Heidrick & Struggles International Inc

NASDAQ:HSII

Earnings Call Analysis

Heidrick Again Hits $1 Billion Revenue Amid Growth

In a year marked by strategic expansion and leadership transitions, Heidrick & Struggles achieved over $1 billion in revenue for another year, fueled by a record $780 million from executive search and growth across all services. The on-demand talent segment soared with a 67% increase to $153 million, while Heidrick Consulting's revenue climbed nearly 18% to $94 million. Adjusted EBITDA margins showed notable improvements, such as a 130 basis point rise in the on-demand talent segment to 0.9% and a nearly 100 basis point increase in overall margin to 12.2%. These results signal continued success and a robust foundation for the future under new CEO Tom Monahan.

Proud Performance in 2023 Despite Executive Search Headwinds

Despite facing significant obstacles in the executive search business, the company managed to surpass $1 billion in revenue thanks to strategic acquisitions and a focus on diversified solutions. A commendable 12% adjusted EBITDA margin and nearly $3 in adjusted diluted EPS were also achieved for the full year.

Revenue Growth and Margin Improvement

The company saw a solid 7% year-over-year growth in net revenue, totaling over $253 million, while maintaining a double-digit adjusted EBITDA margin, a consistent performance for nearly six years. They successfully improved the adjusted EBITDA margin by approximately 100 basis points during the year, supported by increased margins across their business segments, including the on-demand talent sector which achieved full-year positive adjusted EBITDA for the first time.

Diversification Strategy Yielding Results

By embracing diversification, the company grew its non-search business by over 44% in 2023, which now represents 24% of the total business compared to just 9% in 2018. This strategic shift has not only bolstered revenue but also promises to become an essential contributor to bottom-line profitability.

Executive Search Showing Resilience and Growth

Executive Search has shown encouraging signs of stabilization with trends indicating a positive outlook. The company has experienced a 4% growth in confirmations and a solid 6% compound annual growth rate since 2017, with steady retainer fees and increased demand, particularly for CEO and CHRO roles.

On-Demand Talent and Consulting Achieving Record Revenues

A standout segment, on-demand talent, has demonstrated an exceptional performance with a record revenue growth of 84% year-over-year for the fourth quarter. Heidrick Consulting also posted record revenue with a year-over-year growth of approximately 36%, indicating the strength and potential of these growing service offerings.

A Steadfast Partner to Clients and Shareholders

The company's strategy of staying close to clients has not only fostered strong partnerships but also generated meaningful value for shareholders, especially in challenging times.

Improving Profitability and Optimistic Future Outlook

Looking forward, the business is anticipated to experience less volatility in 2024. With enhanced advisory services and digital capabilities, the forecast for the fourth quarter ranges from $245 million to $265 million in revenue, setting the stage for continuous growth .

Financial Highlights and Profitability Indicators

Executive Search remains a profit stronghold with an adjusted EBITDA of $54.7 million, marking a marginal improvement from last year. The on-demand talent division and Heidrick Consulting have both shown improved profitability, with the aim of reaching longer-term adjusted EBITDA margins of 10% to 12% and 12% to 15%, respectively.

Adjusted Earnings and Tax Rate Impact from Acquisitions

The adjusted net income for the quarter settled at $14.9 million with an adjusted diluted EPS of $0.72, slightly down from the same quarter last year. Due to acquisition-related costs, the tax rate is expected to increase to around 38% for 2024 and 2025, but it should return to the low 30% range subsequently.

Strengthened Cash Position and Strategic Investments

The company has strengthened its cash and marketable securities position, showing a sequential increase of $144.2 million, which enables continued investment in strategic growth opportunities while maintaining focus on shareholder value and inorganic opportunities expected to be accretive to results.

Earnings Call Transcript 2023-Q4

[Operator]

Hello, and welcome to the Heidrick & Struggles Q4 2023 and Year-end Earnings Call. [Operator Instructions]. I will now turn the conference over to Steven Horwitz, Interim Head of Investor Relations. Please go ahead .

[Steven Horwitz, executive]

Thank you, and welcome to our 2023 4th quarter conference call. Suzanne Rosenberg has been on leave, and thus, I am serving as the Interim Head of IR having been placed through the on-demand talent group. Suzanne is rejoining the team this week, and we welcome her back. Let's now proceed to today's call. Joining me is our President and CEO, Krishnan Rajagopalan; Chief Financial Officer, Mark Harris; and our incoming CEO, Tom Monahan. 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 to our prepared remarks. 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. Krishnan, I'll now turn the call over to you.

[Krishnan Rajagopalan, executive]

Thank you, Steve. Good afternoon, everyone, and thank you for joining us today. We're very proud of how we performed in '23, in the year in which our executive search business faced significant headwinds in we still delivered plus $1 billion in revenue by executing on our diversification strategy. One component of that execution was the successful integration of our strategic and accretive acquisitions. We accomplished all of this while remaining diligently focused on our operational profitability as we delivered more than 12% adjusted EBITDA margin and nearly $3 in adjusted diluted EPS for the full year of 2023. In fact, we capped off this impressive year with a strong finish, as evidenced by our fourth quarter results. Net revenue was over $253 million, more than 7% stronger than last year. This is the second consecutive quarter where we've demonstrated solid year-over-year growth as we return to a more normalized cadence of systematic growth.

We also achieved another quarter of double-digit adjusted EBITDA margin which we've achieved almost every quarter for the last 6 years. Mark is going to provide more details on our financial performance in a few minutes. Before I drill down to the accomplishments of each of our businesses, let me expand a bit on our diversification, profitability and some expectations about the coming year. As we discussed, a key component of our long-term strategy is to meaningfully grow our diversified solutions while scaling our search business and thus delivering a more comprehensive set of leadership advisory services. Together, our diversified solutions grew north of 44% in 2023, which brings the contribution of our nonsearch business to 24% compared to the 9% contribution in 2018 when we embarked upon this strategy.

We also made some important strides in our profitability front. Our adjusted EBITDA margin improved by nearly 100 basis points during the year. In fact, we saw higher margins in our businesses, executive search, on-demand talent and Heidrick Consulting with on-demand talent achieving its first ever full year of positive adjusted EBITDA. As we look ahead to 2024, we will remain relentlessly focused on continuing this growth and profitability momentum regardless of the economic environment. Not surprisingly, a major topic being discussed in Davos last month was how leaders are preparing for a continued difficult economic environment, leading to slower growth. However, many expressed a more optimistic viewpoint than in past months despite the obvious geopolitical risks that exist.

Many CEOs and world leaders in attendance suggested resilience and the economic outlook, pointing to China's reemergence, strengthening of global supply chains and an expectation that rate hikes could end by the middle of the year. Many in attendants also highlighted fast-growing economies in Latin America and the Middle East as softeners to the declines that may be seen in advanced economies. As I reflect on the conversation from Davos and softening in the inflation indicators, I'd argue that there's an increasing probability to return to a growth mindset in the second half of the year. So while these leaders continue to expect and prepare for some level of potential sluggishness, I was encouraged by their focus on topics important to us here at Heidrick, such as continued business transformation, sustainability and the importance of having a strong management team.

We met with more than 50 clients over a few days at the conference and their appetite to engage with us and hear about our broader portfolio of offerings was incredibly strong. This is a type of direct feedback that drives our dedication to be a world-class leadership advisory firm. We pride ourselves on helping our clients find the world's best leaders, create diverse and inclusive cultures, and transform their teams to achieve the highest levels of profitability and performance. Given this interest from so many clients, coupled with some improving economic indicators, we believe that there should be less volatility in our business in 2024.

With that as a backdrop, let me provide you some color on the fourth quarter performance in each of our businesses. Beginning with Executive Search, we saw continued stabilization this quarter with multiple trends painting a more optimistic picture. For example, confirmations increased 4% over last year's fourth quarter with all practice groups exhibiting growth and confirmations. Retainers an average fee on closed engagements remained steady and improved in all geographies. Demand has been most resilient with CEO in CHRO roles. Globally, we are growing search efficiently by optimizing our go-to-market strategy and deepening client relationships in all industries with a focus on our one Heidrick strategy. Regionally, we continue to assess white space opportunities in industry sectors and partner with our clients on burgeoning demand areas such as the implications of AI, sustainability and E&I.

We're also partnering with clients in technology or digital hybrid roles that we continue to see emerging in every industry practice. As we take a longer-term view and a more comprehensive look at the growth pattern, from the beginning of 2017 until now. We've delivered a very respectable 6% compound annual growth rate. Additionally, search has been meaningfully profitable, producing north of $50 million in adjusted EBITDA in 8 of the last 9 quarters, including nearly $55 million this quarter. This profitability is very important to us as it helps us drive investments into our diversified solutions.

Turning to our diversified solutions. In on-demand talent, we are very excited that we posted record fourth quarter revenue with 84% year-over-year growth, along with positive adjusted EBITDA as we continue to benefit from the Atreus acquisition. From an industry standpoint, there has been no surprise to the slowdowns in the banking and professional services sectors. While our life sciences and consumer practices appear to be poised for a stronger year in 2024. In addition, we're seeing growth in demand for interim executives driven in part by shifting needs in executive skills to whether a changing environment. We're also delivering continued growth from the Heidrick search channel, which tends to drive more interim needs as it is a natural complement to search.

Within the Interim Executive segment, we are achieving growth in the CFO office for both interim CFOs and for placements within the CFO's office, such as FP&A for example. These trends reflect the significant and changing pressures on the CFO office in this environment. As we look at the many opportunities ahead, we'd like to welcome Sunny Ackerman as our new Global Managing Partner of OTT, Her experience in technology, professional services and human capital solutions will help drive the next phase of growth. Moving on to another key component of our diversified solutions offering. Heidrick Consulting also delivered a record revenue quarter after achieving approximately 36% year-over-year growth. This growth was driven by a combination of organic growth and the acquisition of B40.

Our Consulting business also achieved positive adjusted EBITDA margin reaching almost 4% this quarter as we begin to see the benefits of scale within this business. We've seen continued strength in demand for culture and leadership assessment projects clients appear to be acting more decisively as they learn to effectively operate through difficult conditions. This is having a positive impact on our business with early first quarter demand patterns exhibiting more strength than we saw a year ago. Comparing the business to last year's fourth quarter, we increased our consultant headcount from 70 to 89 and confirmations increased by about 3%, all positive signs.

Finally, as part of the One Heidrick strategy and similar to our on-demand talent business, more than 40% of these projects were referred by our search business, evidence of the One Heidrick strategy. And finally, I want to discuss Heidrick Digital. As I shared last quarter, we converted one of our first early access partners from our Heidrick Navigator pilot program into a 3-year subscription. I'm also happy to share that we recently signed another subscription customer directly without going through the beta process. The signing of this enterprise customer that has tens of thousands of employees and is approaching $20 billion in revenue is another early proof point in the digital opportunity ahead of us, and we have several more exciting potential customers in the pipeline.

We continue to receive positive reactions from additional early adopters and are working with them to incorporate their feedback with the expectation that many of them will convert to subscription customers over time. Let me expand on one aspect of the Navigator platform, which is assessments. Earlier this year, we surveyed several hundred non-HR executives to determine how to make better use of assessments. There were several key insights derived from the survey, including that an effective assessment process improves team dynamics, the promotion process and retention. Our Heidrick Navigator product can be a game changer when it comes to improving the assessment process. In fact, over a dozen clients are now leveraging our new digital assessment platform. Companies continue to move closer to understanding that they must treat their leadership pipeline as a strategic asset and that our comprehensive suite of leadership advisory offerings helps them accomplish that goal.

Now let me share an example of a client taking advantage of our One Heidrick strategy which strategically links all our businesses together. This example is that of a large company that needed to split into 2 independent publicly traded companies. They needed support in making the best placement decisions, tapping into internal and external candidates. There was the added pressure of needing to fill important positions fast but with an eye towards sophisticated talent to understood the challenges of operating in a public company environment. Our approach was to leverage our industry, functional and leadership expertise to define forward-looking leadership success profiles.

Additionally, our consulting teams needed to assess the current leaders to provide insights into fit and growth potential with market calibration. We also help the client retain key talent while closing critical gaps to our search team. We were able to differentiate ourselves by blending our leadership advisory and search market perspective, providing a digital platform that allowed for the real-time matching of talent and opportunity plus a holistic framework that covers experience, growth potential and culture effect. This is really a great example of how the many facets of our One Heidrick strategy work together strategically to provide our clients with the best possible outcome.

Now before I conclude my remarks, let's touch on the recent announcement of my planned retirement from Heidrick. I'll be stepping down as President and CEO from the Board effective March 4, and Tom Monahan will be stepping into the role of CEO and Board member at that time with Tom Murray, currently the Global Managing Partner of our search business, stepping into the role of President. This was the culmination of a systematic deliberate succession plan driven by our Board meant to maximize the potential for continued success. The establishment of separate CEO and President roles will enable us to drive even greater focus on executing across our businesses and expanding our capabilities to deliver broader more comprehensive offerings for talent and human capital challenges. All of this reflects our commitment to driving growth, profitability and the diversification in our business.

With that, let me share a few thoughts on Tom Monahan, who I've known for nearly 20 years. Tom is a visionary executive with a deep passion for the leadership arena and a long-time Heidrick & Struggles client, who understands and respects our culture and will bring a fresh perspective not only to build on our core strengths, but also steer our strategic course to unlock transformative growth and shareholder value. Tom's extensive background leading global companies with integrated services, technology and analytics is perfectly suited to his role of shaping and executing our growth and diversification strategy as well as leading our Heidrick digital business. Tom, would you like to say a couple of words before I conclude my remarks.

[Tom Monahan, executive]

Thanks, Krishnan. I am very excited to join this incredible team of accomplished colleagues at Heidrick & Struggles and to take stewardship of the brand, culture and community that have shaped the leadership advisory industry for decades. Our work for clients is the central component of their building successful companies. At its core, leadership is the most important performance lever. Having been a Heidrick client and candidate over the past 20 years, I have a first-hand understanding of our value today and the massive opportunity to expand our impact in the years ahead. By combining our global excellence in search with our growing portfolio of leadership solutions, we have a unique opportunity to diversify and deepen our value for clients, colleagues and shareholders and most importantly, to change the world through leadership.

[Krishnan Rajagopalan, executive]

Thanks, Tom. Since Tom start date and until March 4, we're giving him a hall pass for the Q&A session today, but I know that he's looking forward to leading our earnings call next quarter. So in closing, we delivered another $1 billion revenue year. We achieved record revenue quarters for both on-demand talent and Heidrick Consulting. We delivered improved adjusted EBITDA margin across the board and we continue to deliver a broader, more comprehensive offering for talent and human capital challenges at the executive level. I'm confident that the company is well positioned to succeed in the coming year and beyond.

And an even bigger thinking than usual to the Heidrick team for their continued hard work and incredible dedication to our clients over the past several years. Before I hand the call over to Mark, let me say I'm humbled to have served the company its employees, clients and investors in this role for the past 7 years and for more than 23 years in total. I'm proud of what we've accomplished during that time we diversified the product offering by meaningfully expanding the hybrid consulting business, starting the on-demand talent business and investing in our digital platform with innovative products like Heidrick Navigator. And we accomplished all of this while also significantly scaling our search business and dramatically improving the bottom line.

But most importantly, we've had a positive impact on our clients through building high-performance diverse teams and strong cultures. I look forward to seeing the continued success of Heidrick with a strong management team in place to take it forward. Now I'd like to turn the call over to Mark Harris.

[Mark Harris, executive]

Thank you, Krishnan, and good afternoon and evening to everyone on today's call. Let me also begin by welcoming Tom Monahan to our Heidrick family and congratulate Tom Murray on his promotion. As Krishnan said, the company is being placed in great hands and we look forward to working closely together to continue delivering value for our clients, our employees and our shareholders. I'd also like to congratulate everyone here at Heidrick for their hard work and perseverance through a challenging year where our clients were unsure of the direction of the respective markets, but successfully navigated them with Heidrick as their business partner. By remaining a close and reliable partner to our clients, we created meaningful value for our shareholders in a tough environment.

Our approach enabled us to continue our transformation, resulting in the third consecutive year of more than $1 billion in revenue and $2.91 in adjusted EPS, the fourth highest annual achievement in nearly 20 years. The transformation of the business is predicated on delivering of a more comprehensive, diversified set of solutions to our clients. In fact, our diversified solutions, which consists of our on-demand talent and Heidrick Consulting businesses will soon include Heidrick Digital business represented 24% of total revenue for the year and over 27% of revenue in the fourth quarter. This is a considerable change from the 9% when we embarked upon the journey in 2018.

Our strategy will be to continue investing in these businesses, and we expect that they will become an increasing part of our bottom line profitability this year. Let me briefly share some full year highlights for 2023 before discussing our fourth quarter 2023 details. As I mentioned, we delivered $1.03 billion in revenue, mainly led by our executive search revenue of $780 million. While all geographies and most practices were down compared to last year in executive search, we did achieve annual growth in the social impact practice in industrial practice in terms of new engagements. As we look ahead, I'm encouraged that confirmation trends are pointing upwards essentially across the board. As always, the search business delivered phenomenal levels of profitability, including nearly $207 million in adjusted EBITDA, which improved our adjusted EBITDA margin to 26.5%.

Moving to our on-demand talent segment. Revenue grew just over $91 million in 2022 to a record $153 million in 2023 or 67% off of the strength of our Atreus acquisition. Further, with regards to our annual on-demand platform, we were pleased with the adjusted EBITDA margin of 0.9%, whereas in 2022, we had a negative 0.4% margin, that's an improvement of 130 basis points. In Heidrick Consulting, we saw revenue increase nearly 18% to a record-breaking $94 million and continues to make progress towards achieving the necessary scale to make it profitable. With margin discipline and obvious key focus, we're proud that we have achieved an improvement in our enterprise adjusted EBITDA to nearly $126 million, a 4% increase over 2022 and adjusted EBITDA margin of 12.2%, nearly 100 basis points improvement over 2022. Moving on to the fourth quarter results. On a consolidated basis, revenue was $253 million or 7.4% above revenue for the fourth quarter of 2022.

Adjusted EBITDA was $35.8 million compared to $25.9 million in the fourth quarter of 2022, a 37.9% improvement. As Krishnan mentioned, we recorded our 14th consecutive double-digit adjusted EBITDA margin at 14.1%, which was much stronger than the previous calendar quarter's performance of 11%. Now let me review each of the businesses in more detail. that contributed to this performance. In Executive Search, revenue decreased 4.5% from Q4 2022 to $184 million. Looking at our regional performance compared to the prior quarter, we saw Americas Search revenue was down just over 4%. Europe was essentially flat, and Asia Pacific was down approximately 12%.

Not surprisingly, we saw consultant productivity on a trailing 12-month basis in the fourth quarter of 2023 at $1.9 million and compares to $2.3 million in the trailing 12-month basis in the year ago quarter. This was expected and right in the middle of the range we expect in a post-pandemic environment where technology has been enhanced, embraced and accepted by the market. In respective of the revenue decreasing, Executive Search remains very profitable with an adjusted EBITDA of $54.7 million compared to $53.9 million in the quarter of 2022 or a margin of 29.7% compared to 28%. Turning to On-Demand Talent. Revenue was $41.1 million, up nearly 83.7% compared to the fourth quarter of 2022. As we previously discussed, this growth was driven by the positive effects of our Atreus acquisition, we're also seeing some positive forward-looking indicators in our legacy on-demand talent business as well, including an increase in qualified leads, wins and total contract values on a sequential basis.

On-demand talent recorded an adjusted EBITDA profit of $0.8 million or 1.9% margin versus a loss of $1.4 million and a negative 6.4% margin in the fourth quarter of 2022. Our goal is to continue to improve our margin profile to the longer-term run rate of 10% to 12% adjusted EBITDA margins. Heidrick Consulting's fourth quarter revenue grew 35.8% year-over-year to $28.1 million partially due to the acquisition of B4Z and our historical Heidrick Consulting business. Our business is benefiting from investment in both organic and inorganic growth or 1 plus 1 equals 3 or greater. In addition to revenue growth, we delivered a 28% increase in confirmations from the previous quarter, which is expected to benefit the first half of 2024.

Heidrick Consulting posted adjusted EBITDA profit of $1 million or a margin of 3.6% compared to $2.4 million loss or negative 11.5% in the same quarter last year. While much work remains to increase profitability of our consulting business, we're beginning to see the favorable impact of the scale that we're continuing to build, which should improve our margin profile to the longer-term run rate of 12% to 15% adjusted EBITDA margin. Turning to operating expenses. Including our recent acquisitions, we saw salaries and benefits decreased 3.7% from the fourth quarter of 2022. Variable compensation decreased $13.3 million year-over-year due to a decrease in production. Fixed compensation increased $7.5 million versus last year due to the number of employees, compensation increases to remain competitive, partially offset by decrease in RSU amortization and other costs.

As a percentage of net revenue, salary and benefits was 59.7% versus 66.5% last year. With the full year of acquisitions, we expect to see our sole benefits increase in 2024 and by 3% to 4% compared to 2023. General and administrative expenses increased to $8.6 million or 17.4% of net revenue compared to 15.1% of net revenue in the fourth quarter of 2022. This increase is due to the noncash cost of our acquisitions, office occupancy costs, marketing, partially offset by a decrease in some of our other costs. Please do note that we will have our global conference in the second quarter of 2024. Thus, along with our acquisitions in 2023, we would expect our G&A to rise in 2024 by around 5%, but modulate back down in the outer years as we focus on extending global conferences cadence and working in synergy with our acquisitions.

Turning to our cost of services. We saw this increase to $30.2 million in the fourth quarter of 2023 versus $17.4 million in the previous year's quarter, a 73% increase. This increase was due to the expansion of our on-demand talent business, whose revenue increased 84% in the same period and which typically has approximately 70% of the revenue in cost of services. We would expect that to continue in 2024 as this business model has some pricing power, but competition keeps it within a tight band.

Last, we made progress on development of Heidrick Navigator and numerous other digital assets that service all lines of businesses through R&D spending. R&D spending for the fourth quarter was $6 million or 2.4% of net revenue versus $6.1 million or 2.6% of net revenue in the fourth quarter of 2022. We expect this to be in line with our expectations for 2024. Moving on to profitability. Adjusted net income for the quarter was $14.9 million and adjusted diluted earnings per share was $0.72, which is down from the $16 million and adjusted diluted EPS of $0.78 in the same quarter last year.

The primary reason for this decline was a meaningfully higher tax rate in the quarter, just over 40% compared to about 30% in the same quarter last year. The two items that drove the tax rate in the fourth quarter were the nondeductibility of our acquisition costs in the two jurisdictions of the United Kingdom and Germany, coupled with closing one of our overseas offices that required a tax charge. We expect both 2024 and 2025 will be impacted by the acquisition difference that will increase our rate temporarily to around 38%. But once these costs run off, we would expect that to go back down to the low 30% range, assuming no other statutory tax changes.

Now I'll turn to the balance sheet. At the end of the fourth quarter, our cash and marketable securities increased sequentially by $144.2 million to $478.2 million in the previous quarter, but were down $143.5 million from the same quarter last year. The year-over-year decrease is due to the earn-out payments related to PGG, B4Z and Atreus acquisitions, along with our executive search expansions in Finland, South Africa and South America. Although that our capital allocation priorities have not changed. We first take care of our strategic investments in our current operations, then we believe our next greatest shareholder returns will come from investing in inorganic opportunities that affirm and accelerate our strategy, which we believe are accretive to our results.

When we believe we have discretionary cash that isn't needed for the previous mentioned priorities, we will then region policies and potential stock repurchases accordingly. Turning to our outlook. We continue to see improvement demand signals with strong fundamentals supporting all businesses. Therefore, we expect the fourth quarter to land in the range of $245 million to $265 million. This would compare to $239.3 million in Q1 of 2023, representing another quarter of solid growth. To conclude, I'm very proud of our many accomplishments last year, including more than $1 billion in revenue our diversified solutions exiting the year by contributing 27% of revenue in the fourth quarter, increasing adjusted EBITDA in all businesses of Executive Search, on-demand talent and Heidrick Consulting, and confirming our second SaaS customer for Heidrick Navigator and protecting our bottom line profitability, just to name a few.

While there's always much work to do, we are encouraged by improving economic indicators, improving forward-looking data for our businesses and increasing the scale we are building in our diversified solutions and believe we are well positioned to deliver on our priorities of prudent top line growth and increasing profitability through margin discipline. Finally, before I turn the call over to the operator and take questions, I'd like to take a moment to thank Krishnan and wish him well as this will be his last call with us. Krishnan's 23-year dedication to our company is unparalleled. What may be less visible is his leadership within the organization, including his mentorship and coaching to so many of us. While Krishnan is always quick to point out that the company's success during his tenure is due to the entire team's effort. There is no doubt that his steadfast determination and vision with the driving force behind it. Krishnan, you'll be missed by the Hedrick family, and we look forward to continuing our journey with you as our trusted adviser, but for me personally, my friend. Operator, happy to take your questions.

[Operator]

[Operator Instructions]. Your first question comes from the line of Kevin Steinke with Barrington Research.

[Kevin Steinke, analyst]

Okay. Good afternoon. First off, I'd like to say congratulations, Krishnan in all your success at Heidrick over the years and best wishes in your retirement. Although it sounds like you're going to still -- according to the press release, be an adviser working with clients. So maybe just can you give us a sense as to what you see your role being going forward?

[Krishnan Rajagopalan, executive]

Sure. Kevin, thank you so much. Yes. Look, I'm going to return back to some of the passions that I've got, which is in helping our clients have had the privilege of working with the team globally. So working with a lot of our larger strategic accounts, working with clients in Asia, Middle East, across the world and just helping our teams tell the One Heidrick story as well. So that's what I'm looking forward to doing.

[Kevin Steinke, analyst]

Great. So in talking about the demand environment, you referenced improving market conditions, and it sounds like maybe some of the slower client decision making you've seen in 2023, it started to abate in the fourth quarter. So just any more commentary on that? And you also referenced perhaps clients returning to more of a growth mindset in the second half of 2024. So I guess how much more room is there do you think to improve. You think clients can change that mindset versus what they're thinking about right now?

[Krishnan Rajagopalan, executive]

Yes. Let me start with that. And Mark, if you want to jump into that as well. Look, there's always comparison points when I talk about improvements. And so it doesn't feel like '21 and '21 and parts of '22 in terms of growth, but it also doesn't feel like a large contraction is going on, and people are beginning to talk about their business through a different lens of transformation and are continuing to make moves. And we're optimistic that based on the conversations we've had with clients that they're going to continue down that path. There are large, large forces such as AI and things like that, that are driving companies to think through management, think through business models, all those stuff, there's topics such as sustainability, which is still large and out there as well.

So we see some fuel for growth. If the rate environment continues to improve and actually something happens on that in the second half of the year, I think that will be a bit of an accelerator to that growth as well. And that's what I meant by that comment that if we could couple all of that to occur, then I think we'll be in a very positive environment.

[Mark Harris, executive]

Yes. The only part that I'll overlay on that, Kevin, is as you've been reading about where the hard landing seems to be a tick-and-roll back seat from people's line of vision. It seems that no landing to soft landing is kind of coming through and the market forces are still looking pretty decent. Europe has a little bit more headwinds in terms of unpredictability to it. U.S. seems like it's kind of working its way through. The way that I would articulate that is that, again, in terms of '24 expectations, probably similar to that of what we saw in 2023, plus or minus, very minor, I would imagine, at least as of right now, where we're sitting.

Keep in mind, winning searches still are much more competitive than back in the days of 2021 and the first half of 2022. So our teams in all industries are pitching more. We'll increase some lead time. I think it's a much more competitive market in that sense, and there's some capacity now in the system that allows them to take on that work where in '21, a lot of us were just out of capacity. So that was kind of where we're coming at this at least right now, what we're seeing is when I think about it from the search side, it's very akin to what we saw last year versus either going down significantly or raging back by '21, so to speak. I don't think that's in the cards lease, not as of today.

[Kevin Steinke, analyst]

Okay. insight on that. I also wanted to ask about Heidrick Consulting and really strong sequential revenue increase in the fourth quarter. And as far as I can tell, it looks like maybe the strongest quarterly revenue for that business in its history. But just trying to think about the sustainability of that. I think you talked about some positive growth in the confirmation trends there and Also, is there any kind of larger projects or something more one-off that really helped the quarter there?

[Krishnan Rajagopalan, executive]

Yes, nothing one-off that I can really think of. I think what we began to see is some of our just -- not only organic growth but also the integration of B4Z and what we're beginning to do together. We're beginning to see nice growth in the culture side of our business. So I think those are the kinds of things that we're looking forward to the kind of future-ready leaders, our assessment business and helping leaders develop that continues to be robust. And we think we're in an environment where the demand signals for this are going to continue. So we're optimistic on being able to grow that business.

[Mark Harris, executive]

Yes, I would agree with Krishnan on everything he made comments around. I would also supplement that with. Do keep in mind, we had the business for 0 acquisition. In the quarter, it did very well in addition to what we had prior to the acquisition. So I think it's just a tale of two businesses doing very, very well in the quarter. There's nothing that stood out in terms of any specific one-off client event. I just think that we had two things kind of merge together. One is we had the right products; and two, we had good demand that kind of came out of that, and hopefully, that will continue and we can capitalize that. But thank you for that recognition. I think that is important to observe.

[Kevin Steinke, analyst]

Okay. Great. I also wanted to ask about Heidrick Navigator and the digital pipeline, you mentioned the direct signing of a client that wasn't a beta client, I believe. So can you just talk about the process that led to that? And that maybe happen kind of in line with how you expected and maybe what the pipeline looks like there in terms of -- you mentioned early adopters and how large the pipeline of early adopters might be?

[Krishnan Rajagopalan, executive]

Yes. So what happened in that case was we identified several large clients that we would consider in the beta category. And this client was a very large client where we were chatting with them about a series of business issues that they had and Navigator appeared to be the perfect solution to it. So the teams recognize that. And now this is part of what we're optimistic about is as this is gaining traction and our teams are becoming more and more aware about our capabilities as well, how we're able to bring that together. So this ended up becoming an opportunity to showcase Navigator and put it in front of them. And they're very, very excited about it. So that's kind of what happened in that case.

And we've got more and more examples like that of ongoing dialogue with companies as a result of processes that are now just happening inside of Heidrick. We've got a strong funnel that comes through and that funnel is only going to grow as a result of that. There's -- it's a tech product, so it takes a little bit of time to actually go through all the checks and balances the legal ramifications, et cetera, to be able to actually sign up the clients. So we're going through that with several of them. We've got numerous clients that are in the sort of beta and looking at it from an assessment perspective and multiple different perspectives. So we've got a strong pipeline there, and we hope to continue to close more clients over the coming quarters.

[Kevin Steinke, analyst]

Okay. And then, Mark, I wanted to ask about the G&A. You finished the full year 2023 right around 15% of revenue, G&A as a percent of revenue, although it spiked up to around about 17% in the fourth quarter. Do you think that -- I think you mentioned G&A growing about 5% in 2024. Do you think that roughly 15% of revenue is still the right target to think about as we look to the rest or the full year 2024.

[Mark Harris, executive]

Yes. I think it's interesting. I think 15%, 16% is absolutely the right target line to kind of be thinking about it. We'll have -- you have a global conference, right, which is something that I wanted to make sure to make in my prepared remarks because it doesn't happen every year. So I think that will be an anomaly in that year that puts a little bit of pressure on G&A side of it. You've got the amortization of the intangibles. You've got some earn-out expenses again that we mark to market in terms of how they're performing and what that math looks like. That will create some variability.

So somewhat a little bit less predictable depending on, obviously, the performance of the assets. And so I think there's just a little bit of that right now. So I would expect that to go up, obviously, after 3 to 5 years, when that starts ammorting itself off and there was no further acquisitions behind it. You'll see our G&A as a percentage of revenue kind of tail itself back down to that 12%, 13% category that we've been having back in 2021 and into 2022. But right now, that's why I wanted to make sure, especially because we had partial acquisitions this year to really give everybody a fair understanding of what that run rate is kind of going to be about next year, and that's why I wanted to give you the comments about the 5%.

[Operator]

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

[Tobey Sommer, analyst]

I was wondering if you could expand on what you're hearing from customers in which verticals are yielding the sort of most optimistic and upbeat business trends as you look into '24 and think that things could be better. I heard you comment on the geographic mix, but maybe the industry verticals. If you could elaborate there, that would be helpful.

[Krishnan Rajagopalan, executive]

Sure. Yes. So look, I think inside industrial, we continue to see continued momentum there's an intersection of industrial and technology transformation that continues to occur inside that industry. So fueling some of our growth. I think inside of that, what we call GTS, our Technology & Services group, we're seeing big tech beginning to come back. We fully expect the services side is going to lag that a bit, but big tech is coming back. In health Care and Life Sciences, biopharma is a bit down. But med devices and the rest of that sector appears poised a little bit for growth coming out of JPMorgan, there were deals that were finally announced. So that's a good sign for that industry as well. Consumer seems to be holding its own for us.

And in financial services, there's episodic hiring that we're finally seeing in the banking sector, which we really didn't see before. And we're seeing a lot of risk-based hiring that's happening across other segments inside of financial services. But overall, if we take a step back, what we continue to see volume on is CEO turnover and hiring of CEOs. So that number is a little bit higher than it has run historically for us as well.

[Tobey Sommer, analyst]

And Krishnan, what sort of lag time do you generally have and you observe in your business as you place the CEO before that individual starts providing further business to the firm by replacing their direct reports at least in part.

[Krishnan Rajagopalan, executive]

Yes, pretty quickly. I mean, I think that sort of -- call it, within a 60- to 90-day window of getting to know the company, the team and understanding what assets that they've got, we often are engaging with them on a series of projects.

[Tobey Sommer, analyst]

I'd like to ask you a couple of questions about your smaller nonexecutive search businesses on demand and consulting. Where are you? Do you think as you look into this year, in terms of the profitability ramping in those businesses? Is there sort of clear momentum? Or is there wood to chop to achieve required, I should say, to achieve the results you're looking for.

[Mark Harris, executive]

Let me try to take that one for you, Toby. So in terms of, again, Heidrick Consulting, we've always talked about trying to get to that breakeven point of $80 million in revenue and where we can kind of take that up to. And again, some of that cost, unfortunately, and the current one has the acquisition-related costs and there if you strip that out, that's precisely where we're at with the business. So our view is, again, to now try to get that into the double-digit revenue our belief is that needs to kind of come into that $150 million to $200 million type revenue range that would really allow us to achieve that. And what's going to unlock that for us is, I think, kind of 2 different angles.

One is taking the organic side of what we have today and continuing to build out with our people, adding more in places where we need to do it in Europe and Americas Latin America and certainly in Asia Pacific. The other element is some inorganic in terms of tuck-ins on the core of what we do today, and to get those to accelerate faster and probably less expensive overall is going to be an inorganic opportunity set that we'll have to take a look at to try to really drive that, so to speak, and get ourselves up to that next level as I like to call it.

On-demand talent, we still have, I think, a lot of -- a lot of work to do in Europe and getting a true European -- Continental European platform. Again, some will be organic, some will be inorganic. I think in terms of the United Kingdom, we've got a very good footing there in terms of our performance. In Americas, I think we've got a very good footing with some interesting opportunity sets. But again, that will probably be -- and we've talked about the ranges of around, call it, 10% to 12% potential EBITDA margins and on-demand talent when it gets its final scale in. We still have some work to do on the technology element of it that we want to spend money on that we think is going to benefit down the road in terms of margin expansion. So I would still see it very much in its early cycle. And once we kind of have it in terms of where our footprint needs to be and ensuring that we've got the technology footprint that covers all like we do today in search with Latitude, and I think we'll be in a really interesting position in terms of seeing where those margins kind of come out across.

[Tobey Sommer, analyst]

Last one for me. Any changes in your expectations for annual revenue per search consultants about what you think a good operating tempo is for your biggest producers.

[Mark Harris, executive]

Yes, I think -- well, as you rightly just said, it is definitely a mix. Our range is still very, very strong in the $1.8 million to $2 million revenue per consultant range. It is the perfect balance to have in terms of the workload, ability to service our clients with great satisfaction and to making sure that we have opportunity sets that we have capacity to take on and consult with. Our view is we explained when we used to be 2.3, 2.6 really drain the capacity out of the system caused a lot of stresses in terms of what we were able to achieve and also continue to take on time. And obviously, we don't think we're going to go back to the old 2018, 2019 levels or even previous to that. So it's definitely still a balance.

I would imagine and Krishnan can correct me as to now re-unlock that and maybe go more north on that range would have to be some type of development, be it a process development or a technology development or something to really unlocked up because I think at the end of the day, the process we go about is a very careful process, which, again, is not just about candidates. It's about assessment for selection. It's about going through something that's a robust human high-touch human process. that unless you can really find ways to change that. The next phase is not going to be as incremental as it was, obviously, during the pandemic, which allowed people to embrace that technology a lot more and nobody is going back to the old methodology in terms of using [indiscernible].

[Krishnan Rajagopalan, executive]

No, look, I think that number of 1.8 to 2 is about right for where we are and where the business model is right now. And if we can tech enable a little bit more, we might be able to increase that. But I think sort of we're thinking in that range right now for this year.

[Operator]

Your next question comes from the line of Marc Riddick with Sidoti.

[Marc Riddick, analyst]

Hi. Good evening, everyone. So I just wanted to add my congratulations, Krishnan, moving forward and the trails that you have in front of you and inventors you have in front of you certainly wish you the best there. I sort of wanted to shift the conversation toward the future use of cash. And maybe you could talk a little bit about maybe what you're seeing out there as far as acquisition pipeline, and I know nonexecutive search has been more of the focus, but I was wondering if you could maybe talk about maybe if there are any green shoes as to what you're seeing there availability, valuation and the link.

[Mark Harris, executive]

Thanks, Mark. I'll try to give you some context to it. In terms of our inorganic pipeline, again, always still remains very robust. We have good contacts across all of our segments, both led by our corporate development team and the general managers of each of those respective groups, and we're always in constant contact with some of our competitors or some people that are actually maybe more -- excuse me, horizontal to us or vertical to us in terms of what we're doing within those respective groups. So we believe pretty strongly when you take a look at our current free cash flows, and that's why I wanted to make that comment in the prepared remarks.

Obviously, we're going to focus on our team and what we have today and our continued build out and focus on that supplemental by the inorganic side of it when we think it makes a lot of sense. You know that we had 2 acquisitions in 2023 with Business 4.0 and Atreus. So if we see and continue to see those types of opportunities that seem to make a lot of sense. And both of those are doing absolutely really well for us, so to speak. Everything we would have expected and then some in terms of their performance has been great. Their integration into our culture has been very strong. That's the kind of stuff we look for when we look at these.

And I would say that our pipeline is showing there's still more that can be done. But you obviously need a willing buyer and a willing seller to come to a mutual agreement. And sometimes depending on what's going on in the market, that can be a little bit tougher. But it's not due to a lack of understanding of what's out there knowing what's out there, so to speak. I think we've got a very good handle on it.

[Marc Riddick, analyst]

And then I was sort of curious as it might be a little early for this. So wondering if you're getting a sense of -- as far as client activity and expectations, are you getting a sense that there will be maybe a pickup in face-to-face relationship work, and we'll see a pickup in travel and sort of getting out there to see folks? Or do you get the sense that the clients and prospects are not necessarily ready for them, you're expecting a similar sort of cadence as to sort of how their activity comes about.

[Krishnan Rajagopalan, executive]

Marc, I think we're definitely seeing a pickup on it in a very strategic manner. I think that searches are only getting closed where people meet each other. So it's just sort of like however you dissect this process. And I think what Mark said and how we're thinking about it is right. The early parts of this process can be pretty much done by Zoom. And then there are other parts of these processes that don't quite work so well like that. I mean, consulting is another thing we do, where you need to be in person often to be able to do some things, particularly senior level assessments, et cetera, work culture workshops. So yes, I think we are definitely seeing more of that. And I think we're trying to be prudent in how we think about G&A and how to budget for that in that context.

[Marc Riddick, analyst]

And then last one for me, and I know this might be a little early green-shootish, but I'll ask anyway. It seems as though we're seeing a little bit more of a pickup in global M&A activity generally at the beginning of this year, we've certainly seen a couple of larger ones. I was wondering if you could talk a little bit about maybe if you're getting a sense that that's maybe accelerating some conversations or if you if you're seeing anything on your end that makes you think that that's starting to shake some trees out at this point?

[Mark Harris, executive]

From our clients' point of view or from our point of view?

[Marc Riddick, analyst]

Your clients point of view, yes.

[Krishnan Rajagopalan, executive]

Yes. Look, I think that if I just use JPMorgan and Davos has just 2 examples, there's far more conversations about engaging in those conversations and looking at assets globally and thinking about that. So I definitely think that there's an eagerness to do that, whether the valuations and the market support that or not, there's -- people clearly are leaning into that subject is what I would say. Our clients are.

[Operator]

There are no further questions at this time. I will turn the call to Krishnan for closing remarks.

[Krishnan Rajagopalan, executive]

Thank you all for joining us today. We appreciate your ongoing support. Look, as I mentioned earlier, look, it has been a true privilege to lead Heidrick & Struggles. And I want to say a huge thank you to our employees and all our investors as well. I want you to know you're in great hands going forward. Tom and Mark will be leading the next call, and they look forward to engaging with you as well. Thank you very much.

[Operator]

This concludes today's conference call. We thank you for joining. You may now disconnect your lines.