation as a specialist in executing searches in a specific industry or management function. If we fail to retain important client relationships when a consultant departs our firm, our business, financial condition and results of operations may be adversely affected.

We depend on our overall professional reputation and brand name recognition to secure new engagements and hire qualified consultants. Our success also depends on the individual reputations of our consultants. We obtain many of our new engagements from existing clients or from referrals by those clients. A client who is dissatisfied with our work can adversely affect our ability to secure new engagements. In turn, the clients with which we choose to work can impact our reputation. If any factor, including the poor performance of our personnel or consultants, the loss of relevant thought leadership, various evolving trends related to market standards and stakeholder expectations, or the actual or perceived action or position of one of our consultants or clients, hurts our reputation or brand name, we may experience difficulties in competing successfully for both new engagements and qualified consultants, and we may experience decreased demand for our services. Failure to maintain our professional reputation and brand name could adversely affect our business, financial condition and results of operations.

Clients frequently require us to refrain from recruiting certain of their employees when conducting executive searches on behalf of other clients. These restrictions often have time and/or geographic limitations. The specific duration and scope of the off-limits arrangements depend on the length of the client relationship, the frequency with which the client engages us to perform searches, the number of assignments we have performed for the client and the potential for future business with the client.

Client restrictions on recruiting their employees create constraints on our ability to fulfill certain executive searches. Additionally, if a prospective client believes that we are overly restricted from recruiting the employees of our existing clients, these prospective clients may not engage us to perform their executive searches. As a result, our business, financial condition and results of operations may suffer.

Our success depends upon our ability to store, retrieve, process and manage substantial amounts of information. To achieve our goals, we must ensure that our information management systems continue to function properly, while also improving and upgrading them. Our information management systems are subject to the risk of failure, damage, interruption, obsolescence, inadequacy and breach. Further, we may be unable to license, design and implement, in a cost-effective and timely manner, improved information systems that allow us to compete effectively and can handle the increased demands of the planned expansion and diversification of our business. In addition, business process reengineering efforts may result in a change in software platforms and programs. Such efforts may result in an acceleration of depreciation expense over the shortened expected remaining life of the software and present transitional problems. If it were determined or alleged that our information management systems infringe the intellectual property rights of third parties, we could face increased costs or our ability to use such systems, or to derive all of the intended benefits from them, could be delayed, impaired or blocked if we are unable to license such intellectual property or remedy the infringement.

Problems or issues with our proprietary search system or other factors may result in interruptions or loss in our information processing capabilities which may adversely affect our business, financial condition and results of operations.

We continue to invest in new technology and intellectual property to enhance the products and services we offer to penetrate new markets and increase our client base. The development of new technology and intellectual property is subject to a number of risks including customer acceptance, intellectual property infringement, obsolescence, increased expenditures for research and development and privacy and ethical considerations. The success of new product and service introductions depends on a number of factors, including timely and effective development and market acceptance, and can be negatively impacted by various factors such as quality issues, the risk of exposure or misuse of confidential client information or other deficiencies and the risk that our competitors beat us to market with similar or more highly regarded products and services. The development and introduction of new products and services may prove disruptive to our operations by placing additional demands on our employees and management team and on our information, financial, marketing, administrative and operational systems, processes and controls. There can be no assurance that we will successfully develop new technology and intellectual property and effectively manage future introductions and transitions of products and services. The development and management of intellectual property also exposes us to the risk of potential misappropriation of or failure to otherwise protect our intellectual property. Furthermore, as we develop new technology intended to allow us to derive greater insights from our data or data entrusted to us by clients, there is a risk that such technology may not be designed or operate to produce the types or quality of results that will enable us to succeed as the market for our products and services continues to evolve, and a risk that our new products and services will not find market acceptance due to changes in clients' needs, technology, competitive pressures, or other external factors. If our new products and services are not successfully implemented or received by our clients, our business, financial condition and results of operations, as well as our professional reputation, could be adversely affected.

We are dependent on third parties for the execution of certain critical functions and the failure or inability to perform on the part of one or more of these third parties could materially and adversely affect our reputation and our business.

We do not maintain all of our technology infrastructure, and we have outsourced certain other critical applications and business processes to external providers, including cloud-based services. The failure or inability to perform on the part of one or more of these critical suppliers or partners could cause significant disruptions and increased costs. We are also dependent on security measures that some of our third-party vendors are taking to protect their own systems and infrastructures. If our third-party vendors do not maintain adequate security measures, do not require their sub-contractors to maintain adequate security measures, do not perform as anticipated and in accordance with contractual requirements, or become targets of cyber-attacks, we may experience operational difficulties, increased costs or the exposure or inappropriate use of certain data with which we are entrusted, any of which could materially and adversely affect our reputation and our business.

We are exposed to potential claims with respect to the executive search process and the other services we perform for our clients. A client could assert a claim for violations of off-limits arrangements, breaches of confidentiality agreements or professional malpractice. In addition, candidates for an executive search and on-demand talent assignment could assert claims against us. Possible claims include failure to maintain the confidentiality of the candidate’s employment or placement search or personal data or for unlawful discrimination or other violations of the employment laws or malpractice. The growth and development of our other business lines bring with it the potential for similar claims as well as new types of claims from clients and client employees, including claims of intellectual property infringement. In various countries, we are subject to data protection laws impacting the processing of candidate and client employee information. We maintain professional liability insurance in amounts and coverage that we believe are adequate; however, we cannot guarantee that our insurance will cover all claims or that coverage will always be available. Significant liabilities in excess of, or otherwise outside, our insurance coverage could have a negative impact on our business, financial condition and results of operations.

Legal requirements relating to the collection, storage, handling, use, disclosure, transfer, and security of personal data continue to evolve, and regulatory scrutiny in this area is increasing around the world. As a result, we are or may become subject to a variety of laws and regulations in the U.S. and abroad, which may require us to make changes to our approach to services, solutions and/or products so as to enable the Company and/or our clients to meet new legal requirements. Although we have a global data privacy program that is designed to address the requirements applicable to our international business, ongoing efforts to comply with GDPR and other rapidly emerging privacy and data protection laws in countries such as Brazil and China, or states in the U.S. such as California, has increased the complexity of our compliance operations, and could in the future entail substantial expenses, and divert resources from other initiatives and projects. The enactment of more restrictive laws, rules or regulations could lead to more onerous obligations in our contracts, limiting our storage, transfer and processing of data and, in some cases, make it more difficult and costly to meet client expectations, or lead to significant fines, penalties or liabilities for noncompliance, any of which could adversely affect our business, financial condition and results of operations.

In addition, due to the uncertainty and potentially conflicting interpretations of these laws, it is possible that such laws and regulations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with applicable laws or satisfactorily protect personal information could result in governmental enforcement actions, litigation, or negative publicity, any of which could inhibit sales of our services, solutions and/or products in certain locations.

We classify the interim talent available through On-Demand Talent primarily as independent contractors. In general, any time a court or administrative agency determines that we or our clients have misclassified an on-demand consultant as an independent contractor, we or our clients could incur tax and other liabilities for failing to properly withhold or pay taxes on the consultant’s compensation as well as potential wage and hour and other liabilities depending on the circumstances and jurisdiction. For on-demand talent who are classified as employees, some jurisdictions impose licensing and other requirements. If a court or administrative agency determines that we have failed to comply with these requirements, we could be subject to fines, revocation of licensure, or other penalties.

We may become subject to administrative inquiries and audits concerning the taxation and classification of our on-demand consultants. There is often uncertainty in the application of worker classification laws, and consequently there is risk to us and to clients that independent contractors could be deemed to be misclassified under applicable law. The tests governing whether a service provider is an independent contractor or an employee are typically highly fact sensitive and vary by governing law. Laws and regulations that govern the status and classification of independent contractors are also subject to change as well as to divergent interpretations by various authorities, which can create uncertainty and unpredictability.

A misclassification determination, allegation, claim, or audit involving our on-demand consultants creates potential exposure for clients and for us, including but not limited to reputational harm and monetary exposure arising from or relating to failure to withhold and remit taxes, unpaid wages, and wage and hour laws and requirements (such as those pertaining to minimum wage and overtime); claims for employee benefits, social security contributions, and workers’ compensation and unemployment insurance; claims of discrimination, harassment, and retaliation under civil rights laws; claims under laws pertaining to unionizing, collective bargaining, and other concerted activity; and other claims, charges, or other proceedings under laws and regulations applicable to employers and employees, including risks relating to allegations of joint employer liability. Such claims could result in monetary damages (including but not limited to wage-based damages or restitution, compensatory damages, liquidated damages, and punitive damages), interest, fines, penalties, costs, fees (including but not limited to attorneys’ fees), criminal and other liability, assessment, injunctive relief, or settlement, all of which could adversely impact our business and results of operations.

Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyber-related attacks could pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data.

Cybersecurity risks are constantly evolving as cybercriminals are becoming more sophisticated and launching larger and more effective attacks that are becoming more difficult to defend against, including attacks involving the malicious use of artificial intelligence. Cybersecurity threats range from ransomware, to attacks from more advanced and persistent sources, such as organized cybercriminals, to improper conduct by our employees. Furthermore, the Company's hybrid work arrangements may make it more vulnerable to targeted activity from cybercriminals or other nefarious actors and may increase the risk of cybersecurity incidents or other security breaches, including because hybrid work arrangements involve reliance on cloud technology and remote connectivity features which have been increasingly targeted by threat actors. As described in Part I, Item 1C. Cybersecurity, we have an incident response program in place designed to detect and respond to cybersecurity incidents. However, we have, from time to time, experienced threats to and infringement of our data, policies and systems in the ordinary operation of our business, and we remain vulnerable to additional known or unknown threats. We also have access to sensitive, confidential or personal data or information that is subject to privacy and security laws, regulations and client-imposed controls. Despite our efforts to protect sensitive, confidential or personal data or information, we may be vulnerable to security breaches, theft, lost data, employee errors and/or malfeasance that could potentially lead to the compromising or other unauthorized use of sensitive, confidential or personal data or information, improper use of our systems or networks, or unauthorized access, use, disclosure, modification or destruction of information. In addition, a cybersecurity incident could result in other negative consequences, including disruption of our business operations for sustained periods of time, damage to our reputation or competitiveness, significant remediation costs, increased compliance costs, and litigation or regulatory action, which could result in fines and/or penalties, any of which could result in a negative impact to our business, results of operations and financial condition. Further, cybersecurity incidents affecting our clients could interrupt the operation of their businesses in a manner that could reduce or delay our clients’ demand for our services, which could impact our results of operations.

Demand for our services is affected by global macroeconomic conditions and the general level of economic activity and strength of the labor markets in the geographic regions in which we and our clients operate. During periods of slowed economic activity, many companies hire fewer permanent employees, reduce the levels at which they compensate their employees (which generally reduces the amount of revenue we generate as a result of a successful placement), choose to rely on their own human resources departments rather than third-party search firms to find talent or cut back on human resource initiatives or consulting engagements, all of which could negatively affect our financial condition and results of operations, including specifically our net revenue and operating expenses. We also may experience more competitive pricing pressure during periods of economic decline or unfavorable labor market conditions. If unfavorable changes in economic conditions occur, or if there are prolonged weaknesses in the labor markets in which we and our clients operate, including as a result of structural changes in workforce requirements in response to emerging technologies such as artificial intelligence, our business, financial condition and results of operations could suffer. Accelerated and pronounced economic pressures, such as the recent inflationary cost pressures, may negatively impact our expense base by increasing the costs we pay, including for services and employees, and may negatively impact revenues if our efforts to compensate for higher costs by raising our prices cause clients to reduce the volume of business they do with us or reduce our ability to attract new clients. Geopolitical instability may also cause employers to reduce hiring and otherwise limit new strategic initiatives, which may also affect the demand for our services and ultimately impact our results of operations and financial condition.

The global executive search industry is highly competitive and fragmented. We compete with other large global executive search firms, smaller specialty firms and, more recently with Internet-based firms and social media. Specialty firms may focus on regional or functional markets or on particular industries to a greater extent than we do. Some of our competitors may possess greater resources, greater name recognition and longer operating histories than we do in particular markets or practice areas, or be willing to reduce their fees or agree to alternative pricing practices in order to attract clients and increase market share. Our competitors may be further along in the development and design of technological solutions to meet client requirements, including solutions involving generative artificial intelligence or other emerging technologies, and our new products and services could encounter significant competition from more mature participants in those areas. We may also face increasing competitive pressure as a result of our clients leveraging such technologies in-house to perform all or a portion of the services we offer in a manner that ultimately decreases the demand for our services, which could in turn require us to reduce our fees.

There are limited barriers to entry into the search industry and new search firms continue to enter the market. Executive search firms that have a smaller client base than we do may be subject to fewer off-limits arrangements. In addition, our clients or prospective clients may decide to perform executive searches using in-house personnel. Also, as Internet-based firms continue to evolve, they may develop offerings similar to or more expansive than ours, thereby increasing competition for our services or more broadly disrupting the executive search industry. As a result, we may not be able to continue to compete effectively with existing or potential competitors and we may not be able to implement our leadership strategy effectively.

Additionally, our on-demand talent and consulting services likewise face aggressive competition. We compete with other firms which offer services competitive with those we offer. Certain of these competitors may have more resources than we do and may be able to innovate and provide services faster than we can.

Our inability to meet these competitive challenges could have an adverse effect on our business, financial condition and results of operations.

With our operations in the Americas, Europe and Asia Pacific, we conduct business using various currencies. In 2023, approximately 41% of our net revenue was generated outside the United States. We do not enter into hedging transactions relating to our exposure to currency fluctuations. As we typically transact business in the local currency of our subsidiaries, our profitability may be impacted by the translation of foreign currency financial statements into U.S. dollars. Significant long-term fluctuations in relative currency values, in particular an increase in the value of the U.S. dollar against foreign currencies, could have an adverse effect on our financial condition and results of operations. Currency fluctuations positively impacted our net revenues 0.3% and negatively impacted our operating income by 0.7% for the year ended December 31, 2023.

Banks can be expected to strictly enforce the terms of our credit agreement. Although we are currently in compliance with the financial covenants of our revolving credit facility, a deterioration of economic conditions may negatively impact our business resulting in our failure to comply with these covenants, which could limit our ability to borrow funds under our credit facility or from other borrowing facilities in the future. In such circumstances, we may not be able to secure alternative financing or may only be able to do so at significantly higher costs.

We generate substantial revenue outside the United States. We offer our services through a network of offices in 30 countries around the world excluding our affiliates. Our ability to effectively serve our clients is dependent upon our ability to successfully leverage our operating model across all of these and any future locations, maintain effective management controls over all of our locations to ensure, among other things, compliance with applicable laws, rules and regulations, and instill our core values in all of our personnel at each of these and any future locations. We are exposed to the risk of changes in social, political, legal and economic conditions inherent in our operations, which could have a significant impact on our business, financial condition and results of operations. In addition, we conduct business in countries where the legal systems, local laws and trade practices are unsettled and evolving. Commercial laws in these countries are sometimes vague, arbitrary and inconsistently applied. Under these circumstances, it is difficult for us to determine at all times the exact requirements of such local laws. If we fail to comply with local laws, our business, financial condition and results of operations could suffer. In addition, the global nature of our operations poses challenges to our management, and financial and accounting systems. Failure to meet these challenges could adversely affect our business, financial condition and results of operations.

Our inability to quickly and completely recover should we experience a disaster or other business continuity problem could result in material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability. Natural disasters and unusual weather conditions, pandemic outbreaks, terrorist acts, global political events and other serious catastrophic events could disrupt business and otherwise materially adversely affect the Company’s business and financial condition.

For instance, natural disasters or unusual weather conditions, which have increased in frequency and severity as a result of changing climate patterns, may reduce our consultants’ and other employees’ ability to travel or damage or impair access to our data servers that we use to provide consistent services to our clients.

The ongoing war in Ukraine has had a number of adverse effects for businesses including a worsening of economic conditions in Europe and more broadly, heightened cybersecurity threats, volatility in foreign exchange rates, inflationary pressures and disruptions in energy, food and commodity markets. Following Russia’s invasion of Ukraine, we ceased our operations in Russia, which represented an immaterial amount of our total revenue. Additionally, conditions in Israel and the Gaza strip may adversely affect our business, especially our operations in Tel Aviv, which also represented an immaterial amount of our total revenue. Continued instability involving Israel and the Gaza strip, including any further hostilities, political instability, terrorist activities or the interruption of trade or transport may adversely affect our business, financial condition and results of operations.

There is substantial uncertainty about the future impact of these conflicts and the response of the international community on regional economies and the global economy generally, including the risk that the conflicts could escalate or expand, and the risk of a continuation or escalation of the effects described above, and heightened geopolitical instability generally. Any of these events or trends could have a material adverse effect on our business and operating results, particularly our European, Asia Pacific and Middle East operations, as well as on the business and operations of our clients, which could, in turn, affect demand for our services. In addition, the continuation or extent to which the Russia-Ukraine war or the conflict in Israel and the Gaza strip may intensify or expand could exacerbate or heighten many of the other risk factors described in this section.

We are subject to income taxes in the United States and in various foreign jurisdictions. Domestic and international tax liabilities are subject to the allocation of income among various tax jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings among countries with differing statutory tax rates, or changes in the valuation allowance of deferred tax assets or tax laws. The amount of income taxes and other taxes are subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. authorities. If these audits result in assessments different from amounts recorded, future financial results may include unfavorable tax adjustments.

We establish valuation allowances against deferred tax assets when there is insufficient evidence that we will be able to realize the benefit of these deferred tax assets. We reassess our ability to realize deferred tax assets as facts and circumstances dictate. If after future assessments of our ability to realize the deferred tax assets we determine that a lesser or greater allowance is required, we record a reduction or increase to the income tax expense and the valuation allowance in the period of such determination. The uncertainty surrounding the future realization of our net deferred tax assets could adversely impact our financial condition and results of operations.

We must ensure that our costs and workforce continue to be in proportion to demand for our services. Failure to align our cost structure, including cost increases due to inflationary pressures and higher labor costs due to recent historically low levels of unemployment, and headcount with net revenue could adversely affect our business, financial condition and results of operations. Changes in our mix of revenue also affect our profitability, and as we continue to diversify our businesses, it places additional pressure on our ability to appropriately align our cost structure and headcount with our operations, which could adversely affect our operating margins and our ability to invest in future growth.

In accordance with generally accepted accounting principles, we perform assessments of the carrying value of our goodwill at least annually, and we review our goodwill, other intangible assets and other long-lived assets for impairment whenever events occur or circumstances indicate that a carrying amount of these assets may not be recoverable. These events and circumstances include a significant change in business climate, attrition of key personnel, changes in financial condition or results of operations, a prolonged decline in our stock price and market capitalization, competition, and other factors. In performing these assessments, we must make assumptions regarding the estimated fair value of our goodwill and other intangible assets.

These assumptions include estimates of future market growth and trends, forecasted revenue and costs, capital investments, discount rates, and other variables. If the fair market value of one of our reporting units or other long-term assets is less than the carrying amount of the related assets, we would be required to record an impairment charge. Due to continual changes in market and general business conditions, we cannot predict whether, and to what extent, our goodwill and long-lived intangible assets may be impaired in future periods. Any resulting impairment loss could have an adverse impact on our business, financial condition and results of operations.

Our future success may depend in part on our ability to complete the integration of acquisition targets successfully into our operations, including our recent acquisitions of Business Talent Group and Atreus. The process of executing and integrating an acquired business subjects us to a number of risks, including:

•diversion of management attention;

•failure to successfully further develop the acquired business;

•amortization of intangible assets, adversely affecting our reported results of operations;

•inability to retain and/or integrate the management, key personnel and other employees of the acquired business;

•inability to properly integrate businesses resulting in operating inefficiencies;

•inability to establish uniform standards, disclosure controls and procedures, internal control over financial reporting and other systems, procedures and policies in a timely manner;

•inability to retain the acquired company’s clients;

•exposure to legal claims for activities of the acquired business prior to acquisition; and

•inability to generate revenues to offset any new liabilities assumed and expenses associated with an acquired business.

If our acquisitions are not successfully executed and integrated, our business, strategic position, financial condition and results of operations, as well as our professional reputation, could be adversely affected.

Anti-takeover provisions in our Certificate of Incorporation, our By-laws and the laws of Delaware, our jurisdiction of incorporation, make it difficult and expensive for someone to acquire us in a transaction which is not approved by our Board of Directors. Some of the provisions in our Certificate of Incorporation and By-laws include:

•limitations on stockholder actions; and

•the ability to issue one or more series of preferred stock by action of our Board of Directors.

These provisions could discourage an acquisition attempt or other transaction in which stockholders could receive a premium over the then-current market price for the common stock.

None.

We consider cybersecurity risk management, confidentiality and information security to be critical to our corporate visions and values. We employ a combination of people, technical safeguards and processes to manage these risks and protect information for which we are responsible. Our security program, policies, standards, processes, tools and talent are aligned with the purpose of preventing and mitigating any potential cybersecurity incidents and data leakage.

We have a program in place designed to detect and respond to cybersecurity incidents. Our Chief Information Security Officer (“CISO”) and the cybersecurity team are responsible for defining, implementing and administering appropriate measures to protect information across the Company. Cybersecurity risks are also identified and considered when conducting our annual Enterprise Risk Management (“ERM”) exercise. Pursuant to our ERM program, material cybersecurity risks are identified, assigned to an individual owner with the organization, reviewed twice annually with the CISO, Chief Legal Officer and Corporate Secretary, and Chief Information Officer and tracked to evaluate containment and mitigation efforts on a go-forward basis. As further described below, management also reviews and discusses the ERM program with the Audit & Finance Committee (“AFC”) of our Board of Directors (“Board”), as well as the full Board, at least annually.

Some key safeguards we have undertaken to assess, identify and manage material risks from cybersecurity threats include, but are not limited to:

•Engaging an independent audit firm to conduct a System and Organization Controls (“SOC”) 2 audit of the Company in 2023;

•Designing information security policies based on the International Organization Standardization (“ISO”) 27001 framework;

•Maintaining well-documented processes to provide and remove access, for security incident response, for IT change control and for secure software development lifecycle;

•Conducting regular system patching;

•Conducting frequent, independent third-party vulnerability and penetration testing;

•Providing access on a “need to know” basis applied with “least privilege” principle;

•Requiring multi-factor authentication for system access;

•Protecting the use of data centers with physical and environmental controls;

•Encrypting data at rest and in transit;

•Requiring regular, independent SOC 1 and/or SOC 2 audits for key SaaS providers;

•Requiring third-parties to have information risk management processes;

•Requiring regular security awareness training, including annual online security awareness training, for all users of our systems, which covers topics like phishing, social engineering, mobile and device security and protection of sensitive information;

•Testing awareness by sending regular test phishing emails;

•Monitoring security 24/7/365; and

•Providing for system redundancy and resilience to help ensure business continuity.

We regularly engage third party service providers to assist with management of cybersecurity risks. For instance, as noted above, we engage third parties to conduct frequent, independent vulnerability and penetration testing of our systems. In addition, in 2023, we engaged Grant Thornton LLP to conduct a SOC 2 audit of our systems and controls. Further, our enterprise level IT general controls are audited annually by our independent registered public accounting firm.

We also monitor and oversee risks from cybersecurity threats associated with all third-party service providers that handle data or information for us. In connection with engaging any third-party service provider that will handle data or information for us, we review its internal controls, require that it fill out our security and/or privacy questionnaires and ensure there is appropriate contractual language regarding data privacy, security, and confidentiality. For example, we require all third-party service providers that handle personal data to sign data privacy addenda. We also annually audit compliance of those third-party service providers with these requirements, including through a review of their SOC 1 and/or SOC 2 audits, have them update our security and/or privacy questionnaires and, as appropriate, we conduct on-site audits for certain significant third-party service providers.

We face a number of cybersecurity risks in connection with our business. To date and to our knowledge, we have not experienced a material cybersecurity incident, and cybersecurity threats have not had a material impact on our business strategy, results of operations, or financial condition. However, we have, from time to time, experienced threats to and infringement of our data, policies and systems in the ordinary operation of our business. For more information about the cybersecurity risks we face, see the risk factors in Part I, Item 1A. Risk Factors entitled “Increased cybersecurity vulnerabilities, threats and more sophisticated and targeted cyber-related attacks could pose a risk to our systems, networks, solutions, services and data.” and “We are dependent on third parties for the execution of certain critical functions and the failure or inability to perform on the part of one or more of these third parties could materially and adversely affect our reputation and our business.”.

The AFC, comprised entirely of independent directors, assists the Board in its responsibilities of ensuring that the Company has established, documented and maintained, and periodically reevaluates, its processes with respect to cybersecurity. Our CISO briefs the AFC on cybersecurity matters, including on the evolving threat landscape and the Company’s enhanced efforts in light of emerging risks, no less than twice per year, and in 2023, our CISO provided cybersecurity updates to the AFC two times during the course of the year. In addition to formal updates provided to the AFC, our CISO maintains regular communication throughout the year with members of the AFC on these issues. The chair of the AFC also briefs the full Board on cybersecurity matters discussed amongst the AFC. Furthermore, and as discussed above, cybersecurity risks are also reviewed and discussed with the AFC and the full Board as part of the annual ERM assessment.

Our CISO has experience managing a risk-based, effective, practical and appropriately-sized cybersecurity program that aligns with our strategic business objectives and leads our cybersecurity team, which is responsible for assessing and managing the Company’s material risks from cybersecurity threats. Our CISO has 28 years of experience in the technology domain and 24 years of experience in information security. Our CISO is also a CISSP (Certified Information Systems Security Professional) and a CIPP/E (Certified Information Privacy Professional/Europe).

We have a specifically outlined incident response plan that documents the requirements of notification, classification, analysis and communication of security incidents, including cybersecurity incidents, based on the identified severity level. The CISO is informed of incidents at all severity levels pursuant to the incident response plan. The incident response plan also includes initial steps to convene the response team, contain the incident, consider insurance notification requirements, determine the type of incident and escalation, consider the communications protocol and consider involving law enforcement. In addition, the CISO is informed of potential cybersecurity incidents through the Company’s IT incident response system, which contains security logs that are reviewed by the Company’s 24/7/365 security operations center, and through the Company’s enterprise incident response system, which involves both daily reports of potential issues and alerts that may be initiated by an employee or former employee of the Company.

Our corporate headquarters is located in Chicago, Illinois. As of December 31, 2023, we have leased office space in 55 cities in 30 countries around the world. All of our offices are leased. We do not own any real estate. We believe our existing facilities are in good operating condition and are suitable for our current needs. We do not anticipate any significant difficulty replacing such facilities or locating additional facilities to accommodate future growth.

We have contingent liabilities from various pending claims and litigation matters arising in the ordinary course of our business, some of which involve claims for damages that may be substantial in amount. Some of these matters are covered by insurance. Based upon information currently available, we believe the ultimate resolution of such claims and litigation will not have a material adverse effect on our financial condition, results of operations or liquidity.

 

Our common stock, $0.01 par value, is listed on the Nasdaq Stock Market under the symbol “HSII”.

As of February 23, 2024, we had 48 holders of record of our common stock and 20,122,792 shares of common stock outstanding. A greater number of holders of our common stock are beneficial holders, whose shares are held by banks, brokers, and other financial institutions.

We have presented below a graph which compares the cumulative total stockholder return on our common shares with the cumulative total stockholder return of the Standard & Poor’s SmallCap 600 Index and the Standard & Poor’s Composite 1500 Human Resource and Employment Services Index. The S&P Composite 1500 Human Resource & Employment Services Index includes 13 companies in related businesses, including Heidrick & Struggles. Cumulative total return for each of the periods shown in the performance graph is measured assuming an initial investment of $100 on December 31, 2018.

The stock price performance depicted in this graph is not necessarily indicative of future price performance. This graph will not be deemed to be filed as part of this Form 10-K, and will not be deemed to be incorporated by reference by any general statement incorporating this Form 10-K into any filing by us under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate this information by reference.

Assumes $100 invested on 12/31/18 in HSII or index, including reinvestment of dividends.

Index Data - Copyright Standard and Poor's, Inc. Used with permission. All rights reserved.

From September 2007 through December 2018, we paid a quarterly cash dividend of $0.13 per share as approved by our Board of Directors. In 2019, we began paying a quarterly cash dividend of $0.15 per share as approved by our Board of Directors. In 2023, the total cash dividend paid was $0.60 per share.

In February 2024, our Board of Directors approved a quarterly dividend of $0.15 per share on our common stock which will be paid on March 21, 2024, to shareholders of record as of March 8, 2024. Any future dividends will continue to be declared at the discretion of our Board of Directors.

In connection with the quarterly cash dividend, we also pay a dividend equivalent on outstanding restricted stock units. The amounts related to the dividend equivalent payments for restricted stock units are accrued over the vesting period and paid upon vesting. In 2023 and 2022, we paid $0.5 million and $0.6 million, respectively, in dividend equivalent payments.

On February 11, 2008, we announced that our Board of Directors authorized management to repurchase shares of our common stock with an aggregate purchase price of up to $50 million (the "Repurchase Authorization"). We may from time to time and as business conditions warrant purchase shares of our common stock on the open market or in negotiated or block trades. No time limit has been set for completion of this program. During the year ended December 31, 2023, the Company repurchased 36,000 shares of common stock for $0.9 million. During the quarter ended December 31, 2023, the Company did not repurchase any shares of common stock. There were no purchases of shares of our common stock in 2022, and prior to the 2023 purchases, the most recent purchase of the Company's shares of common stock occurred during the year ended December 31, 2012. As of December 31, 2023, we have purchased 1,074,670 shares of our common stock pursuant to the Repurchase Authorization for a total of $29.2 million and $20.8 million remains available for future purchases under the Repurchase Authorization.

Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as other sections of this Annual Report on Form 10-K contain forward-looking statements within the meaning of the federal securities laws, including statements regarding guidance for the first quarter of 2024. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements are not historical facts or guarantees of future performance, but instead represent only our beliefs, assumptions, expectations, estimates, forecasts and projections regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Forward-looking statements may be identified by the use of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," “outlook,” "projects," "forecasts," "aim," and similar expressions. These statements include statements other than historical information or statements of current condition and may relate to our future plans and objectives and results. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed under the Section heading “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

We are a human capital leadership advisory firm providing executive search, on-demand talent and consulting services.

Our Executive Search services help our clients build leadership teams by facilitating the recruitment, management and development of senior executives. We believe focusing on top-level services offers us several advantages that include access to and influence with key decision makers, increased potential for recurring search consulting engagements, higher fees per search, enhanced brand visibility and a leveraged global footprint, which create added barriers to entry for potential competitors. Working at the top of client organizations also allows us to attract and retain high-caliber consultants.

Our On-Demand Talent business is a market-leader in sourcing high-end, on-demand independent talent and provides clients seamless on-demand access to top independent talent, including professionals with deep industry and functional expertise for interim leadership roles and critical, project-based initiatives.

As a complement and extension of our search services, we partner with organizations through Heidrick Consulting to provide advisory services related to leadership assessment and development, organization and team effectiveness, and culture shaping. Our tools and experts use data and technology designed to bring science to the art of human capital development and organizational design. Our services allow our clients to accelerate their strategies and the effectiveness of individual leaders, teams and organizations as a whole.

We provide our services to a broad range of clients through the expertise of over 500 consultants located in major cities around the world. Our Executive Search services are provided on a retained basis. Revenue before reimbursements of out-of-pocket expenses (“net revenue”) consists of retainers and indirect expenses billed to clients. Typically, we are paid a retainer for our executive search services equal to approximately one-third of the estimated first-year compensation for the position to be filled. In addition, if the actual compensation of a placed candidate exceeds the estimated compensation, we often are authorized to bill the client for one-third of the excess. Indirect expenses are calculated as a percentage of the retainer with certain dollar limits per search.

We manage and assess our performance through various means, with primary financial and operational measures including net revenue, Adjusted EBITDA (defined below; non-GAAP) and Adjusted EBITDA margin (non-GAAP). These non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared in accordance with GAAP (defined below). Executive Search and Heidrick Consulting performance is also measured using consultant headcount. Specific to Executive Search, confirmed search (confirmation) trends, consultant productivity and average revenue per search are used to measure performance. Productivity is as measured by annualized Executive Search net revenue per consultant.

Revenue is driven by market conditions and a combination of the number of executive search engagements, consulting projects, on-demand projects and the average revenue per search or project. With the exception of compensation expense and cost of sales, incremental increases in revenue do not necessarily result in proportionate increases in costs, particularly operating and administrative expenses, thus creating the potential to improve Adjusted EBITDA and Adjusted EBITDA margins.

The number of consultants, confirmation trends, number of searches or projects completed, productivity levels and the average revenue per search or project will vary from quarter to quarter, affecting net revenue, Adjusted EBITDA and Adjusted EBITDA margin.

The Company evaluates performance and allocates resources based on the chief operating decision maker’s review of (1) net revenue and (2) net income before interest, taxes, depreciation and amortization, as adjusted, to the extent they occur, for earnout accretion, earnout fair value adjustments, contingent compensation, deferred compensation plan income or expense, certain reorganization costs, impairment charges and restructuring charges ("Adjusted EBITDA"). Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue in the same period.

Consolidated and the subtotal of Executive Search Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and have limitations as analytical tools. They should not be viewed as a substitute for financial information determined in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. In addition, they may not necessarily be comparable to non-GAAP performance measures that may be presented by other companies.

We believe the presentation of these non-GAAP financial measures provides meaningful supplemental information and a more complete understanding of our ongoing operating results, including underlying trends. These non-GAAP financial measures are used by management in their financial and operating decision making because management believes they reflect our ongoing business in a manner that allows for meaningful period-to-period comparison and evaluation. We also believe that these non-GAAP financial measures, when considered together with our GAAP financial measures, provide management and investors with additional information for comparison of our operating results with the operating results of other companies.

At the consultant level, there are fixed and variable components of compensation. Individuals are rewarded for their performance based on a system that directly ties a portion of their compensation to the amount of net revenue for which they are responsible. A portion of the reward may be based upon individual performance against a series of non-financial measures. Credit towards the variable portion of a consultant’s compensation is earned by generating net revenue for winning and executing work. Each quarter, we review and update the expected annual performance of all consultants and accrue variable compensation accordingly. The amount of variable compensation that is accrued for each consultant is based on a tiered payout model. Overall Company performance determines the amount available for total variable compensation. The more net revenue that is generated by the consultant, the higher the percentage credited towards the consultant’s variable compensation and thus accrued by the Company as expense.

The mix of individual consultants who generate revenue can significantly affect the total amount of compensation expense recorded, which directly impacts operating margin. As a result, the variable portion of the compensation expense may fluctuate significantly from quarter to quarter. The total variable compensation is discretionary and is based on Company-wide financial targets approved by the Human Resources and Compensation Committee of the Board of Directors.

Historically, a portion of the Company’s consultant and management cash bonuses were deferred and paid over a three-year vesting period. The portion of the bonus was approximately 15% depending on the employee’s level or position. The compensation expense related to the amounts being deferred was recognized on a graded vesting attribution method over the requisite service period. This service period began on January 1 of the respective fiscal year and continued through the deferral date, which coincided with the Company’s bonus payments in the first half of the following year and for an additional three-year vesting period.

The deferrals are recorded in Accrued salaries and benefits within both Current liabilities and Non-current liabilities in the Consolidated Balance Sheets.

Consolidated net revenue decreased $46.6 million, or 4.3%, to $1.0 billion in 2023 from $1.1 billion in 2022. Foreign exchange rates positively impacted results by $2.9 million, or 0.3%. Executive Search net revenue was $780.0 million in 2023, a decrease of $121.9 million, or 13.5%, compared to 2022. The decrease in Executive Search net revenue was primarily due to a decrease in the average revenue per executive search compared to the prior year. On-Demand Talent net revenue was $152.5 million in 2023, an increase of $61.2 million, or 66.9%, compared to 2022. The increase in On-Demand Talent revenue was primarily due the acquisition of Atreus in February 2023, partially offset by a decrease in the volume of legacy on-demand projects. Heidrick Consulting net revenue was $94.3 million in 2023, an increase of $14.1 million, or 17.6%, compared to 2022. The increase in Heidrick Consulting revenue was primarily due to the acquisition of businessfourzero in April 2023, and an increase in leadership assessment and development consulting engagements compared to the prior year.

Adjusted EBITDA as a percentage of revenue was 12.2% in 2023, compared to 11.3% in 2022. The change in Adjusted EBITDA was primarily due to a decrease in net revenue of $46.6 million, as well as increases in cost of services, general and administrative expense, research and development costs, partially offset by a decrease in salaries and benefits expense. Salaries and benefits expense as a percentage of net revenue was 63.9% in 2023, compared to 68.7% in 2022. General and administrative expense as a percentage of net revenue was 15.2% in 2023, compared to 12.4% in 2022. Cost of services expense as a percentage of net revenue was 10.6% in 2023, compared to 6.6% in 2022. Research and development costs as a percentage of net revenue was 2.2% in 2023, compared to 1.9% in 2022.

We ended the year with combined cash, cash equivalents, and marketable securities of $478.2 million, a decrease of $143.4 million compared to $621.6 million at December 31, 2022. We pay the majority of bonuses in the first half of the year following the year in which they were earned. Employee bonuses are accrued throughout the year and are based on the Company’s performance and the performance of the individual employee. We expect to pay approximately $289.8 million in bonuses related to 2023 performance in March and April 2024.

The Company expects 2024 first quarter consolidated net revenue of between $245 million and $265 million, while acknowledging that continued fluidity in external factors, such as foreign exchange and interest rate environments, foreign conflicts, inflation and macroeconomic constraints on pricing actions may impact quarterly results. In addition, this outlook is based on the average currency rates in December 2023 and reflects, among other factors, management's assumptions for the anticipated volume of new Executive Search confirmations, On-Demand Talent projects, and Heidrick Consulting assignments, consultant productivity, consultant retention, and the seasonality of the business, along with the current backlog.

Our 2024 first quarter guidance is subject to a number of risks and uncertainties, including those disclosed under "Risk Factors" and in this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K. As such, actual results could vary from these projections.

The following table summarizes, for the periods indicated, the results of operations (in thousands, except per share data):

The following table summarizes, for the periods indicated, our results of operations as a percentage of revenue before reimbursements (net revenue):

The following table sets forth, for the periods indicated, a reconciliation of Adjusted EBITDA to net income:

The Company has five operating segments. The executive search business operates in the Americas, Europe (which includes Africa) and Asia Pacific (which includes the Middle East), and the Heidrick Consulting and On-Demand Talent businesses operate globally (See Note 18, Segment Information).

Revenue and Adjusted EBITDA, by segment, are as follows:

Total revenue. Consolidated total revenue decreased $42.4 million, or 3.9%, to $1.0 billion in 2023 from $1.1 billion in 2022. The decrease in total revenue was primarily due to the decrease in revenue before reimbursements (net revenue).

Revenue before reimbursements (net revenue). Consolidated net revenue decreased $46.6 million, or 4.3%, to $1.0 billion in 2023 from $1.1 billion in 2022. Foreign exchange rates positively impacted results by $2.9 million, or 0.3%. Executive Search net revenue was $780.0 million in 2023, a decrease of $121.9 million, or 13.5%, compared to 2022. The decrease in Executive Search net revenue was primarily due to a decrease in the average revenue per executive search compared to the prior year. On-Demand Talent net revenue was $152.5 million in 2023, an increase of $61.2 million, or 66.9%, compared to 2022. The increase in On-Demand Talent revenue was primarily due to the acquisition of Atreus in February 2023, partially offset by a decrease in the volume of legacy on-demand projects. Heidrick Consulting net revenue was $94.3 million in 2023, an increase of $14.1 million, or 17.6%, compared to 2022. The increase in Heidrick Consulting revenue was primarily due to the acquisition of businessfourzero in April 2023, and an increase in leadership assessment and development consulting engagements compared to the prior year.

Salaries and benefits. Consolidated salaries and benefits expense decreased $81.4 million, or 11.0%, to $656.0 million in 2023, from $737.4 million in 2022. Fixed compensation increased $48.6 million due to increases in base salaries and payroll taxes, deferred compensation plan expenses, retirement and benefits, separation costs, and talent acquisition and retention costs, partially offset by a decrease in stock compensation. Variable compensation decreased $130.0 million due to lower bonus accruals related to decreased consultant productivity. Foreign exchange rate fluctuations negatively impacted salaries and benefits expenses in 2023 by $1.2 million, or 0.2%.

In 2023, we had an average of 2,208 employees, compared to an average of 1,994 employees in 2022.

As a percentage of net revenue, salaries and benefits expense was 63.9% in 2023, compared to 68.7% in 2022.

General and administrative expenses. Consolidated general and administrative expenses increased $23.8 million, or 18.0%, to $156.5 million in 2023 from $132.7 million in 2022. The increase in general and administrative expenses was due to increases in intangible amortization, earnout accretion, office occupancy costs, information technology costs, bad debt, taxes and licenses, marketing, and insurance and bank fees, partially offset by decreases in professional fees and hiring fees. Foreign exchange rate fluctuations negatively impacted general and administrative expenses by $0.7 million, or 0.5%.

As a percentage of net revenue, general and administrative expenses were 15.2% in 2023, compared to 12.4% in 2022.

Cost of services. Consolidated cost of services increased $38.4 million, or 54.3%, to $109.0 million in 2023, from $70.7 million in 2022. The increase in cost of services was primarily due to the acquisition of Atreus. Foreign exchange rate fluctuations negatively impacted cost of services in 2023 by $1.9 million, or 2.7%.

Research and development. Due to the rapid pace of technological advances and digital disruption many of our clients are experiencing, we believe our ability to compete successfully depends increasingly upon our ability to provide clients with timely and relevant technology-enabled products and services. As such, we are focused on developing new technologies to enhance existing products and services, and to expand the range of our offerings through research and development (“R&D”), licensing of intellectual property and acquisition of third-party businesses and technology. The benefits from our R&D efforts will be utilized to develop and enhance new and existing services and products across our current offerings in Executive Search, Heidrick Consulting, On-Demand Talent and for products and services in new segments that we may embark upon in the future from time to time, such as our new digital product Heidrick Navigator. Consolidated R&D expense increased $2.3 million, or 11.2%, to $22.7 million in 2023, from $20.4 million in 2022. R&D expense consists of payroll, employee benefits, stock-based compensation, other employee expenses and third-party professional fees associated with new product development.

Impairment charges. On October 31, 2022, the Company conducted its annual goodwill impairment evaluation, which indicated that the carrying value of the Heidrick Consulting reporting unit was less than its fair value. In 2023, the Company acquired businessfourzero and recorded approximately $7.1 million of goodwill in the Heidrick Consulting reporting unit.

Due to the inclusion of goodwill in a reporting unit with a pre-existing fair value shortfall, the Company evaluated the recent and anticipated future financial performance of the Heidrick Consulting reporting unit and determined that it was more likely than not that the fair value of the reporting unit was less than its carrying value. As a result, the Company identified a triggering event and performed an interim goodwill impairment evaluation during the three months ended June 30, 2023. Based on the results of the of the impairment evaluation, the Company recorded an impairment charge of $7.2 million in Heidrick Consulting to write-off all of the goodwill associated with that reporting unit. The impairment charge is recorded within Impairment charges in the Consolidated Statement of Comprehensive Income and the Consolidated Statements of Cash Flows in 2023. The impairment was non-cash in nature and did not affect our current liquidity, cash flows, borrowing capability or operations, nor did it impact the debt covenants under our credit agreement. There were no impairment charges recorded in 2022.

Adjusted EBITDA. Consolidated Adjusted EBITDA was $125.6 million in 2023, an increase of $4.7 million compared to $120.9 million in 2022. Adjusted EBITDA margin was 12.2% in 2023, compared to 11.3% in 2022.

Net non-operating income. Net non-operating income was $13.3 million in 2023, compared to $3.0 million in 2022.

Interest, net was $11.6 million of income in 2023, compared to $5.3 million in 2022, with the increase primarily due to higher interest rates on a higher volume of short-term investments.

Other, net was $1.7 million of income in 2023, compared to $2.4 million of expense in 2022. The income in the current year is primarily due to unrealized gains on the deferred compensation plan. The expense in the prior year is primarily due to a $6.6 million unrealized loss on the Company's deferred compensation plan, partially offset by foreign exchange gains. The Company's investments, including those held in the Company’s deferred compensation plan, are recorded at fair value.

The Americas reported net revenue of $523.0 million in 2023, a decrease of 14.7% from $612.9 million in 2022. The decrease in net revenue was due to a 15.8% decrease in the number of executive search confirmations, partially offset by an increase in average revenue per executive search. The Social Impact and Industrial practice groups exhibited growth in revenue over the prior period. Foreign exchange fluctuations positively impacted net revenue by $0.1 million in 2023. There were 213 Executive Search consultants as of December 31, 2023, compared to 203 as of December 31, 2022.

Salaries and benefits expense decreased $89.4 million, or 22.2%, compared to 2022. Fixed compensation increased $6.7 million due to increases in deferred compensation plan expenses, retirement and benefits, and stock compensation, partially offset by decreases in talent acquisition and retention costs, base salaries and payroll taxes, and separation costs. Variable compensation decreased $96.1 million due to lower bonus accruals related to decreased consultant productivity.

General and administrative expenses increased $1.9 million, or 4.0% in 2023, compared to 2022, due to increases in bad debt, resource library, and office occupancy costs, partially offset by decreases in professional fees, business development travel, hiring fees, marketing costs, and communication services.

The Americas reported Adjusted EBITDA of $173.4 million in 2023, an increase of $9.2 million compared to $164.2 million in 2022. Adjusted EBITDA margin was 33.1% in 2023, compared to 26.8% in 2022.

Europe reported net revenue of $166.4 million in 2023, a decrease of 5.6% from $176.3 million in 2022. The decrease in net revenue was due to a 2.6% decrease in the number of executive search confirmations, as well as a decrease in average revenue per executive search. The Consumer, Social Impact, and Industrial practice groups exhibited growth in revenue over the prior period. Foreign exchange rate fluctuations positively impacted net revenue in 2023 by $2.6 million, or 1.5%. There were 124 Executive Search consultants as of December 31, 2023, compared to 113 as of December 31, 2022.

Salaries and benefits expense decreased $10.1 million, or 7.8%, compared to 2022. Fixed compensation increased $13.6 million due to increases in base salaries and payroll taxes, talent acquisition and retention costs, retirement and benefits, and separation costs.

Variable compensation decreased $23.7 million due to lower bonus accruals related to decreased consultant productivity.

General and administrative expenses increased $1.4 million, or 5.1%, compared to 2022, due to increases in office occupancy, marketing, taxes and licenses, and professional fees, partially offset by decreases in bad debt and hiring fees.

Europe reported Adjusted EBITDA of $22.2 million in both 2023 and 2022. Adjusted EBITDA margin was 13.4% in 2023, compared to 12.6% in 2022.

Asia Pacific reported net revenue of $90.7 million in 2023, a decrease of 19.6% compared to $112.8 million in 2022. The decrease in net revenue was due to a 7.2% decrease in the number of executive search confirmations, as well as a decrease in average revenue per executive search. All practice groups contributed to the decline in revenue. Foreign exchange rate fluctuations negatively impacted net revenue in 2023 by $3.0 million, or 2.6%. There were 77 Executive Search consultants as of December 31, 2023, compared to 74 as of December 31, 2022.

Salaries and benefits expense decreased $12.7 million, or 16.5%, compared to 2022. Fixed compensation increased $1.9 million due to increases in base salaries and payroll taxes, and talent acquisition and retention costs, partially offset by a decrease in retirement and benefits. Variable compensation decreased $14.7 million due to lower bonus accruals related to decreased consultant productivity.

General and administrative expenses decreased $0.8 million, or 4.6%, compared to 2022, due to decreases in professional fees, office occupancy costs, business development travel, bad debt, and taxes and licenses, partially offset by increases in marketing costs.

Asia Pacific reported Adjusted EBITDA of $11.1 million in 2023, a decrease of $8.7 million compared to $19.8 million in 2022. Adjusted EBITDA margin was 12.2% in 2023, compared to 17.6% in 2022.

On-Demand Talent reported net revenue of $152.5 million in 2023, an increase of 66.9% compared to $91.3 million in 2022. The increase in On-Demand Talent revenue was primarily due to the acquisition of Atreus, partially offset by a decrease in the volume of legacy on-demand projects. Foreign exchange rate fluctuations positively impacted net revenue in 2023 by $2.6 million, or 2.8%.

Salaries and benefits expense increased $25.1 million, or 111.3%, compared to 2022. Fixed compensation increased $15.6 million due to increases in base salaries and payroll taxes, including the acquisition of Atreus, retirement and benefits, and separation costs. Variable compensation increased $9.5 million due to higher bonus accruals related to increased productivity.

General and administrative expenses increased $12.9 million, or 148.7%, due to increases in intangible amortization, professional fees, office occupancy, marketing, resource library, business development travel and, hiring fees.

Cost of services increased $36.2 million, or 57.1%, compared to 2022, primarily due to an increase in the volume of on-demand talent projects driven by the acquisition of Atreus.

On-Demand Talent reported Adjusted EBITDA of $1.4 million in 2023, an improvement of $1.8 million compared to an Adjusted EBITDA loss of $0.3 million in 2022. Adjusted EBITDA margin was 0.9% in 2023, compared to (0.4)% in 2022.

Heidrick Consulting reported net revenue of $94.3 million in 2023, an increase of 17.6% compared to $80.2 million in 2022. The increase in net revenue was primarily due to the acquisition of businessfourzero, and an increase in leadership assessment and development consulting engagements compared to the prior year period. Foreign exchange rate fluctuations positively impacted results by in 2023 $0.5 million, or 0.7%. There were 89 Heidrick Consulting consultants as of December 31, 2023, compared to 70 as of December 31, 2022.

Salaries and benefits expense increased $10.1 million, or 15.2%, compared to 2022. Fixed compensation increased $11.2 million due to increases in base salaries and payroll costs, retirement and benefits, and deferred compensation plan expenses, partially offset by decreases in talent acquisition and retention costs, and stock compensation.

Variable compensation decreased $1.1 million due to lower bonus accruals related to decreased consultant productivity.

General and administrative expenses increased $6.3 million, or 44.6%, compared to 2022, due to increases in office occupancy costs, intangible amortization, professional fees, business development travel, bad debt, and marketing costs.

Cost of services increased $2.1 million, or 29.6%, compared to 2022, due to an increase in the volume of consulting engagements requiring third-party consultants.

Impairment charges for 2023 were $7.2 million as a result of an interim impairment evaluation on the goodwill of the Heidrick Consulting reporting unit. The impairment charge is recorded within Impairment charges in the Consolidated Statements of Comprehensive Income and the Consolidated Statements of Cash Flows for 2023.

Heidrick Consulting reported an Adjusted EBITDA loss of $5.8 million in 2023, an improvement of $0.6 million compared to an Adjusted EBITDA loss of $6.4 million in 2022. Adjusted EBITDA margin was (6.2)% in 2023, compared to (8.0)% in 2022.

Salaries and benefits expenses decreased $4.4 million, or 11.0%, compared to 2022, due to decreases in variable compensation and stock compensation, partially offset by increases in base salaries and payroll taxes, retirement and benefits, separation costs, and talent acquisition and retention costs.

General and administrative expenses increased $2.2 million, or 11.5%, compared to 2022, due to increases in information technology, taxes and licenses, office occupancy costs, and insurance and bank fees, partially offset by decreases in professional fees and hiring fees.

Global Operations Support reported Adjusted EBITDA loss of $56.1 million in 2023, an improvement of $2.4 million compared to an Adjusted EBITDA loss of $58.5 million in 2022. Adjusted EBITDA margin was (5.5)% in both 2023 and 2022.

Total revenue. Consolidated total revenue increased $75.1 million, or 7.4%, to $1.1 billion in 2022 from $1.0 billion in 2021. The increase in total revenue was primarily due to the increase in revenue before reimbursements (net revenue).

Revenue before reimbursements (net revenue). Consolidated net revenue increased $70.5 million, or 7.0%, to $1.1 billion in 2022 from $1.0 billion in 2021. Foreign exchange rates negatively impacted results by $31.1 million, or 3.1%. Executive Search net revenue was $901.9 million in 2022, an increase of $33.2 million, or 3.8%, compared to 2021. The increase in Executive Search net revenue was primarily due to an increase in the average revenue per executive search compared to the prior year. On-Demand Talent net revenue was $91.3 million in 2022, an increase of $24.7 million, or 37.1%, compared to 2021. The increase in On-Demand Talent revenue was primarily due to an increase in the volume of on-demand projects and the timing of the Business Talent Group ("BTG") acquisition in the prior year. Heidrick Consulting net revenue was $80.2 million in 2022, an increase of $12.6 million, or 18.6%, compared to 2021. The increase in Heidrick Consulting revenue was primarily due to a 20.9% increase in the number of consulting engagements compared to the prior year.

The number of Executive Search and Heidrick Consulting consultants was 390 and 70, respectively, as of December 31, 2022, compared to 365 and 69, respectively, as of December 31, 2021. Executive Search productivity, as measured by annualized net Executive Search revenue per consultant, was $2.3 million and $2.4 million for the years ended December 31, 2022 and 2021, respectively. Executive search confirmations decreased 5.3% compared to 2021. The average revenue per executive search increased to $143,600 in 2022 compared to $131,000 in the prior year.

Salaries and benefits. Consolidated salaries and benefits expense increased $20.0 million, or 2.8%, to $737.4 million in 2022 from $717.4 million in 2021. Fixed compensation increased $10.7 million due to increases in base salaries and payroll taxes, retirement and benefits, and separation costs, partially offset by decreases in the deferred compensation plan and stock compensation. Variable compensation increased $9.3 million due to higher bonus accruals related to increased consultant productivity. Foreign exchange rate fluctuations positively impacted salaries and benefits expense by $22.4 million, or 3.1%.

In 2022, we had an average of 1,994 employees, compared to an average of 1,714 employees in 2021.

As a percentage of net revenue, salaries and benefits expense was 68.7% in 2022, compared to 71.5% in 2021.

General and administrative expenses. Consolidated general and administrative expenses increased $1.9 million, or 1.5%, to $132.7 million in 2022 from $130.7 million in 2021. The increase in general and administrative expenses was primarily due to increases in business development travel, including the global consultants' conference, information technology, hiring fees, marketing, and bad debt, partially offset by a one-time earnout obligation adjustment for On-Demand Talent of $11.4 million in 2021, and decreases in taxes and licenses, and the use of external third-party consultants. Foreign exchange rate fluctuations positively impacted general and administrative expenses by $3.6 million, or 2.8%.

As a percentage of net revenue, general and administrative expenses were 12.4% in 2022, compared to 13.0% in 2021.

Cost of services. Consolidated cost of services increased $17.9 million, or 33.9%, to $70.7 million in 2022, from $52.8 million in 2021. The increase is primarily due to the timing of the On-Demand Talent acquisition of BTG in the prior year and an increase in the volume of on-demand projects and consulting engagements. Foreign exchange rate fluctuations positively impacted cost of services by $0.7 million, or 1.3%.

Research and Development. The Company incurred $20.4 million in R&D costs in 2022, which consisted of payroll, employee benefits, stock-based compensation, other employee expenses and third-party professional fees. Prior to formalizing our product development initiative in 2022, we tracked employee time on efforts to enhance existing products and to develop new services and products across our current offerings only to the extent it was required under the Company’s long-lived asset capitalization policy. As such, we cannot definitively determine the actual hours and expense incurred on these efforts in 2021. Based on management estimates, these expenses were less than 1% of net revenue in 2021 and are recorded within Salaries and benefits and General and administrative expenses in the Consolidated Statements of Comprehensive Income.

Restructuring charges. The Company incurred $3.8 million in restructuring charges in 2021. In 2020, the Company announced a restructuring plan (the "2020 Plan") to optimize future growth and profitability. The primary components of the 2020 Plan included a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the elimination of certain deferred compensation programs. The charges incurred in 2021 primarily relate to a reduction in the Company's real estate footprint. The charges are recorded within Restructuring charges in the Consolidated Statements of Comprehensive Income for the year ended December 31, 2021. There were no restructuring charges or reversals in 2022.

Adjusted EBITDA. Consolidated Adjusted EBITDA was $120.9 million in 2022, a decrease of $8.1 million compared to $120.9 million in 2021. Adjusted EBITDA margin was 11.3% in 2022, compared to 12.9% in 2021.

Net non-operating income. Net non-operating income was $3.0 million in 2022, compared to $7.8 million in 2021.

Interest, net was $5.3 million of income in 2022, compared to $0.3 million of income in 2021. The increase was primarily the result of interest earned on marketable securities investments.

Other, net was $2.4 million of expense in 2022, compared to income of $7.5 million in 2021. The expense in 2022 is primarily due to a $6.6 million unrealized loss on the Company's deferred compensation plan, partially offset by foreign exchange gains. The income in 2021 is due to a $4.2 million gain on equity received in exchange for executive search services performed in prior periods and a $3.1 million gain on the Company's deferred compensation plan. The Company's investments, including those held in the Company’s deferred compensation plan, are recorded at fair value.

The Americas reported net revenue of $612.9 million in 2022, an increase of 5.4% from $581.4 million in 2021. The increase in net revenue was due to an increase in average revenue per executive search. All industry practice groups contributed to the growth in revenue with the exception of the Healthcare and Life Sciences practice group. Foreign exchange fluctuations negatively impacted net revenue by less than $0.1 million. There were 203 Executive Search consultants as of December 31, 2022, compared to 193 as of December 31, 2021.

Salaries and benefits expense increased $6.3 million, or 1.6%, compared to 2021. Fixed compensation decreased $0.8 million due to decreases deferred compensation plan expenses and stock compensation, partially offset by increases in base salaries and payroll taxes, separation costs, and retirement and benefits.

Variable compensation increased $7.1 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expenses increased $6.8 million, or 17.3%, compared to 2021 due to increases in business development travel, including the global consultants' conference, bad debt, marketing, information technology, and office occupancy, partially offset by a decrease in the use of third-party consultants.

Restructuring charges were $3.9 million in 2021. The charges are primarily related to a reduction in the Company's real estate footprint. There were no restructuring charges in 2022.

The Americas reported Adjusted EBITDA of $164.2 million in 2022, an increase of $10.1 million compared to $154.1 million in 2021. Adjusted EBITDA margin was 26.8% in 2022, compared to 26.5% in 2021.

Europe reported net revenue of $176.3 million in 2022, an increase of 3.5% from $170.3 million in 2021. The increase in net revenue was due to a 5.1% increase in the number of executive search confirmations. All industry practice groups contributed to the growth in revenue with the exception of the Healthcare and Life Sciences and Financial Services practice groups. Foreign exchange rate fluctuations negatively impacted net revenue by $20.4 million, or 12.0%. There were 113 Executive Search consultants as of December 31, 2022, compared to 103 as of December 31, 2021.

Salaries and benefits expense increased $1.3 million, or 1.0%, compared to 2021. Fixed compensation increased $0.6 million due to increases in talent acquisition and retention costs, and retirement and benefits, partially offset by decreases in base salaries and payroll taxes, and stock compensation. Variable compensation increased $0.7 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expenses increased $3.7 million, or 15.8%, compared to 2021, due to increases in business development travel, including the global consultants' conference, professional fees, and office occupancy, partially offset by a decrease in bad debt.

Europe reported Adjusted EBITDA of $22.2 million in 2022, an increase of $2.0 million compared to $20.2 million in 2021. Adjusted EBITDA margin was 12.6% in 2022, compared to 11.9% in 2021.

Asia Pacific reported net revenue of $112.8 million in 2022, a decrease of 3.6% compared to $117.0 million in 2021. The decrease in net revenue was due to a 9.0% decrease in the number of executive search confirmations, partially offset by an increase in average revenue per executive search. The Consumer, Global Technology and Services, and Social Impact practice groups experienced revenue growth in 2022. Foreign exchange rate fluctuations negatively impacted net revenue by $6.5 million, or 5.6%. There were 74 Executive Search consultants as of December 31, 2022, compared to 69 as of December 31, 2021.

Salaries and benefits expense decreased $5.3 million, or 6.4%, compared to 2021. Fixed compensation decreased $2.1 million due to decreases in base salaries and payroll taxes, stock compensation, and talent acquisition and retention costs, partially offset by an increase in retirement and benefits. Variable compensation decreased $3.1 million due to lower bonus accruals related to decreased consultant productivity.

General and administrative expenses increased $0.4 million, or 2.2%, compared to 2021 primarily due to increases in business development travel, including the global consultants' conference, and professional fees, partially offset by decreases in office occupancy and bad debt.

Asia Pacific reported Adjusted EBITDA of $19.8 million in 2022, a decrease of $0.4 million compared to $19.4 million in 2021. Adjusted EBITDA margin was 17.6% in 2022, compared to 16.6% in 2021.

On-Demand Talent reported net revenue of $91.3 million in 2022, an increase of 37.1% compared to $66.6 million in 2021. The increase in revenue was primarily due to an increase in the volume of on-demand projects and the timing of the On-Demand Talent acquisition of BTG in the prior year. Foreign exchange rate fluctuations negatively impacted net revenue by $0.2 million, or 0.4%.

Salaries and benefits expense increased $8.7 million, or 63.0%, compared to 2021. Fixed compensation increased $7.9 million due to increases base salaries and payroll taxes, separation costs, and retirement and benefits. Variable compensation increased $0.8 million due to higher bonus accruals related to increased productivity.

General and administrative expenses decreased $7.6 million, or 46.7%, due to a one-time earnout obligation adjustment in the prior year, partially offset by increases in intangible amortization, business development travel, professional fees, and information technology.

Cost of services increased $17.7 million, or 38.5%, compared to 2021, primarily due to an increase in the volume of on-demand projects and the timing of the On-Demand Talent acquisition in the prior year.

On-Demand Talent reported an Adjusted EBITDA loss of $0.3 million in 2022, a decrease of $4.9 million compared to $4.6 million in 2021. Adjusted EBITDA margin was (0.4)% in 2022, compared to 6.9% in 2021.

Heidrick Consulting reported net revenue of $80.2 million in 2022, an increase of 18.6% compared to $67.6 million in 2021. The increase in net revenue was due to a 20.9% increase in the number of consulting confirmations. Foreign exchange rate fluctuations negatively impacted results by $3.8 million, or 5.7%. There were 70 Heidrick Consulting consultants as of December 31, 2022, compared to 69 as of December 31, 2021.

Salaries and benefits expense increased $4.5 million, or 7.3%, compared to 2021. Fixed compensation decreased $0.7 million due to decreases talent acquisition and retention costs, retirement and benefits, and the deferred compensation plan, partially offset by increases in base salaries and payroll taxes, and stock compensation. Variable compensation increased $5.2 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expenses decreased $0.8 million, or 5.2%, compared to 2021, due to decreases in professional fees, partially offset by increased business development travel, including the global consultants' conference.

Cost of services increased $0.2 million, or 3.3%, compared to 2021, due to an increase in the volume of consulting engagements.

Restructuring charges were $0.4 million in 2021, primarily related to a reduction in the Company's real estate footprint. There were no restructuring charges in 2022.

Heidrick Consulting reported an Adjusted EBITDA loss of $6.4 million in 2022, an improvement of $8.3 million compared to a loss of $14.7 million in 2021. Adjusted EBITDA margin was (8.0)% in 2022, compared to (6.9)% in 2021.

Global Operations Support expenses increased $4.1 million, or 7.4%, to $59.0 million from $54.9 million in 2021.

Salaries and benefits expenses increased $4.5 million, or 12.7%, compared to 2021 due to increases in base salaries and payroll taxes, and stock compensation, partially offset by decreases in variable compensation, and retirement and benefits.

General and administrative expenses decreased $0.7 million, or 3.4%, compared to 2021 due to decreases in taxes and licenses, and professional fees, partially offset by increases in business development travel and hiring fees.

Restructuring reversals in 2021 were $0.2 million due to the settlement of estimated employee severance accruals. There were no restructuring charges or reversals in 2022.

Global Operations Support reported an Adjusted EBITDA loss of $58.5 million in 2022, an increase of $3.8 million compared to a loss of $54.7 million in 2021. Adjusted EBITDA margin was (5.5)% in both 2022 and 2021.

General. We continually evaluate our liquidity requirements, capital needs and availability of capital resources based on our operating needs. We believe that our available cash balances, funds expected to be generated from operations and funds available under our committed revolving credit facility will be sufficient to finance our operations for at least the next 12 months and the foreseeable future, as well as to finance the cash payments associated with our cash dividends and stock repurchase program.

We pay the non-deferred portion of annual bonuses in the first half of the year following the year in which they are earned. Employee bonuses are accrued throughout the year and are based on our performance and the performance of the individual employee.

Lines of credit. On February 24, 2023, the Company entered into the Second Amendment (the “Second Amendment”) to the Credit Agreement, dated as of October 26, 2018 (the “Credit Agreement” and, as amended by the First Amendment to Credit Agreement, dated as of July 13, 2021, and the Second Amendment, the "Amended Credit Agreement") by and among the Company, Bank of America, N.A., as administrative agent, and the lenders party thereto. The Second Amendment changed the interest rate benchmark, from the London Interbank Offered Rate to the Secured Overnight Financing Rate (“SOFR”). At the Company's option, borrowings under the Amended Credit Agreement will bear interest at one-, three- or six-month term SOFR, or an alternate base rate as set forth in the Amended Credit Agreement, in each case plus an applicable margin. Additionally, the Second Amendment provided the Company with a committed unsecured revolving credit facility in an aggregate amount of $200 million, increased from $175 million as set forth in the Credit Agreement, which includes a sublimit of $25 million for letters of credit and a sublimit of $10 million for swingline loans, with a $75 million expansion feature. Other than the foregoing, the material terms of the Amended Credit Agreement remain unchanged. The Amended Credit Agreement matures on July 13, 2026.

Borrowings under the Amended Credit Agreement may be used for working capital, capital expenditures, permitted acquisitions, restricted payments and for other general corporate purposes of the Company and its subsidiaries. The obligations under the Amended Credit Agreement are guaranteed by certain of the Company’s subsidiaries.

Cash, cash equivalents, and marketable securities. Cash, cash equivalents and marketable securities at December 31, 2023 were $478.2 million, a decrease of $143.4 million compared to $621.6 million at December 31, 2022. The $478.2 million of cash, cash equivalents, and marketable securities at December 31, 2023 includes $200.3 million held by our foreign subsidiaries. A portion of the $200.3 million is considered permanently reinvested in these foreign subsidiaries. If these funds were required to satisfy obligations in the United States, the repatriation of these funds could cause us to incur additional foreign withholding taxes. We expect to pay approximately $289.8 million in bonuses related to 2023 performance in March and April 2024.

Cash flows provided by operating activities. For the year ended December 31, 2023, cash used in operating activities was $26.8 million, primarily reflecting a decrease in accrued expenses of $145.1 million, partially offset by net income net of non-cash charges of $101.7 million. The decrease in accrued expenses is primarily due to cash bonus payments related to 2022 and prior year cash bonus deferrals of $422.0 million, partially offset by 2023 bonus accruals of $289.8 million.

For the year ended December 31, 2022, cash provided by operating activities was $119.3 million, primarily reflecting net income net of non-cash charges of $112.7 million, an increase in accrued expenses of $32.9 million and a decrease in accounts receivable of $4.5 million, partially offset by a decrease in income taxes payable of $13.6 million, a decrease in deferred revenue of $7.2 million and a decrease in accounts payable of $5.7 million. The increase in accrued expenses primarily reflects approximately $368.2 million of 2021 bonuses paid in March and April 2022, offset by 2022 bonus accruals of $414.4 million.

For the year ended December 31, 2021, cash provided by operating activities was $271.4 million, primarily reflecting net income net of non-cash charges of $98.0 million, an increase in accrued expenses of $230.2 million, a decrease in deferred revenue of $12.8 million and a decrease in income taxes payable of $11.4 million, partially offset by a decrease in other liabilities of $37.1 million and an increase in accounts receivable of $36.8 million. The increase in accrued expenses primarily reflects approximately $180.4 million of 2020 bonuses paid in March 2021, offset by 2021 bonus accruals of $368.2 million.

The decrease in other liabilities primarily relates to a reduction in the Company's lease liabilities due to office closures.

Cash flows provided by (used in) investing activities. For the year ended December 31, 2023, cash provided by investing activities was $133.6 million, primarily due to proceeds from the maturity and sale of available for sale investments of $337.9 million, partially offset by purchases of available for sale investments of $141.0 million, acquisition of business, net of cash acquired, of $49.9 million, and capital expenditures of $13.4 million. The cash outflow for capital expenditures is primarily the result of office build-outs and software capitalization related to new product development.

For the year ended December 31, 2022, cash used in investing activities was $279.6 million, primarily due to purchases of available for sale investments of $269.8 million and capital expenditures of $11.1 million, partially offset by proceeds from the maturity and sale of available for sale investments of $1.4 million. The cash outflow for capital expenditures is primarily the result of office build-outs and software capitalization related to new product development.

For the year ended December 31, 2021, cash used in investing activities was $21.3 million, primarily due to cash used in acquisitions net of cash acquired of $33.5 million, capital expenditures of $6.2 million, and purchases of available for sale investments of $2.3 million, partially offset by proceeds from the maturity and sale of available for sale investments of $20.8 million. The cash outflow for capital expenditures is primarily the result of office build-outs.

Cash flows used in financing activities. For the year ended December 31, 2023, cash used in financing activities was $53.5 million, primarily due to acquisition earnout payments of $35.9 million, cash dividend payments of $12.5 million, payment of employee tax withholdings on equity transactions of $4.1 million, and common stock repurchases of $0.9 million.

For the year ended December 31, 2022, cash used in financing activities was $15.7 million, primarily due to cash dividend payments of $12.5 million and payment of employee tax withholding on equity transactions of $3.2 million.

For the year ended December 31, 2021, cash used in financing activities was $15.5 million, primarily due to cash dividend payments of $12.4 million and payment of employee tax withholding on equity transactions of $3.1 million.

Stock repurchase program. On February 11, 2008, we announced that our Board of Directors authorized management to repurchase shares of our common stock with an aggregate purchase price of up to $50 million (the "Repurchase Authorization"). We may from time to time and as business conditions warrant purchase shares of our common stock on the open market or in negotiated or block trades. No time limit has been set for completion of this program. During the year ended December 31, 2023, the Company purchased 36,000 shares of common stock for $0.9 million. There were no purchases of shares of common stock in 2022, and prior to the 2023 purchase, the most recent purchase of the Company's shares of common stock occurred during the year ended December 31, 2012. As of December 31, 2023, we have purchased 1,074,670 shares of our common stock pursuant to the Repurchase Authorization for a total of $29.2 million and $20.8 million remains available for future purchases under the Repurchase Authorization.

Contractual obligations. Our lease portfolio is comprised of operating leases for office space and equipment. As of December 31, 2023, we had lease payment obligations of $99.7 million, with $21.5 million payable within 12 months. Associated with our lease portfolio, we have asset retirement obligations for the retirement of tangible long-lived assets related to our obligation at the end of the lease term to return office space to the landlord in its original condition. As of December 31, 2023, we had asset retirement obligations of $3.3 million, with $0.9 million payable within 12 months.

In addition to lease related contractual obligations, we also have liabilities related to certain employee benefit plans. These liabilities are recorded in our Consolidated Balance Sheet at December 31, 2023. The obligations related to these employee benefit plans are described in Note 12, Employee Benefit Plans, and Note 13, Pension Plan and Life Insurance Contract, in the Notes to Consolidated Financial Statements. As of December 31, 2023, we did not have a liability for uncertain tax positions.

General. Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared using accounting principles generally accepted in the United States of America. Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies and Note 3, Revenue, in the Notes to Consolidated Financial Statements. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Historically, we have not made significant changes to the methods for determining these estimates as our actual results have not differed materially from our estimates. We do not believe it is reasonably likely that the estimates and related assumptions will change materially in the foreseeable future; however, actual results could differ from those estimates under different assumptions, judgments or conditions. If actual amounts are ultimately different from previous estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, there are different estimates that reasonably could have been used, or if changes in the accounting estimates are reasonably likely to occur periodically, that could materially impact the financial statements. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of the Consolidated Financial Statements.

Revenue recognition. In our Executive Search segment, revenue is recognized as we satisfy our performance obligations by transferring a good or service to a client. Generally, each of our executive search contracts contains one performance obligation which is the process of identifying potentially qualified candidates for a specific client position. In most contracts, the transaction price includes both fixed and variable consideration. Fixed compensation is comprised of a retainer, equal to approximately one-third of the estimated first year compensation for the position to be filled, and indirect expenses, equal to a specified percentage of the retainer, as defined in the contract. We generally bill our clients for the retainer and indirect expenses in one-third increments over a three-month period commencing in the month of a client’s acceptance of the contract. If actual compensation of a placed candidate exceeds the original compensation estimate, we are often authorized to bill the client for one-third of the excess compensation. We refer to this additional billing as uptick revenue. In most contracts, variable consideration is comprised of uptick revenue and direct expenses. We bill our clients for uptick revenue upon completion of the executive search, and direct expenses are billed as incurred.

As required under Accounting Standards Update ("ASU") No. 2014-09, we now estimate uptick revenue at contract inception, based on a portfolio approach, utilizing the expected value method based on a historical analysis of uptick revenue realized in the Company’s geographic regions and industry practices, and initially record a contract’s uptick revenue in an amount that is probable not to result in a significant reversal of cumulative revenue recognized when the actual amount of uptick revenue for that contract is known. Differences between the estimated and actual amounts of variable consideration are recorded when known. We do not estimate revenue for direct expenses as it is not materially different than recognizing revenue as direct expenses are incurred.

Revenue from our executive search engagement performance obligation is recognized over time as our clients simultaneously receive and consume the benefits provided by our performance. Revenue from executive search engagements is recognized over the expected average period of performance, in proportion to the estimated personnel time incurred to fulfill our obligations under the executive search contract. Revenue is generally recognized over a period of approximately six months.

Our executive search contracts contain a replacement guarantee which provides for an additional search to be completed, free of charge except for expense reimbursements, should the candidate presented by us be hired by the client and subsequently terminated by the client for performance reasons within a specified period of time. The replacement guarantee is an assurance warranty, which is not a performance obligation under the terms of the executive search contract, as we do not provide any services under the terms of the guarantee that transfer benefits to the client in excess of assuring that the identified candidate complies with the agreed-upon specifications. We account for the replacement guarantee under the relevant warranty guidance in ASC 460 - Guarantees.

In our On-Demand Talent segment, we enter into contracts with clients that outline the general terms and conditions of the assignment to provide on-demand consultants for various types of consulting projects, which consultants may be independent contractors or temporary employees. The consideration we expect to receive under each contract is dependent on the time-based fees specified in the contract. Revenue from on-demand engagement performance obligations is recognized over time as clients simultaneously receive and consume the benefits provided by our performance. We have applied the practical expedient to recognize revenue for these services in the amount to which we have a right to invoice the client, as this amount corresponds directly with the value provided to the client for the performance completed to date. For transactions where a third-party contractor is involved in providing the services to the client, we report the revenue and the related direct costs on a gross basis as we have determined that we are the principal in the transaction. We are primarily responsible for fulfilling the promise to provide consulting services to our clients and we have discretion in establishing the prices charged to clients for the consulting services and are able to contractually obligate the independent service provider to deliver services and deliverables that we have agreed to provide to our clients.

In our Heidrick Consulting segment, revenue is recognized as performance obligations are satisfied by transferring a good or service to a client. Heidrick Consulting enters into contracts with clients that outline the general terms and conditions of the assignment to provide succession planning, executive assessment, top team and board effectiveness and culture shaping programs. The consideration the Company expects to receive under each contract is generally fixed. Most of the Company's consulting contracts contain one performance obligation, which is the overall process of providing the consulting service requested by the client. The majority of our consulting revenue is recognized over time utilizing input methods. Revenue recognition over time for the majority of our consulting engagements is measured by total cost or time incurred as a percentage of the total estimated cost or time on the consulting engagement.

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

Income taxes. Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves judgment. As a global company, we calculate and provide for income taxes in each of the tax jurisdictions in which we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgments regarding the recoverability of deferred tax assets. Tax exposures can involve complex issues and may require an extended period to resolve. Changes in the geographic mix or estimated level of annual income before taxes can affect the overall effective tax rate.

The recognition of deferred tax assets is based on management’s belief that it is more likely than not that the tax benefits associated with temporary differences, net operating loss carryforwards and tax credits will be utilized. We assess the recoverability of the deferred tax assets on an ongoing basis. In making this assessment, we consider all positive and negative evidence, and all potential sources of taxable income including scheduled reversals of deferred tax liabilities, tax-planning strategies, projected future taxable income and recent financial performance.

Deferred taxes have been recorded for U.S. income taxes and foreign withholding taxes related to undistributed foreign earnings that are not permanently reinvested. Annually, we assess material changes in estimates of cash, working capital and long-term investment requirements in order to determine whether these earnings should be distributed. If so, an additional provision for taxes may apply, which could materially affect our future effective tax rate.

Goodwill. We perform assessments of the carrying value of goodwill at least annually and whenever events occur or circumstances indicate that a carrying amount of goodwill may not be recoverable. These circumstances may include a significant change in business climate, attrition of key personnel, changes in financial condition or results of operations, a prolonged decline in our stock price and market capitalization, competition, and other factors.

We operate five reporting units: the Americas, Europe (which includes Africa), Asia Pacific (which includes the Middle East), On-Demand Talent, and Heidrick Consulting. The goodwill impairment test is completed by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The fair value of each of our reporting units is determined using a discounted cash flow methodology. The discounted cash flow approach is dependent on a number of factors including estimates of future market growth and trends, forecasted revenue and costs, capital investments, appropriate discount rates, certain assumptions to allocate shared costs, assets and liabilities, historical and projected performance of our reporting units, the outlook for the executive search industry and the macroeconomic conditions affecting each of our reporting units. The assumptions used in the determination of fair value were (1) a forecast of growth in the near and long term; (2) the discount rate; (3) working capital investments; (4) macroeconomic conditions; and (5) other factors. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. The fair value of our reporting units is also impacted by our overall market capitalization and may be impacted by volatility in our stock price and assumed control premium, among other factors. As a result, actual future results may differ from those estimates and may result in a future impairment charge. These assumptions are updated annually, at a minimum, to reflect information concerning our reportable segments. We continue to monitor potential triggering events including changes in the business climate in which we operate, our market capitalization compared to our book value, and our recent operating performance. Any changes in these factors could result in an impairment charge. An impairment charge is recognized for the amount by which the carrying value of a reporting unit exceeds its fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit.

We believe that the accounting estimate related to goodwill impairment is a critical accounting estimate because the assumptions used are highly susceptible to changes in the operating results and cash flows of our reportable segments.

Other intangible assets and long-lived assets. We review our other intangible assets and long-lived assets, including property and equipment and right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge, equal to the amount by which the carrying amount of the asset group exceeds the fair value of the asset group, is recognized.

We believe that the accounting estimate related to other intangible and long-lived asset impairment is a critical accounting estimate because the assumptions used are highly susceptible to changes in operating results and cash flows.

Contingent consideration. The former owners of certain of the Company's acquired businesses are generally eligible to receive additional cash consideration based on the attainment of certain operating metrics in the periods subsequent to acquisition. The fair value of these obligations is based on the present value of the expected future payments to be made to the former owners of the acquired entities in accordance with the provisions outlined in the respective purchase agreements, which is a Level 3 fair value measurement. We assess the fair value of these liabilities at each balance sheet date based on the expected performance of the associated business and any changes in fair value are recorded in General and administrative expenses in the Consolidated Statements of Comprehensive Income. In determining fair value, we use a variation of the income approach, known as the real options method. The significant unobservable inputs utilized in the real options method include (1) revenue forecasts; (2) operating expense forecasts; (3) the discount rate; and (4) volatility. Changes in revenue forecasts, operating expense forecasts, the discount rate, or volatility, would result in a change in the fair value of recorded earnout obligations. To the extent that our estimates change in the future regarding the likelihood of achieving these targets, we may need to record material adjustments to our accrued contingent consideration.

The information presented in Note 2, Summary of Significant Accounting Policies, to our Consolidated Financial Statements within this Annual Report on Form 10-K is incorporated herein by reference.

Currency market risk. With our operations in the Americas, Europe and Asia Pacific, we conduct business using various currencies. Revenue earned in each country is generally matched with the associated expenses incurred, thereby reducing currency risk to earnings. However, because certain assets and liabilities are denominated in currencies other than the U.S. dollar, changes in currency rates may cause fluctuations in the valuation of such assets and liabilities. As the local currency of our subsidiaries has generally been designated as the functional currency, we are affected by the translation of foreign currency financial statements into U.S. dollars. A 10% change in the average exchange rate for currencies of all foreign countries in which we operate would have increased or decreased our 2023 net income by approximately $1.5 million. For financial information by segment, see Note 18, Segment Information, in the Notes to Consolidated Financial Statements.

 

We have audited the accompanying consolidated balance sheets of Heidrick & Struggles International, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 4, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

As described in Note 3 of the consolidated financial statements, revenue before reimbursements from executive search and from consulting engagements of $780,045,000 and $94,313,000, respectively, is recognized over the expected average period of performance, in proportion to the estimated personnel time or cost incurred to fulfill the obligations under the executive search or consulting contract. This requires management to make significant estimates including the amount of effort extended over certain defined time periods of the executive search or consulting engagement. The transaction price for executive search engagements generally includes variable consideration, known as uptick revenue, in addition to fixed consideration. The Company estimates the amount of uptick revenue at contract inception based on a portfolio approach utilizing the expected value method based on a historical analysis. This requires management to make significant estimates including the average amount of uptick revenue earned on an executive search engagement. Changes in the assumptions used in these estimates could have a significant impact on the revenue recognized during the period.

We identified the Company’s revenue recognition from executive search and consulting engagements as a critical audit matter because of certain significant assumptions management makes when estimating progress over time for executive search and consulting engagements and estimating the average uptick revenue earned on executive search engagements. Auditing these assumptions involved a high degree of judgment and subjectivity as changes in these assumptions could have a significant impact on the amount of revenue recognized.

Our audit procedures related to the assumptions involved in estimating progress over time for executive search and consulting engagements, and estimating the average uptick revenue earned on executive search engagements included the following, among others:

•We obtained an understanding of the relevant controls related to management’s estimates of progress over time and average uptick revenue, such as internal controls related to management’s review of the completeness and accuracy of data compiled and used in the estimate vs. excluded from the estimate, and tested such controls for design and operating effectiveness.

•We evaluated whether the historical data utilized to estimate progress over time was complete and accurate based on historical time studies, on a sample basis.

•We evaluated the estimate of the average uptick revenue on executive search engagements by comparing the estimate to historical data of the total uptick revenue billed and total retainer fee for a sample of executive search engagements.

•We selected a sample of contracts and performed the following procedures:

◦Obtained and read contract source documents for each selection.

◦Tested management’s identification of significant terms for completeness, including the identification of distinct performance obligations and variable consideration.

◦Assessed the terms in the customer agreement and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.

◦Tested the mathematical accuracy of management’s revenue calculations and recalculated deferred revenue at period end, if any.

As described in Notes 2 and 9 to the financial statements, as of December 31, 2023, the Company’s goodwill balance assigned to the On-Demand Talent reporting unit was $109,018,000. The Company tests for impairment of goodwill at the reporting unit level at least annually and whenever events occur or circumstances indicate that a carrying amount of goodwill may not be recoverable. The Company determines the fair value of the On-Demand Talent reporting unit using a discounted cash flow methodology. An impairment charge is recognized for the amount by which the carrying value of the reporting unit exceeds its fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit. When determining the fair value of the On-Demand Talent reporting unit management makes significant estimates and assumptions, including revenue growth rates, projected operating costs, and discount rates.

We identified the valuation of the On-Demand Talent reporting unit for goodwill impairment testing as a critical audit matter given the significant estimates and assumptions management makes to determine the fair value of the On-Demand Talent reporting unit. We identified management’s assumptions related to revenue growth rates, projected operating costs, and discount rates utilized in the valuation of the On-Demand Talent reporting unit’s quantitative test for goodwill impairment as a critical audit matter. Auditing the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the involvement of our valuation specialists.

Our audit procedures related to revenue growth rates, projected operating costs, and discount rates utilized in the valuation of the Company’s On-Demand Talent reporting unit included the following, among others:

•We obtained an understanding of the relevant controls related to the valuation of the Company’s On-Demand Talent reporting unit and tested such controls for design and operating effectiveness, including management review controls.

•We evaluated the reasonableness of management’s forecasts of revenue growth rates by comparing the forecasts to (1) the historical results, (2) historical forecasts, and (3) external market and industry data.

•We evaluated the reasonableness of management’s forecasts of operating costs as a percentage of revenue by comparing the forecasts to the historical results, and comparison to guideline public companies.

•With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s valuation methodology and significant assumptions by:

◦Evaluating the reasonableness of the discount rate by comparing the underlying source information to publicly available market data and verifying the accuracy of the calculations.

As described in Note 8 to the financial statements, the Company acquired Atreus Group GmbH (“Atreus”) in February 2023. The total consideration on acquisition date for Atreus amounted to approximately $77.5 million, which included an estimated acquisition-date fair value earnout of approximately $32.0 million. The respective earnout may be paid based on achievement of certain revenue and operating income milestones for the period from the acquisition date through 2025. The acquisition-date fair value of the earnout liability was estimated using a valuation model that reflects the use of multiple probabilities. A portion of the future cash consideration that the former owners of Atreus are eligible to receive is dependent on future employment and accounted for as contingent compensation liability.

In estimating the acquisition-date fair value of the earnout liability and the contingent compensation, management was required to make significant judgments in formulating the significant estimates and assumptions about future revenue and operating expenses, volatility and discount rates when utilizing the aforementioned valuation method.

We identified the Company’s valuation of the earnout liability and the contingent compensation related to the acquisition of Atreus as a critical audit matter due to the high degree of auditor judgment and audit effort, including the use of our valuation specialists, involved in performing procedures and evaluating audit evidence related to significant estimates and assumptions utilized by management, including revenue, operating expenses, volatility, and discount rates, when calculating the fair value of the earnout liability and the contingent compensation.

Our audit procedures related to the Company’s valuation of the earnout liability and the contingent compensation in connection with the aforementioned acquisition included the following, among others:

•We obtained an understanding of the relevant controls related to the valuation of the earnout liability and the contingent compensation and tested such controls for design and operating effectiveness, including management review controls.

•We evaluated the reasonableness of management’s forecasts of revenue and operating expenses by comparing the forecasts to (1) the historical results, and (2) external market and industry data.

•We evaluated the reasonableness of management’s determination of the bifurcation between earnout liability and the contingent compensation.

•With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s valuation methodology and significant assumptions by:

◦Evaluating the reasonableness of the volatility and discount rate by comparing the underlying source information to publicly available market data and verifying the accuracy of the calculations.

We have served as the Company's auditor since 2018.

We have audited Heidrick & Struggles International, Inc.’s (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2023 and 2022, and the related consolidated statements of comprehensive income, changes to stockholders’ equity and cash flows of the Company for each of the three years in the period ended December 31, 2023 of the Company and our report dated March 4, 2024 expressed an unqualified opinion.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.