UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, ~~2021~~2022

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

For the transition period from _______ to _______

Commission File Number: 0-25837

HEIDRICK & STRUGGLES INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware						36-2681268
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification Number)

233 South Wacker Drive-Suite 4900

Chicago, Illinois

60606-6303

(Address of Principal Executive Offices)

(312) 496-1200

(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange On Which Registered
Common Stock, $0.01 par value	HSII	The ~~NASDAQ~~Nasdaq Stock Market LLC

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

¨☒

Accelerated filer

☒☐

Non-Accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

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

As of October ~~22, 2021,~~21, 2022, there were ~~19,591,527~~19,860,628 shares of the Company’s common stock outstanding.

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX


		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, ~~2021~~2022 (Unaudited) and December 31, ~~2020~~2021	1

	Unaudited Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021	2

	Unaudited Condensed Consolidated ~~Statement~~Statements of Changes in Stockholders' Equity for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021	3

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021	5

	Unaudited Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2221

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3835

Item 4.	Controls and Procedures	3835

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	3935

Item 1A.	Risk Factors	3936

Item 6.	Exhibits	4037

	SIGNATURE	4138

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
		(Unaudited)					(Unaudited)
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	348,292	$	316,473	Cash and cash equivalents	$	275,468	$	545,225
Marketable securities	Marketable securities	—		19,999		Marketable securities	180,507		—
Accounts receivable, net of allowances of $7,562 and $6,557, respectively		181,167		88,123
Accounts receivable, net of allowances of $6,900 and $5,666, respectively						Accounts receivable, net of allowances of $6,900 and $5,666, respectively	190,893		133,750
Prepaid expenses	Prepaid expenses	26,624		18,956		Prepaid expenses	27,322		21,754
Other current assets	Other current assets	34,447		23,279		Other current assets	41,578		41,449
Income taxes recoverable	Income taxes recoverable	4,386		5,856		Income taxes recoverable	4,348		3,210
Total current assets	Total current assets	594,916		472,686		Total current assets	720,116		745,388

Non-current assets	Non-current assets					Non-current assets
Property and equipment, net	Property and equipment, net	20,939		23,492		Property and equipment, net	29,317		27,085
Operating lease right-of-use assets	Operating lease right-of-use assets	74,744		92,671		Operating lease right-of-use assets	69,400		72,320
Assets designated for retirement and pension plans	Assets designated for retirement and pension plans	13,672		14,425		Assets designated for retirement and pension plans	10,961		12,715
Investments	Investments	34,738		31,369		Investments	31,728		36,051
Other non-current assets	Other non-current assets	25,852		24,439		Other non-current assets	26,379		23,377
Goodwill	Goodwill	137,047		91,643		Goodwill	138,069		138,524
Other intangible assets, net	Other intangible assets, net	10,223		1,129		Other intangible assets, net	6,998		9,169
Deferred income taxes	Deferred income taxes	36,501		35,958		Deferred income taxes	40,285		42,169
Total non-current assets	Total non-current assets	353,716		315,126		Total non-current assets	353,137		361,410

Total assets	Total assets	$	948,632	$	787,812	Total assets	$	1,073,253	$	1,106,798

Current liabilities	Current liabilities					Current liabilities

Accounts payable	Accounts payable	$	18,119	$	8,799	Accounts payable	$	17,248	$	20,374
Accrued salaries and benefits	Accrued salaries and benefits	305,186		217,908		Accrued salaries and benefits	375,430		409,026
Deferred revenue	Deferred revenue	45,284		38,050		Deferred revenue	43,547		51,404
Operating lease liabilities	Operating lease liabilities	18,992		28,984		Operating lease liabilities	17,854		19,332
Other current liabilities	Other current liabilities	22,723		23,311		Other current liabilities	59,301		24,554
Income taxes payable	Income taxes payable	14,742		1,186		Income taxes payable	5,224		10,004
Total current liabilities	Total current liabilities	425,046		318,238		Total current liabilities	518,604		534,694

Non-current liabilities	Non-current liabilities					Non-current liabilities

Accrued salaries and benefits	Accrued salaries and benefits	52,623		56,925		Accrued salaries and benefits	56,742		73,779
Retirement and pension plans	Retirement and pension plans	55,804		53,496		Retirement and pension plans	48,730		55,593
Operating lease liabilities	Operating lease liabilities	63,336		86,816		Operating lease liabilities	60,396		65,625
Other non-current liabilities	Other non-current liabilities	28,567		4,735		Other non-current liabilities	4,250		41,087
Total non-current liabilities	Total non-current liabilities	200,330		201,972		Total non-current liabilities	170,118		236,084

Total liabilities	Total liabilities	625,376		520,210		Total liabilities	688,722		770,778

Commitments and contingencies (Note 18)
Commitments and contingencies (Note 17)						Commitments and contingencies (Note 17)

Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at September 30, 2021 and December 31, 2020		—		—
Common stock, $0.01 par value, 100,000,000 shares authorized, 19,596,607 and 19,585,777 shares issued, 19,591,527 and 19,359,586 shares outstanding at September 30, 2021 and December 31, 2020, respectively		196		196
Treasury stock at cost, 5,080 and 226,191 shares at September 30, 2021 and December 31, 2020, respectively		(181)		(8,041)
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at September 30, 2022 and December 31, 2021						Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at September 30, 2022 and December 31, 2021	—		—
Common stock, $0.01 par value, 100,000,000 shares authorized, 19,865,708 and 19,596,607 shares issued, 19,860,628 and 19,591,527 shares outstanding at September 30, 2022 and December 31, 2021, respectively						Common stock, $0.01 par value, 100,000,000 shares authorized, 19,865,708 and 19,596,607 shares issued, 19,860,628 and 19,591,527 shares outstanding at September 30, 2022 and December 31, 2021, respectively	199		196
Treasury stock at cost, 5,080 shares at September 30, 2022 and December 31, 2021						Treasury stock at cost, 5,080 shares at September 30, 2022 and December 31, 2021	(191)		(191)
Additional paid in capital	Additional paid in capital	229,115		231,048		Additional paid in capital	241,632		233,163
Retained earnings	Retained earnings	92,058		40,982		Retained earnings	155,276		101,177
Accumulated other comprehensive income		2,068		3,417
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	(12,385)		1,675
Total stockholders’ equity	Total stockholders’ equity	323,256		267,602		Total stockholders’ equity	384,531		336,020

Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	948,632	$	787,812	Total liabilities and stockholders’ equity	$	1,073,253	$	1,106,798

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

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(In thousands, except per share amounts)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenue	Revenue									Revenue
Revenue before reimbursements (net revenue)	Revenue before reimbursements (net revenue)	$	263,825	$	143,544	$	717,462	$	460,628	Revenue before reimbursements (net revenue)	$	255,185	$	263,825	$	837,747	$	717,462
Reimbursements	Reimbursements	1,490		957		3,819		6,555		Reimbursements	3,086		1,490		7,170		3,819
Total revenue	Total revenue	265,315		144,501		721,281		467,183		Total revenue	258,271		265,315		844,917		721,281

Operating expenses	Operating expenses									Operating expenses
Salaries and benefits	Salaries and benefits	185,904		103,893		513,321		329,640		Salaries and benefits	171,473		185,904		580,602		513,321
General and administrative expenses	General and administrative expenses	29,155		28,899		83,876		91,122		General and administrative expenses	32,189		29,155		97,186		83,876
Cost of services	Cost of services	18,686		870		34,817		2,848		Cost of services	17,801		18,686		53,192		34,817
Impairment charges		—		—		—		32,970
Research and development										Research and development	5,400		—		14,347		—

Restructuring charges	Restructuring charges	(3,262)		48,115		3,792		48,115		Restructuring charges	—		(3,262)		—		3,792
Reimbursed expenses	Reimbursed expenses	1,490		957		3,819		6,555		Reimbursed expenses	3,086		1,490		7,170		3,819
Total operating expenses	Total operating expenses	231,973		182,734		639,625		511,250		Total operating expenses	229,949		231,973		752,497		639,625

Operating income (loss)		33,342		(38,233)		81,656		(44,067)
Operating income										Operating income	28,322		33,342		92,420		81,656

Non-operating income (expense)	Non-operating income (expense)									Non-operating income (expense)
Interest, net	Interest, net	90		(180)		207		160		Interest, net	1,255		90		1,664		207
Other, net	Other, net	145		1,819		6,260		460		Other, net	(43)		145		(1,740)		6,260
Net non-operating income		235		1,639		6,467		620
Net non-operating income (expense)										Net non-operating income (expense)	1,212		235		(76)		6,467

Income (loss) before income taxes		33,577		(36,594)		88,123		(43,447)
Income before income taxes										Income before income taxes	29,534		33,577		92,344		88,123

Provision for (benefit from) income taxes		9,079		(10,416)		28,028		(202)
Provision for income taxes										Provision for income taxes	8,708		9,079		28,902		28,028

Net income (loss)		24,498		(26,178)		60,095		(43,245)
Net income										Net income	20,826		24,498		63,442		60,095

Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax									Other comprehensive income (loss), net of tax
Foreign currency translation adjustment	Foreign currency translation adjustment	(661)		849		(1,349)		(1,381)		Foreign currency translation adjustment	(5,462)		(661)		(14,068)		(1,349)
Net unrealized gain (loss) on available-for-sale investments		—		1		—		(14)
Net unrealized gain on available-for-sale investments										Net unrealized gain on available-for-sale investments	8		—		8		—

Other comprehensive income (loss), net of tax		(661)		850		(1,349)		(1,395)
Other comprehensive loss, net of tax										Other comprehensive loss, net of tax	(5,454)		(661)		(14,060)		(1,349)

Comprehensive income (loss)		$	23,837	$	(25,328)	$	58,746	$	(44,640)
Comprehensive income										Comprehensive income	$	15,372	$	23,837	$	49,382	$	58,746

Weighted-average common shares outstanding	Weighted-average common shares outstanding									Weighted-average common shares outstanding
Basic	Basic	19,569		19,351		19,489		19,281		Basic	19,816		19,569		19,723		19,489

Diluted	Diluted	20,240		19,351		20,259		19,281		Diluted	20,413		20,240		20,558		20,259

Earnings (loss) per common share
Earnings per common share										Earnings per common share
Basic	Basic	$	1.25	$	(1.35)	$	3.08	$	(2.24)	Basic	$	1.05	$	1.25	$	3.22	$	3.08
Diluted	Diluted	$	1.21	$	(1.35)	$	2.97	$	(2.24)	Diluted	$	1.02	$	1.21	$	3.09	$	2.97

Cash dividends paid per share	Cash dividends paid per share	$	0.15	$	0.15	$	0.45	$	0.45	Cash dividends paid per share	$	0.15	$	0.15	$	0.45	$	0.45

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

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In ~~thousands)~~thousands, except per share amounts)

(Unaudited)


								Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total									Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
		Common Stock			Treasury Stock												Common Stock			Treasury Stock
		Shares	Amount		Shares	Amount											Shares	Amount		Shares	Amount
Balance at December 31, 2020		19,586	$	196	226	$	(8,041)	$	231,048	$	40,982	$	3,417	$	267,602
Balance at December 31, 2021																Balance at December 31, 2021	19,597	$	196	5	$	(191)	$	233,163	$	101,177	$	1,675	$	336,020
Net income	Net income	—	—		—	—		—		14,832		—		14,832		Net income	—	—		—	—		—		18,467		—		18,467

Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—	—		—		—		(693)		(693)		Other comprehensive loss, net of tax	—	—		—	—		—		—		(1,082)		(1,082)
Common and treasury stock transactions:	Common and treasury stock transactions:															Common and treasury stock transactions:
Stock-based compensation	Stock-based compensation	—	—		—	—		2,991		—		—		2,991		Stock-based compensation	—	—		—	—		3,698		—		—		3,698
Vesting of equity awards, net of tax withholdings		—	—		(138)	4,951		(8,041)		—		—		(3,090)
Vesting of equity awards, net of tax withholding																Vesting of equity awards, net of tax withholding	126	1		—	—		(3,220)		—		—		(3,219)

Cash dividends declared ($0.15 per share)	Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,905)		—		(2,905)		Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,940)		—		(2,940)
Dividend equivalents on restricted stock units	Dividend equivalents on restricted stock units	—	—		—	—		—		(167)		—		(167)		Dividend equivalents on restricted stock units	—	—		—	—		—		(179)		—		(179)

Balance at March 31, 2021		19,586	$	196	88	$	(3,090)	$	225,998	$	52,742	$	2,724	$	278,570
Balance at March 31, 2022																Balance at March 31, 2022	19,723	$	197	5	$	(191)	$	233,641	$	116,525	$	593	$	350,765
Net income	Net income	—	—		—	—		—		20,765		—		20,765		Net income	—	—		—	—		—		24,149		—		24,149

Other comprehensive income, net of tax		—	—		—	—		—		—		5		5
Other comprehensive loss, net of tax																Other comprehensive loss, net of tax	—	—		—	—		—		—		(7,524)		(7,524)
Common and treasury stock transactions:	Common and treasury stock transactions:															Common and treasury stock transactions:
Stock-based compensation	Stock-based compensation	—	—		—	—		2,861		—		—		2,861		Stock-based compensation	—	—		—	—		3,784		—		—		3,784
Vesting of equity awards		—	—		(23)	808		(808)		—		—		—
Re-issuance of treasury stock		—	—		(9)	280		65		—		—		345
Issuance of common stock																Issuance of common stock	19	—		—	—		404		—		—		404

Cash dividends declared ($0.15 per share)	Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,926)		—		(2,926)		Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,957)		—		(2,957)
Dividend equivalents on restricted stock units	Dividend equivalents on restricted stock units	—	—		—	—		—		(67)		—		(67)		Dividend equivalents on restricted stock units	—	—		—	—		—		(147)		—		(147)

Balance at June 30, 2021		19,586	$	196	56	$	(2,002)	$	228,116	$	70,514	$	2,729	$	299,553
Balance at June 30, 2022																Balance at June 30, 2022	19,742	197		5	(191)		237,829		137,570		(6,931)		368,474
Net income	Net income	—	—		—	—		—		24,498		—		24,498		Net income	—	—		—	—		—		20,826		—		20,826

Other comprehensive income, net of tax		—	—		—	—		—		—		(661)		(661)
Other comprehensive loss, net of tax																Other comprehensive loss, net of tax	—	—		—	—		—		—		(5,454)		(5,454)
Common and treasury stock transactions:	Common and treasury stock transactions:															Common and treasury stock transactions:
Stock-based compensation	Stock-based compensation	—	—		—	—		2,820		—		—		2,820		Stock-based compensation	—	—		—	—		3,805		—		—		3,805
Vesting of equity awards	Vesting of equity awards	11	—		(51)	1,821		(1,821)		—		—		—		Vesting of equity awards	124	2		—	—		(2)		—		—		—

Cash dividends declared ($0.15 per share)	Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,939)		—		(2,939)		Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,980)		—		(2,980)
Dividend equivalents on restricted stock units	Dividend equivalents on restricted stock units	—	—		—	—		—		(15)		—		(15)		Dividend equivalents on restricted stock units	—	—		—	—		—		(140)		—		(140)

Balance at September 30, 2021		19,597	$	196	5	$	(181)	$	229,115	$	92,058	$	2,068	$	323,256
Balance at September 30, 2022																Balance at September 30, 2022	19,866	$	199	5	$	(191)	$	241,632	$	155,276	$	(12,385)	$	384,531

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

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In ~~thousands)~~thousands, except per share amounts)

(Unaudited)

Additional
Paid in
Capital Retained Earnings Accumulated
Other
Comprehensive
Income Total
Common Stock Treasury Stock
Shares Amount Shares Amount
Balance at December 31, 2019 19,586 $ 196 420 $ (14,795) $ 228,807 $ 91,083 $ 3,824 $ 309,115
Net income — — — — — 8,666 — 8,666
Adoption of accounting standards — — — — — (332) — (332)
Other comprehensive loss, net of tax — — — — — — (3,746) (3,746)
Common and treasury stock transactions:
Stock-based compensation — — — — 2,614 — — 2,614
Vesting of equity awards, net of tax withholdings — — (109) 3,838 (5,388) — — (1,550)
Cash dividends declared ($0.15 per share) — — — — — (2,876) — (2,876)
Dividend equivalents on restricted stock units — — — — — (126) — (126)
Balance at March 31, 2020 19,586 $ 196 311 $ (10,957) $ 226,033 $ 96,415 $ 78 $ 311,765
Net loss — — — — — (25,733) — (25,733)
Other comprehensive income, net of tax — — — — — — 1,501 1,501
Common and treasury stock transactions:
Stock-based compensation — — — — 1,320 — — 1,320
Vesting of equity awards — — (48) 1,685 (1,685) — — —
Re-issuance of treasury stock — — (15) 529 (183) — — 346
Cash dividends declared ($0.15 per share) — — — — — (2,891) — (2,891)
Dividend equivalents on restricted stock units — — — — — (105) — (105)
Balance at June 30, 2020 19,586 $ 196 248 $ (8,743) $ 225,485 $ 67,686 $ 1,579 $ 286,203
Net loss — — — — — (26,178) — (26,178)
Other comprehensive income, net of tax — — — — — — 850 850
Common and treasury stock transactions:
Stock-based compensation — — — — 3,212 — — 3,212
Vesting of equity awards — — (22) 702 (702) — — —
Cash dividends declared ($0.15 per share) — — — — — (2,905) — (2,905)
Dividend equivalents on restricted stock units — — — — — (116) — (116)
Balance at September 30, 2020 19,586 $ 196 226 $ (8,041) $ 227,995 $ 38,487 $ 2,429 $ 261,066


							Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	Common Stock			Treasury Stock
	Shares	Amount		Shares	Amount
Balance at December 31, 2020	19,586	$	196	226	$	(8,041)	$	231,048	$	40,982	$	3,417	$	267,602
Net income	—	—		—	—		—		14,832		—		14,832

Other comprehensive loss, net of tax	—	—		—	—		—		—		(693)		(693)
Common and treasury stock transactions:
Stock-based compensation	—	—		—	—		2,991		—		—		2,991
Vesting of equity awards, net of tax withholding	—	—		(138)	4,951		(8,041)		—		—		(3,090)

Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,905)		—		(2,905)
Dividend equivalents on restricted stock units	—	—		—	—		—		(167)		—		(167)

Balance at March 31, 2021	19,586	$	196	88	$	(3,090)	$	225,998	$	52,742	$	2,724	$	278,570
Net income	—	—		—	—		—		20,765		—		20,765

Other comprehensive income, net of tax	—	—		—	—		—		—		5		5
Common and treasury stock transactions:
Stock-based compensation	—	—		—	—		2,861		—		—		2,861
Vesting of equity awards	—	—		(23)	808		(808)		—		—		—
Re-issuance of treasury stock	—	—		(9)	280		65		—		—		345
Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,926)		—		(2,926)
Dividend equivalents on restricted stock units	—	—		—	—		—		(67)		—		(67)

Balance at June 30, 2021	19,586	$	196	56	$	(2,002)	$	228,116	$	70,514	$	2,729	$	299,553
Net income	—	—		—	—		—		24,498		—		24,498

Other comprehensive loss, net of tax	—	—		—	—		—		—		(661)		(661)
Common and treasury stock transactions:
Stock-based compensation	—	—		—	—		2,820		—		—		2,820
Vesting of equity awards	11	—		(51)	1,821		(1,821)		—		—		—

Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,939)		—		(2,939)
Dividend equivalents on restricted stock units	—	—		—	—		—		(15)		—		(15)

Balance at September 30, 2021	19,597	$	196	5	$	(181)	$	229,115	$	92,058	$	2,068	$	323,256

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

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2022		2021
Cash flows - operating activities	Cash flows - operating activities					Cash flows - operating activities
Net income (loss)		$	60,095	$	(43,245)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net income						Net income	$	63,442	$	60,095
Adjustments to reconcile net income to net cash provided by (used in) operating activities:						Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	Depreciation and amortization	16,576		20,638		Depreciation and amortization	7,824		16,576
Deferred income taxes	Deferred income taxes	(1,486)		700		Deferred income taxes	(976)		(1,486)
Stock-based compensation expense	Stock-based compensation expense	8,672		7,146		Stock-based compensation expense	11,691		8,672
Accretion expense related to earnout payments	Accretion expense related to earnout payments	363		—		Accretion expense related to earnout payments	820		363
Gain on marketable securities	Gain on marketable securities	(1)		(144)		Gain on marketable securities	(113)		(1)
Loss on disposal of property and equipment	Loss on disposal of property and equipment	127		289		Loss on disposal of property and equipment	376		127
Impairment charges		—		32,970
Changes in assets and liabilities, net of effects of acquisition:

Changes in assets and liabilities:						Changes in assets and liabilities:
Accounts receivable	Accounts receivable	(84,877)		(9,616)		Accounts receivable	(64,753)		(84,877)
Accounts payable	Accounts payable	2,931		2,809		Accounts payable	(3,250)		2,931
Accrued expenses	Accrued expenses	89,405		(77,776)		Accrued expenses	(32,414)		89,405
Restructuring accrual	Restructuring accrual	(5,024)		6,289		Restructuring accrual	—		(5,024)
Deferred revenue	Deferred revenue	6,453		(3,892)		Deferred revenue	(5,913)		6,453
Income taxes recoverable and payable, net	Income taxes recoverable and payable, net	14,937		(11,460)		Income taxes recoverable and payable, net	(5,661)		14,937
Retirement and pension plan assets and liabilities	Retirement and pension plan assets and liabilities	1,443		1,304		Retirement and pension plan assets and liabilities	3,476		1,443
Prepaid expenses	Prepaid expenses	(7,724)		(1,229)		Prepaid expenses	(6,637)		(7,724)
Other assets and liabilities, net	Other assets and liabilities, net	(37,114)		2,312		Other assets and liabilities, net	(8,960)		(37,114)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	64,776		(72,905)		Net cash provided by (used in) operating activities	(41,048)		64,776

Cash flows - investing activities	Cash flows - investing activities					Cash flows - investing activities
Acquisition of business, net of cash acquired	Acquisition of business, net of cash acquired	(31,969)		—		Acquisition of business, net of cash acquired	—		(31,969)
Capital expenditures	Capital expenditures	(3,902)		(7,121)		Capital expenditures	(8,176)		(3,902)

Purchases of marketable securities and investments	Purchases of marketable securities and investments	(1,997)		(118,668)		Purchases of marketable securities and investments	(186,097)		(1,997)
Proceeds from sales of marketable securities and investments	Proceeds from sales of marketable securities and investments	20,653		111,633		Proceeds from sales of marketable securities and investments	1,216		20,653
Net cash used in investing activities	Net cash used in investing activities	(17,215)		(14,156)		Net cash used in investing activities	(193,057)		(17,215)

Cash flows - financing activities	Cash flows - financing activities					Cash flows - financing activities
Proceeds from line of credit		—		100,000
Payments on line of credit		—		(100,000)

Cash dividends paid	Cash dividends paid	(8,927)		(9,019)		Cash dividends paid	(9,343)		(8,927)
Payment of employee tax withholdings on equity transactions	Payment of employee tax withholdings on equity transactions	(3,090)		(1,550)		Payment of employee tax withholdings on equity transactions	(3,219)		(3,090)
Acquisition earnout payments		—		(2,789)

Net cash used in financing activities	Net cash used in financing activities	(12,017)		(13,358)		Net cash used in financing activities	(12,562)		(12,017)

Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash	Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash	(3,707)		(723)		Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash	(23,082)		(3,707)

Net increase (decrease) in cash, cash equivalents and restricted cash	Net increase (decrease) in cash, cash equivalents and restricted cash	31,837		(101,142)		Net increase (decrease) in cash, cash equivalents and restricted cash	(269,749)		31,837
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	316,489		271,719		Cash, cash equivalents and restricted cash at beginning of period	545,259		316,489
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	348,326	$	170,577	Cash, cash equivalents and restricted cash at end of period	$	275,510	$	348,326

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

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except per share figures)

(Unaudited)

1. Basis of Presentation of Interim Financial Information

The accompanying unaudited Condensed Consolidated Financial Statements of Heidrick & Struggles International, Inc. and subsidiaries (the "Company") have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Significant items subject to estimates and assumptions include revenue recognition, income taxes, interim effective tax rate and the assessment of goodwill, other intangible assets and ~~long lived~~long-lived assets for impairment. Estimates are subject to a degree of uncertainty and actual results could differ from these estimates. In the opinion of management, all adjustments necessary to fairly present the financial position of the Company at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the results of operations for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 and its cash flows for the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 have been included and are of a normal, recurring nature except as otherwise disclosed. These financial statements and notes are to be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, as filed with the SEC on February ~~24, 2021.~~28, 2022.

2. Summary of Significant Accounting Policies

A complete listing of the Company’s significant accounting policies is discussed in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Revenue Recognition

See Note 3, Revenue.

Cost of Services

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

Research and Development

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

Marketable Securities

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

Restricted Cash

The following table provides a reconciliation of the cash and cash equivalents between the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Cash Flows as of September 30, ~~2021~~2022 and ~~2020,~~2021, and December 31, ~~2020~~2021 and ~~2019:~~2020:

September 30, December 31,
2021 2020 2020 2019
Cash and cash equivalents $ 348,292 $ 170,577 $ 316,473 $ 271,719
Restricted cash included within other non-current assets 34 — 16 —
Total cash, cash equivalents and restricted cash $ 348,326 $ 170,577 $ 316,489 $ 271,719


	September 30,				December 31,
	2022		2021		2021		2020
Cash and cash equivalents	$	275,468	$	348,292	$	545,225	$	316,473

Restricted cash included within other non-current assets	42		34		34		16
Total cash, cash equivalents and restricted cash	$	275,510	$	348,326	$	545,259	$	316,489

Earnings ~~(Loss)~~ per Common Share

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

The following table sets forth the computation of basic and diluted earnings ~~(loss)~~ per share:

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Net income (loss) $ 24,498 $ (26,178) $ 60,095 $ (43,245)
Weighted average shares outstanding:
Basic 19,569 19,351 19,489 19,281
Effect of dilutive securities:
Restricted stock units 524 — 584 —
Performance stock units 147 — 186 —
Diluted 20,240 19,351 20,259 19,281
Basic earnings (loss) per share $ 1.25 $ (1.35) $ 3.08 $ (2.24)
Diluted earnings (loss) per share $ 1.21 $ (1.35) $ 2.97 $ (2.24)

Weighted average restricted stock units and performance stock units outstanding that could be converted into approximately 315,000 and 63,000 common shares, respectively, for the three months ended September 30, 2020, and 454,000 and 98,000 common shares, respectively, for the nine months ended September 30, 2020, were not included in the computation of diluted earnings (loss) per share because the effects would be anti-dilutive.

~~Reclassifications~~

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	20,826	$	24,498	$	63,442	$	60,095
Weighted average shares outstanding:
Basic	19,816		19,569		19,723		19,489
Effect of dilutive securities:
Restricted stock units	462		524		646		584
Performance stock units	135		147		189		186
Diluted	20,413		20,240		20,558		20,259
Basic earnings per share	$	1.05	$	1.25	$	3.22	$	3.08
Diluted earnings per share	$	1.02	$	1.21	$	3.09	$	2.97

Leases

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

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

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

Recently Issued Financial Accounting Standards

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

~~Recently Adopted Financial Accounting Standards~~

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

3. Revenue

Executive Search

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

The Company estimates uptick revenue at contract inception, based on a portfolio approach, utilizing the expected value method based on a historical analysis of uptick revenue realized in the Company’s geographic regions and industry practices, and initially records a contract’s uptick revenue in an amount that is probable not to result in a significant reversal of cumulative revenue recognized when the actual amount of uptick revenue for the contract is known. Differences between the estimated and actual amounts of variable consideration are recorded when known. The Company does not estimate revenue for direct expenses as it is not materially different than recognizing revenue as direct expenses are incurred.

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

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

On-Demand Talent

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

Heidrick Consulting

Revenue is recognized as performance obligations are satisfied by transferring a good or service to a client. Heidrick Consulting enters into contracts with clients that outline the general terms and conditions of the assignment to provide succession planning, executive assessment, top team and board effectiveness and culture shaping programs. The consideration the Company expects to receive under each contract is generally fixed. Most of the Company's consulting contracts contain one performance obligation, which is the overall process of providing the consulting service requested by the client. The majority of ~~our~~the Company's consulting revenue is recognized over time utilizing both input and output methods. Contracts that contain coaching sessions, training sessions or the completion of assessments are recognized using the output method as each session or assessment is delivered to the client. Contracts that contain general consulting work are recognized using the input method utilizing a measure of progress that is based on time incurred on the project.

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

~~On-Demand Talent~~

Contract Balances

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

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

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

upticks and contingent placement fees in executive search contracts.

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

recognized.

The following table outlines the changes in the contract asset and liability balances from December 31, ~~2020~~2021 to September 30, ~~2021:~~2022:


		September 30, 2021		December 31, 2020		Change			September 30, 2022		December 31, 2021		Change
Contract assets	Contract assets							Contract assets
Unbilled receivables, net	Unbilled receivables, net	$	16,584	$	9,907	$	6,677	Unbilled receivables, net	$	15,455	$	17,947	$	(2,492)
Contract assets	Contract assets	13,886		9,745		4,141		Contract assets	21,316		18,995		2,321
Total contract assets	Total contract assets	30,470		19,652		10,818		Total contract assets	36,771		36,942		(171)

Contract liabilities	Contract liabilities							Contract liabilities
Deferred revenue	Deferred revenue	$	45,284	$	38,050	$	7,234	Deferred revenue	$	43,547	$	51,404	$	(7,857)

During the nine months ended September 30, ~~2021,~~2022, the Company recognized revenue of ~~$33.6~~$44.3 million that was included in the contract liabilities balance at the beginning of the period. The amount of revenue recognized during the nine months ended September 30, ~~2021,~~2022 from performance obligations partially satisfied in previous periods as a result of changes in the estimates of variable consideration was ~~$26.0~~$14.9 million.

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

4. Credit Losses

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

The activity in the allowance for credit losses on the Company's trade receivables is as follows:


Balance at December 31, ~~2020~~2021	$	~~6,557~~5,666
Provision for credit losses	~~4,622~~6,129
Write-offs	~~(3,523)~~(4,649)
Foreign currency translation	~~(94)~~(246)
Balance at September 30, ~~2021~~2022	$	~~7,562~~6,900

The Company had zero available for sale debt securities in an unrealized loss position at September 30, 2022 and December 31, 2021.

The fair value and unrealized losses on available for sale debt securities, aggregated by investment category and the length of time the security has been in an unrealized loss position, are as follows:

Less Than 12 Months Balance Sheet Classification
Balance at September 30, 2021 Fair Value Unrealized Loss Cash and Cash Equivalents Marketable Securities
U.S. Treasury securities $ 36,198 $ 1 $ 36,198 $ —

Less Than 12 Months Balance Sheet Classification
Balance at December 31, 2020 Fair Value Unrealized Loss Cash and Cash Equivalents Marketable Securities
U.S. Treasury securities $ 31,997 $ 1 $ 31,997 $ —

5. Property and Equipment, net

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


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Leasehold improvements	Leasehold improvements	$	35,980	$	40,320	Leasehold improvements	$	40,114	$	42,252
Office furniture, fixtures and equipment	Office furniture, fixtures and equipment	13,858		14,816		Office furniture, fixtures and equipment	13,636		14,933
Computer equipment and software	Computer equipment and software	24,714		25,544		Computer equipment and software	28,306		24,293
Property and equipment, gross	Property and equipment, gross	74,552		80,680		Property and equipment, gross	82,056		81,478
Accumulated depreciation	Accumulated depreciation	(53,613)		(57,188)		Accumulated depreciation	(52,739)		(54,393)
Property and equipment, net	Property and equipment, net	$	20,939	$	23,492	Property and equipment, net	$	29,317	$	27,085

Depreciation expense for each of the three months ended September 30, ~~2021~~2022 and ~~2020~~2021 was $1.8 ~~million and $2.1 million, respectively.~~million. Depreciation expense for the nine months ended September 30, 2022 and 2021 ~~and 2020~~ was ~~$5.3~~$5.4 million and ~~$6.2~~$5.3 million, respectively.

6. Leases

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

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

Office leases have remaining lease terms that range from less than one year to ~~11.8~~10.8 years, some of which also include options to extend or terminate the lease. Most office leases contain both fixed and variable lease payments. Variable lease costs consist primarily of rent escalations based on an established index or rate and taxes, insurance, and common area or other maintenance costs, which are paid based on actual costs incurred by the lessor. The Company has elected to utilize the available practical expedient to not separate lease and non-lease components for office leases.

~~Under~~As part of the Company's ~~restructuring plan,~~2020 Plan (as defined below), a lease component related to one of the Company's offices was abandoned and the useful life of the associated right-of-use asset was shortened to correspond with the cease-use date. As a result of the change in the useful life, approximately $8.7 million and $1.2 million of right-of-use asset amortization was accelerated and recorded in

Restructuring charges in the Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ and Depreciation and amortization in the Condensed Consolidated Statements of Cash Flows during the three and nine months ended September 30, 2021, respectively. ~~Approximately $10.6 million of right-of-use asset amortization was accelerated and recorded in~~ ~~Restructuring charges~~ ~~in the Condensed Consolidated Statements of Comprehensive Income (Loss) and~~ ~~Depreciation and amortization~~ ~~in the Condensed Consolidated Statements of Cash Flows during the three and nine months ended September 30, 2020.~~ In September 2021, the Company entered into a termination and surrender agreement for this lease component. Under the terms of the agreement, the Company made a one-time payment of $11.7 million to release the Company from all remaining obligations under the lease. At the time of payment, the Company had accrued approximately $17.4 million of lease liabilities related to future payments under the remaining lease term. Upon making the one-time payment, the lease liabilities were relieved, resulting in a gain on termination of approximately $5.7 million, which is recorded in Restructuring charges in the Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the three and nine months ended September 30, 2021.

Equipment leases, which are comprised of vehicle and office equipment leases, have remaining terms that range from less than one year to ~~4.5~~4.8 years, some of which also include options to extend or terminate the lease. The Company's equipment leases do not contain variable lease payments. The Company separates the lease and non-lease components for its equipment leases. Equipment leases do not comprise a significant portion of the Company's lease portfolio.

Lease cost components included within General and ~~Administrative Expenses~~administrative expenses in ~~our~~the Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Operating lease cost	Operating lease cost	$	4,682	$	6,241	$	14,457	$	18,688	Operating lease cost	$	4,124	$	4,682	$	12,967	$	14,457
Variable lease cost	Variable lease cost	1,480		1,048		3,785		4,832		Variable lease cost	1,760		$	1,480	4,393		3,785
Total lease cost	Total lease cost	$	6,162	$	7,289	$	18,242	$	23,520	Total lease cost	$	5,884	$	6,162	$	17,360	$	18,242

Supplemental cash flow information related to the Company's operating leases is as follows for the nine months ended September 30:


		2021		2020			2022		2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	38,387	$	23,258	Operating cash flows from operating leases	$	13,572	$	38,387
Right-of-use assets obtained in exchange for lease obligations:	Right-of-use assets obtained in exchange for lease obligations:					Right-of-use assets obtained in exchange for lease obligations:
Operating leases	Operating leases	$	4,286	$	10,581	Operating leases	$	9,059	$	4,286

The weighted average remaining lease term and weighted average discount rate for operating leases as of September 30, isare as follows:


		2021		2020			2022		2021
Weighted Average Remaining Lease Term	Weighted Average Remaining Lease Term					Weighted Average Remaining Lease Term
Operating leases	Operating leases	6.5 years		4.4 years		Operating leases	6.5 years		6.5 years
Weighted Average Discount Rate	Weighted Average Discount Rate					Weighted Average Discount Rate
Operating leases	Operating leases	3.26	%	3.75	%	Operating leases	3.31	%	3.26	%

The future maturities of the Company's operating lease liabilities as of September 30, ~~2021,~~2022, for the years ended December 31 isare as follows:


		Operating Lease Maturity			Operating Lease Maturity
2021		$	3,976
2022	2022	18,602		2022	$	3,208
2023	2023	16,630		2023	18,466
2024	2024	14,592		2024	17,372
2025	2025	7,283		2025	10,399
2026				2026	8,934
Thereafter	Thereafter	30,877		Thereafter	29,147
Total lease payments	Total lease payments	91,960		Total lease payments	87,526
Less: Interest	Less: Interest	(9,632)		Less: Interest	(9,276)
Present value of lease liabilities	Present value of lease liabilities	$	82,328	Present value of lease liabilities	$	78,250

7. Financial Instruments and Fair Value

Cash, Cash Equivalents and Marketable Securities

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

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


	Fair Value				Balance Sheet Classification
	Amortized Cost		Unrealized Gains		Fair Value		Cash and Cash Equivalents		Marketable Securities
Balance at September 30, 2022
Cash							$	163,244	$	—

Level 1(1):
Money market funds							46,825		—
U.S. Treasury securities	$	245,898	$	8	$	245,906	65,399		180,507
Total Level 1	245,898		8		245,906		112,224		180,507




Total	$	245,898	$	8	$	245,906	$	275,468	$	180,507

Cash and Cash Equivalents

Balance at ~~September 30,~~December 31, 2021

Cash

~~165,934~~265,233

Level 1(1):

Money market funds

~~80,161~~80,798

U.S. Treasury securities

~~102,197~~199,194

Total Level 1

~~182,358~~279,992

Total

~~348,292~~545,225

Fair Value Balance Sheet Classification
Amortized Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Marketable Securities
Balance at December 31, 2020
Cash $ 230,490 $ —
Level 1(1):
Money market funds 53,986 —
U.S. Treasury securities $ 51,996 $ 1 $ (1) $ 51,996 31,997 19,999
Total Level 1 51,996 1 (1) 51,996 85,983 19,999
Total $ 51,996 $ 1 $ (1) $ 51,996 $ 316,473 $ 19,999

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

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

The Company has a U.S. non-qualified deferred compensation plan that consists primarily of U.S. marketable securities and mutual funds. The aggregate cost basis for these investments was ~~$21.2~~$28.0 million and ~~$19.5~~$22.9 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

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

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


				Balance Sheet Classification											Balance Sheet Classification
		Fair Value		Other Current Assets		Assets Designated for Retirement and Pension Plans		Investments		Other Current Liabilities		Retirement and Pension Plans			Fair Value		Other Current Assets		Assets Designated for Retirement and Pension Plans		Investments		Other Current Liabilities		Retirement and Pension Plans
Balance at September 30, 2021
Balance at September 30, 2022														Balance at September 30, 2022

Measured on a recurring basis:	Measured on a recurring basis:													Measured on a recurring basis:
Level 1(1):	Level 1(1):													Level 1(1):
U.S. non-qualified deferred compensation plan	U.S. non-qualified deferred compensation plan	$	34,738	$	—	$	—	$	34,738	$	—	$	—	U.S. non-qualified deferred compensation plan	$	31,728	$	—	$	—	$	31,728	$	—	$	—

Level 2(2):	Level 2(2):													Level 2(2):
Retirement and pension plan assets	Retirement and pension plan assets	15,031		1,359		13,672		—		—		—		Retirement and pension plan assets	12,110		1,149		10,961		—		—		—
Pension benefit obligation	Pension benefit obligation	(21,184)		—		—		—		(1,359)		(19,825)		Pension benefit obligation	(16,891)		—		—		—		(1,149)		(15,742)
Total Level 2	Total Level 2	(6,153)		1,359		13,672		—		(1,359)		(19,825)		Total Level 2	(4,781)		1,149		10,961		—		(1,149)		(15,742)

Total	Total	$	28,585	$	1,359	$	13,672	$	34,738	$	(1,359)	$	(19,825)	Total	$	26,947	$	1,149	$	10,961	$	31,728	$	(1,149)	$	(15,742)


				Balance Sheet Classification															Balance Sheet Classification
		Fair Value		Other Current Assets		Goodwill		Assets Designated for Retirement and Pension Plans		Investments		Other Current Liabilities		Retirement and Pension Plans			Fair Value		Other Current Assets		Assets Designated for Retirement and Pension Plans		Investments		Other Current Liabilities		Retirement and Pension Plans
Balance at December 31, 2020
Balance at December 31, 2021																Balance at December 31, 2021

Measured on a recurring basis:	Measured on a recurring basis:															Measured on a recurring basis:
Level 1(1):	Level 1(1):															Level 1(1):
U.S. non-qualified deferred compensation plan	U.S. non-qualified deferred compensation plan	$	31,369	$	—	$	—	$	—	$	31,369	$	—	$	—	U.S. non-qualified deferred compensation plan	$	36,051	$	—	$	—	$	36,051	$	—	$	—

Level 2(2):	Level 2(2):															Level 2(2):
Retirement and pension plan assets	Retirement and pension plan assets	15,859		1,434		—		14,425		—		—		—		Retirement and pension plan assets	14,048		1,333		12,715		—		—		—
Pension benefit obligation	Pension benefit obligation	(22,351)		—		—		—		—		(1,434)		(20,917)		Pension benefit obligation	(19,594)		—		—		—		(1,333)		(18,261)
Total Level 2	Total Level 2	(6,492)		1,434		—		14,425		—		(1,434)		(20,917)		Total Level 2	(5,546)		1,333		12,715		—		(1,333)		(18,261)

Measured on a non-recurring basis:
Level 3(3)(4):
Goodwill		91,643				91,643

Total	Total	$	116,520	$	1,434	$	91,643	$	14,425	$	31,369	$	(1,434)	$	(20,917)	Total	$	30,505	$	1,333	$	12,715	$	36,051	$	(1,333)	$	(18,261)

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

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

~~(3)~~Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

~~(4)~~In accordance with Subtopic 350-20, goodwill with a carrying value of $33.0 million was written down to its implied fair value of zero during the three months ended June 30, 2020, resulting in the revised total goodwill of $91.6 million and an impairment charge of $33.0 million in earnings.

Contingent Consideration and Compensation

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

The following table provides a reconciliation of the beginning and ending balance of Level 3 liabilities for the nine months ended September 30, ~~2021:~~2022:


		Earnout		Contingent Compensation			Earnout		Contingent Compensation
Balance at December 31, 2020		$	—	$	(2,390)
Acquisition earnout (See Note 8, Acquisitions)		(23,800)		—
Balance at December 31, 2021						Balance at December 31, 2021	$	(35,654)	$	(4,141)

Earnout accretion	Earnout accretion	(363)		—		Earnout accretion	(820)		—
Compensation expense	Compensation expense	—		(1,398)		Compensation expense	—		(2,971)

Fair value adjustment						Fair value adjustment	507		—
Foreign currency translation	Foreign currency translation	—		139		Foreign currency translation	—		85

Balance at September 30, 2021		$	(24,163)	$	(3,649)
Balance at September 30, 2022						Balance at September 30, 2022	$	(35,967)	$	(7,027)

Earnout accruals of $36.0 million and ~~contingent compensation~~zero were recorded within Other current liabilities as of September 30, 2022 and December 31, 2021, respectively, and earnout accruals ~~are~~of zero and $35.7 million were recorded within Other non-current liabilities as of September 30, 2022 and December 31, 2021, respectively. Contingent compensation accruals of $1.1 million and $5.9 million are recorded within current Accrued salaries and benefits and non-current Accrued salaries and benefits,respectively, ~~in the Condensed Consolidated Balance Sheets as of~~at September 30, ~~2021~~2022. Contingent compensation accruals of $4.1 million are recorded within non-current Accrued salaries and benefits at December 31, ~~2020.~~2021.

8. ~~Acquisitions~~

On April 1, 2021, the Company acquired Business Talent Group, LLC ("BTG"), a market-leader in sourcing high-end, on-demand independent talent. Under the terms of the merger agreement, the Company paid $32.6 million of initial consideration from existing cash for the outstanding equity of BTG. The former owners of BTG are eligible to receive additional cash consideration, which the Company estimates to be between $20.0 million and $30.0 million, based on the achievement of certain revenue and operating income milestones for the period from acquisition through 2022. When estimating the present value of future cash consideration, the Company accrued $23.8 million as of the acquisition date for the earnout liability. The Company recorded $5.8 million for customer relationships, $3.1 million for software, $1.7 million for a trade name and $45.5 million of goodwill. The goodwill is primarily related to the acquired workforce and strategic fit. As of the acquisition date, the Company expects that all of the goodwill will be deductible for tax purposes. The fair value estimate of assets acquired and liabilities assumed, including the earnout liability, identifiable intangible assets and goodwill, is pending completion. The Company expects to finalize its estimates of fair value during the three months ended December 31, 2021. Included in the Company's results of operations for the three and nine months ended September 30, 2021 are $24.3 million and $43.0 million of revenue, respectively, and $0.9 million and $1.0 million of operating income, respectively, from the acquired entity.

9. Goodwill and Other Intangible Assets

Goodwill

The Company's goodwill by segment is as follows:


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Executive Search	Executive Search					Executive Search
Americas	Americas	$	91,518	$	91,643	Americas	$	91,212	$	91,463

Europe						Europe	1,328		1,532

Total Executive Search	Total Executive Search	91,518		91,643		Total Executive Search	92,540		92,995
On-Demand Talent	On-Demand Talent	45,529		—		On-Demand Talent	45,529		45,529

Total goodwill	Total goodwill	$	137,047	$	91,643	Total goodwill	$	138,069	$	138,524

Changes in the carrying amount of goodwill by segment for the nine months ended September 30, ~~2021,~~2022, are as follows:

Executive Search On-Demand Talent
Americas Europe Asia Pacific Total
Goodwill $ 91,643 $ 24,475 $ 8,495 $ — $ 124,613
Accumulated impairment losses — (24,475) (8,495) — (32,970)
Balance at December 31, 2020 91,643 — — — 91,643
BTG acquisition — — — 45,529 45,529
Foreign currency translation (125) — — — (125)
Balance at September 30, 2021 $ 91,518 $ — $ — $ 45,529 $ 137,047

~~In April 2021, the Company acquired BTG and included $45.5 million of goodwill related to the acquisition in the On-Demand Talent operating segment.~~


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




Foreign currency translation	(251)		(204)		—		—		(455)

Goodwill	91,212		25,803		8,495		45,529		171,039
Accumulated impairment losses	—		(24,475)		(8,495)		—		(32,970)
Balance at September 30, 2022	$	91,212	$	1,328	$	—	$	45,529	$	138,069

1615

Other Intangible Assets, net

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

September 30,
2021 December 31,
2020
Executive Search
Americas $ 122 $ 225
Europe 544 852
Asia Pacific 37 52
Total Executive Search 703 1,129
On-Demand Talent 9,520 —
Total other intangible assets, net $ 10,223 $ 1,129

In April 2021, the Company acquired BTG and recorded customer relationships, software and trade name intangible assets in the On-Demand Talent operating segment of $5.8 million, $3.1 million and $1.7 million, respectively. The combined weighted-average amortization period for the acquired intangible assets is 7.4 years with amortization periods of 11.0, 3.0 and 3.0 years for the customer relationships, software and trade name, respectively.


	September 30, 2022		December 31, 2021
Executive Search
Americas	$	58	$	103
Europe	241		463
Asia Pacific	18		33
Total Executive Search	317		599



On-Demand Talent	6,681		8,570
Total other intangible assets, net	$	6,998	$	9,169

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


		Weighted Average Life (Years)	September 30, 2021						December 31, 2020							Weighted Average Life (Years)	September 30, 2022						December 31, 2021
			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount				Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Client relationships	Client relationships	10.5	$	22,144	$	(16,000)	$	6,144	$	16,600	$	(15,587)	$	1,013	Client relationships	10.7	$	20,807	$	(16,022)	$	4,785	$	22,127	$	(16,495)	$	5,632
Trade name	Trade name	3.1	2,445		(958)		1,487		280		(164)		116		Trade name	3.1	2,369		(1,711)		658		2,441		(1,237)		1,204
Software	Software	3.0	3,110		(518)		2,592		—		—		—		Software	3.0	3,110		(1,555)		1,555		3,110		(777)		2,333
Total intangible assets	Total intangible assets	7.5	$	27,699	$	(17,476)	$	10,223	$	16,880	$	(15,751)	$	1,129	Total intangible assets	8.3	$	26,286	$	(19,288)	$	6,998	$	27,678	$	(18,509)	$	9,169

Intangible asset amortization expense for each of the three months ended September 30, ~~2021~~2022 and ~~2020~~2021 was $0.8 ~~million and $0.2 million, respectively.~~million. Intangible asset amortization expense for the nine months ended September 30, 2022 and 2021 ~~and 2020~~ was ~~$1.8~~$2.4 million and ~~$0.6~~$1.8 million, respectively.

The Company's estimated future amortization expense related to intangible assets as of September 30, ~~2021,~~2022, for the following years ended December 31 is as follows:


2021		$	626
2022	2022	2,763		2022	$	685
2023	2023	2,885		2023	2,711
2024	2024	1,346		2024	1,146
2025	2025	801		2025	759
2026				2026	527
Thereafter	Thereafter	1,802		Thereafter	1,170
Total	Total	$	10,223	Total	$	6,998

~~10.~~9. Other Current Assets and Liabilities

The components of other current assets are as follows:


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Contract assets	Contract assets	$	30,470	$	19,652	Contract assets	$	36,771	$	36,942
Other	Other	3,977		3,627		Other	4,807		4,507
Total other current assets	Total other current assets	$	34,447	$	23,279	Total other current assets	$	41,578	$	41,449

The components of other current liabilities are as follows:


	September 30, 2022		December 31, 2021
Earnout liability	$	35,967	$	—
Other	23,334		24,554
Total other current liabilities	$	59,301	$	24,554

1716

~~11.~~10. Line of Credit

On July 13, 2021, the Company entered into a First Amendment to the 2018 Credit Agreement (the ~~"Amendment"~~"Credit Agreement"). The ~~Amendment~~Credit Agreement provides 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 ~~2018 Credit Agreement,~~original 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. The ~~Amendment~~Credit Agreement matures on July 13, 2026, extended from October 26, 2023 as set forth in the ~~2018 Credit Agreement.~~original agreement.

Borrowings under the ~~Amendment~~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 ~~Amendment~~Credit Agreement are guaranteed by certain of the Company’s subsidiaries.

During the three months ended March 31, 2020, the Company borrowed $100.0 million under the 2018 Credit Agreement. The Company elected to draw down a portion of the available funds from its revolving line of credit as a precautionary measure to increase its cash position and further enhance its financial flexibility in light of the uncertainty in global markets resulting from the COVID-19 outbreak. The Company subsequently repaid $100.0 million during the three months ended September 30, 2020.

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had 0no outstanding borrowings. The Company was in compliance with the financial and other covenants under the ~~Amendment~~Credit Agreement and no event of default existed.

~~12.~~11. Stock-Based Compensation

~~On May 28, 2020, the stockholders of the Company approved an amendment to the~~The Company's ~~Second~~Third Amended and Restated 2012 Heidrick & Struggles GlobalShare Program ~~(as so amended, the~~(the "Third A&R ~~2012~~ Program") ~~to increase the number of shares of Common Stock reserved for issuance under the 2012 Program by 500,000 shares. The Third A&R 2012 Program~~ provides for grants of stock options, stock appreciation rights, and other stock-based compensation awards that are valued based upon the grant date fair value of ~~shares.~~awards. These awards may be granted to directors, selected employees and independent contractors.

As of September 30, ~~2021, 3,369,759~~2022, 3,769,836 awards have been issued under the Third A&R ~~2012~~ Program, including ~~742,624~~754,580 forfeited awards, and ~~722,865~~334,744 shares remain available for future awards. The Third A&R ~~2012~~ Program provides that no awards can be granted after May 28, 2028.

The Company measures its stock-based compensation costs based on the grant date fair value of the awards and recognizes these costs over the requisite service period.

A summary of information with respect to stock-based compensation is as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Salaries and benefits (1)	Salaries and benefits (1)	$	3,321	$	3,850	$	14,552	$	6,645	Salaries and benefits (1)	$	3,535	$	3,321	$	7,713	$	14,552
General and administrative expenses	General and administrative expenses	—		—		345		460		General and administrative expenses	405		—		810		345
Income tax benefit related to stock-based compensation included in net income (loss)		886		1,022		3,976		1,886
Income tax benefit related to stock-based compensation included in net income										Income tax benefit related to stock-based compensation included in net income	1,072		886		2,320		3,976

(1) Includes ~~$0.5~~$0.2 million of income and ~~$0.7~~$0.5 million of expense related to ~~cash settled~~cash-settled restricted stock units for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$6.2~~$3.1 million of income and ~~less than $0.1~~$6.2 million of expense related to ~~cash settled~~cash-settled restricted stock units for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Restricted Stock Units

Restricted ~~stock units are generally subject to ratable vesting over a three-year period. A portion of the Company's restricted~~ stock units are subject to ratable vesting over a ~~four-year period.~~three-year or four-year period dependent upon the terms of the individual grant. Compensation expense related to service-based restricted stock units is recognized on a straight-line basis over the vesting period.

Restricted stock unit activity for the nine months ended September 30, ~~2021~~2022 is as follows:


		Number of Restricted Stock Units	Weighted- Average Grant-Date Fair Value			Number of Restricted Stock Units	Weighted- Average Grant-Date Fair Value
Outstanding on December 31, 2020		707,864	$	28.35
Outstanding on December 31, 2021					Outstanding on December 31, 2021	727,651	$	31.32
Granted	Granted	254,176	38.84		Granted	287,954	34.05
Vested and converted to common stock	Vested and converted to common stock	(218,950)	30.65		Vested and converted to common stock	(272,601)	32.25
Forfeited	Forfeited	(16,080)	30.90		Forfeited	(9,703)	35.68
Outstanding on September 30, 2021		727,010	$	31.27
Outstanding on September 30, 2022					Outstanding on September 30, 2022	733,301	$	31.99

As of September 30, ~~2021,~~2022, there was ~~$10.5~~$9.6 million of pre-tax unrecognized compensation expense related to unvested restricted stock units, which is expected to be recognized over a weighted average of 2.6 years.

Performance Stock Units

The Company grants performance stock units to certain of its senior executives. The performance stock units are generally subject to a cliff vesting at the end of a three-year period. The vesting will vary between 0% and 200% based on the attainment of ~~operating income goals~~certain performance and market conditions over the three-year vesting period. Half of the award is based on the achievement of ~~certain~~ operating margin thresholds and half of the award is based on the Company's total shareholder return, relative to a peer group. The fair value of the awards ~~based on~~subject to total shareholder return ~~was~~metrics is determined using the ~~Monte-Carlo~~Monte Carlo simulation model. A Monte Carlo simulation model uses stock price volatility and other variables to estimate the probability of satisfying the performance conditions and the resulting fair value of the award. The performance stock units are expensed on a straight-line basis over the three-year vesting period.

Performance stock unit activity for the nine months ended September 30, ~~2021~~2022 is as follows:


		Number of Performance Stock Units	Weighted- Average Grant-Date Fair Value			Number of Performance Stock Units	Weighted- Average Grant-Date Fair Value
Outstanding on December 31, 2020		234,934	$	29.80
Outstanding on December 31, 2021					Outstanding on December 31, 2021	232,857	$	39.88
Granted	Granted	106,357	35.99		Granted	97,379	49.59
Vested and converted to common stock	Vested and converted to common stock	(90,284)	30.60		Vested and converted to common stock	(69,784)	52.91
Forfeited	Forfeited	(18,150)	30.09		Forfeited	—	—
Outstanding on September 30, 2021		232,857	$	32.29
Outstanding on September 30, 2022					Outstanding on September 30, 2022	260,452	$	40.02

As of September 30, ~~2021,~~2022, there was ~~$5.7~~$6.0 million of pre-tax unrecognized compensation expense related to unvested performance stock units, which is expected to be recognized over a weighted average of 1.9 years.

Phantom Stock Units

Phantom stock units are grants of phantom stock with respect to shares of the Company's common stock that are settled in cash and are subject to various restrictions, including restrictions on transferability, vesting and forfeiture provisions. Shares of phantom stock that do not vest for any reason will be forfeited by the recipient and will revert to the Company.

Phantom stock units ~~were granted to certain employees of the Company and~~ are subject to vesting over a period of four years, and such vesting is subject to certain other conditions, including continued service to the Company. As a result of the cash-settlement feature of the awards, the Company ~~considers~~classifies the awards ~~to be~~as liability awards, which are measured at fair value at each reporting date and the vested portion of the award is recognized as a liability to the extent that the service condition is deemed probable. The fair value of the phantom stock awards on the balance sheet date ~~was~~is determined using the closing share price of the Company's common stock on that date.

The Company recorded phantom stock-based compensation income of $0.2 million and expense of $0.5 ~~million and $0.7~~ million during the three months ended September 30, 2022 and 2021, respectively, and ~~2020, respectively. The Company recorded phantom stock-based compensation expense~~$3.1 million of income and $6.2 million ~~and less than $0.1 million during~~of expense related to phantom stock units for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Phantom stock unit activity for the nine months ended September 30, ~~2021~~2022 is as follows:


			Number of Phantom Stock Units
Outstanding on December 31, ~~2020~~2021			~~351,634~~348,863
Granted			~~63,575~~95,675
Vested			~~(61,539)~~(119,333)
Forfeited			~~(4,807)~~—
Outstanding on September 30, ~~2021~~2022			~~348,863~~325,205

As of September 30, ~~2021,~~2022, there was ~~$6.1~~$3.7 million of pre-tax unrecognized compensation expense related to unvested phantom stock units, which is expected to be recognized over a weighted average of ~~3.1~~3.4 years.

1312. Restructuring

During the ~~three months~~year ended ~~September 30,~~December 31, 2020, the Company implemented a restructuring plan (the "2020 Plan") to optimize future growth and profitability. The primary components of the ~~restructuring~~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 Company continued to incur charges related to the 2020 Plan during the year ended December 31, 2021, which primarily related to finalizing a reduction of the Company's real estate footprint.

The Company did not incur any charges under the 2020 Plan during the three and nine months ended September 30, 2022 and does not anticipate incurring any future charges under the 2020 Plan.

Restructuring charges (reversals) for the three months ended September 30, 2021 by type of charge (reversal) and ~~reportable~~operating segment are as follows:


	Executive Search
	Americas		Europe		Asia Pacific		Heidrick Consulting		Global Operations Support		Total
Employee related	$	4	$	9	$	—	$	—	$	94	$	107
Office related	(2,891)		—		—		(279)		(199)		(3,369)

Total	$	(2,887)	$	9	$	—	$	(279)	$	(105)	$	(3,262)

Restructuring charges (reversals) for the nine months ended September 30, 2021 by type of charge (reversal) and ~~reportable~~operating segment are as follows:


	Executive Search
	Americas		Europe		Asia Pacific		Heidrick Consulting		Global Operations Support		Total
Employee related	$	20	$	(97)	$	(124)	$	(44)	$	62	$	(183)
Office related	3,859		—		—		399		(296)		3,962
Other	3		—		—		—		10		13
Total	$	3,882	$	(97)	$	(124)	$	355	$	(224)	$	3,792

Restructuring charges incurred ~~to date,~~through September 30, 2022 under the 2020 Plan, which ~~includes~~are solely comprised of prior period charges, by type of charge and ~~reportable~~operating segment are as follows:


		Executive Search													Executive Search
		Americas		Europe		Asia Pacific		Heidrick Consulting		Global Operations Support		Total			Americas		Europe		Asia Pacific		Heidrick Consulting		Global Operations Support		Total
Employee related	Employee related	$	16,224	$	8,257	$	4,110	$	2,590	$	1,415	$	32,596	Employee related	$	16,226	$	8,256	$	4,110	$	2,589	$	1,416	$	32,597
Office related	Office related	18,101		226		374		2,352		1,819		22,872		Office related	18,101		226		374		2,352		1,819		22,872
Other	Other	34		24		6		71		560		695		Other	34		24		6		71		560		695
Total	Total	$	34,359	$	8,507	$	4,490	$	5,013	$	3,794	$	56,163	Total	$	34,361	$	8,506	$	4,490	$	5,012	$	3,795	$	56,164

As part of the Company's reduction in real estate expenses under the 2020 Plan, a lease component related to one of the Company's offices was abandoned. In September 2021, the Company entered into a termination and surrender agreement for this lease component. Under the terms of the agreement, the Company made a one-time payment of $11.7 million to release the Company from all remaining obligations under the lease. At the time of payment, the Company had accrued approximately $17.4 million of lease liabilities related to future payments under the remaining lease term. Upon making the one-time payment, the lease liabilities were relieved, resulting in a gain on termination of approximately $5.7 million, which is recorded in Restructuring charges in the ~~Condensed~~ Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021.

Changes toin the ~~accrual for~~ restructuring ~~charges~~accrual for the nine months ended September 30, ~~2021, are~~2022 were as follows:

Employee Related Office Related Other Total
Outstanding on December 31, 2020 $ 22,312 $ 953 $ — $ 23,265
Restructuring charges (183) 3,962 13 3,792
Cash payments (13,701) (712) (13) (14,426)
Non cash write offs 44 (4,147) — (4,103)
Other — — — —
Exchange rate fluctuations (77) — — (77)
Outstanding on September 30, 2021 $ 8,395 $ 56 $ — $ 8,451


	Employee Related























Accrual balance at December 31, 2021	8,394

Cash payments	(4,843)
Non-cash write-offs	(34)

Exchange rate fluctuations	(157)
Accrual balance at September 30, 2022	$	3,360

Restructuring accruals are recorded within ~~Other~~ current ~~liabilities~~ in the Condensed Consolidated Balance Sheets with the exception of certain employee related accruals. Accruals associated with the elimination of certain deferred compensation programs of $4.9 million and $3.6 million are recorded within current and non-current Accrued salaries and benefits~~, respectively,~~ as of September 30, 2021. Accruals associated with the elimination of certain deferred compensation programs of $7.2 million and $11.3 million are recorded within current and non-current Accrued salaries and benefits, respectively, as of December 31, 2020.2022.

~~14.~~13. Income Taxes

The Company reported income before taxes of $29.5 million and an income tax provision of $8.7 million for the three months ended September 30, 2022. The Company reported income before taxes of $33.6 million and an income tax provision of $9.1 million for the three months ended September 30, 2021. The ~~Company reported loss before taxes of $36.6 million and an income~~effective tax ~~benefit of $10.4 million~~rates for the three months ended September 30, ~~2020.~~2022 and 2021, were 29.5% and 27.0%, respectively. The effective tax rates for the three months ended September 30, 2022 and 2021 were each impacted by various permanent items and ~~2020, were 27.0%~~the jurisdictional mix of income.

The Company reported income before taxes of $92.3 million and ~~28.5%, respectively. The effective~~an income tax ~~rate~~provision of $28.9 million for the ~~three~~nine months ended September 30, 2021 was impacted by one-time items and the mix of income. The effective tax rate for the three months ended September 30, 2020 was impacted by the tax effect on restructuring expense, the inability to recognize losses, and taxes based on gross receipts.

2022. The Company reported income before taxes of $88.1 million and an income tax provision of $28.0 million for the nine months ended September 30, 2021. The ~~Company reported loss before taxes of $43.4 million and an income tax benefit of $0.2 million for the nine months ended September 30, 2020. The~~ effective tax rates for the nine months ended September 30, 2022 and 2021, were 31.3% and ~~2020, were~~ 31.8% ~~and 0.5%~~, respectively. The effective tax rate for the nine months ended September 30, 2022 and 2021 ~~was~~were each impacted by ~~one-time~~various permanent items and the jurisdictional mix of income. The effective tax rate for the nine months ended September 30, 2020 was impacted by the inability to deduct goodwill impairment, the inability to recognize losses, and taxes based on gross receipts, offset by the benefit provided by restructuring expense.

~~15.~~

14. Changes in Accumulated Other Comprehensive Income (Loss)

The changes in Accumulated other comprehensive income (loss) (“AOCI”) by component for the nine months ended September 30, ~~2021~~2022 are as follows:

Foreign
Currency
Translation Pension AOCI
Balance at December 31, 2020 $ 6,184 $ (2,767) $ 3,417
Other comprehensive loss before classification, net of tax (1,349) — (1,349)
Balance at September 30, 2021 $ 4,835 $ (2,767) $ 2,068


	Available- for- Sale Securities		Foreign Currency Translation		Pension		AOCI
Balance at December 31, 2021	$	—	$	4,294	$	(2,619)	$	1,675
Other comprehensive income (loss) before reclassification, net of tax	8		(14,068)		—		(14,060)
Balance at September 30, 2022	$	8	$	(9,774)	$	(2,619)	$	(12,385)

~~16.~~15. Segment Information

In April 2021, the Company acquired BTG, a market-leader in sourcing high-end, on-demand independent talent. As a result of the acquisition, the Company identified a new operating segment, On-Demand Talent. The Company ~~now~~ 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.

For segment purposes, reimbursements of out-of-pocket expenses classified as revenue and other operating income are reported separately and, therefore, are not included in the results of each segment. The Company believes that analyzing trends in revenue before reimbursements (net revenue), analyzing operating expenses as a percentage of net revenue, and analyzing operating income, more appropriately reflect its core operations.

~~The revenue~~Revenue and operating income ~~(loss)~~ by segment are as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenue	Revenue									Revenue
Executive Search	Executive Search									Executive Search
Americas	Americas	$	148,844	$	79,947	$	412,740	$	265,088	Americas	$	143,747	$	148,844	$	482,320	$	412,740
Europe	Europe	42,676		28,902		125,228		92,108		Europe	41,141		42,676		139,017		125,228
Asia Pacific	Asia Pacific	30,126		20,394		87,429		61,654		Asia Pacific	27,919		30,126		87,928		87,429
Total Executive Search	Total Executive Search	221,646		129,243		625,397		418,850		Total Executive Search	212,807		221,646		709,265		625,397
On-Demand Talent	On-Demand Talent	24,287		—		43,006		—		On-Demand Talent	23,247		24,287		68,981		43,006
Heidrick Consulting	Heidrick Consulting	17,892		14,301		49,059		41,778		Heidrick Consulting	19,131		17,892		59,501		49,059
Revenue before reimbursements (net revenue)	Revenue before reimbursements (net revenue)	263,825		143,544		717,462		460,628		Revenue before reimbursements (net revenue)	255,185		263,825		837,747		717,462
Reimbursements	Reimbursements	1,490		957		3,819		6,555		Reimbursements	3,086		1,490		7,170		3,819
Total revenue	Total revenue	$	265,315	$	144,501	$	721,281	$	467,183	Total revenue	$	258,271	$	265,315	$	844,917	$	721,281

Three Months Ended September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Operating income (loss)
Executive Search
Americas (1) $ 38,972 $ (7,934) $ 99,822 $ 40,900
Europe (2) 4,795 (6,856) 13,314 (26,874)
Asia Pacific (3) 4,712 (1,726) 13,241 (6,553)
Total Executive Search 48,479 (16,516) 126,377 7,473
On-Demand Talent 881 — 1,034 —
Heidrick Consulting (4) (2,556) (9,286) (10,897) (21,699)
Total segment operating income (loss) 46,804 (25,802) 116,514 (14,226)
Global Operations Support (5) (13,462) (12,431) (34,858) (29,841)
Total operating income (loss) $ 33,342 $ (38,233) $ 81,656 $ (44,067)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Operating income (loss)
Executive Search
Americas (1)	$	39,741	$	38,972	$	123,842	$	99,822
Europe (2)	5,652		4,795		15,661		13,314
Asia Pacific (3)	4,503		4,712		13,469		13,241
Total Executive Search	49,896		48,479		152,972		126,377
On-Demand Talent (4)	(276)		881		(1,207)		1,034
Heidrick Consulting (5)	(2,000)		(2,556)		(4,492)		(10,897)
Total segment operating income	47,620		46,804		147,273		116,514
Research and Development	(5,400)		—		(14,347)		—
Global Operations Support (6)	(13,898)		(13,462)		(40,506)		(34,858)
Total operating income	$	28,322	$	33,342	$	92,420	$	81,656

(1) Includes restructuring reversal of $2.9 million and restructuring charges of $3.9 million for the three and nine months ended September 30, 2021, respectively. ~~Includes restructuring charges of $27.6 million for the three and nine months ended September 30, 2020.~~

(2) Includes restructuring charges of less than $0.1 million and a restructuring reversal of $0.1 million for the three and nine months ended September 30, 2021, respectively. Includes restructuring charges of $9.6 million for the three and nine months ended September 30, 2020. Includes goodwill impairment charges of $24.5 million for the nine months ended September 30, 2020.

(3) Includes restructuring reversal of $0.1 million for the nine months ended September 30, 2021.

(4) Includes ~~restructuring charges of $4.6~~a fair value adjustment to reduce the On-Demand Talent earnout by $0.5 million for the three and nine months ended September 30, ~~2020. Includes goodwill impairment charges of $8.5 million for the nine months ended September 30, 2020.~~2022.

~~(4)~~(5) Includes restructuring reversal of $0.3 million and restructuring charges of $0.4 million for the three and nine months ended September 30, 2021, respectively. ~~Includes restructuring charges of $4.5 million for the three and nine months ended September 30, 2020.~~

~~(5)~~(6) Includes restructuring reversals of $0.1 million and $0.2 million for the three and nine months ended September 30, 2021, respectively. ~~Includes restructuring charges of $1.9 million for the three and nine months ended September 30, 2020.~~

~~17.~~16. Guarantees

The Company has utilized letters of credit to support certain obligations, primarily for its office lease agreements. The letters of credit were made to secure the respective agreements and are for the terms of the agreements, which extend through 2033. For each letter of credit issued, the Company would have to use cash to fulfill the obligation if there is a default on a payment. The maximum amount of undiscounted payments the Company would be required to make in the event of default on all outstanding letters of credit is approximately ~~$4.6~~$4.2 million as of September 30, ~~2021.~~2022. The Company has not accrued for these arrangements as no event of default exists or is expected to exist.

~~18.~~17. Commitments and Contingencies

Litigation

The Company has contingent liabilities from various pending claims and litigation matters arising in the ordinary course of the Company’s business, some of which involve claims for damages that are substantial in amount. Some of these matters are covered in part by insurance. Based upon information currently available, the Company believes the ultimate resolution of such claims and litigation will not have a material adverse effect on its financial condition, results of operations or liquidity.

~~19. Subsequent Event~~

On October 15, 2021, the Company acquired Heidrick & Struggles Finland OY ("H&S Finland"), a Finland-based executive search firm, for initial consideration of $1.6 million with an anticipated future payment in 2023, subject to the achievement of certain agreed upon financial performance targets. The Company previously had an affiliate relationship with H&S Finland, whereby the Company had no financial investment in H&S Finland, but received licensing fees for the use of the Company's name and database.

2120

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Cautionary Statement Regarding Forward Looking Statements~~

Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as other sections of this quarterly report on Form 10-Q contain forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements are not historical facts, 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,” 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.

Factors that may ~~affect the outcome of~~cause actual outcomes and results to differ materially from what is expressed, forecasted or implied in the forward-looking statements include, among other things, the impacts, direct and indirect, of the COVID-19 pandemic (including the emergence of variant strains) on our business, our consultants and employees, and the overall economy; the impact on the global or regional economies due to the outbreak or escalation of hostilities or war; leadership changes, our ability to attract, integrate, develop, manage and retain qualified consultants and senior leaders; our ability to prevent our consultants from taking our clients with them to another firm; our ability to maintain our professional reputation and brand name; the fact that our net revenue ~~may be~~is affected by adverse economic conditions; our clients’ ability to restrict us from recruiting their employees; the aggressive competition we face; our heavy reliance on information management systems; the fact that we face the risk of liability in the services we perform; the fact that data security, data privacy and data protection laws and other evolving regulations and cross-border data transfer restrictions may limit the use of our services and adversely affect our business; social, political, regulatory and legal risks in markets where we operate; any challenges to the classification of our on-demand talent as independent contractors; the impact of foreign currency exchange rate fluctuations; the fact that we may not be able to align our cost structure with net revenue; unfavorable tax law changes and tax authority rulings; our ability to realize our tax losses; the timing of the establishment or reversal of valuation allowance on deferred tax assets; any impairment of our goodwill, other intangible assets and other long-lived assets; our ability to execute and integrate future acquisitions; the fact that we have anti-takeover provisions that make an acquisition of us difficult and expensive; our ability to access additional credit; and the increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks that could pose a risk to our systems, networks, solutions, services and data. For more information on the factors that could affect the outcome of forward-looking statements, refer to our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, under the heading "Risk Factors" in Item 1A, ~~as updated in our subsequent quarterly reports on Form 10-Q~~ and other filings with the Securities and Exchange Commission ("SEC"). We caution the reader that the list of factors may not be exhaustive. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Overview

Our Business. Heidrick & Struggles International, Inc. (the "Company," "we," "us," or "our") is a human capital leadership advisory firm providing executive search, consulting and on-demand talent ~~services. We help our clients build~~services to businesses and business leaders worldwide by helping them to improve the effectiveness of their 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.

In addition to executive search, we provide consulting services including executive leadership assessment, leadership, team and board development, succession planning, talent strategy, people performance, inter-team collaboration, culture shaping and organizational transformation.

On April 1, 2021, we acquired Business Talent Group ("BTG"), a market-leader in sourcing high-end, on-demand independent talent. BTG 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 result of the acquisition, the Company identified a new operating segment, On-Demand Talent. The Company now 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.

teams. We provide our services to a broad range of clients through the expertise of over ~~430~~450 consultants located in major cities around the world. The Company and its predecessors have been leadership advisors for more than 60 years.

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 ofservice offerings include 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.following:

Executive Search. We partner with our clients - respected organizations ~~globally~~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 ~~executive~~ 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 ~~proprietary~~ Infinity Framework and Heidrick Connect. Our Infinity 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 Infinity 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 Infinity Framework and other ~~proprietary~~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 ~~is highly fragmented, consisting~~consists of several thousand executive search firms worldwide. Executive search firms are generally separated into two broad categories: retained search and contingency search. ~~Our executive search services are provided on a retained basis.~~ 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.

~~For each assignment, we enter into a contract with our client that outlines the general terms and conditions of the assignment.~~ Typically, weretained executive search firms are paid a retainer for ~~our executive search~~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 ~~refer to this excess compensation billing as uptick revenue. We also bill our clients for indirect expenses, which~~ are ~~calculated as~~ a ~~percentage~~retained executive search firm. Our search process typically consists of the ~~retainer~~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 certain dollar limits per search. Revenue before reimbursements of out-of-pocket expenses ("net revenue") consists of retainers, an estimate of uptick revenue and indirect expenses billed to clients. We generally bill our clients for our retainer and indirect expenses in one-third increments over a three-month period commencing in the ~~month of a client's acceptance~~client the other characteristics desired of the ~~contract~~successful candidate;

•Selecting, contacting, interviewing and evaluating candidates on the basis of experience and potential cultural fit with ~~uptick revenue billed upon~~ the ~~completion of~~client organization;

•Presenting confidential written reports on the ~~engagement.~~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 with 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.

Heidrick Consulting. As a complement and extension of our search services, we partner with organizations through Heidrick Consulting to unlock the power of their people. Our ~~consulting~~tools and experts use data and technology to bring science to the art of human capital development and organizational design. Our services ~~include~~allow our clients to accelerate their strategies and the effectiveness of individual leaders, teams and organizations as a whole.

Heidrick Consulting offers our clients groundbreaking approaches to human capital development through a myriad of solutions, ranging from leadership assessment and development, ~~executive coaching and on-boarding, succession planning,~~ team and ~~board effectiveness, organizational performance~~organization acceleration, ~~workforce planning~~digital acceleration and innovation, diversity and inclusion advisory services, and culture shaping. Applying our deep understanding of the behaviors and attributes of leaders across many of the world’s premier companies, we guide our clients as they build a thriving culture of future-ready leadership. These premium services and offerings, which complement our Executive Search expertise, significantly contribute to our ability to deliver a full-service human capital consulting solution to our clients.

We continue to focus on increasing the scale and impact of our Heidrick Consulting business and expect to improve the operating margins of this important business as we do so. 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 in response to ~~required social distancing practices.~~

~~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.~~

global pandemic.

Key Performance Indicators

We manage and assess our performance through various means, with primary financial and operational measures including net revenue, operating income, operating margin, Adjusted EBITDA (non-GAAP) and Adjusted EBITDA margin (non-GAAP). Executive Search and Heidrick Consulting performance is also measured using consultant headcount. Specific to Executive Search, confirmation trends, consultant productivity and average revenue per search are used to measure performance. Productivity is 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 and consulting projects and the average revenue per search or project. With the exception of compensation expense, incremental increases in revenue do not necessarily result in proportionate increases in costs, particularly operating and administrative expenses, thus creating the potential to improve operating 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 and operating margin.

Our Compensation Model

At the consultant level, there are fixed and variable components of compensation. Individuals are rewarded for their performance based on a system that directly ties a portion of their compensation to the amount of net revenue for which they are responsible. A portion of the reward may be based upon individual performance against a series of non-financial measures. Credit towards the variable portion of ~~an executive search~~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 our 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.

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

In 2020, the Company terminated the cash bonus deferral for consultants and, in 2021, terminated the cash bonus deferral for management. The Company now pays 100% of the cash bonuses earned by consultants and management in the first quarter of the following year. Consultant and management cash bonuses earned prior to 2020 and 2021, respectively, will continue to be paid under the terms of the cash bonus deferral program. The deferrals are recorded in Accrued salaries and benefits within both Current liabilities and Non-current liabilities in the Condensed Consolidated Balance Sheets.

Historically, the Company's consultants participated in the same cash bonus deferral program as management. In 2020, the Company terminated the cash bonus deferral for consultants and now pays 100% of the cash bonuses earned by consultants in the first quarter of the following year. Consultant cash bonuses earned prior to 2020 will continue to be paid under the terms of the cash bonus deferral program.

~~Impact of COVID-19~~

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. COVID-19 has significantly impacted various markets around the world, including the United States. Although vaccines are now widely available, we cannot predict the duration of the pandemic or its ongoing impact on our business. The emergence of variant strains of the COVID-19 virus has introduced additional uncertainty.

With infections reported throughout the world, certain governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of the pandemic. Additional, more restrictive proclamations and/or directives may be issued in the future. We temporarily closed our offices and shifted our workforce to remote operations

to ensure the safety of our employees. Our offices are now accessible to our employees, however, we continue to allow our employees to work remotely. During this uncertain time, our critical priorities are:

•~~the health and safety of our employees, clients and their families;~~

•~~providing support to our clients; and~~

•~~helping our clients accelerate their business performance and transform with agility.~~

In response to working remotely, our Executive Search teams employed our robust digital search platform, 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 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 in response to required social distancing practices.

Beginning in the 2020 second quarter, we experienced a decline in demand for our executive search and consulting services, a lengthening of the executive search process due to a slow-down in client decision making and an inability to execute in-person consulting engagements, which had a material adverse impact on our results of operations. As a result, we identified a triggering event and performed an interim goodwill impairment evaluation during the three months ended June 30, 2020 resulting in the impairment of the goodwill in our Europe and Asia Pacific reporting units. We also evaluated the recoverability our intangible and other long-lived assets and determined that no impairment was necessary. We continue to monitor our goodwill, other intangible assets and long-lived assets for potential impairment.

In the 2020 third quarter, we implemented a restructuring plan to optimize future growth and profitability. The expected annual cost savings from the restructuring ranges from $30 million to $40 million. The primary components of the restructuring included a workforce reduction, and a reduction of the firm’s real estate expenses, professional fees and the future elimination of certain deferred compensation programs.

As part of this restructuring plan, we implemented several real estate initiatives including downsizing and terminating certain of our existing office leases. Our success working from home, utilizing Heidrick Connect and our digital consulting solutions, allowed us to reevaluate how we utilize our offices and plan to use them in a post-pandemic environment. Upon the expiration of the leases included in the restructuring, we will have reduced our square footage under lease by approximately 20%.

Moving forward, we will continue with our real estate strategy, which consists of three objectives: 1) matching our real estate footprint to the new, post-pandemic office occupancy expectations; 2) creating open and collaborative environments, including unassigned work spaces that facilitate work from anywhere; and 3) increasing our focus on reducing our carbon footprint as part of our long-term sustainability goals. We believe we have opportunity to further decrease costs primarily through lease renewals and rightsizing offices where it makes business sense.

In the 2021 third quarter, our results of operations were not materially impacted by the pandemic. Our business was well positioned to mitigate the impacts of the pandemic through innovation and finding new ways to serve our clients. Heidrick Connect allowed our Executive Search teams to operate effectively and efficiently while engaging virtually with our clients. Newly created digital solutions for Heidrick Consulting allowed our teams to overcome the barriers presented by an inability to conduct in-person consulting engagements. These innovations and new ways of serving our clients laid the foundation for our improved operating performance this quarter. Consolidated net revenue increased to $263.8 million for the three months ended September 30, 2021 compared to $260.0 million for the three months ended June 30, 2021 and $143.5 million for the three months ended September 30, 2020. Profitability also increased with operating income of $33.3 million for the three months ended September 30, 2021 compared to $28.7 million for the three months ended June 30, 2021 and an operating loss of $38.2 million for the three months ended September 30, 2020.

While our 2021 third quarter results are encouraging, the extent to which the pandemic continues to impact our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including, but not limited to:

•~~the duration and scope of the pandemic;~~

•~~the impact of the pandemic, and actions taken in response to the pandemic, on economic activity;~~

•~~governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic;~~

•~~restrictions inhibiting our employees’ ability to access our offices;~~

•~~the effect on our clients and client demand for our services and solutions;~~

•~~our ability to sell and provide our services and solutions, including as a result of travel restrictions and people working from home; and~~

•~~the ability of our clients to pay for our services and solutions.~~

We expect that all of our business segments, across all of our geographies, will continue to be impacted by the pandemic and actions taken in response to the pandemic to some extent, but the significance of the impact of the pandemic on our business and the duration for which it may have an impact cannot be determined at this time. Specific factors that may impact our business include, but are not limited to:

•~~a decline in demand for our executive search, consulting and on-demand services due to temporary and permanent workforce reductions, and general economic uncertainty;~~

•~~a lengthening of the executive search process due to a slow-down in client decision making;~~

•~~an increase in executive searches placed on hold due to delays in planned work by our clients;~~

•~~an inability to execute in-person consulting and on-demand engagements; and~~

•~~disruptions in business operations for offices in areas most impacted by the pandemic, including the United States, United Kingdom, Italy, Spain, China and Brazil.~~

Fourth Quarter ~~2021~~2022 Outlook

~~We are currently forecasting 2021~~The Company expects 2022 fourth quarter consolidated net revenue of between ~~$255~~$215 million and ~~$265~~$235 million, while acknowledging ~~the~~that some continued fluidity ~~of the COVID-19 pandemic that~~in external factors such as foreign exchange and interest rate environments, foreign conflicts, and inflation may ~~continue to~~ impact quarterly ~~results to some extent. Our 2021 fourth quarter guidance~~results. In addition, this outlook is based ~~upon,~~on the average currency rates in September 2022 and reflects, among other ~~things, management’s~~factors, management's assumptions for the anticipated volume of new Executive Search confirmations, ~~Heidrick Consulting assignments,~~ On-Demand Talent projects, ~~the current backlog,~~and Heidrick Consulting assignments, consultant productivity, consultant retention, and the seasonality of ~~our~~the business, ~~and average currency rates in September 2021.~~along with the current backlog.

Our ~~2021~~2022 fourth quarter guidance is subject to a number of risks and uncertainties, including those discussed under Item 1A - Risk Factors in our ~~2020~~2021 Annual Report on Form 10-K, as updated in our subsequent quarterly reports on Form 10-Q and in our other filings with the SEC. As such, actual results could vary from these projections.

Results of Operations

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenue	Revenue									Revenue
Revenue before reimbursements (net revenue)	Revenue before reimbursements (net revenue)	100.0	%	100.0	%	100.0	%	100.0	%	Revenue before reimbursements (net revenue)	100.0	%	100.0	%	100.0	%	100.0	%
Reimbursements	Reimbursements	0.6		0.7		0.5		1.4		Reimbursements	1.2		0.6		0.9		0.5
Total revenue	Total revenue	100.6		100.7		100.5		101.4		Total revenue	101.2		100.6		100.9		100.5

Operating expenses	Operating expenses									Operating expenses
Salaries and benefits	Salaries and benefits	70.5		72.4		71.5		71.6		Salaries and benefits	67.2		70.5		69.3		71.5
General and administrative expenses	General and administrative expenses	11.1		20.1		11.7		19.8		General and administrative expenses	12.6		11.1		11.6		11.7
Cost of services	Cost of services	7.1		0.6		4.9		0.6		Cost of services	7.0		7.1		6.3		4.9
Impairment charges		—		—		—		7.2
Research and development										Research and development	2.1		—		1.7		—

Restructuring charges	Restructuring charges	(1.2)		33.5		0.5		10.4		Restructuring charges	—		(1.2)		—		0.5
Reimbursed expenses	Reimbursed expenses	0.6		0.7		0.5		1.4		Reimbursed expenses	1.2		0.6		0.9		0.5
Total operating expenses	Total operating expenses	87.9		127.3		89.2		111.0		Total operating expenses	90.1		87.9		89.8		89.2

Operating income (loss)		12.6		(26.6)		11.4		(9.6)
Operating income										Operating income	11.1		12.6		11.0		11.4

Non-operating income (expense)	Non-operating income (expense)									Non-operating income (expense)
Interest, net	Interest, net	—		(0.1)		—		—		Interest, net	0.5		—		0.2		—
Other, net	Other, net	0.1		1.3		0.9		0.1		Other, net	—		0.1		(0.2)		0.9
Net non-operating income	Net non-operating income	0.1		1.1		0.9		0.1		Net non-operating income	0.5		0.1		—		0.9

Income (loss) before income taxes		12.7		(25.5)		12.3		(9.4)
Income before income taxes										Income before income taxes	11.6		12.7		11.0		12.3

Provision for (benefit from) income taxes		3.4		(7.3)		3.9		—
Provision for income taxes										Provision for income taxes	3.4		3.4		3.4		3.9

Net income (loss)		9.3	%	(18.2)	%	8.4	%	(9.4)	%
Net income										Net income	8.2	%	9.3	%	7.6	%	8.4	%

Note: Totals and sub-totals may not equal the sum of individual line items due to rounding.

The following tables set forth, for the periods indicated, our revenue and operating income ~~(loss)~~ by segment (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenue	Revenue									Revenue
Executive Search	Executive Search									Executive Search
Americas	Americas	$	148,844	$	79,947	$	412,740	$	265,088	Americas	$	143,747	$	148,844	$	482,320	$	412,740
Europe	Europe	42,676		28,902		125,228		92,108		Europe	41,141		42,676		139,017		125,228
Asia Pacific	Asia Pacific	30,126		20,394		87,429		61,654		Asia Pacific	27,919		30,126		87,928		87,429
Total Executive Search	Total Executive Search	221,646		129,243		625,397		418,850		Total Executive Search	212,807		221,646		709,265		625,397
On-Demand Talent	On-Demand Talent	24,287		—		43,006		—		On-Demand Talent	23,247		24,287		68,981		43,006
Heidrick Consulting	Heidrick Consulting	17,892		14,301		49,059		41,778		Heidrick Consulting	19,131		17,892		59,501		49,059
Revenue before reimbursements (net revenue)	Revenue before reimbursements (net revenue)	263,825		143,544		717,462		460,628		Revenue before reimbursements (net revenue)	255,185		263,825		837,747		717,462
Reimbursements	Reimbursements	1,490		957		3,819		6,555		Reimbursements	3,086		1,490		7,170		3,819
Total revenue	Total revenue	$	265,315	$	144,501	$	721,281	$	467,183	Total revenue	$	258,271	$	265,315	$	844,917	$	721,281

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		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Operating income (loss)	Operating income (loss)									Operating income (loss)
Executive Search	Executive Search									Executive Search
Americas (1)	Americas (1)	$	38,972	$	(7,934)	$	99,822	$	40,900	Americas (1)	$	39,741	$	38,972	$	123,842	$	99,822
Europe (2)	Europe (2)	4,795		(6,856)		13,314		(26,874)		Europe (2)	5,652		4,795		15,661		13,314
Asia Pacific (3)	Asia Pacific (3)	4,712		(1,726)		13,241		(6,553)		Asia Pacific (3)	4,503		4,712		13,469		13,241
Total Executive Search	Total Executive Search	48,479		(16,516)		126,377		7,473		Total Executive Search	49,896		48,479		152,972		126,377
On-Demand Talent(4)	On-Demand Talent(4)	881		—		1,034		—		On-Demand Talent(4)	(276)		881		(1,207)		1,034
Heidrick Consulting ~~(4)~~(5)	Heidrick Consulting ~~(4)~~(5)	(2,556)		(9,286)		(10,897)		(21,699)		Heidrick Consulting ~~(4)~~(5)	(2,000)		(2,556)		(4,492)		(10,897)
Total segment operating income	Total segment operating income	46,804		(25,802)		116,514		(14,226)		Total segment operating income	47,620		46,804		147,273		116,514
Global Operations Support (5)		(13,462)		(12,431)		(34,858)		(29,841)
Research and Development										Research and Development	(5,400)		—		(14,347)		—
Global Operations Support (6)										Global Operations Support (6)	(13,898)		(13,462)		(40,506)		(34,858)
Total operating income	Total operating income	$	33,342	$	(38,233)	$	81,656	$	(44,067)	Total operating income	$	28,322	$	33,342	$	92,420	$	81,656

(1) Includes restructuring reversal of $2.9 million and restructuring charges of $3.9 million for the three and nine months ended September 30, ~~2021, respectively. Includes restructuring charges of $27.6 million for the three and nine months ended September 30, 2020.~~2021.

(3) Includes restructuring reversal of $0.1 million for the nine months ended September 30, 2021.

~~(4)~~(5) Includes restructuring reversal of $0.3 million and restructuring charges of $0.4 million for the three and nine months ended September 30, ~~2021, respectively. Includes restructuring charges of $4.5 million for the three and nine months ended September 30, 2020.~~2021.

~~(5)~~(6) Includes restructuring reversals of $0.1 million and $0.2 million for the three and nine months ended September 30, ~~2021, respectively. Includes restructuring charges of $1.9 million for the three and nine months ended September 30, 2020.~~2021.

Three Months Ended September 30, ~~2021~~2022 Compared to the Three Months ~~Ended~~ September 30, ~~2020~~2021

Total revenue. Consolidated total revenue ~~increased $120.8~~decreased $7.0 million, or ~~83.6%~~2.7%, to $258.3 million for the three months ended September 30, 2022, from $265.3 million for the three months ended September 30, ~~2021, from $144.5 million for the three months ended September 30, 2020.~~2021. The ~~increase~~decrease in total revenue was primarily due to the ~~increase~~decrease in revenue before reimbursements (net revenue).

Revenue before reimbursements (net revenue). Consolidated net revenue ~~increased $120.3~~decreased $8.6 million, or ~~83.8%~~3.3%, to $255.2 million for the three months ended September 30, 2022, from $263.8 million for the three months ended September 30, ~~2021 from $143.5~~2021. Foreign exchange rate fluctuations negatively impacted results by $10.6 million, or 4.0%. Executive Search net revenue was $212.8 million for the three months ended September 30, ~~2020. Foreign exchange rate fluctuations positively impacted results by $2.3~~2022, a decrease of $8.8 million, or ~~1.6%. Executive Search net revenue was $221.6 million for the three months ended September 30, 2021, an increase of $92.4 million, or 71.5%~~4.0%, compared to the three months ended September 30, ~~2020.~~2021. The ~~increase~~decrease in Executive Search net revenue was primarily due to a ~~42.0% increase~~decrease in the ~~number~~volume of ~~confirmed searches compared to the prior year. Heidrick Consulting~~search confirmations. On-Demand Talent net revenue ~~increased $3.6 million, or 25.1%, to $17.9~~was $23.2 million for the three months ended September 30, 2022, a decrease of $1.0 million, or 4.3%, compared to the three months ended September 30, 2021. The decrease in On-Demand Talent revenue was primarily due a decrease in the volume of on-demand projects. Heidrick Consulting net revenue increased $1.2 million, or 6.9%, to $19.1 million for the three months ended September 30, 2022 compared to the third quarter of 2021. The increase in Heidrick Consulting revenue was primarily due to ~~a 59.3%~~an increase in ~~the number of~~leadership assessment and development consulting engagements compared to the ~~prior year. The acquisition of On-Demand Talent~~same period in the ~~second quarter of 2021 contributed $24.3 million to the increase in net revenue for the third quarter.~~prior year.

The number of Executive Search and Heidrick Consulting consultants was 389 and 72, respectively, as of September 30, 2022, compared to 368 and 66, respectively, as of September 30, ~~2021, compared to 362 and 63, respectively, as of September 30, 2020.~~2021. Executive Search productivity, as measured by annualized net Executive Search revenue per consultant, was ~~$2.4~~$2.2 million and ~~$1.4~~$2.4 million for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The average revenue per executive search increased to ~~$133,800~~approximately $155,000 from ~~$110,800~~$134,000 in the same period in the prior year.

Salaries and benefits. Consolidated salaries and benefits expense ~~increased $82.0~~decreased $14.4 million, or ~~78.9%~~7.8%, to $171.5 million for the three months ended September 30, 2022, from $185.9 million for the three months ended September 30, ~~2021, from $103.9 million for the three months ended September 30, 2020.~~2021. Fixed compensation increased ~~$5.0~~$3.4 million due to base salaries and payroll taxes, and retirement and benefits, partially offset by decreases in the deferred compensation plan, as well as talent acquisition and ~~stock compensation.~~retention costs. Variable compensation ~~increased $77.0~~decreased $17.9 million due to lower bonus accruals related to decreased consultant productivity. Foreign exchange rate fluctuations positively impacted results by $7.5 million, or 4.0%.

2825

~~higher bonus accruals related to increased consultant productivity. Foreign exchange rate fluctuations negatively impacted results by $1.7 million, or 1.7%.~~

For the three months ended September 30, ~~2021,~~2022, we had an average of ~~1,760~~2,036 employees compared to an average of ~~1,696~~1,760 employees for the three months ended September 30, ~~2020.~~2021.

As a percentage of net revenue, salaries and benefits expense was 67.2% for the three months ended September 30, 2022, compared to 70.5% for the three months ended September 30, ~~2021, compared to 72.4% for the three months ended September 30, 2020.~~2021.

General and administrative expenses. Consolidated general and administrative expenses increased ~~$0.3~~$3.0 million, or ~~0.9%~~10.4%, to $32.2 million for the three months ended September 30, 2022, from $29.2 million for the three months ended September 30, ~~2021, from $28.9 million for the three months ended September 30, 2020.~~2021. The increase in general and administrative expenses was due to business development travel, information technology, ~~intangible amortization related to the On-Demand Talent acquisition, earnout accretion,~~bad debt, and ~~internal travel, partially offset by decreases in~~ professional ~~fees and office occupancy.~~fees. Foreign exchange rate fluctuations ~~negatively~~positively impacted results by ~~$0.2~~$1.1 million, or ~~0.7%~~3.7%.

As a percentage of net revenue, general and administrative expenses were 12.6% for the three months ended September 30, 2022, compared to 11.1% for the three months ended September 30, ~~2021, compared to 20.1% for the three months ended September 30, 2020.~~2021.

Cost of services. Consolidated cost of services ~~increased~~decreased $0.9 million, or 4.7%, to $17.8 million tofor the three months ended September 30, 2022, from $18.7 million for the three months ended September 30, ~~2021, from $0.9 million~~2021. The decrease is primarily due to a decrease in the volume of on-demand projects. As a percentage of net revenue, cost of services was 7.0% for the three months ended September 30, ~~2020.~~ 2022, compared to 7.1% for the three months ended September 30, 2021. Foreign exchange rate fluctuations positively impacted results by $0.2 million, or 1.1%.

Research and development. The ~~increase is primarily due to~~Company incurred $5.4 million in research and development costs associated with the ~~acquisition~~development of ~~On-Demand Talent.~~new digital products during the three months ended September 30, 2022. Research and development consists of payroll, employee benefits, stock-based compensation other employee expenses and third-party professional fees associated with new product development. There were no research and development costs incurred during the three months ended September 30, 2021.

Restructuring charges. The Company recorded a $3.3 million restructuring reversal during the three months ended September 30, ~~2021, and $48.1 million in restructuring charges during the three months ended September 30, 2020. During the three months ended September 30,~~2021. In 2020, the Company announced ~~a restructuring plan~~the 2020 Plan including a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the future elimination of certain deferred compensation programs. The restructuring reversal is primarily due to the Company reaching an early termination agreement for one of its offices that resulted in lower future rent payments. The ~~reversal and~~ charges are recorded within Restructuring charges in the Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the three months ended September 30, ~~2021, and 2020.~~2021. There were no restructuring charges or reversals the three months ended September 30, 2022.

Operating ~~income (loss).~~income. Consolidated operating income was $28.3 million, including a fair value adjustment to reduce the On-Demand Talent earnout by $0.5 million, for the three months ended September 30, 2022, compared to $33.3 million, including a restructuring ~~reversal~~reversals of $3.3 million, for the three months ended September 30, ~~2021, compared to an operating loss of $38.2 million, including restructuring charges of $48.1 million, for the three months ended September 30, 2020.~~2021. Foreign exchange rate fluctuations ~~positively~~negatively impacted operating income by ~~$0.4~~$1.8 million, or ~~3.9%~~5.9%.

Net non-operating income. Net non-operating income was $1.2 million for the three months ended September 30, 2022, compared to $0.2 million for the three months ended September 30, ~~2021,~~2021.

Interest, net, was $1.2 million of income for the three months ended September 30, 2022, compared to ~~net non-operating income of $1.6~~less than $0.1 million for the three months ended September 30, ~~2020.~~2021, primarily due to higher interest rates on short-term investments and an increase in marketable securities.

~~Interest,~~Other, net, was less than $0.1 million of expense for the three months ended September 30, 2022, compared to $0.1 million of income for the three months ended September 30, ~~2021, compared to $0.2 million of~~2021. The expense for the three months ended September 30, 2020. The decrease in interest expense in the three months ended September 30, 2021, is due to the repayment of the credit facility that was outstanding in the prior year.

~~Other, net, was $0.1 million of income for the three months ended September 30, 2021, compared to $1.8 million of income for the three months ended September 30, 2020. The income~~ in the current year is primarily due to unrealized losses on the deferred compensation plan, partially offset by foreign exchange gains. The income in the prior year is due to a ~~$0.7 million~~ gain on equity instruments received in exchange for executive search services performed in prior periods, partially offset by ~~a $0.7 million loss~~unrealized losses on the ~~Company's~~ deferred compensation plan. The ~~income~~Company's investments, including those held in ~~the prior year is due to an unrealized gain of $1.6 million on~~ the Company’s deferred compensation ~~plan.~~plan, are recorded at fair value.

Income taxes. See Note ~~14,~~13, Income Taxes.

2926

Executive Search

Americas

The Americas segment reported net revenue of $143.7 million for the three months ended September 30, 2022, a decrease of 3.4% from $148.8 million for the three months ended September 30, ~~2021, an increase of 86.2% from $79.9 million for the three months ended September 30, 2020.~~2021. The ~~increase~~decrease in net revenue was primarily due to a ~~60.4% increase~~20.2% decrease in the number of executive search ~~confirmations from the prior year. All~~engagements. The Industrial and Social Impact practice groups exhibited growth over the prior year. Foreign exchange rate fluctuations ~~positively~~negatively impacted results by ~~$0.4~~$0.2 million, or ~~0.5%~~0.1%. There were ~~193~~203 Executive Search consultants ~~as of~~at September 30, ~~2021,~~2022, compared to ~~188 as of~~193 at September 30, ~~2020.~~2021.

Salaries and benefits expense ~~increased $52.6~~decreased $10.7 million, or ~~104.0%~~10.4%, for the three months ended September 30, 2022, compared to the three months ended September 30, ~~2020.~~2021. Fixed compensation ~~decreased~~increased $1.0 million due to ~~the deferred compensation plan, stock compensation, and talent acquisition and retention costs, partially offset by increases in~~ base salaries and payroll taxes, and retirement and ~~benefits.~~benefits, partially offset by decreases in the deferred compensation plan and stock compensation. Variable compensation ~~increased $53.6~~decreased $11.7 million due to ~~higher~~lower bonus accruals related to ~~increased~~decreased consultant productivity.

General and administrative expenses ~~decreased $0.2~~increased $2.0 million, or ~~1.7%~~20.8%, for the three months ended September 30, 2022, compared to the three months ended September 30, ~~2020,~~2021, due to business development travel, bad debt, office occupancy, ~~partially offset by increases in internal travel.~~information technology, and marketing.

~~The Company recorded a $2.9 million restructuring reversal during~~Restructuring reversals for the three months ended September 30, 2021 ~~and $27.6 million in restructuring charges during the three months ended September 30, 2020.~~were $2.9 million. The restructuring reversal is primarily due to the Company reaching an early termination agreement for one of its offices that resulted in lower future rent payments. ~~The~~There were no restructuring charges inor reversals during the ~~prior year primarily relate to a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the elimination of certain deferred compensation programs.~~three months ended September 30, 2022.

The Americas reported operating income of $39.7 million for the three months ended September 30, 2022, an increase of $0.7 million compared to $39.0 million, including a restructuring ~~reversal~~reversals of $2.9 million, for the three months ended September 30, ~~2021, an increase of $46.9 million compared to an operating loss of $7.9 million, including restructuring charges of $27.6 million, for the three months ended September 30, 2020.~~2021.

Europe

Europe reported net revenue of $41.1 million for the three months ended September 30, 2022, an decrease of 3.6% from $42.7 million for the three months ended September 30, ~~2021, an increase of 47.7% from $28.9 million for the three months ended September 30, 2020.~~2021. The ~~increase~~decrease in net revenue was primarily due to a ~~36.0% increase~~10.9% decrease in the number of executive search confirmations. ~~All~~The Consumer and Industrial practice groups exhibited growth over the prior year. Foreign exchange rate fluctuations ~~positively~~negatively impacted results by ~~$1.2~~$6.9 million, or ~~4.2%~~16.3%. There were ~~100~~113 Executive Search consultants ~~as of~~at September 30, ~~2021,~~2022, compared to ~~103 as of~~100 at September 30, ~~2020.~~2021.

Salaries and benefits expense ~~increased $11.2~~decreased $3.0 million, or ~~53.9%~~9.5%, for the three months ended September 30, 2022, compared to the three months ended September 30, ~~2020.~~2021. Fixed compensation decreased ~~$0.2~~$0.5 million due to ~~base salaries and payroll taxes, partially offset by increases in retirement and benefits, and~~ talent acquisition and retention ~~costs.~~costs, as well as retirement and benefits, partially offset by an increase in stock compensation. Variable compensation ~~increased $11.4~~decreased $2.5 million due to ~~higher~~lower bonus accruals related to ~~increased~~decreased consultant productivity.

General and administrative expense increased ~~$0.5~~$0.6 million, or ~~9.1%~~10.6%, for the three months ended September 30, 2022, compared to the three months ended September 30, ~~2020,~~2021, due to ~~office occupancy, hiring~~business development travel, and professional fees, ~~and internal travel,~~ partially offset by a decrease in ~~professional fees.~~in office occupancy.

~~The Company recorded $9.6~~Restructuring charges for the three months ended September 30, 2021 were less than $0.1 million indue to the settlement of estimated employee severance accruals. There were no restructuring charges or reversals during the three months ended September 30, 2020. The restructuring charges primarily related to a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the elimination of certain deferred compensation programs.2022.

Europe reported operating income of ~~$4.8~~$5.7 million for the three months ended September 30, ~~2021,~~2022, an increase of ~~$11.7~~$0.9 million compared to ~~an operating loss of $6.9~~$4.8 million, including a restructuring ~~charges~~charge of ~~$9.6~~less than $0.1 million, for the three months ended September 30, ~~2020.~~2021.

3027

Asia Pacific

Asia Pacific reported net revenue of $27.9 million for the three months ended September 30, 2022, a decrease of 7.3% compared to $30.1 million for the three months ended September 30, ~~2021, an increase of 47.7% compared to $20.4 million for the three months ended September 30, 2020.~~2021. The ~~increase~~decrease in net revenue was primarily due to a ~~10.8% increase~~15.8% decrease in the number of executive search ~~confirmations~~confirmations. The Consumer and ~~an increase in the average revenue per executive search. All~~Social Impact practice groups ~~with the exception of Healthcare and Life Sciences,~~ exhibited growth over the prior year. Foreign exchange rate fluctuations ~~positively~~negatively impacted results by ~~$0.3~~$2.0 million, or ~~1.6%~~6.8%. There were 7573 Executive Search consultants at September 30, ~~2021,~~2022, compared to 7175 at September 30, ~~2020.~~2021.

Salaries and benefits expense ~~increased $8.0~~decreased $2.4 million, or ~~60.1%~~11.3%, ~~compared to~~for the three months ended September 30, ~~2020.~~2022, compared to the three months September 30, 2021. Fixed compensation increased ~~$0.7~~$0.3 million due to retirement and benefits, ~~talent acquisition and retention costs, and base salaries and payroll taxes,~~ partially offset by a decrease in ~~stock compensation.~~base salaries and payroll taxes, as well as talent acquisition and retention costs. Variable compensation ~~increased $7.3~~decreased $2.7 million due to ~~higher~~lower bonus accruals related to ~~increased~~decreased consultant productivity.

General and administrative expenses ~~decreased $0.1~~increased $0.4 million, or ~~3.5%~~9.9%, for the three months ended September 30, 2022, compared to the three months ended September 30, ~~2020,~~2021, primarily due to ~~office occupancy.~~

The Company recorded $4.6 million in restructuring charges during the three months ended September 30, 2020. The restructuring charges primarily related to a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, business development travel, and ~~the elimination of certain deferred compensation programs.~~taxes and licenses, partially offset by a decrease in office occupancy.

Asia Pacific reported operating income of $4.5 million for the three months ended September 30, 2022, a decrease of $0.2 million compared to $4.7 million for the three months ended September 30, ~~2021, an increase of $6.4 million compared to an operating loss of $1.7 million, including restructuring charges of $4.6 million, for the three months ended September 30, 2020.~~2021.

On-Demand Talent

On-Demand Talent reported net revenue of $23.2 million for the three months ended September 30, 2022, a decrease of 1.3% compared to $24.3 million for the three months ended September 30, 2021. The decrease in revenue was primarily due to an anticipated seasonal slowdown, partially offset by increases in average project size and project extensions. Foreign exchange rate fluctuations negatively impacted results by $0.1 million, or 0.2%.

Salaries and benefits expense ~~was $4.9~~increased $0.8 million, or 16.9%, for the three months ended September 30, ~~2021, primarily~~2022, compared to the three months ended September 30, 2021. Fixed compensation increased $0.8 million due to base salaries and payroll ~~taxes.~~taxes, and retirement and benefits, partially offset by a decrease in talent acquisition and retention costs. Variable compensation was consistent with the prior year.

General and administrative expense ~~was $1.6~~increased $0.2 million, or 13.0%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, due to intangible amortization, ~~earnout accretion, professional fees,~~information technology, and ~~information technology.~~business development travel.

Cost of services ~~was $16.9~~decreased $0.9 million, or 5.5%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, due an decrease in the volume of on-demand projects.

On-Demand Talent reported operating loss of $0.3 million for the three months ended September 30, ~~2021, and consists of third-party contractor costs related~~2022, including a fair value adjustment to reduce the ~~delivery of various on-demand services.~~

On-Demand Talent ~~reported~~earnout by $0.5 million, a decrease of $1.2 million compared to operating income of $0.9 million for the three months ended September 30, 2021.

Heidrick Consulting

Heidrick Consulting reported net revenue of $19.1 million for the three months ended September 30, 2022, an increase of 6.9% compared to $17.9 million for the three months ended September 30, ~~2021, an increase of 25.1% compared to $14.3 million for the three months ended September 30, 2020.~~2021. The increase in net revenue was primarily due to an ~~59.3%~~3.3% increase in the number of consulting engagements. Foreign exchange rate fluctuations ~~positively~~negatively impacted results by ~~$0.3~~$1.3 million, or ~~2.2%~~7.5%. There were 6672 Heidrick Consulting consultants at September 30, ~~2021~~2022 compared to 6366 at September 30, ~~2020.~~2021.

Salaries and benefits expense increased ~~$1.7~~$0.7 million, or ~~12.5%~~4.5%, for the three months ended September 30, 2022, compared to the three months ended September 30, ~~2020.~~2021. Fixed compensation ~~decreased $0.1~~increased $1.2 million due to ~~talent acquisition~~base salaries and ~~retention costs, partially offset by an increase in~~payroll taxes, stock compensation, and retirement and ~~benefits.~~befits. Variable compensation ~~increased $1.8~~decreased $0.5 million due to ~~higher bonus accruals related to increased consultant productivity.~~the mix of consultants earning bonuses.

General and administrative expenses decreased ~~$1.0~~$0.3 million, or ~~22.8%~~9.2%, for the three months ended September 30, 2022, compared to the three months ended September 30, ~~2020,~~2021, primarily due to professional ~~fees.~~fees, partially offset by increases in business development travel and the use of external third-party consultants.

Cost of services increased ~~$0.9~~less than $0.1 million, or ~~106.4%~~2.0%, for the three months ended September 30, 2022, compared to the three months ended September 30, ~~2020,~~2021, due to an increase in the number of consulting engagements.

~~The Company recorded a $0.3 million restructuring reversal during~~Restructuring reversals for the three months ended September 30, 2021 ~~and $4.5 million in restructuring charges during the three months ended September 30, 2020.~~were $0.3 million. The restructuring reversal is primarily due to the Company reaching an early termination agreement for one of its offices that resulted in lower future rent payments. ~~The~~There were no restructuring charges inor reversals during the ~~prior year primarily relate to a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the elimination of certain deferred compensation programs.~~three months ended September 30, 2022.

Heidrick Consulting reported an operating loss of $2.0 million for the three months ended September 30, 2022, an improvement of $0.6 million compared to an operating loss of $2.6 million, including a restructuring ~~reversal~~reversals of $0.3 million, for the three months ended September 30, ~~2021, an increase of $6.7 million compared to an operating loss of $9.3 million, including restructuring charges of $4.5 million, for the three months ended September 30, 2020.~~2021.

Global Operations Support

Global Operations Support expenses for the three months ended September 30, ~~2021,~~2022, increased ~~$1.0~~$0.3 million, or ~~8.3%~~2.4%, to ~~$13.5~~$13.9 million from ~~$12.4~~$13.6 million, including a restructuring reversal of $0.1 million, for the three months ended September 30, ~~2020.~~2021.

Salaries and benefits expense increased ~~$3.6~~$0.1 million, or ~~64.7%~~2.2%, for the three months ended September 30, 2022, due to ~~variable compensation,~~ base salaries and payroll taxes, and ~~retirement and benefits.~~stock compensation, partially offset by a decrease in variable compensation.

General and administrative expenses ~~decreased $0.5~~increased $0.1 million, or ~~9.9%~~2.9%, for the three months ended September 30, 2022, due to business development travel, hiring fees, and professional ~~fees, partially offset by increases in information technology and office occupancy.~~fees.

~~The Company recorded a $0.1 million restructuring reversal during~~Restructuring reversals for the three months ended September 30, 2021 ~~and $1.9 million in restructuring charges during the three months ended September 30, 2020.~~were $0.1 million. The restructuring reversal is primarily due to the Company reaching an early termination agreement for one of its offices that resulted in lower future rent payments. ~~The~~There were no restructuring charges inor reversals during the ~~prior year primarily relate to a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the elimination of certain deferred compensation programs.~~three months ended September 30, 2022.

Nine Months Ended September 30, ~~2021~~2022 Compared to the Nine Months Ended September 30, ~~2020~~2021

Total revenue. Consolidated total revenue increased ~~$254.1~~$123.6 million, or ~~54.4%~~17.1%, to $844.9 million for the nine months ended September 30, 2022, from $721.3 million for the nine months ended September 30, ~~2021, from $467.2 million for the nine months ended September 30, 2020.~~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 ~~$256.8~~$120.3 million, or ~~55.8%~~16.8%, to $837.7 million for the nine months ended September 30, 2022, from $717.5 million for the nine months ended September 30, ~~2021, from $460.6~~2021. Foreign exchange rate fluctuations negatively impacted results by $22.9 million, or 3.2%. Executive Search net revenue was $709.3 million for the nine months ended September 30, ~~2020. Foreign exchange rate fluctuations positively impacted results by $14.3 million, or 3.1%. Executive Search net revenue was $625.4 million for the nine months ended September 30, 2021,~~2022, an increase of ~~$206.5~~$83.9 million, or ~~49.3%~~13.4%, compared to the nine months ended September 30, ~~2020.~~2021. The increase in Executive Search net revenue was primarily due to a ~~44.3%~~1.2% increase in the number of confirmed searches compared to the prior ~~year. Heidrick Consulting~~year, and an increase in the average revenue per executive search. On-Demand Talent net revenue increased ~~$7.3~~$26.0 million, or ~~17.4%~~60.4%, to ~~$49.1~~$69.0 million for the nine months ended September 30, ~~2021.~~2022. The increase in On-Demand Talent revenue was primarily due to the timing of the acquisition in the prior year and an increase in average project size. Heidrick Consulting net revenue increased $10.4 million, or 21.3%, to $59.5 million for the nine months ended September 30, 2022, compared to the same period in the prior year. The increase in Heidrick Consulting net revenue was primarily due to a ~~56.9%~~19.4% increase in the number of consulting engagements compared to the prior year. ~~The acquisition of On-Demand Talent in the prior quarter contributed $43.0 million to the increase in net revenue.~~

The number of Executive Search and Heidrick Consulting consultants was 389 and 72, respectively, as of September 30, 2022, compared to 368 and 66, respectively, as of September 30, ~~2021, compared to 362 and 63, respectively, as of September 30, 2020.~~2021. Executive Search productivity, as measured by annualized net Executive Search revenue per consultant, was ~~$2.3~~$2.5 million and ~~$1.4~~$2.3 million for the nine months ended September 30, ~~2021,~~2022 and ~~2020,~~2021, respectively. The average revenue per executive search ~~decreased~~increased to ~~$126,700~~approximately $142,000 from ~~$122,400~~$127,000 in the same period in the prior year.

Salaries and benefits. Consolidated salaries and benefits expense increased ~~$183.7~~$67.3 million, or ~~55.7%~~13.1%, to $580.6 million for the nine months ended September 30, 2022 from $513.3 million for the nine months ended September 30, ~~2021, from $329.6 million for the nine months ended September 30, 2020.~~2021. Fixed compensation increased ~~$13.8~~$0.3 million due to ~~stock compensation,~~ base salaries and payroll taxes, and retirement and benefits, partially offset by a

decrease in the deferred compensation plan, stock compensation, and ~~separation, partially offset by a decrease in~~ talent acquisition and retention costs. Variable compensation increased ~~$169.9~~$66.9 million due to higher bonus accruals related to increased consultant productivity. Foreign exchange rate fluctuations ~~negatively~~positively impacted results by ~~$10.6~~$16.7 million, or ~~3.2%~~3.3%.

For the nine months ended September 30, ~~2021,~~2022, we had an average of ~~1,676~~1,969 employees compared to an average of ~~1,746~~1,676 employees for the nine months ended September 30, ~~2020.~~2021.

As a percentage of net revenue, salaries and benefits expense was 69.3% for the nine months ended September 30, 2022, compared to 71.5% for the nine months ended September 30, ~~2021, compared to 71.6% for the nine months ended September 30, 2020.~~2021.

General and administrative expenses. Consolidated general and administrative expenses ~~decreased $7.2~~increased $13.3 million, or ~~8.0%,~~15.9% to $97.2 million for the nine months ended September 30, 2022 from $83.9 million for the nine months ended September 30, ~~2021, from $91.1 million for the nine months ended September 30, 2020.~~2021. The ~~decrease~~increase in general and administrative expenses was due to ~~office occupancy, professional~~business development travel, including the global consultants' conference, information technology, intangible amortization, and hiring fees, ~~and internal travel,~~ partially offset by ~~increases~~decreases in ~~intangible amortization, earnout accretion,~~taxes and ~~information technology.~~licenses, the use of external third-party consultants, and office occupancy. Foreign exchange rate fluctuations ~~negatively~~positively impacted results by ~~$1.3~~$2.7 million, or ~~1.4%~~3.2%.

As a percentage of net revenue, general and administrative expenses were 11.6% for the nine months ended September 30, 2022, compared to 11.7% for the nine months ended September 30, ~~2021, compared to 19.8% for the nine months ended September 30, 2020.~~2021.

Cost of services. Consolidated cost of services increased ~~$32.0~~$18.4 million to $53.2 million for the nine months ended September 30, 2022, from $34.8 million for the nine months ended September 30, ~~2021, from $2.8 million for the nine months ended September 30, 2020.~~2021. The increase is due to the timing of the On-Demand Talent acquisition in the prior year and an increase in the number of ~~On-Demand Talent.~~consulting engagements. Foreign exchange rate fluctuations positively impacted results by $0.5 million, or 1.3%.

~~Impairment charges.~~Research and development. ~~During~~The Company incurred $14.3 million in research and development costs associated with the ~~nine months ended September 30, 2020, and as a direct result~~development of the economic impact of COVID-19, the Company experienced a decline in demand for our executive search services and a lengthening of the executive search process due to a slow-down in client decision making, which had a material adverse impact on our results of operations. As a result, the Company identified a triggering event and performed an interim goodwill impairment evaluationnew digital products during the nine months ended September 30, ~~2020. Based on the results~~2022. Research and development consists of ~~the impairment evaluation, the Company recorded an impairment charge of $24.5 million in Europe~~payroll, employee benefits, stock-based compensation, other employee expenses and ~~$8.5 million in Asia Pacific to write-off all of the goodwill~~third-party professional fees associated with ~~each reporting unit. The impairment charge is recorded within~~ ~~Impairment charges~~ ~~in the Condensed Consolidated Statement of Comprehensive Income (Loss) for~~new product development. There were no research and development costs incurred during the nine months ended September 30, ~~2020. 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.~~2021.

Restructuring ~~charges~~charges. . The Company incurred approximately $3.8 ~~million and $48.1~~ million in restructuring charges during the nine months ended September 30, ~~2021 and 2020, respectively. During the three months ended September 30,~~2021. In 2020, the Company announced ~~a restructuring plan~~the 2020 Plan including a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the future elimination of certain deferred compensation programs. The charges incurred during the nine months ended September 30, 2021 primarily relate to a reduction in the Company's real estate footprint. The charges are recorded within Restructuring charges in the Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the nine months ended September 30, ~~2021, and 2020.~~2021. There were no restructuring charges or reversals during the nine months ended September 30, 2022.

Operating ~~income (loss).~~income. Consolidated operating income was $92.4 million, including a fair value adjustment to reduce the On-Demand Talent earnout by $0.5 million, for the nine months ended September 30, 2022, compared to $81.7 million, including restructuring charges of $3.8 million, for the nine months ended September 30, ~~2021, compared to an~~2021. Foreign exchange rate fluctuations negatively impacted operating ~~loss of $44.1~~income by $3.0 million, ~~including goodwill impairment charges of $33.0 million and restructuring charges of $48.1~~or 3.5%.

Net non-operating income (expense). Net non-operating expense was $0.1 million for the nine months ended September 30, ~~2020. Foreign exchange rate fluctuations positively impacted operating income by $2.3 million, or 3.6%.~~

~~Net non-operating income. Net~~2022, compared to net non-operating income ~~was~~of $6.5 million for the nine months ended September 30, ~~2021, compared to $0.6 million for the nine months ended September 30, 2020.~~2021.

Interest, net, was ~~$0.2~~$1.7 million of income for the nine months ended September 30, ~~2021,~~2022, compared to $0.2 million for the nine months ended September 30, 2021. The increase was primarily due to higher interest rates on short-term investments and ~~2020. The income is primarily related to interest earned on U.S. Treasury bills throughout the year.~~an increase in marketable securities.

Other, net, was $1.7 million of expense for the nine months ended September 30, 2022, compared to $6.3 million of income for the nine months ended September 30, ~~2021, compared~~2021. The expense in the current year is primarily due to ~~$0.5~~a $9.0 million ~~of income for~~unrealized loss on the ~~nine months ended September 30, 2020.~~Company's deferred compensation plan, partially offset by foreign exchange gains. The income in the ~~current~~prior year is due to a $4.2 million gain on equity received in exchange for executive search services performed in prior periods and a $1.9 million ~~unrealized~~ gain on the Company's deferred compensation plan.

~~Income taxes.~~ ~~See Note 14,~~ ~~Income Taxes~~. The Company's investments, including those held in the Company’s deferred compensation plan, are recorded at fair value.

3330

Income taxes. See Note 13, Income Taxes.

Executive Search

Americas

The Americas segment reported net revenue of $482.3 million for the nine months ended September 30, 2022, an increase of 16.9% from $412.7 million for the nine months ended September 30, ~~2021, an increase of 55.7% from $265.1 million for the nine months ended September 30, 2020.~~2021. The increase in net revenue was ~~primarily~~ due ~~to a 59.7%~~an increase in the ~~number of~~average revenue per executive ~~search confirmations from the prior year.~~search. All practice groups, with the exception of Healthcare & Life Sciences, exhibited growth over the prior year. Foreign exchange rate fluctuations positively impacted results by ~~$0.7~~less than $0.1 million, or ~~0.3%~~0.1%. There were ~~193~~203 Executive Search consultants ~~as of~~at September 30, ~~2021,~~2022, compared to ~~188 as of~~193 at September 30, ~~2020.~~2021.

Salaries and benefits expense increased ~~$117.1~~$44.1 million, or ~~71.7%~~15.7%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, ~~2020.~~2021. Fixed compensation decreased ~~$1.3~~$5.4 million due to ~~talent acquisition~~the deferred compensation plan and ~~retention costs,~~stock compensation, partially offset by ~~increases~~an increase in ~~stock compensation,~~base salaries and payroll taxes, and retirement and ~~benefits, and the deferred compensation plan.~~benefits. Variable compensation increased ~~$118.4~~$49.4 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expenses ~~decreased $4.7~~increased $5.4 million, or ~~14.1%~~18.9%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, ~~2020,~~2021, due to ~~office occupancy, internal~~business development travel, including the global consultants' conference, bad debt, marketing, and communication ~~services.~~services, partially offset by a decrease in the use of external third-party consultants.

~~The Company recorded $3.9 million in restructuring~~Restructuring charges ~~during~~for the nine months ended September 30, 2021 ~~and $27.6 million in restructuring~~were $3.9 million. The charges ~~during the nine months ended September 30, 2020. The current year restructuring charges~~are primarily ~~relate~~related to a reduction in the Company's real estate footprint. ~~The~~There were no restructuring charges inor reversals during the ~~prior year primarily relate to a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the elimination of certain deferred compensation programs.~~nine months ended September 30, 2022.

The Americas reported operating income of $123.8 million for the nine months ended September 30, 2022, an increase of $24.0 million compared to $99.8 million, including restructuring charges of $3.9 million, for the nine months ended September 30, ~~2021, an increase of $58.9 million compared to $40.9 million, including restructuring charges of $27.6 million, for the nine months ended September 30, 2020.~~2021.

Europe

Europe reported net revenue of $139.0 million for the nine months ended September 30, 2022, an increase of 11.0% from $125.2 million for the nine months ended September 30, ~~2021, an increase of 36.0% from $92.1 million for the nine months ended September 30, 2020.~~2021. The increase in net revenue was due ~~primarily~~ to a ~~31.8%~~11.9% increase in the number of executive search confirmations. All practice groups, with the exception of ~~Social Impact,~~Healthcare & Life Sciences, exhibited growth over the prior year. Foreign exchange rate fluctuations ~~positively~~negatively impacted results by ~~$8.5~~$15.5 million, or ~~9.2%~~12.4%. There were ~~100~~113 Executive Search consultants ~~as of~~at September 30, ~~2021,~~2022, compared to ~~103 as of~~100 at September 30, ~~2020.~~2021.

Salaries and benefits expense increased ~~$28.2~~$8.1 million, or ~~42.2%~~8.6%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, ~~2020.~~2021. Fixed compensation ~~increased $1.4~~decreased $1.3 million for the nine months ended September 30, ~~2021,~~2022, due to stock compensation, base salaries and payroll taxes, and talent acquisition and retention costs, ~~separation, and retirement and benefits,~~ partially offset by ~~decreases~~an increase in ~~base salaries~~retirement and ~~payroll taxes.~~benefits. Variable compensation increased ~~$26.8~~$9.5 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expense ~~decreased $1.1~~increased $3.2 million, or ~~6.3%~~18.9%, ~~compared to the nine months ended September 30, 2020, due to internal travel, and professional fees, partially offset by an increase in hiring fees and office occupancy.~~

~~Impairment charges~~ for the nine months ended September 30, ~~2020, were $24.5 million as a result of an interim impairment evaluation on the goodwill of the Europe reporting unit. The impairment charge is recorded within~~ ~~Impairment charges~~ ~~in the Condensed Consolidated Statements of Comprehensive Income (Loss) for the nine months ended September 30, 2020.~~

~~The Company recorded a restructuring reversal of $0.1 million for~~2022, compared to the nine months ended September 30, 2021, due to business development travel, including the global consultants' conference, professional fees, and hiring fees, partially offset by a decrease in bad debt.

Restructuring reversals for the nine months ended September 30, 2021 were $0.1 million due to the settlement of estimated employee severance accruals. ~~The Company recorded $9.6 million in~~There were no restructuring charges or reversals during the nine months ended September 30, 2020. The restructuring charges in the prior year primarily relate to a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the elimination of certain deferred compensation programs.2022.

Europe reported operating income of $15.7 million for the nine months ended September 30, 2022, an increase of $2.3 million compared to $13.3 million, including a restructuring reversal of $0.1 million, for the nine months ended September 30, 2021, an increase of $40.2 million compared to an operating loss of $26.9 million, including goodwill impairment charges of $24.5 million and restructuring charges of $9.6 million, for the nine months ended September 30, 2020.2021.

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Asia Pacific

Asia Pacific reported net revenue of $87.9 million for the nine months ended September 30, 2022, an increase of 0.6% compared to $87.4 million for the nine months ended September 30, ~~2021, an increase of 41.8% compared to $61.7 million for the nine months ended September 30, 2020.~~2021. The increase in net revenue was primarily due to an ~~25.6% increase in the number of executive search confirmations and an~~ increase in the average revenue per executive search. ~~All~~The Global Technology Services, Consumer Markets, and Social Impact practice groups ~~with the exception of Social Impact and Healthcare and Life Sciences,~~ exhibited growth over the prior year. Foreign exchange rate fluctuations ~~positively~~negatively impacted results by ~~$3.7~~$4.6 million, or ~~6.1%~~5.3%. There were 7573 Executive Search consultants at September 30, ~~2021,~~2022 compared to 7175 at September 30, ~~2020.~~2021.

Salaries and benefits expense ~~increased $20.6~~decreased $0.3 million, or ~~49.9%~~0.5%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, ~~2020.~~2021. Fixed compensation ~~increased $2.2~~decreased $2.5 million due to base salaries and payroll taxes, stock compensation, ~~retirement and benefits,~~ and talent acquisition and retention ~~costs.~~costs, partially offset by an increase in retirement and benefits. Variable compensation increased ~~$18.4~~$2.2 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expenses ~~decreased $1.5~~increased $0.4 million, or ~~10.5%~~3.6%, ~~compared to the nine months ended September 30, 2020, due to office occupancy and bad debt.~~

~~Impairment charges~~ for the nine months ended September 30, ~~2020, were $8.5 million as a result of an interim impairment evaluation on the goodwill of the Asia Pacific reporting unit. The impairment charge is recorded within~~ ~~Impairment charges~~ ~~in the Condensed Consolidated Statements of Comprehensive Income (Loss) for the nine months ended September 30, 2020.~~

~~The Company recorded a restructuring reversal of $0.1 million for~~2022, compared to the nine months ended September 30, 2021, due to business development travel, including the global consultants' conference, and professional fees, partially offset by a decrease in office occupancy.

Restructuring reversals for the nine months ended September 30, 2021 were $0.1 million due to the settlement of estimated employee severance accruals. ~~The Company recorded $4.6 million in~~There were no restructuring charges or reversals during the nine months ended September 30, 2020. The restructuring charges in the prior year primarily relate to a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the elimination of certain deferred compensation programs.2022.

Asia Pacific reported operating income of $13.5 million for the nine months ended September 30, 2022, an increase of less than $0.2 million compared to $13.2 million, including a restructuring reversal of $0.1 million, for the nine months ended September 30, 2021, an increase of $19.8 million compared to an operating loss of $6.6 million, including goodwill impairment charges of $8.5 million and restructuring charges of $4.6 million, for the nine months ended September 30, 2020.2021.

On-Demand Talent

On-Demand Talent reported net revenue of $69.0 million for the nine months ended September 30, 2022, an increase of 60.4% compared to $43.0 million for the nine months ended September 30, 2021. The increase in On-Demand net revenue was primarily due to the timing of the acquisition in the prior year. Foreign exchange rate fluctuations negatively impacted results by $0.1 million, or 0.3%.

Salaries and benefits expense ~~was $9.2~~increased $7.1 million, or 76.9%, for the nine months ended September 30, ~~2021,~~2022, compared to the nine months ended September 30, 2021. Fixed compensation increased $6.1 million due to base salaries and payroll taxes, and ~~variable compensation.~~retirement and benefits. Variable compensation increased $1.0 million due to higher bonus accruals related to increased productivity.

General and administrative expenses ~~were $2.9~~increased $3.3 million, or 113.2%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, due to intangible amortization, earnout accretion, information technology, and professional ~~fees, and information technology.~~fees.

Cost of services ~~was $29.8~~increased $17.8 million, or 59.7%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily due the timing of the acquisition in the prior year.

On-Demand Talent reported operating loss of $1.2 million, including a fair value adjustment to reduce the earnout by $0.5 million, for the nine months ended September 30, ~~2021, and consists~~2022, a decrease of ~~third-party contractor costs related~~$2.2 million compared to ~~the delivery of various on-demand services.~~

~~On-Demand Talent reported~~ operating income of $1.0 million for the nine months ended September 30, 2021.

Heidrick Consulting

Heidrick Consulting reported net revenue of $59.5 million for the nine months ended September 30, 2022, an increase of 21.3% compared to $49.1 million for the nine months ended September 30, ~~2021, an increase of 17.4% compared to $41.8 million for the nine months ended September 30, 2020.~~2021. The increase in Heidrick Consulting ~~net~~ revenue was primarily due to ~~an 56.9%~~a 19.4% increase in the number of consulting ~~engagements.~~engagements compared to the prior year. Foreign exchange rate fluctuations ~~positively~~negatively impacted results by ~~$1.4~~$2.7 million, or ~~3.3%~~5.6%. There were 6672 Heidrick Consulting consultants at September 30, ~~2021~~2022 compared to 6366 at September 30, ~~2020.~~2021.

Salaries and benefits expense increased ~~$0.6~~$4.3 million, or ~~1.5%~~9.8%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, ~~2020.~~2021. Fixed compensation decreased ~~less than $0.1~~$0.6 million due to ~~base salaries~~talent acquisition and ~~payroll taxes, partially offset by increases in~~retention

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costs, the deferred compensation plan, and retirement and benefits, partially offset by increases in base salaries and payroll taxes, and stock compensation. Variable compensation increased ~~$0.7~~$4.9 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expenses decreased ~~$2.2~~$0.5 million, or ~~16.8%~~4.4%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, ~~2020,~~2021, due to ~~external client services,~~ professional fees, ~~internal travel, and office occupancy,~~ partially offset by increases in ~~hiring fees~~business development travel, including the global consultants' conference, and ~~intangible amortization.~~market data analysis tools.

Cost of services increased ~~$2.1~~$0.6 million, or ~~74.9%~~11.2%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, ~~2020,~~2021, due to an increase in the number of consulting engagements.

Restructuring charges for the nine months ended September 30, 2021 ~~and 2020~~ were $0.4 ~~million and $4.5 million, respectively.~~million. The ~~current year restructuring~~ charges were primarily ~~relate~~related to a reduction in the Company's real estate footprint. ~~The~~There were no restructuring charges inor reversals during the ~~prior year primarily relate to a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the elimination of certain deferred compensation programs.~~nine months ended September 30, 2022.

Heidrick Consulting reported an operating loss of $4.5 million for the nine months ended September 30, 2022, an improvement of $6.4 million compared to an operating loss of $10.9 million, including restructuring charges of $0.4 million, for the nine months ended September 30, ~~2021, an improvement of $10.8 million compared to an operating loss of $21.7 million, including restructuring charges of $4.5 million, for the nine months ended September 30, 2020.~~2021.

Global Operations Support

Global Operations Support expenses for the nine months ended September 30, ~~2021,~~2022, increased ~~$5.0~~$5.4 million, or ~~16.8%~~15.5%, to ~~$34.9~~$40.5 million from ~~$29.8~~$35.1 million, including a restructuring reversal of $0.2 million, for the nine months ended September 30, ~~2020.~~2021.

Salaries and benefits expense increased ~~$7.9~~$4.0 million, or ~~53.2%~~17.6%, for the nine months ended September 30, 2022, due to ~~variable compensation,~~ base salaries and payroll taxes, and stock compensation, ~~and retirement and benefits,~~ partially offset by a decrease in ~~separation.~~retirement and benefits.

General and administrative expenses ~~decreased $0.8~~increased $1.4 million, or ~~5.8%~~11.5%, for the nine months ended September 30, 2022, due to professional fees, business development travel, hiring fees, and ~~office occupancy,~~information technology, partially offset by ~~increases~~a decrease in ~~information technology,~~taxes and ~~insurance and bank fees.~~licenses.

~~The Company recorded a~~Restructuring reversals for the nine months ended September 30, 2021 were $0.2 million due to the settlement of estimated employee severance accruals. There were no restructuring ~~reversal~~charges or reversals during the nine months ended September 30, 2021 and $1.9 million in restructuring charges during the nine months ended September 30, 2020. The restructuring reversal is primarily due to the Company reaching an early termination agreement for one of its offices that resulted in lower future rent payments. The restructuring charges in the prior year primarily relate to a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the elimination of certain deferred compensation programs.2022.

Liquidity and Capital Resources

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

We pay the non-deferred portion of annual bonuses in the first quarter 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 July 13, 2021, the Company entered into a First Amendment to the 2018 Credit Agreement (the ~~"Amendment"~~"Credit Agreement"). The ~~Amendment~~Credit Agreement provides 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 ~~2018 Credit Agreement,~~original 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. The ~~Amendment~~Credit Agreement matures on July 13, 2026, extended from October 26, 2023 as set forth in the ~~2018 Credit Agreement.~~original agreement.

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Cash, cash equivalents and marketable securities. Cash, cash equivalents and marketable securities at September 30, ~~2021,~~2022, December 31, ~~2020,~~2021, and September 30, ~~2020~~2021 were ~~$348.3~~$456.0 million, ~~$336.5~~$545.2 million and ~~$237.6~~$348.3 million, respectively. The ~~$348.3~~$456.0 million of cash, cash equivalents and marketable securities at September 30, ~~2021,~~2022 includes ~~$121.6~~$151.2 million held by our foreign subsidiaries. A portion of the ~~$121.6~~$151.2 million is considered permanently reinvested in these foreign subsidiaries. If these funds were required to satisfy obligations in the U.S., the repatriation of these funds could cause us to incur additional U.S. income taxes or foreign withholding taxes.

Cash flows (used in) provided by ~~(used in)~~ operating activities. Cash used in operating activities was $41.0 million for the nine months ended September 30, 2022, primarily reflecting increases in accounts receivable of $64.8 million, and a decreases in accrued expenses of $32.4 million, partially offset by net income of $63.4 million. The decrease in accrued expenses is primarily due to cash bonus payments related to 2021 and prior year cash bonus deferrals of $383.1 million, partially offset by 2022 bonus accruals.

Cash provided by operating activities was $64.8 million for the nine months ended September 30, 2021, due to 2021 cash bonus accruals, partially offset by cash bonus payments, net income of $60.1 million, depreciation and amortization of $16.6 million, stock compensation of $8.7 million, and deferred revenue of $6.5 million. This inflow of cash was partially offset by an increase in accounts receivable of $84.9 million associated with an increase in revenue. Other uses of cash included an increase in other assets of $37.1 million associated with unbilled receivables, right-of-use assets and lease liabilities, an increase in prepaid expenses of $7.7 million, and payments on the restructuring accrual of $5.0 million.

Cash flows used in investing activities.Cash used in ~~operating~~investing activities was ~~$72.9~~$193.1 million for the nine months ended September 30, ~~2020. This use~~2022, due to purchases of ~~cash was primarily the result~~marketable securities and investments of ~~cash bonus payments~~$186.1 million, and capital expenditures of $8.2 million related to ~~2019 and prior year cash bonus deferrals~~office build-outs, partially offset by ~~2020 bonus accruals, net loss~~the proceeds from sales of ~~$43.2 million, a decrease in income taxes payable~~marketable securities and investments of $11.5 million, and an increase in accounts receivable of $9.6 million, partially offset by impairment charges of $33.0 million, depreciation and amortization of $20.6 million, stock compensation of $7.1 million, and an increase in the restructuring accrual of $6.3$1.2 million.

~~Cash flows used by investing activities.~~Cash used in investing activities was $17.2 million for the nine months ended September 30, 2021, due to the On-Demand Talent acquisition of $32.0 million, capital expenditures of $3.9 million, and the purchase of marketable securities of $2.0 million, partially offset by the maturity of marketable securities of $20.7 million.

Cash used in investing activities was $14.2 million for the nine months ended September 30, 2020, primarily due to purchases of available for sale investments of $118.7 million and capital expenditures of $7.1 million for office build-outs, partially offset by proceeds from available for sale investments of $111.6 million.

Cash flows used in financing activities. Cash used in financing activities was $12.6 million for the nine months ended September 30, 2022, due to dividend payments of $9.3 million and employee tax withholding payments on equity transactions of $3.2 million.

Cash used in financing activities was $12.0 million for the nine months ended September 30, 2021, due to dividend payments of $8.9 million and employee tax withholding payments on equity transactions of $3.1 million.

Cash used in financing activities was $13.4 million for the nine months ended September 30, 2020, primarily due to dividend payments of $9.0 million, the final earnout payment for the Amrop acquisition of $2.8 million, and employee tax withholding payments on equity transactions of $1.6 million. Gross borrowings and payments on the line of credit were each $100.0 million during the nine months ended September 30, 2020.

Off-Balance Sheet Arrangements. We do not have material off-balance sheet arrangements, special purpose entities, trading activities of non-exchange traded contracts or transactions with related parties.

Application of Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed 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, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 as filed with the U.S. Securities and Exchange Commission (“SEC”) on February ~~24, 2021,~~28, 2022, and in Note 2, Summary of Significant Accounting Policies, in the Notes to Condensed Consolidated Financial Statements included in Item 1. 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. Actual results may differ from these estimates under different assumptions 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, and if different estimates that reasonably could have been used, or if changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes its critical accounting policies that reflect its more significant estimates and assumptions relate to revenue recognition, income taxes, interim effective tax rate and assessment of goodwill and other intangible assets for impairment. See Application of Critical Accounting Policies and Estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, as filed with the SEC on February ~~24, 2021.~~28, 2022.

Recently Issued and Adopted Financial Accounting Standards

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 net income by approximately ~~$1.8~~$3.2 million for the nine months ended September 30, ~~2021.~~2022. For financial information by segment, see Note ~~16,~~15, Segment Information, in the Notes to Condensed Consolidated Financial Statements.

ITEM 4. CONTROLS AND PROCEDURES

(a)Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rules 13a-15(e) and 15d-15(e), that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Management of the Company, with the participation of the principal executive officer and the principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, ~~2021.~~2022. Based on the evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, ~~2021.~~2022.

(b) Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f) that occurred during the three months ended September 30, ~~2021~~2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information presented in Note ~~18,~~17, Commitments and Contingencies, to our Condensed Consolidated Financial Statements within this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors

The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the Company's ~~2020~~2021 Annual Report on Form 10-K under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price. There have been no material changes to the Company’s risk factors from those set forth in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 as filed with the SEC on February ~~24, 2021, other than the additional risk factors set forth below.~~

~~There may be adverse tax, legal, and other consequences if the independent contractor classification of our on-demand independent talent is challenged.~~

On April 1, 2021, the Company acquired BTG, a market-leader in sourcing high-end, on-demand independent talent. We consider the on-demand talent available through BTG primarily as independent contractors. In general, any time a court or administrative agency determines that we or our clients have misclassified a BTG 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.

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 misclassification 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.28, 2022.

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Item 6. Exhibits

Incorporated by Reference
Exhibit
No. Exhibit Description Form Exhibit Filing Date/Period End Date
*10.1
Director and Officer Indemnification Agreement
10.2
First Amendment to Credit Agreement dated as of July 13, 2021 among Heidrick & Struggles International, Inc., the Foreign Subsidiary Borrowers Party Thereto, the Lenders Party Thereto and Bank of America, N.A.
8-K 10.1 July 19, 2021
10.3
Separation Agreement and General Release, dated June 30, 2021, by and between Heidrick & Struggles International, Inc. and Kamau Coar
8-K 10.1 July 2, 2021
*31.1
Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2
Certification of the Company’s Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1
Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32.2
Certification of the Company’s Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data Files because its XBRL tags are embedded within the Inline XBRL document
*101.SCH Inline XBRL Taxonomy Extension Schema Document
*101.CAL Inline XBRL Taxonomy Calculation Linkbase Document
*101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
*101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
*101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
*104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Incorporated by Reference

Exhibit
No.

Exhibit Description

Form

Exhibit

Filing Date/Period End Date

*31.1

Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*31.2

Certification of the Company’s Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*32.1

Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*32.2

Certification of the Company’s Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data Files because its XBRL tags are embedded within the Inline XBRL document

*101.SCH

Inline XBRL Taxonomy Extension Schema Document

*101.CAL

Inline XBRL Taxonomy Calculation Linkbase Document

*101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

*101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

*101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

*104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)



*			Filed herewith.

4037

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October ~~25, 2021~~24, 2022



			Heidrick & Struggles International, Inc.
			(Registrant)


			/s/ Stephen A. Bondi
			Stephen A. Bondi
			Vice President, Controller (OnDuly authorized on behalf of the registrant and in his capacity as Chief Accounting Officer)

4138


	Less Than 12 Months				Balance Sheet Classification
Balance at September 30, 2021	Fair Value		Unrealized Loss		Cash and Cash Equivalents		Marketable Securities
U.S. Treasury securities	$	36,198	$	1	$	36,198	$	—