Heidrick & Struggles International Inc

NASDAQ:HSII

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Heidrick & Struggles Second Quarter 2024 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Suzanne Rosenberg, Vice President of Investor Relations. Suzanne, you may begin.

[Suzanne Rosenberg, executive]

Thank you, and welcome to our 2024 second quarter conference call. Joining me today is our CEO, Tom Monahan and CFO, Mark Harris. We posted our accompanying slides on the IR homepage of our website at heidrick.com, and we encourage you to view these slides for additional context. Please note that in the materials presented today, we may refer to non-GAAP financial measures that we believe provide additional insight into underlying results. Reconciliations between these non-GAAP financial measures and the most comparable GAAP measures may be found in the earnings press release.

Also in our remarks, we may make certain forward-looking statements. We ask that you please refer to the safe harbor language also included in today's press release. Tom, I'll now turn the call over to you.

[Thomas Monahan, executive]

Thank you, Suzanne, and greetings to everyone joining our second quarter call. Today, I'm eager to update you on our robust performance and the work we are doing to drive clients and investor value. In the quarter, we generated solid top-line growth, which exceeded the high end of the outlook range we provided on our last call. Our results underscore both the need for corporations to discover, assess and enable exceptional leadership talent and the outstanding work of our teams.



We also took important steps to position the company for sustained growth and impact. I want to recognize the dedication of our colleagues who contribute to the success of our clients and our company day in and day out. Importantly, we've leveraged our current momentum to move quickly in resetting key aspects of our operations. [ Tom Marie ], myself and the rest of our leadership team have keyed in on 3 levers of performance: compelling leadership, clear strong value propositions and client alignment.



Let me share a bit more about each. First, we have made a series of leadership changes to put great new leaders on top of each of our non-Search business areas. Last quarter, we welcomed [ Sunny Ackerman ] to lead our On-Demand Talent business. More recently, we asked Claire Skinner to step out of her Europe and Africa leadership role to lead Heidrick Consulting with a clear mandate of growth, impact and profitability. With this move, we have asked Jenny Hebert to expand her portfolio beyond global Go-To-Market integration to include Europe and Africa.



Second, we have begun the process of tightening and amplifying our core value propositions outside of search. Notably, Heidrick Consulting has been focused on its core strength with an emphasis on assessment, leadership and performance solutions.



Third, we have realigned how we engage clients and transform our entire business, particularly in our emerging digital areas. To effect this, we've realigned the teams and products into our global Go-To-Market team to ensure tight links between our powerful digital tools and our outstanding professional teams globally. We've also realigned our technology, data and R&D assets to better support the digital enablement of all our work.



Finally, we've asked Dan Ryan to step up into a newly created role entitled Global Managing Partner, Client Coverage and Development. One of Heidrick's signature assets is our access to the C-suite, but we see even more opportunities to have at scale impact at this level. With apologies to Lin Manuel Miranda, Dan's role is to ensure that our colleagues globally are always in the "room where it happens" whether that be in client boardrooms or key events and forums. Affecting all of this change quickly did require us to conduct a small reduction in force during the second quarter. Mark will share more detail in a minute, but I want to stress that we do not take such decisions easily or lightly. In a quest for tighter alignment between our teams and our objectives, we said good bye to some very capable colleagues who played a key role in building Heidrick.



That said, we wanted to err on the side of speed and focus. We know that Heidrick's near and midterm growth will come from our ability to clarify what we do for clients, simplify work for our people and amplify our message in the marketplace. I'm highly confident that these moves will enable us to accomplish these 3 objectives and more importantly, accelerate growth and returns from our investments and thus enable us to create substantial value for clients, colleagues and shareholders.



At our first ever Investor Day on December 3 in New York City, you'll have the opportunity to meet many of our new leaders firsthand and learn more about our solutions and impact. Let me quickly highlight our second quarter performance before Mark provides more detail. Despite a mixed economic environment and varying decision-making conditions in the near term, our overall business is thriving. Our strong top-line performance reflects contributions from each of our businesses. Our core executive search business delivered excellent results led by the Americas region.



On-demand talent grew its revenue despite a slowdown in the broader temporary staffing space, and Heidrick Consulting gains were accompanied by strong confirmation increases. As importantly, overall, second quarter top-line growth translated into robust profitability as we delivered a strong adjusted EBITDA performance.



Stepping back to assess our quarterly performance, we continue to benefit from strong underlying demand drivers, reflecting favorable long-term secular trends for our businesses and our strategic initiatives will further amplify these trends. Every action we take at Heidrick links to one critical goal: creating unmatched economic value for our clients, colleagues and investors. We have a huge opportunity to help clients and a unique set of assets, which give us a right to win. It's our job to convert those assets into value for our constituents.



We are blessed with the unique opportunity to accomplish this objective. We know that the single most important lever for corporate and organizational performance is having the right leaders leading in the right way. The opportunity to help clients accomplish this is massive and it grows every day. And with our world-class professional colleagues supported by our distinctive brand, powerful technology and valuable intellectual property, we have a strong platform to grow in scale and impact.



We set 3 strategic priorities to accomplish this. First, to be the most trusted leadership partner to the C-suite and Board. We will continue to grow our search and executive assessment capabilities, and we'll find new ways to convert this expertise into ongoing client impact and more holistic revenue streams. In particular, we're seeing more clients treat leadership and succession as an ongoing corporate discipline rather than a periodic vote of emergency surgery. We're calling this leadership assurance as companies invest consistently across time with the discipline and rigor of financial assurance processes. You see evidence of this focus on our strong performance in the Executive Search business year-to-date.



Second, to help clients master the new world of leadership. The very nature of leadership talent is changing and clients need to change their leadership strategies to reflect that. Each of the seismic events we've seen across the past 5 years has reshaped the way leaders must lead and change how companies must develop and enable leaders. The pandemic changed the world of work forever. The advent of Gen AI has begun to reshape how companies operate and organize. Ongoing geopolitical dynamics have complicated international strategies for every single client. Existing leaders need new support to lead in this environment to change and grow the way they lead, and companies need to shape the next generation of leaders and access talents in new ways.



Our Heidrick Consulting and On-Demand Talent assets are built to help clients in this now permanently complex world. From world-class assessment and development capabilities to help leaders lift performance through cultural change, our Heidrick Consulting platforms will match the client needs. And our On-Demand Talent business gives clients a new weapon in their performance arsenal. The ability to engage and leverage new sources of talent in a work world [indiscernible] by the aftermath of the pandemic and ongoing demographic change. You see evidence of this focus through strength in the On-Demand Talent business against the [ weltered ] headwinds in the temporary and contingent labor space.



Third, to be a bionic innovator. As I've said, we are pleased with the digitization of our business, but understandably, we're not yet satisfied. The needs of our clients and people and the richness of available technology are changing far too quickly to be satisfied. The next horizon is compelling as we further develop into a tech-enabled services business and differentiate our services across all lines of business with a diversified portfolio of proprietary, data enabled and digital solutions.



We have made important foundational investments, such as the Navigator platform, which will allow us to roll out new offers quickly. We've also seen success with a next-generation enterprise assessment and development solution on the Navigator platform and see more innovation to come. But this is just the beginning of a commitment to leveraging advances in technology and AI, to lift the work of our world-class colleagues and mine our rich IP. Underneath these strategic pillars is a deep commitment to building a culture of excellence, entrepreneurship and collaboration. Common items that are most important responsibility as leaders is to make Heidrick the place where the best people can do their best work.



In conclusion, what holds true for our clients also applies to us. Our ability to create value for clients, investors and colleagues is contingent on having exceptional leaders who set strategy and drive outcomes for our most critical corporate priorities. The proactive moves we implemented during the second quarter will enable us to achieve our future growth plans by fostering innovation, enhancing efficiency and improving overall performance. We accomplished a great deal in a relatively short time to set us up for the next phase of growth.



In addition to delivering positive client impact in value, last month, our firm celebrated 6th annual Global Day of Service, which unites our offices around the world to give back to the communities where we live and work. The energy around this event was just incredible, and I am thrilled that this year, we experienced the highest level of firm impact and engagement thus far. Our employees volunteered their time and talents, exemplifying the true spirit of the firm, embodying our core values and demonstrating our commitment to creating positive change at our clients and beyond.



Before I hand it over to Mark, I want to say that I appreciate not only his years of service and excellent stewardship of our finances, but also that he agreed to stay on and assist with the transition as [ Tom Marie ] and I completed our new organizational platform for Heidrick. Finance is the backbone of corporate integrity and as Mark embarks on his next adventure, I'm confident that we will identify the next world-class CFO to help create unmatched value for clients, colleagues and shareholders. With that, I'll now hand the call over to Mark to provide a detailed review of our financial performance and outlook.

[Mark Harris, executive]

Thank you, Tom, for the very kind words. That was unexpected but very appreciated. So, on the call today, good morning, afternoon and evening. We appreciate you joining us today. Today, I'll provide you with a thorough review of our second quarter results, which reflects strong top-line performance across all of our businesses, that allowed us to exceed the high end of our guidance range and achieve a solid adjusted EBITDA performance in the quarter.



However, before doing so, let me begin with 2 standout items in our quarterly results. First, during the second quarter of 2024, we recorded a noncash onetime goodwill impairment of USD 16.2 million related to both, our On-Demand Talent and our Search businesses. As I will discuss in more detail later in my prepared remarks, the main culprit was higher interest rates that moved our discount rate to 16.25%, well above our more reasonable WACC and discount rates used in our acquisitions. Irrespective, we had to take a partial impairment to ensure conformity to accounting principles, an issue, which I would imagine other companies are facing as well.



Second, we also recorded a onetime restructuring charge of USD 6.9 million related to leadership changes and reduction in force mentioned earlier, to align to the new growth strategy implemented in the second quarter. Therefore, my comments today will adjust for these unusual items in both periods, so they are on a like-for-like basis and give you a better indication of the true underlying operating performance of the business.



One last point. Results for the quarter are fully organic as both the second quarter 2024 and the year ago period now include the full quarter results of both Atreus and businessfourzero. Looking at our performance on a consolidated basis, second quarter revenue was USD 279 million or 3% above second quarter 2023 results, driven by all of our businesses. Adjusted EBITDA of USD 28.8 million compares to USD 34.9 million in the second quarter of 2023 and adjusted EBITDA margin was 10.3% compared to 12.9% last year. While adjusted EBITDA performance appears to be underperforming at similar revenue levels as last year, it's important to call out that the second quarter of 2024, adjusted EBITDA was impacted by higher general and administrative expenses related to our April Global Consulting Conference and a dual London lease as we're moving offices. Excluding these 2 nonrecurring items for comparative purposes, adjusted EBITDA margin would have been 12%, with a smaller difference due to a combination of a regional performance and product mix.



Now let's turn to each of our businesses for further details. In Executive Search, revenue grew 1.5% from the second quarter of 2023 to USD 210 million. Looking at our regional performance, we saw revenues increase in the Americas and Asia Pacific up 6.1% and 0.7%, respectively, while Europe was down 12%, given the current operating environment I commented on in previous quarter. On a constant currency basis, Europe was down 11.7% and Asia Pacific was up 3.3%.



Last quarter, most of our practice groups experienced growth over the period, accepted the consumer and industrial practices. We also saw consultant productivity annualized in the second quarter of USD 2 million compared to USD 1.9 million on the same basis in the year ago quarter, which is within the long-term range of USD 1.8 million to USD 2 million we have commented on previously. We're also very pleased with Executive Search maintaining strong profitability with adjusted EBITDA of USD 52.7 million compared to USD 53.2 million in the same quarter last year or a margin of 25.1% compared to 25.7%. Excluding the 2 nonrecurring costs, second quarter 2024 adjusted EBITDA would have been USD 56.5 million and adjusted EBITDA margin would have been 26.9%, over 100 basis points better than the second quarter of 2023.



Turning to On-Demand Talent, revenue was USD 42 million, up 7% compared to the second quarter of 2023. While we've had several different product offerings within On-Demand Talent, we're particularly pleased with the top-line performance given the market dynamics we are seeing and the comparative temporary staffing space. Over time, we expect to deliver faster growth in areas with less cyclicality, which should slingshot us onto the growth curve.



Currently, we are seeing demand increase in the Americas and in the second quarter, we saw increases in total contract values, reflecting longer duration projects, along with higher extension values. On-Demand Talent recorded adjusted EBITDA loss of USD 1.6 million versus a gain of USD 2.6 million in the second quarter of 2023. The year-over-year difference in adjusted EBITDA was primarily related to geographical and product mix, coupled with external professional fees for the implementation of global standardized systems to streamline On-Demand Talent's operational performance.



Let me reiterate. The growth potential for On-Demand Talent continues to expand as companies increasingly internalize On-Demand Talent across all areas of their operations. With a new leader and a plan in place, we have streamlined the business and made changes to the model to improve operating efficiency while fostering innovation in our products and services as we pivot and accelerate growth.



Looking at Heidrick Consulting, we saw second quarter revenue grew 6% year-over-year to USD 27 million, driven by increase in leadership assessment and development engagements along with some of our newer offerings that came to us through our businessfourzero acquisition. Adjusted EBITDA loss was USD 1.4 million versus a loss of USD 1.7 million in the second quarter of 2023. Excluding the 2 nonrecurring costs, second quarter 2024 adjusted EBITDA would have been a loss of USD 0.8 million, a 50% reduction compared to the prior year period. This was driven by confirmations growing 19% and continued strong demand for leadership solutions with our late-stage pipeline full of higher-margin attractive offerings.



Now with new leadership, along with a nimble organizational structure, Heidrick Consulting is focused on its core strength as we refine and simplify our solutions.



Turning to operating expenses, salary and benefits increased 1% from the prior quarter. As a percentage of net revenue, salary and benefits was 63.8% versus 66% in the year ago period. Fixed compensation decreased USD 3 million in the second quarter of 2024, partially reflect the reduction in force we implemented during the quarter.



General and administrative expenses increased USD 5.9 million to USD 46.4 million or 16.7% of net revenue compared to 14.9% of net revenue in the second quarter of 2023. The increase versus the year-ago period is primarily due to the 2 nonrecurring expenses I cited earlier.



In addition, second quarter G&A included a fair value earnout adjustment due to the enhanced performance of an acquisition, which is excluded from our adjusted results. To get a better sense of our G&A base run rate, excluding these costs, G&A would have been 14.6% of net revenue compared to 14.9% in the second quarter of 2023. We continue to expect G&A will remain slightly inflated while the earn-out expenses run off over the next 24 to 36 months and down to a more normalized level of approximately 14%, given our revenue expectations for that time frame.



Turning to cost of services, we saw an increase of USD 4.4 million to USD 29.7 million in the second quarter of 2024 versus USD 25.3 million in the previous quarter, a 17% increase. This increase primarily reflects our On-Demand Talent business, which typically has approximately 65% to 68% of the segment's revenue and cost of services. As discussed, the increase in the second quarter of 2024 was due to geographic and product mix in the period.



Lastly, we remain focused on progressing the development of our digital product portfolio, including Heidrick Navigator and assessments, while advancing our enterprise platform through digital enhancements. R&D spend for the second quarter was USD 5.6 million or 2% of net revenue versus USD 5.7 million or 2.1% of net revenue in the second quarter of 2023. The spending is consistent with our prior quarters. And for the full year, we continue to expect R&D to be approximately USD 25 million.



Moving on to bottom line profitability, adjusted net income for the quarter was USD 14.1 million, and adjusted diluted EPS was USD 0.67, which compares to adjusted net income of USD 15 million and adjusted diluted EPS of USD 0.73 in the same quarter last year. On a pro forma basis, excluding the 2 nonrecurring costs, our EPS would have been USD 0.81 per share.



As a reminder, moving forward, we expect our tax rate in 2024 and 2025, temporarily be around 38%, driven by the non-deductibility of acquisition earn-out costs. However, once these acquisition costs run off, we expect our tax rate to be back in the low 30% range, assuming no other statutory tax changes.



Now I'll turn to the balance sheet. We ended the second quarter with a strong cash position of USD 296.9 million, up USD 58 million from the USD 239 million at the end of June 2023. The year-over-year improvement was mainly driven by payments for earnouts and acquisitions, which we did not have this year. As we've discussed before, our cash position typically builds through the year as employee bonuses are accrued. Employee bonuses are paid out in the first quarter, along with their associated tax and related costs.



Our strong cash position with no debt, along with our USD 275 million accordion credit facility or over USD 0.5 billion of liquidity, gives us great strength and flexibility to execute our strategic plan and return of capital to shareholders. Moving forward, while we continue to navigate choppy macro environment, we still see good demand signals across our business lines. Therefore, we expect third quarter revenue to range between USD 260 million and USD 280 million. Our guidance anticipates continued strong performance in Executive Search, coupled with a continued slowdown in Europe and potential volatility in APAC, given the operating environment, along with stronger performances in both Heidrick Consulting and On-Demand Talent businesses.



In closing, as this is my last earnings call with Heidrick & Struggles, I wanted to say what a pleasure it's been to work for such an iconic company and with such a terrific team. I first came to Hedrick in early 2018. I can honestly say that it's been a privilege to work with such dedicated and outstanding professionals. The people at Heidrick are truly world-class and have thoroughly enjoy the entirety of my tenure with the firm. I hope I played at least a small role in setting the company up for even greater success and I see a bright days ahead for Heidrick & Struggles under the leadership of both Tom Monahan and [indiscernible] with the support of the team, including a world-class finance [indiscernible] groups.



With that, operator, if you could please open the lines and Tom and I would be happy to take questions.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Tobey Sommer with Truist Securities.

[Tobey Sommer, analyst]

First one I wanted to ask was On-Demand Talent. I think you've -- the profitability improved or the losses narrowed based on efforts on both sides in terms of getting better revenue growth and expense management. Where is that aiming and how are you managing that business for margin and profit going forward?

[Thomas Monahan, executive]

Yes, let me talk a little bit about how we're thinking of -- obviously, we're pleased in a pretty difficult economic environment that ODT really performed well on the top-line, and obviously, we're focused now on getting it to strength on the bottom line. We're pleased it's holding up well in a world where peers are coming out of real pressure. We do see our way to, let's say, high single-digit margins and we'd expect to see that across 6 to 8 quarters, give or take. This will come from really 2 buckets, scaling key solution areas and benefits from the integration of Atreus. So, with those 2 important pathways to profitability, the growth we showed in the quarter was particularly important and the progress we continue to make on integrating Atreus is particularly important. But I think the top-line performance shows that we're meeting a real and distinct market need right now in what otherwise is a tough time for that sector.

[Tobey Sommer, analyst]

In your conversations on the Executive Search side, with multinational companies, what is demand like -- we've heard some reticence and elongation of decision-making timelines, particularly on the multinational side. Is that consistent or inconsistent with what you've experienced?

[Thomas Monahan, executive]

Yes. This is a double-edged sword for us, right? We have 1,400 clients in 65 countries. So, you can safely imagine each one of them is a snowflake with its own issues consuming a C-suite. [indiscernible] a few basic themes coming out. I don't think any of them are necessarily headwinds or mitigants to our work. First, there is political and geopolitical uncertainty, no surprise. Elections across the world, give or take, nearly half the world is going to vote this year, and that creates a near-term societal divisions.



In the near and midterm starts to change how people are thinking about the global economy. Obviously, one of the issues on the ballot in a lot of countries, my implication is what's our role as a nation in the global economy and on trade policy, investment quality, all of that stuff. So that shows up a lot. And that changes less whether they need lots of great new leadership and more kind of the agility and mindset of the new leaders they're putting in place, elevating or bringing in.



Second, this is going to be completely unsurprising. A massive technology-driven remaking of work. It's obviously stimulated by the AI revolution, but again, it was already there. It intends client focus on having the right people and the right organization to capture the benefits of technology broadly, in Gen AI in particular.



And third, there is this demographic reality that is out there that even as labor markets have cooled a little bit, people are confronting the reality that most every market we serve, critical talent is scarce due to skill mixes, due to geography, due to the difficulty of moving people around that this is due to demography, factors beyond company's control, demand is going to exceed supply for the talent they need to lead and grow their businesses. So, though it's a complex operating environment, we really see those dynamics actually big long-term tailwinds for our business, and we really feel we're uniquely positioned to help them confront those challenges.

[Tobey Sommer, analyst]

And last one from me and I'll get back in the queue. Could you give us an update on Navigator, where that stands from an actual dollars-and-cents perspective? And I know it still might be a little bit early, but if you could speak to how you're going to manage that for growth versus profitability, how you're solving for that? That would be helpful.

[Thomas Monahan, executive]

Sure. And Tobey, as you know, we're not talking about the actual size of the Navigator product per se. Let me kind of pull back and talk about our philosophy on digital more broadly. Like every one of our clients, as I just said, we're making investments in technology platforms that scale our impact on clients. We see enormous opportunity for technology to -- already infuses key parts of our work, and will continue to do so more and more. This [indiscernible] necessarily takes 2 forms. One is, just call it straightforward digital enablement of our core business, through new tools, which enable our great teams to perform at the highest level. We think we can move even faster here. There are tremendous data assets at the core of our business. There are workflows that are repeatable. There are things that make this an exciting place to put resource and energy.



The second is new solutions that connect our work directly to client work. And we've already built a great platform for launching these solutions, which we [ christened ] Navigator and we're already in market with 2 beta solutions. They target different but closely related client needs. One is our digital assessment platform. The second is our leadership Intelligence platform. They both resonate with clients but right now, digital assessment is closer to existing client workflows. So therefore, it's just an easier, shorter sales cycle. Leadership intelligence, which is the core of the Navigator platform is a really powerful AI-based tool. It really catches client attention. But since it's a brand-new category for them, it faces a longer and more complex sales cycle.



So, you think of the 2 products, right now, it is quicker to market with our digital assessment platform, but we see such great interest in the leadership intelligence platform, on the Navigator platform that we think there's a huge opportunity there. We're just -- back to my previous point, clients are learning to reorganize themselves [ through ] some of the new tools and technology, and that's every bit as true for leadership and succession processes inside the entire organization.



So, we're excited about these investments. Allows us to invest -- invest against both client impact and value for investors. And we're sure we'll earn a great return from these investments. But -- and of course, you know that I won't miss the shameless plug to say that we're going to be demoing some of our cool stuff at our Investor Day. Of course, we can only do that for those who come live. So, there are a lot of good reasons to be in New York in December, but I think this is one of the best.

[Operator]

Your next question comes from the line of Kevin Steinke with Barrington Research.

[Kevin Steinke, analyst]

You've talked about in your prepared remarks, realigning how you engage with clients, particularly on the digital side. Wondering if you could maybe just delve into that a little bit more, provide a little bit more color on what you're doing in there and what you hope to accomplish?

[Thomas Monahan, executive]

Sure. I mean, it's pretty straightforward, actually. It won't come as any surprise that the place we have the greatest receptivity to our innovative platforms in the digital space under the Navigator banner are places where we already have great relationships. We understand the companies, we understand their succession and leadership development processes, we know the people and we get a running start.



Now that's -- since we don't do business with every company everywhere on the face of Europe, we have to be great both at leveraging our existing relationships to get clients onto our platforms and go use our digital products as a point of the spear to introduce Heidrick to them, so other service lines can come in behind it. But in the near term, we saw an opportunity to link the work of our digital products and Go-To-Market teams around our existing global Go-To-Market platform, which is focused very much on integrating our solutions in ways that our great teams in our different businesses can put them to work and they can flow seamlessly into the conversations we're having with customers. So, this was a great opportunity to accelerate. What we're already seeing is the most important and most compelling market dynamic.

[Kevin Steinke, analyst]

And I guess that would probably be directly tied to your comments about looking to accelerate the growth in returns from your recent investments or recent investment cycle. Are you primarily talking about the digital products there? Or what other investments are you looking to accelerate growth and returns from?

[Thomas Monahan, executive]

Look, I would also put the -- as I just responded in the previous question, the build-out of our ODT platform has been an area of investment focus. And obviously, we have a highly resonant product area. And as we continue to see growth there, we see an opportunity to accelerate our profitability there. And certainly, in Heidrick Consulting, we see opportunity by scaling our most powerful value propositions within the Heidrick Consulting portfolio, we see opportunity to arrive at scale economics in portions of that portfolio faster.

[Kevin Steinke, analyst]

And then just circling back on On-Demand talent, it had pretty nice growth in the second quarter. And you had talked about the kind of market backdrop there, the headwinds facing that particular part of the market, but it seems like in the last few quarters, you're kind of tracking along with the market and here in the second quarter, it seems like maybe you decoupled a bit and had a positive variance. So, I don't know if there's anything more in particular you'd want to highlight there just in terms of what seems to make like a bit of an outperformance relative to where the market is trending?

[Thomas Monahan, executive]

Well, obviously, it was mostly due to Tom [ Marie ] and I being new in leadership chair and just -- I'm kidding, obviously. Look, I think if you think about On-Demand Talent, the real news isn't at the macro level, it's at the value proposition by value proposition levels. So, think about -- if you look inside the On-Demand Talent portfolio, there's a series of use cases that are tightly tied to really urgent client need, not the most --but the easiest example we have, so interim Chief Information Security Officer. -- No leadership team is going to want to wake up and say, our Chief Information Security Officer quit, we don't have one.



So, the ability to kind of tap our team and get a great interim executive for or information security or finance, et cetera, critical project talent. If you're a big pharma company and you've got a drug you got to get to market, you want teams in place that's done that 3 times. Again, I think we create power in our model, not so much at the number of use cases we serve. We; we do serve a number of them, but the specificity and value we create when we target known workflows, target known pain points and create a solution that no one else has.

[Kevin Steinke, analyst]

And then just lastly, you talked about the last quarter or 2, some choppiness in the overall macro environment, demand environment. It sounds like that's pretty much the case or what you're continuing to see. Obviously, you've put up some solid performance here in the second quarter and a good outlook for the third quarter, but is any changes in how you would characterize the overall macro environment from what you've been seeing over the last quarter 2?

[Thomas Monahan, executive]

I think it's very consistent through the year so far. There are always pockets of real strength and pockets of chop, either by industry, by geo. It's worth remembering that it's choppy, but our teams are really exceptional at finding client need and [indiscernible] lord knows clients have more need when times are complex than they do when times are simple. So, it's testament to our teams being out there doing great work. It is also worth noting that the long-term macro headwinds behind this business are incredibly powerful.



The single most important lever for great corporate performance is great talent, great leadership, great leaders in the right roles doing the right thing. And as more and more companies are aware that we're entering an era where the who is more important to who and how are more important than the what. We [ believe ] we've got a great opportunity to grow this business and grow our impact and create value for -- first and foremost for clients, but then for colleagues and shareholders as well.

[Operator]

[Operator Instructions] Your next question comes from Marc Riddick with Sidoti.

[Marc Riddick, analyst]

Just wanted to start, -- first of all, Mark, thank you for everything. It's been a pleasure working with you, and certainly appreciate all the help that you've given over the time that we've had the chance to work together, so -- and best in [indiscernible] for everything moving forward there. I did want to touch a little bit on one of the things you had made a comment -- I think if I caught this right, as far as R&D, you were looking at that being around USD 25 million for the year, that. That seems as though that would be a little bit of a pickup in the back half. Is there anything we should be thinking about there? Anything as far as timing of what you're working on? Anything lumpy? How should we be thinking about the timing of that R&D spend for the remainder of the year?

[Mark Harris, executive]

So, we've been running around between 5% and 5.5% in the first half of the year. So, [indiscernible] also going to be a very marginal increase in the second half of the year. The second half as we start to launch some of the projects, which we have done, will start to bleed through. So, we've been capitalizing some on the balance sheet. And when we launch it, then that amortization will also want to start flowing through the P&L. So that's where you'll see a little bit of pickup. So, keep in mind, it won't really be cash that will be hitting. It, will be more just an amortization [ on ] our balance sheet.

[Marc Riddick, analyst]

And then the other is more bigger picture, and I wanted to touch on the decision to host an Investor Day. It certainly is nice to see, but I was wondering if you maybe you could touch a little bit on that and the thoughts behind that? I know you've made some commentary on that but certainly, with all the uncertainty that's out there and what have you, I just wanted to get a sense of maybe the thought process around the Investor Day. It's certainly appreciated but I just wanted to get some thoughts as to the why?

[Thomas Monahan, executive]

Sure. I think there are 3 reasons that -- in my mind, it's always a good day for an Investor Day. We love communicating with our shareholders around what we're doing and giving you a real look at the business. I think there are 3 reasons now is a good time. I'll lay them out, which is I think you can't help but be impressed by the quality of our leadership, and I'm excited to have our leaders up in front of that road sharing how they're building our business and creating value for our clients. That's very exciting.



Secondly, we've created a set of newer businesses that the traditional quarterly format doesn't let us get into as much detail about. So, our ability to kind of unpack them a little bit more, to get down as I was saying just now, get down to the use case level, what client problems do we solve and why are those problems so valuable for us to solve from? It's something you do more in an Investor Day format than you can do in a normal quarterly call.



And third, as I mentioned, we have invested in some innovative technology tools and platforms, both for our own use and for direct client use. And really, the only way to showcase those is to gather people in a room and let them see it live. So, I think for those 3 reasons: a chance to engage with our exceptional leadership team, chance to get a little deeper into the pain points that we solve and a chance to kind of put fingers on keyboards and see what we do with our R&D in digital investment. So, I think we'll have a compelling day, and I think it should be a great opportunity for us to take you a little deeper into the business.

[Operator]

Your next question comes from the line of Tobey Sommer with Truist Securities.

[Tobey Sommer, analyst]

I just wanted to ask a question on the Executive Search business before closeout here. The head count is down a little bit sequentially. It looks kind of like a mid-single digit decline sequentially in Search confirmations and productivity is more modest. How do we think about that particular business on a sequential basis for revenue within the guide?

[Mark Harris, executive]

So, I think we see it in a couple of different ways. Please always remember in Q1 is when we do our promotions. So, it's not uncommon that Q2 will start to drag down a little bit. And I think you absolutely hit it right, which is just a little bit of downward motion. We would expect in Q3 and Q4, probably to bring in some talent as well. So, I would say neutral to better in terms of the headcount. I would also comment on the productivity, again, coming at the very high end of that USD 1.8-2.0 million range is starting to show a little bit of heat overall. And what's really generating that is, again, the strength in Americas, which is obviously where we get the more upsized agreements, is where you would see that come in a lot harder with Europe falling down.



Those 2 moves generally would make it overall on the average, harder, which is why sometimes I don't trust averages, but that is what we're seeing. So, I just think it's just normal course of stuff. There's nothing in there that we look at the data in terms of all of our locations that -- it's just an interesting time for the Americas to be so bloody hard and Europe coming down a bit, but we would expect Europe to be more or less modulating in terms of what we saw in Q2. So, nothing to worry about. It was nice to see Asia Pacific showed some good pickup. So, congratulations to that region. They've done a really good job of embracing what they had to in the Greater China region and really taking advantage in other parts of it.

[Operator]

And that concludes our question-and-answer session. I will now turn the call back over to Tom Monahan for closing remarks.

[Thomas Monahan, executive]

We'll just extend our collective thanks to everyone, for dialing in and listening today. We're excited to share the story of our work here at Heidrick & Struggles to accomplish the most important objective we have, which is to create unmatched value for our clients, our colleagues and our investors. And it wouldn't be me if I didn't make one more shameless plug for our December Investor Day. If you haven't gotten an invitation yet or haven't blocked in your calendar, please do so. And if you need details, just reach out to us, and we'll get you all patched in. Thanks so much.

[Operator]

This concludes today's conference call. Thank you for your participation, and you may now disconnect.