UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED ~~MARCH 31,~~JUNE 30, 2022

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

For the transition period from _______ to _______

Commission File Number: 0-25837

HEIDRICK & STRUGGLES INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in its Charter)


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

233 South Wacker Drive-Suite 4900

Chicago, Illinois

60606-6303

(Address of Principal Executive Offices)

(312) 496-1200

(Registrant’s Telephone Number, Including Area Code)

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


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

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-Accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

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

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

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

As of ~~April~~July 22, 2022, there were ~~19,717,804~~19,737,277 shares of the Company’s common stock outstanding.

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX


		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

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

	Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended ~~March 31,~~June 30, 2022 and 2021	2

	Unaudited Condensed Consolidated Statement s of Changes in Stockholders' Equity for the three and six months ended ~~March 31,~~June 30, 2022 and 2021	3

	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021	45

	Unaudited Notes to Condensed Consolidated Financial Statements	56

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2021

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2934

Item 4.	Controls and Procedures	2934

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	3035

Item 1A.	Risk Factors	3035

Item 6.	Exhibits	3136

	SIGNATURE	3237

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
		(Unaudited)					(Unaudited)
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	267,986	$	545,225	Cash and cash equivalents	$	336,634	$	545,225

Accounts receivable, net of allowances of $6,278 and $5,666, respectively		186,220		133,750
Accounts receivable, net of allowances of $6,646 and $5,666, respectively						Accounts receivable, net of allowances of $6,646 and $5,666, respectively	214,268		133,750
Prepaid expenses	Prepaid expenses	30,681		21,754		Prepaid expenses	25,819		21,754
Other current assets	Other current assets	47,146		41,449		Other current assets	46,314		41,449
Income taxes recoverable	Income taxes recoverable	3,569		3,210		Income taxes recoverable	4,990		3,210
Total current assets	Total current assets	535,602		745,388		Total current assets	628,025		745,388

Non-current assets	Non-current assets					Non-current assets
Property and equipment, net	Property and equipment, net	27,162		27,085		Property and equipment, net	27,294		27,085
Operating lease right-of-use assets	Operating lease right-of-use assets	69,344		72,320		Operating lease right-of-use assets	68,008		72,320
Assets designated for retirement and pension plans	Assets designated for retirement and pension plans	12,372		12,715		Assets designated for retirement and pension plans	11,721		12,715
Investments	Investments	38,006		36,051		Investments	33,756		36,051
Other non-current assets	Other non-current assets	23,448		23,377		Other non-current assets	26,296		23,377
Goodwill	Goodwill	139,017		138,524		Goodwill	138,511		138,524
Other intangible assets, net	Other intangible assets, net	8,462		9,169		Other intangible assets, net	7,720		9,169
Deferred income taxes	Deferred income taxes	42,159		42,169		Deferred income taxes	40,735		42,169
Total non-current assets	Total non-current assets	359,970		361,410		Total non-current assets	354,041		361,410

Total assets	Total assets	$	895,572	$	1,106,798	Total assets	$	982,066	$	1,106,798

Current liabilities	Current liabilities					Current liabilities

Accounts payable	Accounts payable	$	16,350	$	20,374	Accounts payable	$	16,428	$	20,374
Accrued salaries and benefits	Accrued salaries and benefits	179,663		409,026		Accrued salaries and benefits	286,683		409,026
Deferred revenue	Deferred revenue	55,364		51,404		Deferred revenue	48,764		51,404
Operating lease liabilities	Operating lease liabilities	18,963		19,332		Operating lease liabilities	18,400		19,332
Other current liabilities	Other current liabilities	53,982		24,554		Other current liabilities	60,383		24,554
Income taxes payable	Income taxes payable	15,397		10,004		Income taxes payable	3,544		10,004
Total current liabilities	Total current liabilities	339,719		534,694		Total current liabilities	434,202		534,694

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

Accrued salaries and benefits	Accrued salaries and benefits	71,235		73,779		Accrued salaries and benefits	62,576		73,779
Retirement and pension plans	Retirement and pension plans	57,076		55,593		Retirement and pension plans	51,877		55,593
Operating lease liabilities	Operating lease liabilities	62,439		65,625		Operating lease liabilities	60,140		65,625
Other non-current liabilities	Other non-current liabilities	14,338		41,087		Other non-current liabilities	4,797		41,087
Total non-current liabilities	Total non-current liabilities	205,088		236,084		Total non-current liabilities	179,390		236,084

Total liabilities	Total liabilities	544,807		770,778		Total liabilities	613,592		770,778

Commitments and contingencies (Note 17)	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 March 31, 2022 and December 31, 2021		—		—
Common stock, $0.01 par value, 100,000,000 shares authorized, 19,722,884 and 19,596,607 shares issued, 19,717,804 and 19,591,527 shares outstanding at March 31, 2022 and December 31, 2021, respectively		197		196
Treasury stock at cost, 5,080 shares at March 31, 2022 and December 31, 2021		(191)		(191)
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at June 30, 2022 and December 31, 2021						Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at June 30, 2022 and December 31, 2021	—		—
Common stock, $0.01 par value, 100,000,000 shares authorized, 19,742,357 and 19,596,607 shares issued, 19,737,277 and 19,591,527 shares outstanding at June 30, 2022 and December 31, 2021, respectively						Common stock, $0.01 par value, 100,000,000 shares authorized, 19,742,357 and 19,596,607 shares issued, 19,737,277 and 19,591,527 shares outstanding at June 30, 2022 and December 31, 2021, respectively	197		196
Treasury stock at cost, 5,080 shares at June 30, 2022 and December 31, 2021						Treasury stock at cost, 5,080 shares at June 30, 2022 and December 31, 2021	(191)		(191)
Additional paid in capital	Additional paid in capital	233,641		233,163		Additional paid in capital	237,829		233,163
Retained earnings	Retained earnings	116,525		101,177		Retained earnings	137,570		101,177
Accumulated other comprehensive income		593		1,675
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	(6,931)		1,675
Total stockholders’ equity	Total stockholders’ equity	350,765		336,020		Total stockholders’ equity	368,474		336,020

Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	895,572	$	1,106,798	Total liabilities and stockholders’ equity	$	982,066	$	1,106,798

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

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share amounts)

(Unaudited)


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Revenue	Revenue						Revenue
Revenue before reimbursements (net revenue)	Revenue before reimbursements (net revenue)	$	283,861	$	193,656		Revenue before reimbursements (net revenue)	$	298,701	$	259,981	$	582,562	$	453,637
Reimbursements	Reimbursements	1,676		1,075			Reimbursements	2,408		1,254		4,084		2,329
Total revenue	Total revenue	285,537		194,731			Total revenue	301,109		261,235		586,646		455,966

Operating expenses	Operating expenses						Operating expenses
Salaries and benefits	Salaries and benefits	201,445		141,363			Salaries and benefits	207,684		186,054		409,129		327,417
General and administrative expenses	General and administrative expenses	29,794		27,368			General and administrative expenses	35,203		27,353		64,997		54,721
Cost of services	Cost of services	17,988		1,456			Cost of services	17,403		14,675		35,391		16,131
Research and development	Research and development	4,402		—			Research and development	4,545		—		8,947		—

Restructuring charges	Restructuring charges	—		3,861			Restructuring charges	—		3,193		—		7,054
Reimbursed expenses	Reimbursed expenses	1,676		1,075			Reimbursed expenses	2,408		1,254		4,084		2,329
Total operating expenses	Total operating expenses	255,305		175,123			Total operating expenses	267,243		232,529		522,548		407,652

Operating income	Operating income	30,232		19,608			Operating income	33,866		28,706		64,098		48,314

Non-operating income (expense)	Non-operating income (expense)						Non-operating income (expense)
Interest, net	Interest, net	110		82			Interest, net	299		35		409		117
Other, net	Other, net	(2,471)		3,082			Other, net	774		3,033		(1,697)		6,115
Net non-operating income		(2,361)		3,164
Net non-operating income (expense)							Net non-operating income (expense)	1,073		3,068		(1,288)		6,232

Income before income taxes	Income before income taxes	27,871		22,772			Income before income taxes	34,939		31,774		62,810		54,546

Provision for income taxes	Provision for income taxes	9,404		7,940			Provision for income taxes	10,790		11,009		20,194		18,949

Net income	Net income	18,467		14,832			Net income	24,149		20,765		42,616		35,597

Other comprehensive 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	(1,082)		(693)			Foreign currency translation adjustment	(7,524)		5		(8,606)		(688)

Other comprehensive loss, net of tax		(1,082)		(693)
Other comprehensive income (loss), net of tax							Other comprehensive income (loss), net of tax	(7,524)		5		(8,606)		(688)

Comprehensive income	Comprehensive income	$	17,385	$	14,139		Comprehensive income	$	16,625	$	20,770	$	34,010	$	34,909

Weighted-average common shares outstanding	Weighted-average common shares outstanding						Weighted-average common shares outstanding
Basic	Basic	19,624		19,387			Basic	19,726		19,510		19,675		19,449

Diluted	Diluted	20,511		20,171			Diluted	20,314		20,115		20,485		20,197

Earnings per common share	Earnings per common share						Earnings per common share
Basic	Basic	$	0.94	$	0.77		Basic	$	1.22	$	1.06	$	2.17	$	1.83
Diluted	Diluted	$	0.90	$	0.74		Diluted	$	1.19	$	1.03	$	2.08	$	1.76

Cash dividends paid per share	Cash dividends paid per share	$	0.15	$	0.15		Cash dividends paid per share	$	0.15	$	0.15	$	0.30	$	0.30

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

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except per share amounts)

(Unaudited)


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

Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—	—		—		—		(1,082)		(1,082)		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	—	—		—	—		3,698		—		—		3,698		Stock-based compensation	—	—		—	—		3,698		—		—		3,698
Vesting of equity awards, net of tax withholding	Vesting of equity awards, net of tax withholding	126	1		—	—		(3,220)		—		—		(3,219)		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)	—	—		—	—		—		(2,940)		—		(2,940)		Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,940)		—		(2,940)
Dividend equivalents on restricted stock units	Dividend equivalents on restricted stock units	—	—		—	—		—		(179)		—		(179)		Dividend equivalents on restricted stock units	—	—		—	—		—		(179)		—		(179)

Balance at March 31, 2022	Balance at March 31, 2022	19,723	$	197	5	$	(191)	$	233,641	$	116,525	$	593	$	350,765	Balance at March 31, 2022	19,723	$	197	5	$	(191)	$	233,641	$	116,525	$	593	$	350,765
Net income																Net income	—	—		—	—		—		24,149		—		24,149

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:
Stock-based compensation																Stock-based compensation	—	—		—	—		3,784		—		—		3,784
Vesting of equity awards																Vesting of equity awards	19	—		—	—		404		—		—		404

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

Balance at June 30, 2022																Balance at June 30, 2022	19,742	197		5	(191)		237,829		137,570		(6,931)		368,474

Additional
Paid in
Capital Retained Earnings Accumulated
Other
Comprehensive
Income Total
Common Stock Treasury Stock
Shares Amount Shares Amount
Balance at December 31, 2020 19,586 $ 196 226 $ (8,041) $ 231,048 $ 40,982 $ 3,417 $ 267,602
Net income — — — — — 14,832 — 14,832
Other comprehensive loss, net of tax — — — — — — (693) (693)
Common and treasury stock transactions:
Stock-based compensation — — — — 2,991 — — 2,991
Vesting of equity awards, net of tax withholdings — — (138) 4,951 (8,041) — — (3,090)
Cash dividends declared ($0.15 per share) — — — — — (2,905) — (2,905)
Dividend equivalents on restricted stock units — — — — — (167) — (167)
Balance at March 31, 2021 19,586 $ 196 88 $ (3,090) $ 225,998 $ 52,742 $ 2,724 $ 278,570

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except per share amounts)

(Unaudited)


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

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

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

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

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

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Three Months ended March 31,					Six Months Ended June 30,
		2022		2021			2022		2021
Cash flows - operating activities	Cash flows - operating activities					Cash flows - operating activities
Net income	Net income	$	18,467	$	14,832	Net income	$	42,616	$	35,597
Adjustments to reconcile net income to net cash used in operating activities:	Adjustments to reconcile net income to net cash used in operating activities:					Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	2,620		6,068		Depreciation and amortization	5,241		12,042
Deferred income taxes	Deferred income taxes	(477)		(495)		Deferred income taxes	(246)		(1,139)
Stock-based compensation expense	Stock-based compensation expense	3,698		2,991		Stock-based compensation expense	7,482		5,852
Accretion expense related to earnout payments	Accretion expense related to earnout payments	271		—		Accretion expense related to earnout payments	545		181
Gain on marketable securities	Gain on marketable securities	—		(1)		Gain on marketable securities	—		(1)
Loss on disposal of property and equipment	Loss on disposal of property and equipment	167		21		Loss on disposal of property and equipment	309		115

Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable	Accounts receivable	(53,142)		(41,209)		Accounts receivable	(84,783)		(70,980)
Accounts payable	Accounts payable	(4,156)		1,365		Accounts payable	(3,944)		2,497
Accrued expenses	Accrued expenses	(227,424)		(116,327)		Accrued expenses	(124,281)		(24,292)
Restructuring accrual	Restructuring accrual	—		(2,902)		Restructuring accrual	—		(4,663)
Deferred revenue	Deferred revenue	4,137		963		Deferred revenue	(1,527)		2,878
Income taxes recoverable and payable, net	Income taxes recoverable and payable, net	5,028		6,819		Income taxes recoverable and payable, net	(8,114)		12,515
Retirement and pension plan assets and liabilities	Retirement and pension plan assets and liabilities	3,497		1,235		Retirement and pension plan assets and liabilities	3,297		1,436
Prepaid expenses	Prepaid expenses	(9,081)		(7,894)		Prepaid expenses	(4,670)		(5,982)
Other assets and liabilities, net	Other assets and liabilities, net	(5,801)		(8,037)		Other assets and liabilities, net	(11,437)		(18,399)
Net cash used in operating activities	Net cash used in operating activities	(262,196)		(142,571)		Net cash used in operating activities	(179,512)		(52,343)

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)
Capital expenditures	Capital expenditures	(1,804)		(945)		Capital expenditures	(4,236)		(2,706)

Purchases of marketable securities and investments	Purchases of marketable securities and investments	(5,011)		(1,354)		Purchases of marketable securities and investments	(5,358)		(1,671)
Proceeds from sales of marketable securities and investments	Proceeds from sales of marketable securities and investments	763		20,153		Proceeds from sales of marketable securities and investments	990		20,315
Net cash provided by (used in) investing activities		(6,052)		17,854
Net cash used in investing activities						Net cash used in investing activities	(8,604)		(16,031)

Cash flows - financing activities	Cash flows - financing activities					Cash flows - financing activities

Cash dividends paid	Cash dividends paid	(3,119)		(3,072)		Cash dividends paid	(6,223)		(6,065)
Payment of employee tax withholdings on equity transactions	Payment of employee tax withholdings on equity transactions	(3,219)		(3,090)		Payment of employee tax withholdings on equity transactions	(3,219)		(3,090)

Net cash used in financing activities	Net cash used in financing activities	(6,338)		(6,162)		Net cash used in financing activities	(9,442)		(9,155)

Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash	Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash	(2,671)		(1,539)		Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash	(11,051)		(1,112)

Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	(277,257)		(132,418)		Net decrease in cash, cash equivalents and restricted cash	(208,609)		(78,641)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	545,259		316,489		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	$	268,002	$	184,071	Cash, cash equivalents and restricted cash at end of period	336,650		$	237,848

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

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except per share figures)

(Unaudited)

1. Basis of Presentation of Interim Financial Information

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

2. Summary of Significant Accounting Policies

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

Revenue Recognition

See Note 3, Revenue.

Cost of Services

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

Research and ~~development~~Development

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

Marketable Securities

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

Restricted Cash

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


		March 31,				December 31,					June 30,				December 31,
		2022		2021		2021		2020			2022		2021		2021		2020
Cash and cash equivalents	Cash and cash equivalents	$	267,986	$	184,055	$	545,225	$	316,473	Cash and cash equivalents	$	336,634	$	237,832	$	545,225	$	316,473

Restricted cash included within other non-current assets	Restricted cash included within other non-current assets	16		16		34		16		Restricted cash included within other non-current assets	16		16		34		16
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	268,002	$	184,071	$	545,259	$	316,489	Total cash, cash equivalents and restricted cash	$	336,650	$	237,848	$	545,259	$	316,489

Earnings per Common Share

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

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

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

~~Reclassifications~~

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	24,149	$	20,765	$	42,616	$	35,597
Weighted average shares outstanding:
Basic	19,726		19,510		19,675		19,449
Effect of dilutive securities:
Restricted stock units	455		498		608		593
Performance stock units	133		107		202		155
Diluted	20,314		20,115		20,485		20,197
Basic earnings per share	$	1.22	$	1.06	$	2.17	$	1.83
Diluted earnings per share	$	1.19	$	1.03	$	2.08	$	1.76

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.

3. Revenue

Executive Search

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

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

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

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

On-Demand Talent

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

responsible for fulfilling the promise to provide consulting services to its clients and the Company has discretion in establishing the prices charged to clients for the consulting services and is able to contractually obligate the independent service provider to deliver services and deliverables that the Company has agreed to provide to its clients.

Heidrick Consulting

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

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

Contract Balances

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

Unbilled receivables: Unbilled ~~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, 2021 to ~~March 31,~~

June 30, 2022:


		March 31, 2022		December 31, 2021		Change			June 30, 2022		December 31, 2021		Change
Contract assets	Contract assets							Contract assets
Unbilled receivables, net	Unbilled receivables, net	$	19,348	$	17,947	$	1,401	Unbilled receivables, net	$	19,592	$	17,947	$	1,645
Contract assets	Contract assets	21,725		18,995		2,730		Contract assets	21,639		18,995		2,644
Total contract assets	Total contract assets	41,073		36,942		4,131		Total contract assets	41,231		36,942		4,289

Contract liabilities	Contract liabilities							Contract liabilities
Deferred revenue	Deferred revenue	$	55,364	$	51,404	$	3,960	Deferred revenue	$	48,764	$	51,404	$	(2,640)

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, the Company recognized revenue of ~~$51.1~~$42.3 million that was included in the contract liabilities balance at the beginning of the period. The amount of revenue recognized during the ~~three~~six months ended ~~March 31,~~June 30, 2022, from performance obligations partially satisfied in previous periods as a result of changes in the estimates of variable consideration was ~~$8.3~~$12.7 million.

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

4. Credit Losses

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

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


Balance at December 31, 2021	$	5,666
Provision for credit losses	~~2,154~~3,966
Write-offs	~~(1,534)~~(2,876)
Foreign currency translation	~~(8)~~(110)
Balance at ~~March 31,~~June 30, 2022	$	~~6,278~~6,646

The ~~fair value and unrealized losses on~~Company had zero 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:~~at June 30, 2022 and December 31, 2022.

Less Than 12 Months Balance Sheet Classification
Balance at March 31, 2022 Fair Value Unrealized Loss Cash and Cash Equivalents Marketable Securities
U.S. Treasury securities $ 51,984 $ 1 $ 51,984 $ —

910

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

5. Property and Equipment, net

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


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Leasehold improvements	Leasehold improvements	$	41,510	$	42,252	Leasehold improvements	$	40,635	$	42,252
Office furniture, fixtures and equipment	Office furniture, fixtures and equipment	14,515		14,933		Office furniture, fixtures and equipment	13,748		14,933
Computer equipment and software	Computer equipment and software	25,640		24,293		Computer equipment and software	26,590		24,293
Property and equipment, gross	Property and equipment, gross	81,665		81,478		Property and equipment, gross	80,973		81,478
Accumulated depreciation	Accumulated depreciation	(54,503)		(54,393)		Accumulated depreciation	(53,679)		(54,393)
Property and equipment, net	Property and equipment, net	$	27,162	$	27,085	Property and equipment, net	$	27,294	$	27,085

Depreciation expense for ~~each of~~ the three months ended ~~March 31,~~June 30, 2022 and 2021 was $1.8 ~~million.~~million and $1.7 million, respectively. Depreciation expense for the six months ended June 30, 2022 and 2021 was $3.6 million and $3.5 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 in determining the present value of lease payments. The Company has a centrally managed treasury function and therefore, a portfolio approach is applied in determining the incremental borrowing rate. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a fully collateralized basis over a similar term in an amount equal to the total lease payments in a similar economic environment.

Office leases have remaining lease terms that range from less than one year to ~~11.3~~11.0 years, some of which also include options to extend or terminate the lease. Most office leases contain both fixed and variable lease payments. Variable lease costs consist primarily of rent escalations based on an established index or rate and taxes, insurance, and common area or other maintenance costs, which are paid based on actual costs incurred by the lessor. The Company has elected to utilize the available practical expedient to not separate lease and non-lease components for office leases.

As part of the Company's ~~restructuring plan,~~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 ~~$4.0~~$3.5 million and $7.5 million of right-of-use asset amortization was accelerated and recorded in Restructuring charges in the Condensed Consolidated Statements of Comprehensive Income and Depreciation and amortization in the Condensed Consolidated Statements of Cash Flows during the three and six months ended ~~March 31, 2021.~~June 30, 2021, respectively.

Equipment leases, which are comprised of vehicle and office equipment leases, have remaining terms that range from less than one year to ~~4.7~~4.4 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.

1011

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


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Operating lease cost	Operating lease cost	$	4,358	$	4,867		Operating lease cost	$	4,485	$	4,908	$	8,843	$	9,775
Variable lease cost	Variable lease cost	1,161		1,228			Variable lease cost	1,472		$	1,077	2,633		2,305
Total lease cost	Total lease cost	$	5,519	$	6,095		Total lease cost	$	5,957	$	5,985	$	11,476	$	12,080

Supplemental cash flow information related to the Company's operating leases is as follows for the ~~three~~six months ended ~~March 31:~~June 30:


		2022		2021			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	$	5,044	$	7,566	Operating cash flows from operating leases	$	9,590	$	17,407
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	$	281	$	791	Operating leases	$	3,318	$	898

The weighted average remaining lease term and weighted average discount rate for operating leases as of ~~March 31,~~June 30, are as follows:


		2022		2021			2022		2021
Weighted Average Remaining Lease Term	Weighted Average Remaining Lease Term					Weighted Average Remaining Lease Term
Operating leases	Operating leases	6.3 years		5.9 years		Operating leases	6.3 years		5.8 years
Weighted Average Discount Rate	Weighted Average Discount Rate					Weighted Average Discount Rate
Operating leases	Operating leases	3.25	%	3.44	%	Operating leases	3.27	%	3.41	%

The future maturities of the Company's operating lease liabilities as of ~~March 31,~~June 30, 2022, for the years ended December 31 are as follows:


		Operating Lease Maturity			Operating Lease Maturity
2022	2022	$	13,339	2022	$	8,194
2023	2023	18,688		2023	18,503
2024	2024	16,649		2024	16,882
2025	2025	8,764		2025	9,459
2026	2026	7,377		2026	8,105
Thereafter	Thereafter	25,484		Thereafter	25,906
Total lease payments	Total lease payments	90,301		Total lease payments	87,049
Less: Interest	Less: Interest	(8,899)		Less: Interest	(8,509)
Present value of lease liabilities	Present value of lease liabilities	$	81,402	Present value of lease liabilities	$	78,540

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.

1112

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

Cash and Cash Equivalents

Balance at ~~March 31,~~June 30, 2022

Cash

~~145,982~~138,271

Level 1(1):

Money market funds

~~28,026~~69,537

U.S. Treasury securities

~~93,978~~128,826

Total Level 1

~~122,004~~198,363

Total

~~267,986~~336,634



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

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

Total	$	545,225

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

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

The Company has a U.S. non-qualified deferred compensation plan that consists primarily of U.S. marketable securities and mutual funds. The aggregate cost basis for these investments was ~~$27.5~~$27.7 million and $22.9 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

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

1213

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 March 31, 2022
Balance at June 30, 2022														Balance at June 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	$	38,006	$	—	$	—	$	38,006	$	—	$	—	U.S. non-qualified deferred compensation plan	$	33,756	$	—	$	—	$	33,756	$	—	$	—

Level 2(2):	Level 2(2):													Level 2(2):
Retirement and pension plan assets	Retirement and pension plan assets	13,669		1,297		12,372		—		—		—		Retirement and pension plan assets	12,950		1,229		11,721		—		—		—
Pension benefit obligation	Pension benefit obligation	(19,066)		—		—		—		(1,297)		(17,769)		Pension benefit obligation	(18,063)		—		—		—		(1,229)		(16,834)
Total Level 2	Total Level 2	(5,397)		1,297		12,372		—		(1,297)		(17,769)		Total Level 2	(5,113)		1,229		11,721		—		(1,229)		(16,834)

Total	Total	$	32,609	$	1,297	$	12,372	$	38,006	$	(1,297)	$	(17,769)	Total	$	28,643	$	1,229	$	11,721	$	33,756	$	(1,229)	$	(16,834)


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

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

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





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

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

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

Contingent Consideration and Compensation

The former owners of the Company's acquired businesses are eligible to receive 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.

1314

The following table provides a reconciliation of the beginning and ending balance of Level 3 liabilities for the ~~three~~six months ended ~~March 31,~~June 30, 2022:


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

Earnout accretion	Earnout accretion	(271)		—		Earnout accretion	(545)		—
Compensation expense	Compensation expense	—		(1,089)		Compensation expense	—		(2,060)

Foreign currency translation	Foreign currency translation	—		(760)		Foreign currency translation	—		(152)

Balance at March 31, 2022		$	(35,925)	$	(5,990)
Balance at June 30, 2022						Balance at June 30, 2022	$	(36,199)	$	(6,353)

Earnout accruals of ~~$26.9~~$36.2 million and zero were recorded within Other current liabilities as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, and earnout accruals of ~~$9.0 million~~zero and $35.7 million were recorded within Other non-current liabilities as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. The contingent compensation accruals are recorded within non-current Accrued salaries and benefits at both ~~March 31,~~June 30, 2022 and December 31, 2021.

8. Goodwill and Other Intangible Assets

Goodwill

The Company's goodwill by segment is as follows:


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Executive Search	Executive Search					Executive Search
Americas	Americas	$	91,989	$	91,463	Americas	$	91,563	$	91,463
Europe	Europe	1,499		1,532		Europe	1,419		1,532

Total Executive Search	Total Executive Search	93,488		92,995		Total Executive Search	92,982		92,995
On-Demand Talent	On-Demand Talent	45,529		45,529		On-Demand Talent	45,529		45,529

Total goodwill	Total goodwill	$	139,017	$	138,524	Total goodwill	$	138,511	$	138,524

Changes in the carrying amount of goodwill by segment for the ~~three~~six months ended ~~March 31,~~June 30, 2022, are as follows:


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

Foreign currency translation	Foreign currency translation	526		(33)		—		—		493		Foreign currency translation	100		(113)		—		—		(13)

Goodwill	Goodwill	91,989		25,974		8,495		45,529		171,987		Goodwill	91,563		25,894		8,495		45,529		171,481
Accumulated impairment losses	Accumulated impairment losses	—		(24,475)		(8,495)		—		(32,970)		Accumulated impairment losses	—		(24,475)		(8,495)		—		(32,970)
Balance at March 31, 2022		$	91,989	$	1,499	$	—	$	45,529	$	139,017
Balance at June 30, 2022												Balance at June 30, 2022	$	91,563	$	1,419	$	—	$	45,529	$	138,511

1415

Other Intangible Assets, net

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


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Executive Search	Executive Search					Executive Search
Americas	Americas	$	103	$	103	Americas	$	77	$	103
Europe	Europe	389		463		Europe	309		463
Asia Pacific	Asia Pacific	30		33		Asia Pacific	24		33
Total Executive Search	Total Executive Search	522		599		Total Executive Search	410		599

On-Demand Talent	On-Demand Talent	7,940		8,570		On-Demand Talent	7,310		8,570
Total other intangible assets, net	Total other intangible assets, net	$	8,462	$	9,169	Total other intangible assets, net	$	7,720	$	9,169

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


		Weighted Average Life (Years)	March 31, 2022						December 31, 2021							Weighted Average Life (Years)	June 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	10.6	$	22,052	$	(16,691)	$	5,361	$	22,127	$	(16,495)	$	5,632	Client relationships	10.7	$	21,268	$	(16,203)	$	5,065	$	22,127	$	(16,495)	$	5,632
Trade name	Trade name	3.1	2,474		(1,446)		1,028		2,441		(1,237)		1,204		Trade name	3.1	2,411		(1,570)		841		2,441		(1,237)		1,204
Software	Software	3.0	3,110		(1,037)		2,073		3,110		(777)		2,333		Software	3.0	3,110		(1,296)		1,814		3,110		(777)		2,333
Total intangible assets	Total intangible assets	7.8	$	27,636	$	(19,174)	$	8,462	$	27,678	$	(18,509)	$	9,169	Total intangible assets	8.0	$	26,789	$	(19,069)	$	7,720	$	27,678	$	(18,509)	$	9,169

Intangible asset amortization expense for each of the three months ended ~~March 31,~~June 30, 2022 and 2021 was $0.8 million. Intangible asset amortization expense for the six months ended June 30, 2022 and 2021 was $1.6 million and ~~$0.2~~$1.0 million, respectively.

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


2022	2022	$	2,113	2022	$	1,390
2023	2023	2,735		2023	2,722
2024	2024	1,155		2024	1,150
2025	2025	764		2025	762
2026	2026	527		2026	527
Thereafter	Thereafter	1,168		Thereafter	1,169
Total	Total	$	8,462	Total	$	7,720

9. Other Current Assets and Liabilities

The components of other current assets are as follows:


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Contract assets	Contract assets	$	41,073	$	36,942	Contract assets	$	41,231	$	36,942
Other	Other	6,073		4,507		Other	5,083		4,507
Total other current assets	Total other current assets	$	47,146	$	41,449	Total other current assets	$	46,314	$	41,449

The components of other current liabilities are as follows:


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Earnout liability	Earnout liability	$	26,949	$	—	Earnout liability	$	36,199	$	—
Other	Other	27,033		24,554		Other	24,184		24,554
Total other current liabilities	Total other current liabilities	$	53,982	$	24,554	Total other current liabilities	$	60,383	$	24,554

1516

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, 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.

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.

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

11. Stock-Based Compensation

The Company's Third Amended and Restated 2012 Heidrick & Struggles GlobalShare Program (the "Third A&R 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 ~~March 31,~~June 30, 2022, ~~3,650,461~~3,674,161 awards have been issued under the Third A&R Program, including ~~748,407~~754,580 forfeited awards, and ~~447,946~~430,419 shares remain available for future awards. The Third A&R 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 March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Salaries and benefits (1)	Salaries and benefits (1)	$	2,904	$	5,461		Salaries and benefits (1)	$	1,274	$	5,770	$	4,178	$	11,231

General and administrative expenses							General and administrative expenses	405		345		405		345
Income tax benefit related to stock-based compensation included in net income	Income tax benefit related to stock-based compensation included in net income	790		1,453			Income tax benefit related to stock-based compensation included in net income	458		1,627		1,248		3,080

(1) Includes ~~$0.8~~$2.1 million of income and ~~$2.5~~$3.3 million of expense related to cash settled restricted stock units for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively and $2.8 million of income and $5.8 million of expense related to cash-settled restricted stock units for the six months ended June 30, 2022 and 2021, respectively.

Restricted Stock Units

Restricted stock units are subject to ratable vesting over a 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 ~~three~~six months ended ~~March 31,~~June 30, 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, 2021	Outstanding on December 31, 2021	727,651	$	31.32	Outstanding on December 31, 2021	727,651	$	31.32
Granted	Granted	180,429	38.24		Granted	192,279	37.99
Vested and converted to common stock	Vested and converted to common stock	(141,627)	32.26		Vested and converted to common stock	(149,250)	32.15
Forfeited	Forfeited	(3,530)	37.26		Forfeited	(9,703)	35.68
Outstanding on March 31, 2022		762,923	$	32.76
Outstanding on June 30, 2022					Outstanding on June 30, 2022	760,977	$	32.79

As of ~~March 31,~~June 30, 2022, there was ~~$12.3~~$9.9 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~~2.3 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 certain performance and market conditions over the three-year vesting period. Half of the award is based on the achievement of 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 subject to total shareholder return metrics is determined using the 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 ~~three~~six months ended ~~March 31,~~June 30, 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, 2021	Outstanding on December 31, 2021	232,857	$	32.29	Outstanding on December 31, 2021	232,857	$	39.88
Granted	Granted	97,379	38.75		Granted	97,379	49.59
Vested and converted to common stock	Vested and converted to common stock	(69,784)	40.77		Vested and converted to common stock	(69,784)	52.91
Forfeited	Forfeited	—	—		Forfeited	—	0
Outstanding on March 31, 2022		260,452	$	32.43
Outstanding on June 30, 2022					Outstanding on June 30, 2022	260,452	$	40.02

As of ~~March 31,~~June 30, 2022, there was ~~$7.5~~$7.2 million of pre-tax unrecognized compensation expense related to unvested performance stock units, which is expected to be recognized over a weighted average of ~~2.1~~2.0 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 are subject to vesting over a period of four years and certain other conditions, including continued service to the Company. As a result of the cash-settlement feature of the awards, the Company classifies the awards 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 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 ~~$0.8~~$2.1 million and expense of ~~$2.5~~$3.3 million during the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively and $2.8 million of income and $5.8 million of expense related to phantom stock units for the six months ended June 30, 2022 and 2021, respectively.

Phantom stock unit activity for the ~~three~~six months ended ~~March 31,~~June 30, 2022 is as follows:


			Number of Phantom Stock Units
Outstanding on December 31, 2021			348,863
Granted			—
Vested			—
Forfeited			—
Outstanding on ~~March 31,~~June 30, 2022			348,863

As of ~~March 31,~~June 30, 2022, there was ~~$3.1~~$2.0 million of pre-tax unrecognized compensation expense related to unvested phantom stock units, which is expected to be recognized over a weighted average of ~~2.5~~2.3 years.

12. Restructuring

During the year ended December 31, 2020, the Company implemented a restructuring plan (the "2020 Plan") to optimize future growth and profitability. The primary components of the 2020 Plan included a workforce reduction, a reduction of the Company's real estate expenses and professional fees, and the elimination of certain deferred compensation programs. The 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 six months ended ~~March 31,~~June 30, 2022 and does not anticipate incurring any future charges under the 2020 Plan.

Restructuring charges (reversals) for the three months ended ~~March 31,~~June 30, 2021 by type of charge (reversal) and 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	$	19	$	(52)	$	(124)	$	(44)	$	7	$	(194)	Employee related	$	(3)	$	(54)	$	—	$	—	$	(39)	$	(96)
Office related	Office related	3,676		—		—		366		—		4,042		Office related	3,074		—		—		312		(97)		3,289
Other		3		—		—		—		10		13

Total	Total	$	3,698	$	(52)	$	(124)	$	322	$	17	$	3,861	Total	$	3,071	$	(54)	$	—	$	312	$	(136)	$	3,193

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


	Executive Search
	Americas		Europe		Asia Pacific		Heidrick Consulting		Global Operations Support		Total
Employee related	$	16	$	(106)	$	(124)	$	(44)	$	(32)	$	(290)
Office related	6,750		—		—		678		(97)		7,331
Other	3		—		—		—		10		13
Total	$	6,769	$	(106)	$	(124)	$	634	$	(119)	$	7,054

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


	Executive Search
	Americas		Europe		Asia Pacific		Heidrick Consulting		Global Operations Support		Total
Employee related	$	16,226	$	8,256	$	4,110	$	2,589	$	1,416	$	32,597
Office related	18,101		226		374		2,352		1,819		22,872
Other	34		24		6		71		560		695
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 Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2021.

Changes in the restructuring accrual for the ~~three~~six months ended ~~March 31,~~June 30, 2022 were as follows:


		Employee Related		Office Related		Other		Total			Employee Related		Office Related		Other		Total

Accrual balance at December 31, 2021	Accrual balance at December 31, 2021	8,394		—		—		8,394		Accrual balance at December 31, 2021	8,394		—		—		8,394

Cash payments	Cash payments	(4,843)		—		—		(4,843)		Cash payments	(4,843)		—		—		(4,843)
Non-cash write-offs	Non-cash write-offs	(34)		0		0		(34)		Non-cash write-offs	(34)		0		0		(34)

Exchange rate fluctuations	Exchange rate fluctuations	(18)		—		—		(18)		Exchange rate fluctuations	(87)		—		—		(87)
Accrual balance at March 31, 2022		$	3,499	$	—	$	—	$	3,499
Accrual balance at June 30, 2022										Accrual balance at June 30, 2022	$	3,430	$	—	$	—	$	3,430

Restructuring accruals are recorded within current Accrued salaries and benefits as of ~~March 31,~~June 30, 2022.

13. Income Taxes

The Company reported income before taxes of ~~$27.9~~$34.9 million and an income tax provision of ~~$9.4~~$10.8 million for the three months ended ~~March 31,~~June 30, 2022. The Company reported income before taxes of ~~$22.8~~$31.8 million and an income tax provision of ~~$7.9~~$11.0 million for the three months ended ~~March 31,~~June 30, 2021. The effective tax rates for the three months ended ~~March 31,~~June 30, 2022 and 2021, were ~~33.7%~~30.9% and ~~34.9%~~34.6%, respectively. The effective tax rates for the three months ended ~~March 31,~~June 30, 2022 and 2021 were each impacted by one-time items and the mix of income.

The Company reported income before taxes of $62.8 million and an income tax provision of $20.2 million for the six months ended June 30, 2022. The Company reported income before taxes of $54.5 million and an income tax provision of $18.9 million for the six months ended June 30, 2021. The effective tax rates for the six months ended June 30, 2022 and 2021, were 32.2% and 34.7%, respectively. The effective tax rate for the six months ended June 30, 2022 and 2021 were each impacted by one-time items and the mix of income.

14. Changes in Accumulated Other Comprehensive Income (Loss)

The changes in Accumulated other comprehensive income (loss) (“AOCI”) by component for the ~~three~~six months ended ~~March 31,~~June 30, 2022 are as follows:

Foreign
Currency
Translation Pension AOCI
Balance at December 31, 2021 $ 4,294 $ (2,619) $ 1,675
Other comprehensive loss before classification, net of tax (1,082) — (1,082)
Balance at March 31, 2022 $ 3,212 $ (2,619) $ 593


	Foreign Currency Translation		Pension		AOCI
Balance at December 31, 2021	$	4,294	$	(2,619)	$	1,675
Other comprehensive loss before classification	(8,606)		—		(8,606)
Balance at June 30, 2022	$	(4,312)	$	(2,619)	$	(6,931)

15. Segment Information

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

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.

Revenue and operating income by segment are as follows:


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Revenue	Revenue						Revenue
Executive Search	Executive Search						Executive Search
Americas	Americas	$	162,553	$	116,506		Americas	$	176,020	$	147,390	$	338,573	$	263,896
Europe	Europe	49,745		37,643			Europe	48,131		44,909		97,876		82,552
Asia Pacific	Asia Pacific	30,251		25,469			Asia Pacific	29,758		31,834		60,009		57,303
Total Executive Search	Total Executive Search	242,549		179,618			Total Executive Search	253,909		224,133		496,458		403,751
On-Demand Talent	On-Demand Talent	23,381		—			On-Demand Talent	22,353		18,719		45,734		18,719
Heidrick Consulting	Heidrick Consulting	17,931		14,038			Heidrick Consulting	22,439		17,129		40,370		31,167
Revenue before reimbursements (net revenue)	Revenue before reimbursements (net revenue)	283,861		193,656			Revenue before reimbursements (net revenue)	298,701		259,981		582,562		453,637
Reimbursements	Reimbursements	1,676		1,075			Reimbursements	2,408		1,254		4,084		2,329
Total revenue	Total revenue	$	285,537	$	194,731		Total revenue	$	301,109	$	261,235	$	586,646	$	455,966

1819


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Operating income
Operating income (loss)							Operating income (loss)
Executive Search	Executive Search						Executive Search
Americas (1)	Americas (1)	$	39,851	$	26,256		Americas (1)	$	44,250	$	34,594	$	84,101	$	60,850
Europe (2)	Europe (2)	5,403		4,540			Europe (2)	4,606		3,979		10,009		8,519
Asia Pacific (3)	Asia Pacific (3)	5,054		4,144			Asia Pacific (3)	3,912		4,385		8,966		8,529
Total Executive Search	Total Executive Search	50,308		34,940			Total Executive Search	52,768		42,958		103,076		77,898
On-Demand Talent	On-Demand Talent	(582)		—			On-Demand Talent	(349)		153		(931)		153
Heidrick Consulting (4)	Heidrick Consulting (4)	(2,084)		(4,710)			Heidrick Consulting (4)	(408)		(3,631)		(2,492)		(8,341)
Total segment operating income	Total segment operating income	47,642		30,230			Total segment operating income	52,011		39,480		99,653		69,710
Research and Development	Research and Development	(4,402)		—			Research and Development	(4,545)		—		(8,947)		—
Global Operations Support (5)	Global Operations Support (5)	(13,008)		(10,622)			Global Operations Support (5)	(13,600)		(10,774)		(26,608)		(21,396)
Total operating income	Total operating income	$	30,232	$	19,608		Total operating income	$	33,866	$	28,706	$	64,098	$	48,314

(1) Includes restructuring charges of ~~$3.7~~$3.1 million and $6.8 million for the three and six months ended ~~March 31, 2021.~~June 30, 2021, respectively.

(2) Includes restructuring reversals of less than $0.1 million and $0.1 million for the three and six months ended ~~March 31, 2021.~~June 30, 2021, respectively.

(3) Includes restructuring reversals of $0.1 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021.

(4) Includes restructuring charges of $0.3 million and $0.6 million for the three and six months ended ~~March 31, 2021.~~June 30, 2021, respectively.

(5) Includes restructuring ~~charges~~reversals of ~~less than~~ $0.1 million for both the three and six months ended ~~March 31, 2021.~~June 30, 2021, respectively.

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 $4.4 million as of ~~March 31,~~June 30, 2022. The Company has not accrued for these arrangements as no event of default exists or is expected to exist.

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.

1920

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

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. 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 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, 2021, under the heading "Risk Factors" in Item 1A, 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 to businesses and business leaders worldwide by helping them to improve the effectiveness of their leadership teams. We provide our services to a broad range of clients through the expertise of over ~~460~~450 consultants located in major cities around the world. The Company and its predecessors have been leadership advisors for more than 60 years.

Our service offerings include the following:

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

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

generally are based on the annual compensation for the placed executive. We provide our executive search services primarily on a retained basis.

We employ a global approach to executive search built on better insights, more data and faster decision making facilitated by the use of our 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 internally developed assessment tools. In response to working remotely, our Executive Search teams employed Heidrick Connect to operate effectively and efficiently while engaging virtually with our clients. Additionally, we have introduced upgrades to Heidrick Connect, resulting in greater flexibility, increased productivity and the ability to deliver more insights to our clients.

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

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

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

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

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

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

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

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

On-Demand Talent. Our on-demand services provide clients 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 tools and experts use data and technology to bring science to the art of human capital development and organizational design. Our services allow our clients to accelerate their strategies and the effectiveness of individual leaders, teams and organizations as a whole.

Heidrick Consulting offers our clients groundbreaking approaches to human capital development through a myriad of solutions, ranging from leadership assessment and development, team and organization acceleration, 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 the 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 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.

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

~~Second~~Third Quarter 2022 Outlook

~~We are currently forecasting~~The Company expects 2022 ~~second~~third quarter consolidated net revenue of between ~~$290~~$260 million and ~~$300~~$270 million, while acknowledging that some continued fluidity in external factors such as foreign conflicts, inflation, the interest rate ~~environment,~~ and ~~the COVID-19 pandemic~~foreign exchange rate environments may impact quarterly ~~results to some extent.~~results. In addition, this outlook is based on the average currency rates in ~~March~~June 2022 and reflects, among other factors, management's assumptions for the anticipated volume of new Executive

Search confirmations, On-Demand Talent projects, and Heidrick Consulting assignments, ~~and the current backlog,~~ consultant productivity, consultant retention, and the seasonality of the ~~business.~~business, along with the current backlog.

Our 2022 ~~second~~third quarter guidance is subject to a number of risks and uncertainties, including those discussed under Item 1A - Risk Factors in our 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 March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Revenue	Revenue						Revenue
Revenue before reimbursements (net revenue)	Revenue before reimbursements (net revenue)	100.0	%	100.0	%		Revenue before reimbursements (net revenue)	100.0	%	100.0	%	100.0	%	100.0	%
Reimbursements	Reimbursements	0.6		0.6			Reimbursements	0.8		0.5		0.7		0.5
Total revenue	Total revenue	100.6		100.6			Total revenue	100.8		100.5		100.7		100.5

Operating expenses	Operating expenses						Operating expenses
Salaries and benefits	Salaries and benefits	71.0		73.0			Salaries and benefits	69.5		71.6		70.2		72.2
General and administrative expenses	General and administrative expenses	10.5		14.1			General and administrative expenses	11.8		10.5		11.2		12.1
Cost of services	Cost of services	6.3		0.8			Cost of services	5.8		5.6		6.1		3.6
Research and development	Research and development	1.6		—			Research and development	1.5		—		1.5		—

Restructuring charges	Restructuring charges	—		2.0			Restructuring charges	—		1.2		—		1.6
Reimbursed expenses	Reimbursed expenses	0.6		0.6			Reimbursed expenses	0.8		0.5		0.7		0.5
Total operating expenses	Total operating expenses	89.9		90.4			Total operating expenses	89.5		89.4		89.7		89.9

Operating income	Operating income	10.7		10.1			Operating income	11.3		11.0		11.0		10.7

Non-operating income (expense)	Non-operating income (expense)						Non-operating income (expense)
Interest, net	Interest, net	—		—			Interest, net	0.1		—		0.1		—
Other, net	Other, net	(0.9)		1.6			Other, net	0.3		1.2		(0.3)		1.3
Net non-operating income	Net non-operating income	(0.8)		1.6			Net non-operating income	0.4		1.2		(0.2)		1.4

Income before income taxes	Income before income taxes	9.8		11.8			Income before income taxes	11.7		12.2		10.8		12.0

Provision for income taxes	Provision for income taxes	3.3		4.1			Provision for income taxes	3.6		4.2		3.5		4.2

Net income	Net income	6.5	%	7.7	%		Net income	8.1	%	8.0	%	7.3	%	7.8	%

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 by segment (in thousands):


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Revenue	Revenue						Revenue
Executive Search	Executive Search						Executive Search
Americas	Americas	$	162,553	$	116,506		Americas	$	176,020	$	147,390	$	338,573	$	263,896
Europe	Europe	49,745		37,643			Europe	48,131		44,909		97,876		82,552
Asia Pacific	Asia Pacific	30,251		25,469			Asia Pacific	29,758		31,834		60,009		57,303
Total Executive Search	Total Executive Search	242,549		179,618			Total Executive Search	253,909		224,133		496,458		403,751
On-Demand Talent	On-Demand Talent	23,381		—			On-Demand Talent	22,353		18,719		45,734		18,719
Heidrick Consulting	Heidrick Consulting	17,931		14,038			Heidrick Consulting	22,439		17,129		40,370		31,167
Revenue before reimbursements (net revenue)	Revenue before reimbursements (net revenue)	283,861		193,656			Revenue before reimbursements (net revenue)	298,701		259,981		582,562		453,637
Reimbursements	Reimbursements	1,676		1,075			Reimbursements	2,408		1,254		4,084		2,329
Total revenue	Total revenue	$	285,537	$	194,731		Total revenue	$	301,109	$	261,235	$	586,646	$	455,966

Three Months Ended March 31,
2022 2021
Operating income
Executive Search
Americas (1) $ 39,851 $ 26,256
Europe (2) 5,403 4,540
Asia Pacific (3) 5,054 4,144
Total Executive Search 50,308 34,940
On-Demand Talent (582) —
Heidrick Consulting (4) (2,084) (4,710)
Total segment operating income 47,642 30,230
Research and Development (4,402) —
Global Operations Support (5) (13,008) (10,622)
Total operating income $ 30,232 $ 19,608


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Operating income (loss)
Executive Search
Americas (1)	$	44,250	$	34,594	$	84,101	$	60,850
Europe (2)	4,606		3,979		10,009		8,519
Asia Pacific (3)	3,912		4,385		8,966		8,529
Total Executive Search	52,768		42,958		103,076		77,898
On-Demand Talent	(349)		153		(931)		153
Heidrick Consulting (4)	(408)		(3,631)		(2,492)		(8,341)
Total segment operating income	52,011		39,480		99,653		69,710
Research and Development	(4,545)		—		(8,947)		—
Global Operations Support (5)	(13,600)		(10,774)		(26,608)		(21,396)
Total operating income	$	33,866	$	28,706	$	64,098	$	48,314

(1) Includes restructuring charges of ~~$3.7~~$3.1 million and $6.8 million for the three and six months ended ~~March 31, 2021.~~June 30, 2021, respectively.

(2) Includes restructuring reversals of less than $0.1 million and $0.1 million for the three and six months ended ~~March 31, 2021.~~June 30, 2021, respectively.

(3) Includes restructuring reversals of $0.1 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021.

(4) Includes restructuring charges of $0.3 million and $0.6 million for the three and six months ended ~~March 31, 2021.~~June 30, 2021, respectively.

(5) Includes restructuring ~~charges~~reversals of ~~less than~~ $0.1 million for both the three and six months ended ~~March 31, 2021.~~June 30, 2021, respectively.

Three Months Ended ~~March 31,~~June 30, 2022 Compared to the Three Months Ended ~~March 31,~~June 30, 2021

Total revenue. Consolidated total revenue increased ~~$90.8~~$39.9 million, or ~~46.6%~~15.3%, to ~~$285.5~~$301.1 million for the three months ended ~~March 31,~~June 30, 2022, from ~~$194.7~~$261.2 million for the three months ended ~~March 31,~~June 30, 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 ~~$90.2~~$38.7 million, or ~~46.6%~~14.9%, to ~~$283.9~~$298.7 million for the three months ended ~~March 31,~~June 30, 2022 from ~~$193.7~~$260.0 million for the three months ended ~~March 31,~~June 30, 2021. Foreign exchange rate fluctuations negatively impacted results by ~~$3.8~~$8.5 million, or ~~2.0%~~3.3%. Executive Search net revenue was ~~$242.5~~$253.9 million for the three months ended ~~March 31,~~June 30, 2022, an increase of ~~$62.9~~$29.8 million, or ~~35.0%~~13.3%, compared to the three months ended ~~March 31,~~June 30, 2021. The increase in Executive Search net revenue was primarily due to ~~a 23.1%~~an increase in the ~~number of confirmed searches compared to the prior year. Heidrick Consulting~~average revenue per search. On-Demand Talent net revenue ~~increased $3.9 million, or 27.7%, to $17.9~~was $22.4 million for the three months ended ~~March 31,~~June 30, 2022, an increase of $3.6 million, or 19.4%, compared to the three months ended June 30, 2021. The increase in On-Demand Talent revenue was primarily due an increase in the average size of on-demand projects. Heidrick Consulting net revenue increased $5.3 million, or 31.0%, to $22.4 million for the three months ended June 30, 2022. The increase in Heidrick Consulting revenue was primarily due to ~~a 56.2%~~an increase in ~~the number of~~leadership assessment and development consulting engagements compared to the ~~prior year. The acquisition of On-Demand Talent, completed~~same period in the ~~second quarter of 2021, contributed $23.4 million to the increase in net revenue for the three months ended March 31, 2022.~~prior year.

The number of Executive Search and Heidrick Consulting consultants was ~~394~~388 and ~~70,~~66, respectively, as of ~~March 31,~~June 30, 2022, compared to ~~373~~369 and ~~64,~~65, respectively, as of ~~March 31,~~June 30, 2021. Executive Search productivity, as measured by annualized net Executive Search revenue per consultant, was ~~$2.5~~$2.6 million and ~~$1.9~~$2.4 million for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. The average revenue per executive search increased to approximately ~~$124,000~~$153,000 from ~~$113,000~~$133,000 in the same period in the prior year.

Salaries and benefits. Consolidated salaries and benefits expense increased ~~$60.1~~$21.6 million, or ~~42.5%~~11.6%, to ~~$201.4~~$207.7 million for the three months ended ~~March 31,~~June 30, 2022, from ~~$141.4~~$186.1 million for the three months ended ~~March 31,~~June 30, 2021. Fixed compensation ~~increased $3.6~~decreased $6.6 million due to the deferred compensation plan, stock compensation, and talent acquisition and retention costs, partially offset by an increase in base salaries and payroll ~~taxes, partially offset by decreases in the deferred compensation plan and stock compensation.~~taxes. Variable compensation increased ~~$56.5~~$28.3 million due to higher bonus accruals related to increased consultant productivity. Foreign exchange rate fluctuations positively impacted results by ~~$3.0~~$6.3 million, or ~~2.1%~~3.4%.

For the three months ended ~~March 31,~~June 30, 2022, we had an average of ~~1,900~~1,978 employees compared to an average of ~~1,583~~1,678 employees for the three months ended ~~March 31,~~June 30, 2021.

As a percentage of net revenue, salaries and benefits expense was ~~71.0%~~69.5% for the three months ended ~~March 31,~~June 30, 2022, compared to ~~73.0%~~71.6% for the three months ended ~~March 31,~~June 30, 2021.

General and administrative expenses. Consolidated general and administrative expenses increased ~~$2.4~~$7.9 million, or ~~8.9%~~28.7%, to ~~$29.8~~$35.2 million for the three months ended ~~March 31,~~June 30, 2022, from $27.4 million for the three months ended ~~March 31,~~June 30, 2021. The increase in general and administrative expenses was due to business development travel, ~~intangible amortization, earnout accretion,~~including the global consultants' conference, professional fees, information technology, and ~~bad debt,~~hiring fees, partially offset by decreases in ~~office occupancy~~taxes and ~~the use of external third-party consultants.~~licenses. Foreign exchange rate fluctuations positively impacted results by ~~$0.4~~$1.2 million, or ~~1.5%~~4.3%.

As a percentage of net revenue, general and administrative expenses were 11.8% for the three months ended June 30, 2022, compared to 10.5% for the three months ended ~~March 31, 2022, compared to 14.1% for the three months ended March 31,~~June 30, 2021.

Cost of services. Consolidated cost of services increased ~~$16.5~~$2.7 million, or 18.6%, to ~~$18.0~~$17.4 million for the three months ended ~~March 31,~~June 30, 2022, from ~~$1.5~~$14.7 million for the three months ended ~~March 31,~~June 30, 2021. The increase is primarily due to an increase in the ~~acquisition~~volume of ~~On-Demand Talent.~~consulting engagements and on-demand projects. As a percentage of net revenue, cost of services was ~~6.3%~~5.8% for the three months ended ~~March 31,~~June 30, 2022, compared to ~~0.8%~~5.6% for the three months ended ~~March 31,~~June 30, 2021. Foreign exchange rate fluctuations positively impacted results by $0.2 million, or 1.3%.

Research and development. The Company incurred approximately ~~$4.4~~$4.5 million in research and development costs associated with the development of new products during the three months ended ~~March 31,~~June 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 June 30, 2021.

Restructuring charges. The Company incurred approximately ~~$3.9~~$3.2 million in restructuring charges during the three months ended ~~March 31,~~June 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 three months ended ~~March 31,~~June 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 for the three months ended ~~March 31,~~June 30, 2021. There were no restructuring charges incurred during the three months ended June 30, 2022.

Operating income. Consolidated operating income was ~~$30.2~~$33.9 million for the three months ended ~~March 31,~~June 30, 2022, compared to ~~$19.6~~$28.7 million, including restructuring charges of ~~$3.9~~$3.2 million, for the three months ended ~~March 31,~~June 30, 2021. Foreign exchange rate fluctuations negatively impacted operating income by ~~$0.5~~$0.8 million, or ~~1.8%~~2.5%.

Net non-operating income ~~(expense)~~. Net non-operating ~~expense~~income was ~~$2.4~~$1.1 million for the three months ended ~~March 31,~~June 30, 2022, compared to ~~net non-operating income of $3.2~~$3.1 million for the three months ended ~~March 31,~~June 30, 2021.

Interest, net, was ~~$0.1 million of income for each of the three months ended March 31, 2022 and 2021.~~

~~Other, net, was $2.5 million of expense for the three months ended March 31, 2022, compared to $3.1~~$0.3 million of income for the three months ended ~~March 31,~~June 30, 2022, compared to less than $0.1 million for the three months ended June 30, 2021, primarily due to interest earned on short-term investments and marketable securities in both periods.

Other, net, was $0.8 million of income for the three months ended June 30, 2022, compared to $3.0 million of income for the three months ended June 30, 2021. The ~~expense~~income in the current year is primarily due to a ~~$2.2~~foreign exchange gains, partially offset by a $4.4 million unrealized loss on the deferred compensation plan. The income in the prior year is due to a ~~$1.7~~$1.4 million gain on warrants received in exchange for executive search services performed in prior periods and a ~~$1.0~~$1.6 million gain on the Company's deferred compensation plan. The Company's investments, including those held in the Company’s deferred compensation plan, are recorded at fair value.

Income taxes. See Note 13, Income Taxes.

Executive Search

Americas

The Americas segment reported net revenue of $176.0 million for the three months ended June 30, 2022, an increase of 19.4% from $147.4 million for the three months ended June 30, 2021. The increase in net revenue was primarily due to an increase in the average revenue per executive 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 $0.1 million, or 0.1%. There were 203 Executive Search consultants as of June 30, 2022, compared to 193 as of June 30, 2021.

Salaries and benefits expense increased $19.0 million, or 18.9%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. Fixed compensation decreased $5.0 million due to the deferred compensation plan, stock compensation, and talent acquisition and retention cost, partially offset by increases in base salaries and payroll taxes, and retirement and benefits. Variable compensation increased $23.9 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expenses increased $3.1 million, or 33.6%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, due to business development travel, including the global consultants' conference, communication services, information technology, and professional fees.

Restructuring charges for the three months ended June 30, 2021 were $3.1 million. The charges are primarily related to a reduction in the Company's real estate footprint. There were no restructuring charges incurred during the three months ended June 30, 2022.

The Americas reported operating income of $44.3 million for the three months ended June 30, 2022, an increase of $9.7 million compared to $34.6 million, including restructuring charges of $3.1 million, for the three months ended June 30, 2021.

Europe

Europe reported net revenue of $48.1 million for the three months ended June 30, 2022, an increase of 7.2% from $44.9 million for the three months ended June 30, 2021. The increase in net revenue was primarily due to a 15.7% increase in the number of executive search confirmations. All practice groups exhibited growth over the prior year with the exception of Healthcare & Life Sciences and Consumer Markets. Foreign exchange rate fluctuations negatively impacted results by $5.9 million, or 13.1%. There were 111 Executive Search consultants as of June 30, 2022, compared to 99 as of June 30, 2021.

Salaries and benefits expense increased $0.4 million, or 1.0%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. Fixed compensation decreased $1.3 million due to base salaries and payroll taxes, and stock compensation, partially offset by an increase in retirement and benefits. Variable compensation increased $1.7 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expense increased $2.2 million, or 39.7%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, due to business development travel, including the global consultants' conference, and office occupancy, partially offset by a decrease in bad debt.

Restructuring credits for the three months ended June 30, 2021 were $0.1 million due to the settlement of estimated employee severance accruals. There were no restructuring charges incurred during the three months ended June 30, 2022.

Europe reported operating income of $4.6 million for the three months ended June 30, 2022, an increase of $0.6 million compared to $4.0 million, including a restructuring credit of $0.1 million, for the three months ended June 30, 2021.

Asia Pacific

Asia Pacific reported net revenue of $29.8 million for the three months ended June 30, 2022, a decrease of 6.5% compared to $31.8 million for the three months ended June 30, 2021. The decrease in net revenue was primarily due to a 13.8% decrease in the number of executive search confirmations. All practice groups, with the exception of Social Impact, Industrial, and Financial Services, exhibited growth over the prior year. Foreign exchange rate fluctuations negatively impacted results by $1.6 million, or 5.1%. There were 74 Executive Search consultants at June 30, 2022, compared to 77 at June 30, 2021.

Salaries and benefits expense decreased $1.9 million, or 8.1%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. Fixed compensation decreased $2.0 million due to base salaries and payroll taxes, stock compensation, and talent acquisition and retention costs. Variable compensation increased $0.1 million due to the mix of bonus accruals.

General and administrative expenses increased $0.3 million, or 6.3%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, primarily due to business development travel, including the global consultants' conference, partially offset by a decrease in office occupancy.

Asia Pacific reported operating income of $3.9 million for the three months ended June 30, 2022, a decrease of $0.5 million compared to $4.4 million for the three months ended June 30, 2021.

On-Demand Talent

On-Demand Talent reported net revenue of $22.4 million for the three months ended June 30, 2022, an increase of 19.4% compared to $18.7 million for the three months ended June 30, 2021. The increase in revenue was primarily due an increases in the average size of on-demand projects and project extensions. Foreign exchange rate fluctuations negatively impacted results by $0.1 million, or 0.3%.

Salaries and benefits expense increased $1.0 million, or 23.0%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. Fixed compensation increased $1.4 million due to base salaries and payroll taxes, talent acquisition and retention costs, and retirement and benefits. Variable compensation decreased $0.4 million due to the mix of bonus accruals.

General and administrative expense increased $0.8 million, or 62.8%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, primarily due to intangible amortization, information technology, and business development travel.

Cost of services increased $2.3 million, or 17.8%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, due an increase in the average size of on-demand projects.

On-Demand Talent reported operating loss of $0.3 million for the three months ended June 30, 2022, a decrease of $0.5 million compared to operating income of $0.2 million for the three months ended June 30, 2021.

Heidrick Consulting

Heidrick Consulting reported net revenue of $22.4 million for the three months ended June 30, 2022, an increase of 31.0% compared to $17.1 million for the three months ended June 30, 2021. The increase in net revenue was primarily due to an 6.8% increase in the number of consulting engagements. Foreign exchange rate fluctuations negatively impacted results by $1.1 million, or 6.3%. There were 66 Heidrick Consulting consultants at June 30, 2022 compared to 65 at June 30, 2021.

Salaries and benefits expense increased $1.6 million, or 10.4%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. Fixed compensation decreased $1.3 million due to talent acquisition and retention costs, base salaries and payroll taxes, and the deferred compensation plan. Variable compensation increased $2.9 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expenses increased $0.4 million, or 11.4%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, primarily due to business development travel, including the global consultants' conference, and market data analysis tools, partially offset by a decrease in professional fees.

Cost of services increased $0.4 million, or 24.2%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, due to an increase in the number of consulting engagements.

Restructuring charges for the three months ended June 30, 2021 were $0.3 million. The charges are primarily related to a reduction in the Company's real estate footprint. There were no restructuring charges incurred during the three months ended June 30, 2022.

Heidrick Consulting reported an operating loss of $0.4 million for the three months ended June 30, 2022, an improvement of $3.2 million compared to an operating loss of $3.6 million, including restructuring charges of $0.3 million, for the three months ended June 30, 2021.

Global Operations Support

Global Operations Support expenses for the three months ended June 30, 2022, increased $2.8 million, or 26.2%, to $13.6 million from $10.8 million, including a restructuring credit of $0.1 million, for the three months ended June 30, 2021.

Salaries and benefits expense increased $1.6 million, or 22.1%, for the three months ended June 30, 2022, due to base salaries and payroll taxes, stock compensation, and variable compensation.

General and administrative expenses increased $1.1 million, or 29.4%, for the three months ended June 30, 2022, due to professional fees, hiring fees, information technology, and business development travel, partially offset by a decrease in taxes and licenses.

Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

Total revenue. Consolidated total revenue increased $130.7 million, or 28.7%, to $586.6 million for the six months ended June 30, 2022, from $456.0 million for the six months ended June 30, 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 $128.9 million, or 28.4%, to $582.6 million for the six months ended June 30, 2022 from $453.6 million for the six months ended June 30, 2021. Foreign exchange rate fluctuations negatively impacted results by $12.3 million, or 2.7%. Executive Search net revenue was $496.5 million for the six months ended June 30, 2022, an increase of $92.7 million, or 23.0%, compared to the six months ended June 30, 2021. The increase in Executive Search net revenue was primarily due to a 10.5% increase in the number of confirmed searches compared to the prior year, and an increase in the average revenue per executive search. On-Demand Talent net revenue increased $27.0 million, or 144.3%, to $45.7 million for the six months ended June 30, 2022. The increase in On-Demand Talent revenue was primarily due the timing of the acquisition in the prior year and an increase in the average size of on-demand projects. Heidrick Consulting net revenue increased $9.2 million, or 29.5%, to $40.4 million for the six months ended June 30, 2022 compared to the same period in the prior year. The increase in Heidrick Consulting revenue was primarily due to a 26.8% increase in the number of consulting engagements compared to the prior year.

The number of Executive Search and Heidrick Consulting consultants was 388 and 66, respectively, as of June 30, 2022, compared to 369 and 65, respectively, as of June 30, 2021. Executive Search productivity, as measured by annualized net Executive Search revenue per consultant, was $2.6 million and $2.2 million for the six months ended June 30, 2022 and 2021, respectively. The average revenue per executive search increased to $137,000 from $123,000 in the same period in the prior year.

Salaries and benefits. Consolidated salaries and benefits expense increased $81.7 million, or 25.0%, to $409.1 million for the six months ended June 30, 2022 from $327.4 million for the six months ended June 30, 2021. Fixed compensation decreased $3.1 million due to the deferred compensation plan, and stock compensation, partially offset by an increase in base salaries and payroll taxes. Variable compensation increased $84.8 million due to higher bonus accruals related to increased consultant productivity. Foreign exchange rate fluctuations positively impacted results by $9.3 million, or 2.8%.

For the six months ended June 30, 2022, we had an average of 1,937 employees compared to an average of 1,635 employees for the six months ended June 30, 2021.

As a percentage of net revenue, salaries and benefits expense was 70.2% for the six months ended June 30, 2022, compared to 72.2% for the six months ended June 30, 2021.

General and administrative expenses. Consolidated general and administrative expenses increased $10.3 million, or 18.8% to $65.0 million for the six months ended June 30, 2022 from $54.7 million for the six months ended June 30, 2021. The increase in general and administrative expenses was due to business development travel, including the global consultants' conference, professional fees, information technology, intangible amortization, and bad debt, partially offset by decreases in taxes and licenses, office occupancy, and the use of external third-party consultants. Foreign exchange rate fluctuations positively impacted results by $1.6 million, or 2.9%.

As a percentage of net revenue, general and administrative expenses were 11.2% for the six months ended June 30, 2022, compared to 12.1% for the six months ended June 30, 2021.

Cost of services. Consolidated cost of services increased $19.3 million to $35.4 million for the six months ended June 30, 2022, from $16.1 million for the six months ended June 30, 2021. The increase is due the timing of the On-Demand Talent acquisition in the prior year and an increase in the number of consulting engagements. Foreign exchange rate fluctuations positively impacted results by $0.3 million, or 1.6%.

Research and development. The Company incurred approximately $8.9 million in research and development costs associated with the development of new products during the six months ended June 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 six months ended June 30, 2021.

Restructuring charges. The Company incurred approximately $7.1 million in restructuring charges during the six months ended June 30, 2021. In 2020, the Company announced 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 six months ended June 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 for the six months ended June 30, 2021. There were no restructuring charges incurred during the six months ended June 30, 2022.

Operating income. Consolidated operating income was $64.1 million for the six months ended June 30, 2022, compared to $48.3 million, including restructuring charges of $7.1 million, for the six months ended June 30, 2021. Foreign exchange rate fluctuations negatively impacted operating income by $1.2 million, or 2.2%.

Net non-operating income (expense). Net non-operating expense was $1.3 million for the six months ended June 30, 2022, compared to net non-operating income of $6.2 million for the six months ended June 30, 2021.

Interest, net, was $0.4 million of income for the six months ended June 30, 2022, compared to $0.1 million for the six months ended June 30, 2021. The increase was primarily due to interest earned on short-term investments and marketable securities.

Other, net, was $1.7 million of expense for the six months ended June 30, 2022, compared to $6.2 million of income for the six months ended June 30, 2021. The expense in the current year is due to a $6.9 million unrealized loss on the Company's deferred compensation plan, partially offset by foreign exchange gains. The income in the prior year is due to a $3.1 million gain on equity received in exchange for executive search services performed in prior periods and a $2.6 million gain on the Company's deferred compensation plan. Investments held in the Company’s deferred compensation plan are recorded at fair value.

Income taxes. See Note 13, Income Taxes.

Executive Search

Americas

The Americas segment reported net revenue of ~~$162.6~~$338.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, an increase of ~~39.5%~~28.3% from ~~$116.5~~$263.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The increase in net revenue was ~~primarily~~ due to a ~~22.8%~~8.3% increase in the number of executive search confirmations from the prior year and an increase in the average revenue per executive 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 ~~$0.2~~$0.3 million, or 0.1%. There were ~~205~~203 Executive Search consultants as of ~~March 31,~~June 30, 2022, compared to ~~194~~193 as of ~~March 31,~~June 30, 2021.

Salaries and benefits expense increased ~~$35.8~~$54.8 million, or ~~46.7%~~30.9%, for the six months ended June 30, 2022, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2021. Fixed compensation decreased ~~$1.4~~$6.3 million, due to the deferred compensation plan and stock compensation, partially offset by ~~increases~~an increase in base salaries and payroll taxes. Variable compensation increased ~~$37.2~~$61.1 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expenses increased $3.4 million, or 17.9%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, due to business development travel, including the global consultants' conference, communication services, and bad debt, partially offset by decrease in office occupancy, and market data analysis tools.

Restructuring charges for the six months ended June 30, 2021 were $6.8 million. The charges are primarily related to a reduction in the Company's real estate footprint. There were no restructuring charges incurred during the six months ended June 30, 2022.

The Americas reported operating income of $84.1 million for the six months ended June 30, 2022, an increase of $23.3 million compared to $60.9 million, including restructuring charges of $6.8 million, for the six months ended June 30, 2021.

Europe

Europe reported net revenue of $97.9 million for the six months ended June 30, 2022, an increase of 18.6% from $82.6 million for the six months ended June 30, 2021. The increase in net revenue was due to a 23.0% increase in the number of executive search confirmations. All practice groups, with the exception of Healthcare & Life Sciences and Consumer Markets, exhibited growth over the prior year. Foreign exchange rate fluctuations negatively impacted results by $8.5 million, or 10.4%. There were 111 Executive Search consultants as of June 30, 2022, compared to 99 as of June 30, 2021.

Salaries and benefits expense increased $11.2 million, or 17.7%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. Fixed compensation decreased $0.8 million for the six months ended June 30, 2022, due to stock compensation, and base salaries and payroll taxes, partially offset by an increase in retirement and benefits, and talent acquisition and retention costs. Variable compensation increased $12.0 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expense decreased $2.6 million, or 23.3%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, due to business development travel, including the global consultants' conference, and professional fees, partially offset by a decrease in bad debt.

Restructuring credits for the six months ended June 30, 2021 were $0.1 million due to the settlement of estimated employee severance accruals. There were no restructuring charges incurred during the six months ended June 30, 2022.

Europe reported operating income of $10.0 million for the six months ended June 30, 2022, an increase of $1.5 million compared to $8.5 million, including a restructuring credit of $0.1 million, for the six months ended June 30, 2021.

Asia Pacific

Asia Pacific reported net revenue of $60.0 million for the six months ended June 30, 2022, an increase of 4.7% compared to $57.3 million for the six months ended June 30, 2021. The increase in net revenue was primarily due to an increase in the average revenue per executive search. All practice groups, with the exception of Industrial and Healthcare & Life Sciences, exhibited growth over the prior year. Foreign exchange rate fluctuations negatively impacted results by $2.6 million, or 4.5%. There were 74 Executive Search consultants at June 30, 2022 compared to 77 at June 30, 2021.

Salaries and benefits expense increased $2.1 million, or 5.2%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. Fixed compensation decreased $2.9 million due to base salaries and payroll taxes, stock compensation, and talent acquisition and retention costs. Variable compensation increased $5.0 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expenses increased ~~$0.3~~less than $0.1 million, or ~~3.4%~~0.4%, for the six months ended June 30, 2022, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2021, due to business development travel, ~~bad debt,~~including the global consultants' conference, and ~~other operating expense, partially offset by decreases in office occupancy, the use of external third-party consultants, and market data analysis tools.~~

~~Restructuring charges for the three months ended March 31, 2021 were $3.7 million. The charges are primarily related to a reduction in the Company's real estate footprint.~~

The Americas reported operating income of $39.9 million for the three months ended March 31, 2022, an increase of $13.6 million compared to $26.3 million, including restructuring charges of $3.7 million, for the three months ended March 31, 2021.

~~Europe~~

Europe reported net revenue of $49.7 million for the three months ended March 31, 2022, an increase of 32.1% from $37.6 million for the three months ended March 31, 2021. The increase in net revenue was primarily due to a 30.1% increase in the number of executive search confirmations. All practice groups exhibited growth over the prior year with the exception of Healthcare and Life Sciences. Foreign exchange rate fluctuations negatively impacted results by $2.7 million, or 7.1%. There were 116 Executive Search consultants as of March 31, 2022, compared to 104 as of March 31, 2021.

Salaries and benefits expense increased $10.8 million, or 39.1%, compared to the three months ended March 31, 2021. Fixed compensation increased $0.5 million due to retirement and benefits, base salaries and payroll taxes, and talent acquisition and retention costs, partially offset by a decrease in stock compensation. Variable compensation increased $10.3 million due to higher bonus accruals related to increased consultant productivity.

~~General and administrative expense increased $0.4 million, or 7.2%, compared to the three months ended March 31, 2021, due to business development travel, hiring~~professional fees, ~~and bad debt,~~ partially offset by a decrease in office occupancy.

~~Europe~~Restructuring credits for the six months ended June 30, 2021 were $0.1 million due to the settlement of estimated employee severance accruals. There were no restructuring charges incurred during the six months ended June 30, 2022.

Asia Pacific reported operating income of ~~$5.4~~$9.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, an increase of ~~$0.9~~$0.4 million compared to ~~$4.5~~$8.5 million, including a restructuring credit of $0.1 million, for the ~~three~~six months ended ~~March 31,~~June 30, 2021.

~~Asia Pacific~~

On-Demand Talent

~~Asia Pacific~~On-Demand Talent reported net revenue of ~~$30.3~~$45.7 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, anand increase of ~~18.8%~~144.3% compared to ~~$25.5~~$18.7 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The increase in On-Demand net revenue was primarily due to ~~a 14.5%~~the timing of the acquisition in the prior year and an increase in the ~~number~~average size of ~~executive search confirmations. All practice groups exhibited growth over the prior year with the exception of Healthcare and Life Sciences, and Industrial.~~an on-demand project. Foreign exchange rate fluctuations negatively impacted results by ~~$1.0~~$0.1 million, or ~~3.7%~~0.4%.

Salaries and benefits expense increased $6.2 million, or 145.8%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. Fixed compensation increased $5.3 million due to base salaries and payroll taxes, and retirement and benefits. Variable compensation increased $0.9 million due to higher bonus accruals related to increased productivity.

General and administrative expenses increased $3.1 million for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, due to intangible amortization, earnout accretion, professional fees, and information technology.

Cost of services increased $18.7 million, or 144.7%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, primarily due the timing of the acquisition in the prior year and an increase in the average size of on-demand projects.

On-Demand Talent reported operating loss of $0.9 million for the six months ended June 30, 2022, a decrease of $1.1 million compared to operating income of $0.2 million for the six months ended June 30, 2021.

Heidrick Consulting

Heidrick Consulting reported net revenue of $40.4 million for the six months ended June 30, 2022, an increase of 29.5% compared to $31.2 million for the six months ended June 30, 2021. The increase in Heidrick Consulting net revenue was primarily due to an 26.8% increase in the number of consulting engagements. Foreign exchange rate fluctuations negatively impacted results by $1.4 million, or 4.5%. There were ~~73 Executive Search~~66 Heidrick Consulting consultants at ~~March 31,~~June 30, 2022 compared to 7565 at ~~March 31,~~June 30, 2021.

Salaries and benefits expense increased ~~$4.0~~$3.6 million, or ~~22.9%~~12.7%, for the six months ended June 30, 2022, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2021. Fixed compensation ~~decreased $0.9~~was increased $1.8 million due to ~~base salaries~~talent acquisition and ~~payroll taxes,~~retention costs, the deferred compensation plan, and ~~stock compensation, partially offset by~~

~~increases in~~ retirement and benefits. Variable compensation increased ~~$4.8~~$5.4 million due to higher bonus accruals related to increased consultant productivity.

General and administrative expenses decreased $0.2 million, or ~~5.7%~~2.1%, for the six months ended June 30, 2022, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2021, ~~primarily due to office occupancy, partially offset by increases in professional services and business development travel.~~

Asia Pacific reported operating income of $5.1 million for the three months ended March 31, 2022, an increase of $0.9 million compared to $4.1 million, including a restructuring credit of $0.1 million, for the three months ended March 31, 2021.

~~On-Demand Talent~~

~~On-Demand Talent reported net revenue of $23.4 million for the three months ended March 31, 2022.~~

~~Salaries and benefits expense was $5.3 million for the three months ended March 31, 2022, primarily due to base salaries and payroll taxes, and talent acquisition and retention costs.~~

~~General and administrative expense was $2.3 million for the three months ended March 31, 2022, due to intangible amortization, earnout accretion, professional fees, and information technology.~~

~~Cost of services was $16.4 million for the three months ended March 31, 2022, and consists of third-party contractor costs related to the delivery of various on-demand services.~~

~~On-Demand Talent reported operating loss of $0.6 million for the three months ended March 31, 2022.~~

~~Heidrick Consulting~~

Heidrick Consulting reported net revenue of $17.9 million for the three months ended March 31, 2022, an increase of 27.7% compared to $14.0 million for the three months ended March 31, 2021. The increase in net revenue was primarily due to an 56.2% increase in the number of consulting engagements. Foreign exchange rate fluctuations negatively impacted results by $0.3 million, or 2.4%. There were 70 Heidrick Consulting consultants at March 31, 2022 compared to 64 at March 31, 2021.

Salaries and benefits expense increased $2.0 million, or 15.4%, compared to the three months ended March 31, 2021. Fixed compensation decreased $0.5 million due to retirement and benefits, and talent acquisition and retention costs, partially offset by increases in base salaries and payroll taxes. Variable compensation increased $2.5 million due to higher bonus accruals related to increased consultant productivity.

~~General and administrative expenses decreased $0.5 million, or 13.8%, compared to the three months ended March 31, 2021, primarily~~ due to professional fees, ~~and hiring fees,~~ partially offset by ~~increases~~increased in business development travel, including the global consultants' conference, and market data analysis tools.

Cost of services increased ~~$0.1~~$0.5 million, or ~~7.1%~~16.4%, for the six months ended June 30, 2022, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2021, due to an increase in the number of consulting engagements.

Restructuring charges for the ~~three~~six months ended ~~March 31,~~June 30, 2021 were ~~$0.3~~$0.6 million. The charges ~~are~~were primarily related to a reduction in the Company's real estate footprint. There were no restructuring charges incurred during the six months ended June 30, 2022.

Heidrick Consulting reported an operating loss of ~~$2.1~~$2.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, an improvement of ~~$2.6~~$5.8 million compared to an operating loss of ~~$4.7~~$8.3 million, including restructuring charges of ~~$0.3~~$0.6 million, for the ~~three~~six months ended ~~March 31,~~June 30, 2021.

Global Operations Support

Global Operations Support expenses for the ~~three~~six months ended ~~March 31,~~June 30, 2022, increased ~~$2.4~~$5.2 million, or ~~22.5%~~24.4%, to ~~$13.0~~$26.6 million from ~~$10.6~~$21.4 million, including restructuring credit of $0.1 million, for the ~~three~~six months ended ~~March 31,~~June 30, 2021.

Salaries and benefits expense increased ~~$2.2~~$3.8 million, or ~~33.7%~~27.7%, for the six months ended June 30, 2022, due to base salaries and payroll taxes, stock compensation, and variable compensation, partially offset by ~~decreases~~a decrease in retirement and benefits.

2732

General and administrative expenses increased ~~$0.2~~$1.3 million, or ~~4.4%~~16.5%, for the six months ended June 30, 2022, due to professional fees, hiring fees, business development travel, and information technology, ~~and taxes and licenses,~~ partially offset by ~~decreases~~a decrease in ~~professional services, office occupancy.~~taxes and licenses.

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, 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.

Cash, cash equivalents and marketable securities. Cash, cash equivalents and marketable securities at ~~March 31,~~June 30, 2022, December 31, 2021, and ~~March 31,~~June 30, 2021 were ~~$268.0~~$336.6 million, $545.2 million and ~~$184.1~~$237.8 million, respectively. The ~~$268.0~~$336.6 million of cash, cash equivalents and marketable securities at ~~March 31,~~June 30, 2022 includes ~~$116.7~~$118.3 million held by our foreign subsidiaries. A portion of the ~~$116.7~~$118.3 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 operating activities. Cash used in operating activities was ~~$262.2~~$179.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, primarily reflecting ~~a decrease~~decreases in accrued expenses of ~~$227.4~~$124.3 million and ~~an increase~~increases in accounts receivable of ~~$53.1~~$84.8 million, partially offset by net income ~~net~~ of ~~non-cash charges of $24.7~~$42.6 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 used in operating activities was ~~$142.6~~$52.3 million for the ~~three~~six months ended ~~March 31, 2021,~~June 30, 2021. This use of cash was primarily ~~reflecting a decrease in accrued expenses~~the result of ~~$116.3 million and an increase in accounts receivable of $41.2 million, partially offset by net income net of non-cash charges of $23.4 million. The decrease in accrued expenses is primarily due to~~ cash bonus payments related to 2020 and prior year cash bonus deferrals of $200.3 million partially offset by 2021 bonus ~~accruals.~~accruals and an increase in accounts receivable of $71.0 million associated with an increase in revenue. Other uses of cash included an increase in other assets of $18.4 million associated with unbilled receivables, right-of-use assets and long-term prepaid expenses, an increase in prepaid expenses of $6.0 million, and payments on the restructuring accrual of $4.7 million. These uses of cash were partially offset by net income of $35.6 million, depreciation and amortization of $12.0 million and stock compensation of $5.9 million.

Cash flows provided by (used in) investing activities. Cash used in investing activities was ~~$6.1~~$8.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, due to capital expenditures of ~~$1.8~~$4.2 million related to office build-outs, and the purchase of marketable securities and investments of ~~$5.0~~$5.4 million, partially offset by the proceeds from sales of marketable securities and investments of $1.0 million.

Cash ~~provided by~~used in investing activities was ~~$17.9~~$16.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021, due to ~~proceeds from~~ the ~~sale~~acquisition of Business Talent Group of $32.0 million, capital expenditures of $2.7 million, and the purchase of marketable securities ~~and investments~~ of ~~$20.1~~$1.7 million, partially offset by ~~purchases~~the maturity of marketable securities ~~and investments~~ of ~~$1.4 million, and capital expenditures of $0.9 million related to office build-outs.~~$20.3 million.

Cash flows used in financing activities. Cash used in financing activities was ~~$6.3~~$9.4 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, due to dividend payments of ~~$3.1~~$6.2 million and employee tax withholding payments on equity transactions of $3.2 million.

Cash used in financing activities was ~~$6.2~~$9.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021, due to dividend payments of ~~$3.1~~$6.1 million and employee tax withholding payments on equity transactions of $3.1 million.

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, 2021 as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 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, 2021, as filed with the SEC on February 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 ~~$0.8~~$2.1 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022. For financial information by segment, see Note 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information presented in Note 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 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, 2021 as filed with the SEC on February 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
Employment Agreement between Heidrick & Struggles International, Inc. and Tracey Heaton dated October 31 , 20 21 **
10.2
Heidrick & Struggles International, Inc. Management Severance Pay Plan and Summary Plan Description , As Amended and Restated April 1 2 , 2022 **
8-K 10.1 April 15, 2022
*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

*10.1

Employment Agreement between Heidrick & Struggles International, Inc. and Michael Cullen dated April 25, 202 2 **

10.2

Employment Agreement between Heidrick & Struggles International, Inc. and Tracey Heaton dated October 31, 2021**

10-Q

10.1

April 25, 2022

10.3

Heidrick & Struggles International, Inc. Management Severance Pay Plan and Summary Plan Description, As Amended and Restated April 12, 2022**

8-K

10.1

April 15, 2022

*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.
**			Denotes a management contract or compensatory plan or arrangement.

3136

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: ~~April~~July 25, 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)

3237


	Less Than 12 Months				Balance Sheet Classification
Balance at March 31, 2022	Fair Value		Unrealized Loss		Cash and Cash Equivalents		Marketable Securities
U.S. Treasury securities	$	51,984	$	1	$	51,984	$	—