Heidrick & Struggles International Inc (HSII) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Heidrick & Struggles Q4 2020 Earnings Conference Call. (Operator Instructions) And without further ado, I would like to welcome your speaker for today, Ms. Suzanne Rosenberg. Ma'am, the floor is yours.

Good afternoon, everyone, and thank you for participating in Heidrick & Struggles 2020 Fourth 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 fourth 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 insights 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.

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

Suzanne, thank you. Good afternoon, everyone, and thank you for taking the time to join our call. By all accounts, 2020 was an unprecedented year, and I couldn't be more proud of our team's ability to meet the moment, demonstrate resilience and work collaboratively. It's often through challenging times that we prove what we're truly capable of, and I'm so proud of our Heidrick team.

Our ability to advise and work with clients in new and different ways has enabled us to more than hold our own in this market. We never stopped innovating. In some ways, the pandemic was an accelerant. We adapted our tools faster. We created virtual solutions and introduced brand-new offerings. In addition to our quick actions and pivots, we were able to reduce our costs while remaining committed to driving our strategic investments in diversification, innovation, data and tech enablement. Importantly, the transformation journey we embarked on several years ago positioned us very well as we entered the pandemic in early 2020. Prior investments in products and IT infrastructure, digitization of search side of our business and the build-out of hybrid consulting has led to higher value-added, differentiated solutions for our clients and stickier relationships.

Together, these factors enabled us to outperform the market last year and perform better than we have historically in different recessionary periods. We ended 2020 with a very strong balance sheet, no debt and the strongest liquidity position in the firm's history. While near-term visibility remains more limited than normal, we began 2021 on our front foot, and we will emerge from this pandemic as an even stronger firm, generating enhanced revenue growth, profitability and cash flow.

Turning to today. The world is still in varying levels of lockdown, but there is a light at the end of the tunnel with new vaccines being introduced and rolled out. In 2021, we will continue to transform our business, invest in new ideas and broaden our capabilities and services with new technology and data-driven offerings. We are well positioned to take advantage of market opportunities and improving demand. In many ways, the pandemic has accelerated both demand and transformation not only in how our clients' needs are evolving but also in how our firm operates.

Our clients are embracing the digital delivery of our services, and we're seeing increased demand across a wide range of areas, including health care and life sciences, industrial and global technology services. Certainly, functional work across technology, risk, compliance and finance remain strong as organizations continue to transform and reassess their business models accelerated by the pandemic.

Diversity and inclusion, or D&I, and sustainability remain important focus areas across all industry practices in the U.S. and globally. We also see continued demand for diverse talent, technology and sustainability at the Board level. In addition, an increasing number of clients are implementing our culture and inclusion solutions as they navigate the challenges of leading teams in a virtual environment. Our clients are also seeking our leadership assessment and development capabilities to better understand how to operate in a highly volatile and distributed working environment.

Client feedback has been extremely positive, and our team around the world is energized in driving collaborative projects and large-scale engagements across search and consulting. We are bringing the full power of Heidrick to our clients and effectively helping them accelerate their transformation using our integrated suite of offerings. A great example of this is with a global advertising firm that we started working with as a search client. We have since launched work with this client on inclusive leadership, and they're now expanding into culture work and culture change and helping build a future-ready top team. This is the kind of deeper, multifaceted journey we want to take with our clients.

In addition to our client work, what also stands out is the ongoing transformation of our own business as well as our resilience and the way we adapted our business in a rapidly changing market. First, we continue to deliver a premium experience to our clients. We've seamlessly pivoted to virtual offerings and the way we advise our clients, as evidenced by the convening of more than 3,000 leaders in virtual sessions since March of 2020. Despite the pandemic, we confirmed over 4,500 assignments in search, which is only 6% lower than the previous year and demonstrates our strong capability to deliver work virtually. We're leveraging our proprietary tools, including deployment of our Infinity Framework on more than 14,000 candidates, and we're executing 100% of our engagements on Heidrick Connect globally.

Second, we've created and delivered new offerings. Last year, we launched our global D&I practice, which goes beyond just hiring diverse leaders, focusing on creating inclusive leaders, cultures and organizations to help companies accelerate their business performance. We're uniquely positioned in the market as our dedicated practice brings our search capabilities that help companies attract and hire diverse leaders together with our consulting experience to help organizations develop and retain diverse talent and create inclusive workplace cultures.

Using our ABC methodology, we are gaining traction and helping our clients move the needle on D&I. Building diversity is a large part of many engagements. Today, in the Americas, over 40% of our placements are diverse, and that number increases to approximately 60% at the Board of Director level. We continue to innovate in the future of leadership assessment with our proprietary tools, including our Agile Leader Potential tool, our CEO success profile tool and our new Culture Signature assessment tool, which provides expanded insights on culture impact. We have generated more than 100 pieces of thought leadership across search and Heidrick Consulting, including written content, videos and podcasts.

And third, we've enhanced the way we operate. For example, firm-wide collaboration continues to improve, such that approximately 50% of Heidrick Consulting revenue now comes from search introductions. We've expanded our global strategic accounts program in Executive Search and Heidrick Consulting. We are leveraging our IP to create significant opportunities that are helping us drive a robust new business pipeline and grow our scale in target markets. With new data capabilities, including a new analytics warehouse, we are delivering enhanced dashboards and insights. And we're implementing new ways of working with the optimization of our global real estate footprint and the introduction of our flexible workspace philosophy. These are just some of the ways we are driving our performance and transformation.

While near-term economic visibility remains limited, we are committed to capturing additional market share by going to market as one firm with an integrated value proposition. To that end, we have developed a clear, executable strategy that allow us to propel our business forward in 2021 and beyond. More specifically, this involves broadening our capabilities and service offerings across search and consulting while moving into adjacent and complementary areas with an increasingly tech-driven approach. We see technology as the underpinning for our expanded service offerings, allowing us to deliver our solutions in a more rapid, automated and scalable way. Some of our new tech-enabled services and tools are already being embedded across our firm. And in the coming quarters, we plan to make additional investments in both our technology solutions and new service offerings.

As we think about the strategic capabilities we're developing, our focus is on leveraging our premium brand and our trusted relations at the top of organizations we work with, to deepen and broaden our client relationships, advise our clients on their most pressing executive-level issues and agendas, and partner with them on their current and future talent development needs going well beyond talent acquisition.

To meet these objectives, we recently evolved our leadership structure for the future to address large-scale opportunities, including the transformation of our global go-to-market strategy and the augmentation of our technology capabilities. Through the lens of this new structure, we have onboarded the right talent to allow us to deliver on our 3 growth initiatives, which include: number one, grow scale and impact of both search and consulting, delivering a premium service experience and the Heidrick way to clients; number two, expand development of leadership solutions and capabilities to address new and ongoing client imperatives; and number three, invest in new product development and strategic expansion into adjacent and complementary areas with innovative tech-driven offerings to drive future growth and shareholder value.

In addition to driving these growth initiatives, our evolved leadership structure will further centralize our business operations to gain key efficiencies, drive synergies and strengthen our people management capabilities. It will also enable us to drive consistency across our practices and business lines, further differentiate ourselves in the marketplace, deepen client relationships and accelerate revenue growth as we provide our clients with a full suite of premium services and offerings.

In summary, I again would like to express my appreciation to our team for their remarkable efforts during an extraordinary year for which no one had a playbook. While the near-term macro environment remains more uncertain than normal, we are excited about 2021 and the opportunities we have ahead of us to drive our performance and transformation. We will also continue to develop our people and our culture with a sharpened lens on diversity and inclusion and provide robust, meaningful opportunities to help all our colleagues to grow and thrive at the firm.

Now let me turn the call over to Mark to elaborate on the quarter.

Thank you, Krishnan, and good afternoon, everyone. Thank you for joining our call today. Let me begin by extending my gratitude to our team around the world for the tremendous performance we achieved last year. Despite the extremely difficult market conditions we faced in 2020, our performance allowed us to end the year on solid ground with a very good balance sheet with over $500 million of liquidity, no debt and continued excellent net cash inflows with nearly $100 million increase in cash in Q4 alone. This sets the foundation for us to execute our strategy in 2021 as we continue to build new product capabilities to address client imperatives and expand and enhance the way we serve the executive space.

Turning to our fourth quarter results. As we have done since the second quarter of 2020, I will focus more on sequential trends as these are more meaningful than the year-over-year results given the ongoing pandemic. Overall, business trends improved sharply from the third quarter trough. Fourth quarter net revenue increased 12.2% from the third quarter of 2020 to $161 million, which exceeded our guidance range. Executive Search net revenue was $146.3 million, up 13.2% sequentially, and Heidrick Consulting revenue was $14.7 million, up 2.6%. It also bears pointing out that Heidrick Consulting revenue annually was only down 7% from 2019, which shows great resilience during the economic downturn as we quickly pivoted from providing our services in traditional physical settings to seamless virtual offerings.

In Executive Search, we saw Americas leading the way with revenue up 20.5% and Europe revenue up 11.2%, but Asia Pacific revenue declined 12.4%. While economic uncertainty continues across the markets we serve, we are seeing a clear upward trend in the Americas and Europe. Specifically in Europe, we're seeing some improvements in Denmark, Belgium, France and Italy, although we did see some softening in the U.K., Switzerland and Germany due to the restoration of lockdowns. And in Asia Pacific, China, Hong Kong and Korea are showing positive trends, but overall, the region is still a bit soft, particularly in Australia, India and Japan.

Heidrick Consulting ended the year on a high note, demonstrated by increased demand for talent assessment, our proprietary D&I methodology and digital delivery of our services across multiple leadership advisory solutions, resulting in larger engagements with our top clients. We enter 2021 with a strong pipeline of new business, and we look forward to building on this momentum and gaining scale in 2021.

On the cost side, we saw salary benefits increase 16.3% from the third quarter of 2020. Variable compensation increased $15.4 million sequentially due to the stronger revenue performance in the quarter, and fixed compensation increased $1.5 million sequentially primarily due to stock compensation, our deferred compensation plans and retirement and benefits, partially offset by decreases in salaries and payroll taxes post restructuring.

General and administrative expenses decreased $2.4 million or 7.9% sequentially to $27.4 million or 17% as a percentage of revenue, down 370 basis points sequentially compared to the 20.7 percentage of revenue in the third quarter of 2020. Savings were primarily driven by office occupancy and professional fees, partially offset by increases in bad debt and the use of external third-party consultants. Moving forward, we will maintain a close watch on the marketplace, continue to optimize our footprint and implement our real estate strategy. We expect continued savings in G&A and believe we have the opportunity to further decrease these costs primarily through lease renewals and rightsizing offices where it makes sense. This aligns with our long-term goal to drive G&A to below 18% of our revenue more consistently.

As you may recall, during the third quarter, we implemented a restructuring plan to optimize future growth to improve profitability. In connection with this plan and as anticipated, we recorded a restructuring charge in the fourth quarter of $4.3 million primarily related to the real estate strategy. Moving forward, we do expect additional restructuring charges pertaining to the real estate in both the first and second quarters of approximately $4 million to $5 million each quarter. These charges are accounting related due to specific timing of office closings. Notably, we've completed the first phase of our optimization with a 20% reduction in our current real estate footprint. We will continue with our real estate strategy, which consists of 3 objectives: first, match the footprint to the new expected normal; second, create an open, collaborative environment, including unassigned workspaces to facilitate working from anywhere; and third, reduce our carbon footprint as part of our long-term sustainability goals.

Removing the impact of the restructuring charge I just discussed, adjusting operating income in the fourth quarter was $12.8 million or 29.5% increase from the $9.9 million in the third quarter of 2020. Adjusting operating margin was 7.9% versus 6.9% sequentially, 100 basis points improvement. This corresponded to adjusted EBITDA of $18.4 million and adjusted EBITDA margin of 11.4%, which was 40 basis points sequentially up from the third quarter and reflect strong performance given the pandemic-related headwinds. Our adjusted net income in the fourth quarter was $11.6 million compared to $7.7 million sequentially, and our adjusted diluted earnings per share was $0.59 versus $0.39 sequentially, nearly 4x our dividend.

Now let me add some color in terms of our tax rates given the complexities around goodwill and restructuring deductibility. Our tax in the fourth quarter of 2020 was 28.7% before restructuring charges, which is a more normalized rate for the quarter. In 2021, with our current footprint and current tax rates, we expect our effective tax rate to remain in the mid-30s, which is consistent with the annual 2020 tax rate of 34.7% achieved before goodwill and restructuring charges.

Before turning to our balance sheet, I now want to touch briefly on our annual performance. Though the pandemic impacted growth around the world in 2020 and presented a different type of recession than we had historically experienced, when we look at our peak-to-trough performance with Q1 largely unaffected, it only took 2 quarters to reach the bottom before we started improving in the fourth quarter and we ended the year relatively strong with the full year revenue only down 12.1%. Even with the macroeconomic headwinds, we also generated 11.4% adjusted EBITDA margin. While near-term visibility remains a bit uncertain, we do project a continued upward trajectory from here.

Turning to our balance sheet. We ended 2020 with cash and marketable securities of $336.5 million compared to $332.9 million at the end of 2019, which is an incredible accomplishment to end the year with more liquidity than we started during a pre-pandemic period. In the fourth quarter alone, we increased our cash and marketable securities position by $98.9 million. Please remember our cash position builds up through the year as we accrue for bonuses. In January, we paid $19.9 million in compensation related to the portion of consultant bonuses that were deferred prior to 2020. And in March of this year, we'll pay out approximately $180 million of variable compensation related to last year's performance. Even with these payments, we'll have liquidity over $300 million, which demonstrates outstanding balance sheet strength and positions Heidrick incredibly well to explore opportunities in search, consulting and potentially new areas outside of our core services but aligned to our premier human capital services strategy.

Last, let me turn to the first quarter outlook. Given the performance we're seeing in our markets and looking at our models, we believe our first quarter revenue will be in the range of $160 million to $170 million. Of course, this can also change materially if we see other spikes in COVID-19 or variants of the virus within countries we operate in and how those respective governments choose to respond or if governments do not take necessary steps in stimulus as well as other macro events or acute business events that are unforeseen to Heidrick at this time.

In summary, our fourth quarter performance continues to reflect the impact of the pandemic but clearly demonstrates the resilience of our team during challenging conditions. We remain focused on strong execution, long-term planning, partnering with our clients, and creating long-term shareholder value.

With that, we'd be glad to take your questions. Operator, over to you.

(Operator Instructions) Our first question comes from the line of Josh Vogel from Sidoti.

Pretty impressive to see how the business held up throughout 2020. Looking forward to seeing what '21 has in store. I'm looking at SG&A. And Mark, you had a comment around driving the business towards sub-18%. Can you give a little bit more timing when we think about 2021? Can we set this year -- if we take out the planned $4 million to $5 million in restructurings in Q1 and Q2. We understand that the base of expenses will come back, including some T&E, but how should we think about a good level of SG&A spend this year?

Sure, Josh, and thanks for the compliment. The -- so the G&A side of it, obviously, when we think about 18% or sub-18%, we're more or less focused on kind of that constant revenue that we had prior to the pandemic, so really, that $700 million revenue level. $707 million, I think we had in '19. $716 million, we had in the year before, 2019 -- or 2018, excuse me. And that's really where we kind of see it. If you remember, when you go back to those years, we were in the 19-plus percent as a percentage of revenue for G&A. So going sub-18% is really, we're going to see the real estate savings coming through. We would expect travel to come back when I kind of give those guided numbers. But what you probably won't see is travel coming back to what it was either.

So what we've built in, the best that we could with our model, is again some coming back, some not and -- some of the international travel being there, some not. And we probably won't see what I would say the new normal, which will still, I would imagine, be a fraction of what it was. Back in 2022 would be my best guess when we really think the economies and everything will kind of bring itself back into form. At that point, we would expect again, based on our strategy, to have the revenue increase that would still be able to leverage that to -- at that 18% or sub-18% category.

I appreciate the insights there. And it's good to see the consulting business hold up and -- especially as you pivoted and had seen success in a virtual remote environment. Given the spending cuts and leaner cost structure in general, has that moved the goalpost in with regard to a revenue level or target we think consulting needs to get to, to be breakeven?

In my view, it would still very much hold constant. Even though we are doing it through an automated delivery service, the part that still doesn't go away is the human element and the amount of people power that we need to drive successful initiatives with our clients. So there'll be some savings, so to speak. But I would still imagine in terms of the ramp-up and the scale, it's still going to be in that $80 million to $85 million, plus or minus $1 million, of revenue where we see the breakeven point and then obviously grabbing the scale from there. So I don't think you're going to see a tremendous shift. I don't think it's become auto bot in terms of delivery. That's not what we mean by that. What we mean by that is we still have the same amount of people power delivering those service just through an automated means, not fully automated in and of itself.

I got you. And just a couple of quick ones around Executive Search consultants being down about 20 year-over-year. I'm just curious, after we account for promotions, just a general sense if this is typical attrition you see during unprecedented global events. Is there anything else there that drove the year decline?

Yes. I mean the decline is primarily attrition here, Josh. The decline, if that's your question, was really driven by the restructuring and the cost takeouts that we did. Our attrition has been at a really low level. And in the beginning of this year, we've now promoted 17 new consultants into the ranks. We've got our partner promotion process underway right now. And in strategic areas, we continue to hire. In fact, I think just from the beginning of this year, we've onboarded already 6 new consultants. So we're optimistic on those fronts. So that number reflected December 31 and where we were, and we continue to look ahead positively into the market.

That's great. And you answered my next and last question. But productivity has historically run around $1.8 million to $1.9 million. Today, you're at $1.5 million. You just had some promotions and some hiring. But do you still think -- is that still a target of $1.8 million to $1.9 million for consultant productivity?

Yes. It's Krishnan. And Mark, you can augment this. Yes, look, I think that our aspiration is to get back to about that $1.8 million level. I think that our expansion into some geographies and places where that's going to be a bit more challenging, we'll dampen that a bit, I think at least the ramp-up of it. And as -- but as people come on board to our platform and they begin to perform, we expect we can get back to those numbers.

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

To ask a margin question from sort of a different angle, what do you think the sort of new EBITDA margin level should be if this expansion is fortunate enough to have a nice multiyear expansion with revenue growth? How does this EBITDA margin kind of compare to prior cycles, do you think?

So we looked at it from prior cycles, Tobey. Fair enough question. Kind of when we're back to -- you can go back to 2012. Like we published our EBITDA margin of around 8%. So we're in the single digits during the great financial crisis. This time around, we're about 11.3%. Last quarter, we talked about being 11.4%, but on the year, 11.3%. So I think in terms of faring through, I think we've done, again, a heck of a job. Obviously, that's adjusted EBITDA margin to speak to.

I think what you're also asking is where does it go from here? Do we get back up to the 12.5%, 13% where we were in '18, '19? Obviously, we'll be able to do that. In terms of the new cost structure, we would expect again more to be added on top of that in terms of the margin expansion. And then as we start to get through our strategic initiatives, which is what the end goal is, it's to further increase that margin expansion even further. It's hard to give you scale on that right now. Obviously, we want to be a little bit cautious. We'll give you a little bit more in Q1 and Q2 as we're going through it. But you can bet that's primarily what we're really focused on, which is new initiatives, more profitability, enhanced value for our shareholders, and we think that's really going to pay off pretty well.

Our next question comes from the line of Bryan Wynn from Crédit Suisse.

It's Bryan on for Kevin. Congrats on the quarter. I appreciate all the comments here about consultant productivity. I think that certainly came in ahead of what we were looking for. So we're just sort of curious just how you guys are thinking about sort of balancing the head count additions here as we move forward post pandemic versus carrying forward kind of some of the -- everything you've learned here just in the virtual service model.

Yes. Let me take that first. And Mark, if you want to add to that, please do. Look, we're thinking about this very strategically in our hiring model. So we've got -- we've identified target geographies and expertise where we know we can grow into, okay? So we look to hiring to those spaces. And we've got our -- obviously, our normal promotion cycle as well. So between those 2 things, we're going to try to balance this thing. And as Mark said, I think really, much of the growth still will be people driven in that -- at least for search and for consulting individuals required today, we'll be more efficient at how we deliver, okay? And that's where we'll see some of the margin improvements come in as a result of that. But it's not going to necessarily be simply just on the head count side there. I don't know, Mark, if you want to add to that.

Yes. I mean I would only add that keep in mind, when we did the downsizing, we talked about that it was less than 10% of our workforce. So we, I think, strategically got the right call that we felt like the market would come back quicker than I think what others had anticipated. That was good. We're, on our productivity side, about 20% off on where our peak productivity used to be. So that means we have room for expansion based on the current cost structure that we have in place. Clearly, we're keeping a very close eye on both in terms of search and Heidrick Consulting. And as we see the market pick up, we will appropriately scale ourselves accordingly for it. So I think the discipline has been there, and we would expect to see that investment. I would expect that 2021 to be an expansion here compared to the COVID 2020 year that we just went through. But we'll obviously do it in a very disciplined way, and I think that's the big takeaway that we have room. We'll expand when we think we're going to need to, to again make sure that we balance it all out.

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

So in your prepared comments, you talked quite a bit about moving into adjacent areas, investing in new product development all through -- with a tech-enabled approach. Just wondering if you could talk a little bit more about the types of the products you're looking to build out and related to that, what sort of margin profile we should think about these products and offerings having and what sort of revenue model perhaps. Is there an opportunity for subscription-based offerings, for example?

Yes, yes. Look, let me take the first half of that question. So look, our technology investments -- and we're going to be calling that tech solutions, it's going to remain, number one, focused on solving our clients' most critical problems, which is where the Heidrick brand sits today, okay? So we have to keep that in mind. And we spent some time speaking with our clients to understand that. We recognize with a lot of the work we've done now that with our IP, the data we've begun together, the insights we're driving and kind of an emerging platform that we're forming that we can leverage that to build solutions or even products that help clients with solving many of these issues.

So there -- Kevin, the brand-new idea, I won't go into those for competitive reasons, but to give you an example of where we're investing and creating technology solutions, just in areas that we've already discussed as an example. Take D&I as an example. Take culture as an example. And we tend to work on those issues with the C-suite, okay, predominantly. And there's a whole cascading of those solutions that we can do to impact the entire organization and how do we do that and deepen the impact of those offerings across the organization. And some of those models will end up becoming subscription models as well. So I think there is an opportunity to do that. And obviously, we think that those models -- Mark can maybe talk a little bit more than I can here, will obviously be higher margin as well. So that's the intent. So that just gives you an idea of some of what we're trying, the tech, enable the solutions that we already see out there that we're working on, the appetite that, that C-suite has to want to expand and how we can help them do that.

Okay. That's helpful. Thinking about Heidrick Consulting, what sort of head count do you think you need to add to get to kind of that $80 million to $85 million where you break even? Do you have -- it sounds like you're not going to have to add it if you're driving greater productivity with the consultants that the head count is not going to have to grow commensurate with revenue, I guess. Is that a fair way to think about it?

I think that's a reasonable way to think about it in that we're trying to improve the productivity there as well primarily through focusing on larger projects, around larger clients' agendas. We call those journeys kind of trying to work on future-ready leaders, future-ready cultures and organizations and driving this D&I offering as well. It's just those being 3 large umbrellas. So I don't think that it's a one for one. We clearly do need to add capacity in there. So we're looking to do that, particularly in areas of high growth. So we will be continuing to grow the head count, but I think it's fair to think that it's not a one for one to be able to drive that.

Okay. Good. And then can you just talk a little bit more about Asia Pacific? Obviously, you talked about Americas and Europe standing out but some softness in a few countries you mentioned there. Is that just kind of market-driven or something you wanted to address internally perhaps?

No. It's -- Kevin, it's Mark. We've looked at that. We've looked at it from a market competitor mix, et cetera. And I think what's going on in Asia Pacific is there was this expectation for the most part that Asia would rebound first, and it actually did. And I think it's kind of faded out in the sense that, one, you still have some lockdowns going on in like Singapore and Hong Kong to -- India was very affected by the COVID virus and really slowed down in terms of what was going on there. And I also think you have kind of what I call the MNC slowdown. So a lot of the bigger organizations have really kind of slowed themselves down. We're seeing pretty constant trends in others in Asia Pacific. It doesn't feel like it's an idiosyncratic issue within the Heidrick. It definitely feels more systemic within Asia Pacific. And we'll continue to kind of watch how that develops.

I would imagine as things get back to what I'd call normal and using abstracts with that, I think Asia Pacific will accelerate because I think then decisions will be a little bit easier for where we target our customers and our clients in Asia Pacific. And that will maybe unlock it a bit more. But it definitely feels like a lot of our -- I use the word competitors, but a lot of businesses within Asia Pacific are experiencing the same thing that it rebounded initially quite nicely, and then it's really kind of just flattened itself out a bit in terms of getting through, and some of that can be attributed to COVID and some of it can be attributed to decisions still needing to go back to the U.S. or Europe in order to get decisions to be made in Asia Pacific unlocking its value.

(Operator Instructions) We have a follow-up question coming from Tobey Sommer from Truist.

With respect to deploying capital to further your strategy, what are you seeing in terms of valuations given sort of the snapback in equity markets and capital markets, just about every flavor?

No. That's right, Tobey. I'll try to answer it the way that I would hope to see it, and then I'd probably turn -- you can ask how it's going to be foreseen. Again, let's assume scale that we properly venture off on the right technologies and then I -- and the way that we expect our strategy to play out in those verticals. And the idea I would imagine at some point, like we talked about -- and we'll use SaaS because that was thrown out earlier in the conversation. If we have a scalable SaaS business and that's generating SaaS-type margins, I'm imagining from your side, it would be -- the valuation would expand on sum of the parts, right? That you have a SaaS business doing this. You have an Executive Search business doing that. Heidrick Consulting, again, assuming scale, et cetera, would be off to the races in terms of its growth versus other growth, et cetera.

And that's hopefully how it would all kind of come back into the valuation methodology. Clearly, we have the liquidity and the capacity to execute on our strategy. So it's not something where I feel like, again, I don't need to go out and seek leverage or insane amounts of leverage or equity offerings, nothing that would impact the shareholder in that sense because I think we do have a very strong balance sheet to be able to pivot ourselves and to do it and execute it appropriately. But the valuation would hopefully come back in both from the execution. The way that we were able to do it, that is not really increasing equity to do it. We've got the balance sheet and leverage if we so choose, and then hopefully, in and of itself, the multiples that you would expect to see on those different parts of the business in those journeys and that would come back into the stock price.

Okay. Could you comment on what you're seeing and maybe expecting in terms of not just cyclical growth as we come out of a recession and have an expansion, but maybe some potential secular drivers like retiring baby boomers -- and I fielded some investor questions about rejiggering of corporate supply chains as a result of the trade dispute in recent years, but now pandemic on top of that and what that could mean to demand for search as well as consulting.

Yes. I think, look, some of the -- if we kind of like think about it over the course of the year, look, we're going to see -- we believe we're going to see demand come back in pretty much all of these areas, all of the verticals that we operate in. So that just normal demand that we do think is going to come back. But underlying that, I think that there's going to be some changes here that we can see. I think we're going to see -- continue to see some spikes in the work at the top, in the Board-related work that we do with themes such as diversity, with sustainability. These are going to continue to drive demand at the top of the house. We think CEO-level activity is likely going to go up a bit as well because COVID made changes at the top difficult for employers as well as leaders. We think that culture work is going to continue to rise. This is a top concern of leaders, how has their culture fared over the last year, really. And we think that at a macro level, all the D&I work is going to continue to occur as well.

We do see, going back into your commentary, linked a little bit to the CEO but broader to the C-suite, we do see likely some more retirements that will happen in the upcoming year. A lot of it because many leaders just wanted to stay with their teams who are thinking about retiring and just kind of now we'll -- as the pandemic, hopefully work our way out of it, we'll feel more comfortable that their teams are well set and be able to make their own personal decisions as well. So these are all themes that we do see out there.

And last question for me. Are you seeing incremental demand as a result of D&I rules around Board composition? And with respect to D&I demand, is it driving new C-suite in executive positions or sort of side-out rotation and turnover among existing seats?

Yes. Let me take that second question. And so I think what we're seeing there isn't necessarily a whole bunch of new positions, okay? So positions have existed. I think it's sort of as people begin to think their whole C-suite succession planning, how to think about the team, how to think about diversity on their team, what the pipelines look like, et cetera. So I think it's really people understanding and acknowledging that diversity matters and how it impacts the overall performance of the team and trying to go there with that. So it isn't necessarily new positions. So there are a few companies that may not have had them, but I don't consider those to be necessarily everybody is trying to come up with this new title. I mean I might give you an example separately on -- at least in the last couple of years, on sustainability that people establish new roles to oversee sustainability. I think on diversity and inclusion, that already happened 5 years ago, and whether they were successful or not is the question.

What was your first question again? I'll -- let me come back to that one.

It's -- I think you kind of addressed it in your answer to the second one.

We have no further questions at this time. I will now turn the call over back to Mr. Krishnan Rajagopalan. Sir, you may begin your final comments.

Great. Thank you. I'll just be brief here. Look, thank you, everyone, for joining our call. We certainly appreciate it. We're optimistic about the year ahead and excited about the new initiatives that we've got in place and are going to be driving this year as well. You've heard us talk about some of those on today's call. Look, we're still not out of the woods yet. So please be safe, and we look forward to speaking with you in the next quarter as well. Thank you.

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