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Heidrick & Struggles’ Executive Compensation No Longer an Operating Expense

Earnings quality under scrutiny as the headhunting firm switches to a new preferred profit metric that excludes what are obviously recurring operating expenses.

March 21, 2024

Heidrick & Struggles International, Inc. (HSII), a provider of executive search, consulting, and on-demand talent services to businesses, no longer wants investors to judge it based on operating income. In 2023, Heidrick & Struggles changed its preferred profit metric from Operating Income to Adjusted EBITDA, which is full of add-backs that inflate the company’s adjusted earnings.

The change inflates the company’s adjusted profit by $85.9 million over the last three years, and added:

—$50.2 million, or 66.69% to adjusted profit in 2023
—$8.6 million, or 7.67% to adjusted profit in 2022
—$30.7 million, or 31.26 to adjusted profit in 2021

The new measure adds back what are clearly recurring operating costs.

Though Heidrick & Struggles is a serial acquirer, it no longer believes earnouts and acquisition contingencies should count against earnings. The company has recorded earnout and acquisition expense in each of the last three years. In 2023, these add backs inflated the company’s adjusted profit by $13.4 million, or 17.89%.

Likewise, while Heidrick & Struggles’ deferred compensation plan has been available to Executives and Board Directors the last 18-years (2006), the company believes excluding this expense:

“...more appropriately reflect its core operations.”

In 2023, Heidrick & Struggles added back $6.1 million in deferred compensation expense, inflating adjusted earnings 8.13%.

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