Heidrick & Struggles International Inc (HSII) 2021 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Heidrick & Struggles Q2 2021 Earnings Conference Call. (Operator Instructions) I would now like to hand the conference over to your speaker today, Suzanne Rosenberg. Thank you. Please go ahead.

Good afternoon, everyone, and thank you for participating in Heidrick & Struggles 2021 Second Quarter Conference Call. Joining me on today's call is our President and CEO, Krishnan Rajagopalan; and Chief Financial Officer, Mark Harris. We have posted our second quarter slides on the IR home page of our website at heidrick.com, and we encourage you to view them for additional context, but we won't be referring to specific page numbers during our opening remarks.

In our materials, we refer to non-GAAP financial measures that we believe provide additional insight into our underlying results. A reconciliation between GAAP and non-GAAP financial measures can be found in the release. Also, in our remarks, we will be making forward-looking statements and ask that you please refer to the safe harbor language contained in our news release.

With that, Krishnan, I'll now turn the call over to you.

Thank you, Suzanne. Good afternoon, everyone, and thank you for taking the time to join our call today. As you can see from our press release, our second quarter closed out a very strong first half of the year for Heidrick. While we performed exceptionally well, and we see a number of positive market trends underway, I think it's important to note that many of our clients and communities around the world continue to navigate through the pandemic. We remain vigilant and are closely monitoring the situation globally as we advise our clients through the difficult challenges they face and also help them prepare for the new opportunities in a post-pandemic world.

Turning to our results. Building on the strong momentum of our record first quarter, our recovery accelerated into the second quarter with another outstanding performance. Once again, our results exceeded our expectations, and our team delivered robust growth, both sequentially and year-over-year. In addition, we're ahead of our pre-pandemic performance levels in terms of both revenue growth and profitability.

For the second quarter, record net revenue increased 79% year-over-year and 34% sequentially. Newly acquired BTG, which operates in the high-growth On-Demand Talent segment of the market, exceeded our revenue growth expectations. Profitability also reached all-time highs with our adjusted EBITDA margin expanding 590 basis points from the first quarter of this year to 14.4%, and adjusted EPS of $1.14 more than tripled from last year and increased more than 30% sequentially.

While a portion of the strong performance can be attributed to some pent-up demand still working its way through the system, at this stage, the outperformance is really the result of a confluence of larger forces, including a seismic change in how we work, driven by people working differently and new skill sets that are required to be successful. Companies must be agile, adaptive and fluid. Through our executive search, consulting and on-demand capabilities, we are helping clients solve for these complex issues while addressing major trends accelerated by society and the pandemic, including diversity, equity and inclusion, digital transformation, ESG and others. The result is more projects with more clients that have greater sustainability and a more diverse revenue stream.

We also continue to benefit from changes we've made in the way we operate and our strong positioning in the market developed over the past several years. Through our own digital transformation, we are executing searches at a faster pace and delivering new solutions virtually. Additionally, tech enabling our business has accelerated productivity. When we look back at our peak productivity levels in 2018, we reached $1.9 million per consultant. Then as one would expect, this dropped during the pandemic to $1.6 million per consultant in 2020. Balancing our historical trends with our current rate, we see this rate returning on average to annual levels of around $2 million per consultant.

In our Heidrick Consulting business, we have expanded our role with clients as leadership advisers and are focused on the client journeys where we believe we can have the most impact. And recently, we added On-Demand Talent capabilities through our acquisition of BTG. These businesses, together with our firm's IP, technology and global data and insights, have enhanced our platform and our approach, creating a stickiness with our clients that we haven't previously had.

Turning to our recently completed acquisition of BTG. We're extremely pleased with the second quarter performance as revenue growth exceeded our expectations. These results demonstrated accelerated client interest in high-end On-Demand Talent as companies seek fast and flexible support for a variety of business needs, including corporate growth initiatives, change management, interim executives and project consulting. BTG catapults our firm into the high-growth on-demand segment of the talent market and also allows us to bring our clients a new solution that strongly complements our portfolio of leadership advisory and talent services and builds off of an exclusive 2.5-year partnership we had with BTG prior to acquiring them.

As a reminder, BTG's talent pool includes a broad range of highly skilled, independent professionals who bring deep expertise across industries and functions and are pursuing independent project work largely to increase their professional control over what they work on and who they work with. While the business was already benefiting from the need for organizations to be agile, there is no doubt that COVID and new ways of working have greatly accelerated the business needs that BTG can address. Demand continues to grow, and already in the last few months, we have raised the visibility of on-demand services by engaging with the C-suite.

With the integration of our go-to-market approach for executive search, consulting and on-demand, we continue to drive productivity and collaboration across our businesses with over 40% of Heidrick Consulting's revenue driven by executive search. We've seen great collaboration and innovation coming from our teams, including terrific cross-border work, leadership assessments with a focus on future-ready leadership assignments and development needs, the optimization of leadership pipelines, culture resets as companies reenergize their workforces and align around the future of work, and returning to work and how a hybrid model impacts culture among many other client projects. We also continue to position ourselves as thought leaders in the market by publishing important IP, including our recently issued Board Monitor reports and our piece on aligning culture with the bottom line: how companies can accelerate their progress.

As the war for talent continues and the demand for our services around the globe grows, our firm is thoughtfully augmenting our team to address many human capital growth opportunities we now see emerging. Importantly, we are extremely well positioned as we go to market as one Heidrick, bringing the best portfolio of solutions to help our clients solve their most complex talent, leadership and culture issues.

As I mentioned at the beginning of my remarks, a larger set of themes and trends are taking hold and evolving across multiple industries, further driving our momentum and likely resulting in the elongated future cycles. These themes include leadership teams in crisis, acceleration at the top, significant PE growth, increased M&A activity, digital transformation, major organization and culture shifts driven by the future of work, and a renewed focus and urgency on DE&I and ESG.

Drilling down on a couple of these themes. In terms of our integrated DE&I service offering, which we launched in April of last year, we're applying an exciting and truly differentiated approach through what we call the ABCs of DE&I. A is for accelerating the impact on results of DE&I. B is for building the diverse leadership teams and their talent pipelines, and C is for creating inclusive leadership behaviors and workplace cultures. Our approach to DE&I is resonating with our clients.

On the build side, halfway into the year, our overall U.S. diverse placements were tracking at 52%. We also continue to focus on accelerating diverse representation at the board levels, and we've seen a significant increase in diversity placements there as well. Again, at the midyear mark, 73% of our Board placements in the U.S. were diverse, and that figure was 66% globally.

Also, our DE&I advisory pipeline is strong with many clients focusing on the culture side, developing inclusive cultures and leaders, and accelerating the impact on results. We expect this trend to continue and even accelerate as organizations recognize that culture is the key to attracting and retaining talent. As many companies have started returning to work post COVID, there is also an additional impetus.

In terms of ESG, we see emerging demand from companies who are concerned about these issues and their stakeholders and are ready to take action. This has translated into a sharp increase in the number of Chief Sustainability Officer assignments. We're also seeing a growing interest in boards wanting to better understand the landscape and their own companies' positioning. In the private equity VC world, we see significant activity at the investment, professional and at the portfolio company level where we are winning multiple searches with these clients and establishing deeper relationships. From a VC and disruptive innovator's perspective, functional tech and product talent remains in high demand, especially from a diversity perspective.

Our second quarter and year-to-date results are reflective of these trends, and as Mark will take us through in a moment, our guidance implies continued strong performance going forward. On a global basis, the pandemic and geopolitical events remain fluid, but we're increasingly confident in our own visibility into the positive movements we're seeing, and the post-pandemic opportunities play directly into Heidrick's strength and positioning.

Importantly, we're helping our clients focus on priorities coming out of the pandemic. In Executive Search, we are placing top talent to address new needs and urgencies with a focus on increasing visible representation and diversity. In Heidrick Consulting, we're advising companies under adaptation to new and upcoming challenges as leaders think about workplace culture and inclusion in bringing employees back to work, utilizing hybrid office models. And in BTG, we are filling on-demand needs in an agile way and providing an alternative solution that resonates with our clients.

As always, we remain focused on solving our clients' most critical problems and working at the top of organizations where Heidrick's brand sits today. Beyond tech enabling our current portfolio and further enhancing our platform to capture even more future growth opportunities, we are making specific investments in our capabilities to bring our IP, analytics and data to our clients and creating solutions that leverage technology and will enable us to deliver and deepen the impact of our client offerings.

In summary, the Heidrick story is one of growth and innovation, and we see multiple paths to continue our transformation. To this end, we remain focused on executing on our 3 growth initiatives, which include: first, growing the scale and impact of both search and consulting, delivering a premium service experience and the Heidrick Way to clients; second, expanding the development of leadership solutions and capabilities to address new and ongoing client imperatives such as on-demand talent; and third, investing in new product development and strategic expansion into adjacent and complementary areas with innovative, tech-driven offerings to drive the future growth and shareholder value.

In closing, we are in an excellent position with an innovative strategy and the best team to help our clients deliver performance. I want to thank all of our employees around the world for the great work they're doing and for the important contributions they make each and every day towards advancing our clients' agendas.

Now I'll turn the call over to Mark to walk us through Heidrick's very strong quarterly performance and our third quarter outlook. Mark?

Thank you, Krishnan, and good afternoon, everyone. Thank you for joining our call today. The continued hard work of the Heidrick & Struggles allowed us to continue to deliver record results in the second quarter, putting our first half EPS on a record pace for the full year. As Krishnan mentioned, net revenue in the second quarter was marked by strong double-digit improvements, both sequentially and year-over-year, driven by each of our businesses, all practices in each region. This growth, coupled with strong management of the P&L, resulted in all-time high levels of profitability.

Before I begin my review on the second quarter, I'd like to point out some changes in our reporting format that we think you'll find helpful. First, you'll notice we established a new reporting segment called On-Demand Talent to reflect the acquisition of BTG in the quarter. Related to BTG, we added a cost of service line item on the consolidated P&L. The line item includes both third-party contract costs primarily related to BTG's independent talent; and to a much lesser extent, it also includes third-party cost of services for some of Heidrick Consulting's engagement delivery, which were previously included in general and administrative expenses.

With that, today, my remarks will focus more on the sequential trends as I believe these are the most meaningful comparisons in the previous year's performance. Last year's second quarter was clearly impacted by the global pandemic; and while we recognize that many clients and communities around the world continue to struggle, we see overall demand of our services continuing to grow as we advise our clients on the new challenges in a post-pandemic world. We're very pleased with the current market trends, yet we remain vigilant of potential disruptions from the pandemic and continue to closely monitor the situation.

Now let me provide you with some details of our historic second quarter results. I'm pleased to announce that we crossed over $200 million in net revenue for the first time in a quarter and had a record net revenue of $260 million in the second quarter, which was 78.6% above last year's second quarter and 34.2% above the $193.7 million we reported in the first quarter of this year, which also was a record quarter of its own. Clearly, this is much stronger than we expected when we publicly commented on our last call, and coupled with the demand momentum we've seen thus far in July, we're encouraged about the third quarter, which is reflected in our guidance. I will comment more on this later in my prepared remarks.

Looking at Executive Search. Net revenue was $224.1 million, up $44.5 million or 24.8% compared to $179.6 million in the last quarter. Looking at our performance sequentially, we experienced growth in all regions with the Americas up 26.5%; Europe increasing 19.3%; and Asia Pacific, we saw growth of 25%. This growth is reflected in our company's new confirmation record, which increased 6.2% to nearly 1,700 confirmations compared to the prior record of approximately 1,600 confirmations we achieved in the first quarter of this year. In addition to the higher number of engagements we closed in the period, the better-than-expected strength was also driven by the higher value of these searches.

When we look at adjusted operating margin by Executive Search segments, there is some noise in the second quarter numbers due to catch-up adjustments in consultant bonus, deferred compensation movements and strategic hires. Therefore, I think it's more helpful and relevant to look beyond the quarter to the year-to-date numbers as the 6-month period better reflects our achievement. When you compare adjusted operating margin from the first half of 2021 to the first half of 2020, you will see 80 basis points decrease in the Americas, 310 basis points improvement in Europe and a 580 basis points improvement in Asia. However, when you back out mark-to-market adjustments and investments from both numbers in their respective periods, we see improvements of 570 basis points, 790 basis points and over 1,000 basis points in Americas, Europe and Asia, respectively, or 700 basis points overall in Executive Search. In short, we're very pleased with our margin improvements, and given the continued market performance, we expect to continue to invest in our teams accordingly.

Turning to Heidrick Consulting. Net revenue was $17.1 million in the second quarter of 2021, which was up $3.1 million compared to the $14 million last quarter, an increase of 22%. This was driven by outstanding execution of our backlog and new client engagements. In fact, we saw a 74% increase in confirmations from $12.9 million in Q1 2021 to $22.4 million in Q2 2021 while also increasing our backlog at the end of the second quarter by 14% compared to the first quarter. All of this helps to drive our performance expectations for the third quarter, which is embedded in our revenue guidance.

As you see in our income statement, we added our new segment, On-Demand Talent, with net revenue in the second quarter of $18.7 million. This performance was an outstanding achievement with revenue growth up just over 50% from a year ago, and this is also much stronger than expected based on our investment models. As Krishnan mentioned, we continue to raise the visibility and grow the demand in the On-Demand Talent segment, an important part of our growth strategy. Further, revenue generated from the Heidrick channel continues to show strong performance with growth year-over-year.

Turning to expenses. We saw salary and benefits increase with fixed compensation increasing by $6.1 million in the quarter, primarily driven by increases in hiring costs, separation costs and deferred compensation plans. Variable compensation increased by $38.6 million primarily due to the record revenue performance in the quarter. Irrespective, salaries and benefits as a percentage of revenue decreased to 71.6% compared to 73% in the first quarter of 2021.

Looking at general and administrative expenses. We were essentially flat for the first quarter at $27.4 million, primarily due to office occupancy savings, lower levels of professional services and bad debt, partially offset by increases in first-time intangible amortizations associated with the acquisition of BTG, information technology and travel and entertainment. As a percentage of net revenue, general and administrative expenses were 10.5% compared to 14.1% in the first quarter of 2021, a 360 basis points improvement. While we're very pleased to see G&A move down to under 11%, our annual expectation is for an increase in the second half of the year as we expect travel, occupancy and other costs to normalize a bit below historical levels. With that, I would imagine G&A as a percentage of revenue would be closer to 12% to 13%.

As anticipated and disclosed in our first quarter conference call, we recorded a restructuring charge of $3.2 million in the second quarter due to our real estate strategy. This charge is accounting related due to the specific timing of office closings. Moving forward, we do expect additional restructuring charges pertaining to real estate in the third quarter of approximately $1 million to $2 million with very limited spillover in the fourth quarter and beyond.

Excluding the restructuring charge, we're pleased to report that adjusted operating income in the second quarter of 2021 was $31.9 million, a 35.9% increase from the $23.5 million we had in the first quarter of 2021. While we only saw adjusted operating margins improve approximately 20 basis points between the second and the first quarters of 2021, it's important to note that only the second quarter includes the new on-demand margins. When removing on-demand, adjusted operating margin improved 110 basis points to 13.2% from the 12.1% we saw in the first quarter of 2021.

This all translated to adjusted EBITDA of $37.6 million, a 30% increase over the first quarter; and adjusted EBITDA margin of 14.4%. Our first half EBITDA is now $66.5 million in 2021 compared to $36.1 million in 2020 or an increase of 84%. Our margins also improved 330 basis points to 14.7% in the first half of 2021.

Our adjusted net income in the second quarter of 2021 of $22.9 million increased 31.6% from the $17.4 million in the first quarter of 2021, and adjusted diluted earnings per share of $1.14 increased 32.6% from the $0.86. With the first half 2021 adjusted EPS of $2, we're on record pace to close out the year at an annual level never seen before here at Heidrick.

Given our performance in the second quarter, our Board of Directors approved, and we announced, that we will be paying a $0.15 per share dividend in August for all shareholders of record on August 6.

Now let me turn to our balance sheet where we ended the second quarter with cash and cash equivalents of $237.8 million compared to $287.8 million at June 30, 2020, when backing out the 2020 credit facility outstanding balance, an increase of 27%. This was clearly driven by our performance discussed, and we expect this trend to continue as our accounts receivable grew to $168.5 million while maintaining a strong DSO target.

Also, given the completion of our acquisition of BTG in the second quarter, our balance sheet now reflects the addition of $5.8 million for customer relationships with an 11-year amortization period; software with respect to BTG's talent database of $3.1 million amortized over 3 years; trade name of $1.7 million amortized over 3 years; and $23.8 million for the BTG earnout, which will accrete over the next 2 years as the payout becomes more estimable with regards to revenue and operating income achievements. Finally, please also note that we added $45.5 million of goodwill to our balance sheet as well for the acquisition.

With regards to our strong balance sheet, we're also pleased to announce that, earlier this month, we took advantage of favorable market conditions by renewing and extending our credit facility to July 2026. With this renewal, we expanded our credit facility to $200 million with an accordion option to increase that up to $275 million, now at the same terms as our previous credit facility. With our strong cash position and no outstanding borrowings, coupled with the new credit facility, this allows us plenty of dry powder for even further flexibility to execute our growth strategy.

Now let me turn to our third quarter outlook. Given the strong performance we're seeing in our markets and looking at our models, we believe our third quarter revenue will be in the range of $245 million to $255 million. Of course, this can change materially if we see other spikes in COVID-19, especially with the Delta variant continuing to wreak havoc, which has impacted global equity markets, how the governments choose to respond such as further lockdowns or if the governments don't take necessary steps and stimulus as well as other macro events or acute business events that are unforeseen to Heidrick at this time.

In summary, this was an outstanding quarter driven by an incredible team at Heidrick, and we anticipate we will continue on our current growth trajectory. Further, we're very pleased with how quickly Heidrick & Struggles managed through the 2020 recession, returning well past pre-pandemic levels within a very short period of time and the financial position we are in to successfully execute through the new growth cycle we're currently experiencing.

With that, we'll be happy to take your questions. Operator, over to you.

(Operator Instructions) For our first question, we have Josh Vogel from Sidoti.

I have a couple here. My first one, just given the need for talent, you discussed pent-up demand and obviously the robust activity levels of late. Are you finding this elevated war for talent that's yielding any uptick revenue or just instances where the actual comp is exceeding what the original estimates were?

Sure, Josh. It's Mark. Would you mind -- just repeat that one more time.

Yes. Sure. I was just curious if you were benefiting from any uptick in revenue where the actual comp was coming in higher than your original estimate just given how there's the elevated war for talent and pent-up demand by global companies.

Yes. So the answer is yes. What we were able to see was a couple of things. The first one is, in terms of our normal retainers, we haven't seen really any material modifications in terms of what that is as well as the mix, et cetera. So I think we've held that pretty well. The structures have held pretty well.

The uptick definitely have come in stronger than we anticipated. We have seen higher upticks in previous periods, but it was obviously a great strength. So for example, in Americas, they were up about 9%. In Europe, they were up almost 32%. In Asia Pacific, they were up almost 20%. So in terms of where we thought those would come in, I think you had kind of 2 things going on within the revenue guidance. One is, clearly, we had great confirmation trend. We've disclosed almost 1,700 confirmations, and that was up from the record 1,600 not more than just a quarter ago. But by holding and maintaining our discipline in terms of both structure and the components of it with the upticks kind of kicking in, that clearly helped everything else.

And Krishnan, you had a comment about executing just at a faster pace enabled by technology. I was wondering if you could quantify this. And is that maybe a new norm or given the growing use of technology in the search process? Or is it just a function of the current environment and pent-up demand?

Josh, I'm going to try to answer that for you and for everybody else on the call. In Washington, D.C., there was a fire alarm going off, and Krishnan had to run out of the building. So I'm going to do my best to be Krishnan if that's okay.

One of the things that we saw, to answer your question, is with the enablement of the technology and, let's be frank, a little bit a big push from the COVID side of it, has really allowed us to kind of reduce our days to complete by almost 25%. So without flying candidates all over the place with the implementation of Zoom interviewing with the digital assessments, which we've had for a long time but, really, I think, has forced the acceptance rate of a lot of the technology with Heidrick Connect and everything that we kind of put in place, that -- and it's hard to unscramble how much is waiting on that, but we have seen a nice drop, and I guess the question for us is, is that the new norm. We think actually it probably is. There might be some lingering for final mile to meet candidates, but it doesn't seem to be changing the new methodology, if I can call it that.

Similar with Heidrick Consulting where we've seen, again, acceptance of our digital delivery mechanism, we've seen that kind of come through. That's helped us out a bit in terms of quickly achieving, again, some revenue targets, and again, I think their accomplishment of the 17 -- over $17 million in revenue they were able to achieve this quarter is really speaking to that. So -- and BTG obviously, we'll get you some comparisons when we're allowed to have another quarter in there, and we can kind of demonstrate it. But I think, really, that is really unlocking some value for us and hopefully some differentiation, which we think is really helping us in the market.

That's helpful. And I just have a couple of quick ones around BTG and -- how should we think about the cost of service line going forward from like a quarterly run rate perspective? Is it more fixed? Is there a variable in there? How should we think about that as BTG grows?

BTG is always going to have kind of that cost of service percentage in their model, right? So unlike Executive Search or Heidrick Consulting where there's an internalization of us able to process, this is clearly going to come from independent outside consultants that are going to be engaging. So you have to figure that plus or minus around that amount of percentage of revenue is kind of going to walk out that door because we have to pay the third-party consultants to implement interim and project work.

The idea what we should have behind it is really a scale, right? As we continue to grow that element, we should be able to see that scale kind of come through. It was really nice for their first reported quarter to show more than breakeven. As I made comments about last quarter, it's always going to flirt with plus or minus on the breakeven side of it. They had a real excellent quarter. And again, the team there just does a fantastic job in managing that side of the business. So we saw, I think it was, 0.8% margin. If you figure -- as we kind of get further down the road with scale, we should be able to get that up considerably, but again, just to set expectations, we're not expecting this to be a 15%, 20% margin business. This will always kind of play in that 8%, 10%, maybe slightly above that margin business when it's finally in its steady state of growth.

That's helpful. And think that it's still a small but rapidly growing part of the business. I was just curious how much on-demand or BTG revenues into your Q3 guidance number using Q2 as a base. And just kind of like attending to that, how much visibility do you have in the BTG pipeline relative to Executive Search?

It's very similar, right? So they have a backlog. They understand the client engagements. They know what's in their pipeline and the sales strategy. They're a very well-managed business. So their number is obviously in our guidance. We don't really break that out in terms of how much is HC or on-demand or Executive Search. We all lump it up into one.

But I guess my comment would be it's not going to be too dissimilar on what you're seeing around the quarter or the first quarter, at least. And you would expect, again, as we kind of grow the business and we think about strategically, this is very much a U.S.-centric type of business right now with a little bit in Europe. But we want to, again, work with them and our channel and really open up Europe, really open up Asia Pacific and really see where we can take the growth [of business]. That's kind of where 1 plus 1 equals 3 here.

Great. And just lastly, I've seen in my notes [ahead of TG] doing about $50 million in 2020. The run rate is 50% growth based off of Q2. Is that a good number we should think about 2021?

Well, I think 50% growth is very, very high. Yes, I don't think we're going to flirt with that too much. I would say, again, when we talk about kind of high growth, we're thinking about, I guess, respective high growth. Maybe that's a nice way to say it, where we would say, look, it's certainly going to be long-term better than Executive Search. Executive Search, as you know, has been a 4% to 5% 30-year growth business, and we would obviously expect it to be significantly better than that, especially as they're kind of coming into that early stage, if you will, in terms of being plugged into our engine, et cetera.

So my overarching comment would be is I think you're going to see growth. Obviously, we think it's a very strong growth and the ability to do so, but 50% is a pretty lofty target. I don't think we can achieve that one.

And for our next question, we have Tobey Sommer from Truist Securities.

I was wondering if you could catch us up and just remind us of how many partnerships like BTG the company has entered into in recent years because it seems like you have kind of learned how to work together before coming together.

Yes. We don't obviously disclose that externally. We have partnerships. Again, if you think about it, this partnership was probably a little bit more of, Tobey, what I would kind of call a third lane or an adjacency, something very similar to what we do but in a different way. Partnerships that we also look at are what we'll call vendor-type partnerships, technology partnerships, et cetera, that really won't become part of us. It really is partnering and potential revenue share stream back and forth.

So in terms of the way that we kind of categorize our partnerships, they can kind of either land in alignment. It can land in technology. It can land in, again, processing and making us much more efficient, which, again, kind of goes into that 25% reduction in days to complete methodology. So those are the types of things that we kind of look at in terms of our partnerships, but we don't really want to go out with how many partnerships we have because we think it's just -- that's less concerning more than when we get something and we talk to you about it. And like we did with BTG, we announced the partnership. You're going to hear those -- and those ones, we will announce when we have them.

Okay. Could you talk about what remote work might mean in terms of the Executive Search business? Are you seeing search confirmations for senior C-suite people that are more flexible geographically now? And if so, if there is a client in a -- not a sort of a top city, if their C-suite could potentially work in different locations, at least primarily, what are the implications for your business?

Well, I think that's exactly right. I think the idea is it's opened up the market to a much greater population because of, what I would say, the clients in assistance, if you will, on having to be in a set place. Heidrick is probably a good example of that. You have myself in the New York Stanford area. You have Krishnan in D.C. Mike Cullen, our COO, he sits up in Boston. And we're all in different locations. Yes, we've been very -- I think we've been very effective in our working. And I think a lot of companies are more like that -- growing to that model where it is less important on where the C is located. Probably more about -- well, travel is going to be more of the topic, but we are -- and that, of course, opens up a lot more of the population where if there's lack of insistence of the person needs to move to wherever the headquarters is, it really allows you to kind of interview more candidates. And I think that's also helping us get the placements a little bit quicker because of the quality of candidates may not be actually in the cities where you're looking at your headquarters.

So we've seen that quite a bit. We're continuing to see that trend quite a bit, and I don't think that's going to slow down.

Is it also a contributor to the upticks? Because if you're able to recruit out of market, you theoretically might be recruiting from a city with a higher cost of living than where the headquarters of your client may be.

I had a similar question, and here's what it kind of -- first, on the Board work, it's kind of irrelevant. I think you agree with that. On the CEO or CFO or where we kind of look at that, it's not, I would imagine, as much of a differential as you would think, right? If you have a CEO of a Fortune 500, it's pretty much going to be on par with the CEO of Fortune 500 and unless it's really dramatic.

But for the most part, we really see that kind of space, that industry, that sect, is really going to be what you're competing against. You're competing -- again, just to use the Coke-Pepsi, right? They're both competing potentially for the same type of resource, and that's really what drives it more than where the location of that role is.

So I think that's probably less agnostic towards that end of it. Obviously, that will play a little bit of a role, especially like in London where it's very expensive, I would imagine, that would play versus somebody in Cork, Ireland. So again, we do see it a little bit, but I think overall, I don't think that's a real differential in terms of the big difference on price.

Okay. Just a couple more for me. How do you view the company's performance versus growth in the end markets that you have exposure to, to the extent you're able to either benchmark or communicate with competitors on what they're seeing?

Maybe an example, Tobey, just help me understand the question.

Are you taking share, keeping share or losing share based on your growth rates?

That's it directly. And it looks like we got Krishnan back as well. I'll try to answer it, and if Krishnan wants to jump in, he can. But in terms of market share, it's always very difficult for us to measure. As you know, there's only one other public company, and the rest is private. And some of the industry data we get is survey-based, and I don't put a lot of weight on it. Overall, based on the growth that we're seeing, based on what we can benchmark ourselves to, I definitely know we're holding our own. I highly suspect that we're doing better in terms of some market trends.

But without really -- again, I'm very specific on actually having numbers that are audible, if you will, it gets to be quite difficult. But we do see it in a lot of the other metrics that we kind of manage in terms of wins, in terms of things that we're competing against, in terms of what we know and what we're seeing out in the market. I definitely have a positive feel. Krishnan, I don't know if you want to jump in on that as well.

Sure. Apologies. It's good to see the fire emergency systems continue to work in these buildings. Look, we entered the -- we tracked this last year, and I think we held our own. We've more than held our own last year based on the information we were able to grab, and as Mark says, it's hard to see that. So we felt we had excellent positive momentum on shares, so we continue to do well. So I think we're in a good spot on it. We don't have yet the numbers, so we'll probably take 6 months or so in this business to understand that a bit more but feeling pretty good about it.

And last one for me. How are you thinking about internal headcount growth in Executive Search and Consulting going forward? Because the productivity has been surging, and I don't know whether that has continued room to run or what have you. But at the end of the day, it's still a people business. Over the long term, you got to grow those to grow the company.

Yes. Look, we're going to continue to add strategically, which is what we've done actually. We've been very strategic in our hiring, filling in gaps in geographies and practice areas, and we're going to continue to do that. So Heidrick will be doing that. It's going to -- a limited basis. It's going to be great culture fits.

And just going back to productivity. Look, that productivity number is very heavy right now, and I think, on average, if we look at it, we're going to be -- over time, I think it will annualize to -- back to the 2019, if not a little above that $2 million level. So given everything that we've done, we feel good that we can continue to drive productivity as well.

(Operator Instructions) For the next question, we have Kevin Steinke from Barrington Research.

So I wanted to just continue on the discussion about BTG a little bit and how you go about growing and scaling that business over the longer term. I know you're now able -- with that as part of your business, you're introducing it to your clients. But do you have the number of independent on-demand professionals in the network needed to meet current and long-term demand? Or do you -- how do you go about continuing to attract that independent talent to the network that you need to grow over the longer term?

Yes. Let me start with that, and Mark, if you want to add to that as well. Look, we've got a -- in BTG, we've got a fantastic asset in the talent as well. It was always at the high end, a premier destination for executive talent at that level, and we continue to grow that. And we think the relationship with Heidrick only helps that as well. So we are -- there's a process in place, and we continue to augment -- we continue to grow that. And as the market grows, that needs to grow as well, and it will.

So that isn't the limiter right now. So we're not worried about it, and we will continue to grow the asset.

Okay. Great. And are there other -- would you see this as an area for other potential acquisition opportunities, the independent On-Demand Talent space to further scale that area of the business?

Yes. Look, first, I want to say that I think BTG is doing a great job of just organic growth. So we look to BTG to continue to do that. We, number two, look to the Heidrick channel to be able to continue to augment that growth, and then, clearly, in some markets, we'll be open to look at different ways to grow that business as well. BTG is in Europe, but it's not everywhere in Europe. So there could be opportunities there. So there are many other opportunities like that, but BTG is doing a great job, and we'll be open to looking at various avenues for growth here.

Okay. And then I guess just finally on BTG, can you just talk a little bit more about the cost that you need to scale or that you need to leverage to get to those targeted margin levels over the longer term? Is it kind of a sales and marketing investment you're leveraging or some sort of back-office G&A, internal headcount? Just trying to get a sense of how you drive the scale and leverage in that business over the expense base.

Sure. I mean, again, remember that the cost of sales is always going to be that percentage, plus or minus, so that's -- you're really playing with kind of what's left over. And the answer to your question is there's always going to be minor scale in the sales leadership side of it, potentially some here and there. But this is where, again, at this level and above, we should start seeing where the margin improvement starts coming in. As you kind of, let's call it, double the business is where you would be able to see those margins really starting to kind of come true hold in terms of what we kind of discussed in the early part of the call.

So it's marginal. It's incremental. It'll be a bit of a [putt] over time. But as -- again, just for the sake of argument, for fun analytics, doubling the business, you'd expect that would move you up into the margin kind of, again, getting closer and closer to the sustainable side of it, which are kind of those margins that we were discussing. It's not going to happen overnight. That would be my comment.

Okay. No. Great. That's helpful. And Mark, you mentioned G&A getting closer to 12% to 13% of revenues. Should we think about that as kind of a longer-term target or where you think it'll trend this coming quarter? Or just any -- maybe more color around that.

Yes. I mean when I saw that [10.4%], I just wanted to make sure that people understood is that was one heck of a revenue number on the top line; and even though on a gross dollar value, we did a heck of a job even cutting into that. So with the real estate shift and the strategy we did last year as well as kind of rebalancing ourselves, et cetera, I think we've done a really good job at maintaining that at a reasonable expectation.

I think when -- the reason it'll go up, for the most part, is we would expect time and expense and meals to kind of start coming back a little bit as people travel a little bit more, hopefully, and other components, occupancy costs as well as potentially some professional services costs. Those will come back into the mix. And that's why I wanted to make sure that people understood, is don't hold me at the 10%. I mean, look, it's a heck of a lot better than last year at 19% and our peak of 25%. So I do think when we're talking about a holding in that 12%, 13% is really kind of an objective.

But as you know all too well, that is a function of revenue, too. So if this revenue maintained, we'd have no problem maintaining that. The question is, is the market really long at this level, and that's the part that I'm sure, like all of us, we're were eager to find out.

Okay. That's helpful. And then just lastly, Krishnan, I believe you mentioned in your prepared comments, you made a reference to potential for elongated future cycles, I think, related to some of the -- just the demand drivers and market drivers you're seeing. Can you maybe just expand upon what you meant by that in terms of maybe a future demand cycle being elongated or longer lasting or what you're thinking about in terms of the market you're seeing right now?

Yes. Absolutely. Look, I was talking about a lot of the thematic things that are shaping society as well and, we think, are influencing our business as opposed to simply economic cycles. So give you 2 examples. I mean if you look at DE&I, we see that as a journey that's going to continue for a while outside of purely economic cycles. If you look at what's starting to happen with ESG, sustainability side, we're going to see that continue. We are seeing digital transformation, which actually started several years ago, continue as well. So this is what I was referring to when I was talking about elongated cycles, really macro themes that are impacting and driving our business as well in a positive way that go a bit outside of the traditional GDP scenario.

There are no further questions at this time. I would like to turn the call over back to Krishnan for closing comments.

Great. Thank you, and thank you, everyone, for joining the call. Let me just close by acknowledging the great work of our team. Look, these are still somewhat uncertain times for all of us. We are encouraged by progress that we see with vaccine rollouts in some places but also recognize that it's not universally positive news yet. I think our global team has done an incredible job and remain focused on the things we can control, particularly focused on taking care of our clients. And that hard effort we've been putting in as a team to transform our business is also paying off not only for our clients but also for us in performance.

So thanks all of you for participating today and your interest in Heidrick & Struggles. Have a great week, and we look forward to catching up with you again soon. Thank you.

This concludes today's conference call. Thank you all for participating. You may now disconnect.