Executive Summary / Key Takeaways

• Heidrick & Struggles International, Inc. (HSII) has demonstrated robust financial performance, with Q3 2025 net revenue increasing by 15.9% year-over-year to $322.8 million and Adjusted EBITDA reaching $34.2 million, underscoring the resilience of its diversified service lines amidst a complex global environment.
• The company's strategic focus on being a trusted leadership partner, enabling client transformation, and fostering continuous engagement is powered by its differentiated technology, including the Heidrick Leadership Framework and Heidrick Connect, which enhance client impact and consultant productivity.
• HSII is actively investing in talent acquisition and development, anticipating a "cycle down" in quarterly margins in the latter half of 2025 due to hiring plans, yet still projecting annual margin expansion and sustained growth into 2026, aligning with long-term targets of mid-to-high single-digit organic revenue growth and 5-8% Adjusted EBITDA growth.
• A pivotal development is the proposed acquisition by an investor consortium for $59.00 per share in cash, signaling a transition to a private entity, subject to customary approvals, which marks a new chapter in the company's 70-year history.
• Despite strong performance and strategic clarity, the investment thesis is tempered by macroeconomic uncertainties, geopolitical volatility, and merger-related risks, including the potential for delays or termination, which could impact the company's stock price and operations.

Setting the Scene for Leadership Advisory

Heidrick & Struggles International, Inc. (HSII), founded in 1953, has evolved over seven decades into a premier human capital leadership advisory firm. Headquartered in Chicago, Illinois, the company provides executive search, consulting, and on-demand talent services globally, thriving on the inherent change and complexity that define modern business. Its core mission is to assist organizations in building and sustaining world-class leadership teams, a need that becomes increasingly pronounced during periods of economic and geopolitical uncertainty.

The human capital advisory industry is characterized by intense competition, with thousands of firms ranging from specialized executive search boutiques to large, diversified talent solutions providers. HSII primarily operates in the retained executive search segment, where it is compensated regardless of placement and typically on an exclusive basis, receiving a retainer of approximately one-third of the estimated first-year compensation. This contrasts with contingency search firms, which are paid only upon successful candidate placement. Key direct competitors include publicly traded entities like Korn Ferry (KFY) and Robert Half International (RHI), as well as privately held firms such as Spencer Stuart.

HSII distinguishes itself through its deep expertise in top-level senior executive placements, a global network, and a client-centric approach that aims to foster long-term relationships. While Korn Ferry often emphasizes integrated consulting and digital talent solutions, potentially offering greater scale and technological efficiency, HSII's strength lies in its personalized, relationship-based executive recruitment. Robert Half, with its broader staffing focus, offers greater flexibility in temporary talent markets, whereas HSII's on-demand talent services target more specialized interim leadership roles. Spencer Stuart, a privately held firm, competes directly in high-end, discreet executive search, where HSII also maintains a strong presence. HSII's strategic investments in its consulting and on-demand talent segments are designed to broaden its offerings and deepen client engagement beyond traditional search, providing a more comprehensive human capital solution.

Technological Edge: Fueling Differentiated Client Impact

Heidrick & Struggles leverages proprietary technology and intellectual property to enhance its service delivery and maintain a competitive edge. Central to its technological differentiation is the Heidrick Leadership Framework, which enables clients to holistically evaluate candidates based on pivotal experience, leadership capabilities, agility, potential, and culture fit. This framework is complemented by online tools such as the Leadership Accelerator, Leadership Signature, and Culture Signature assessments, providing data-driven insights to clients.

Further enhancing client experience and internal efficiency is Heidrick Connect, a digital client experience portal. This platform offers clients always-available access to talent insights for each engagement, including the Heidrick Leadership Framework and other internally developed assessment tools. During periods of remote work, Heidrick Connect proved instrumental in enabling Executive Search teams to operate effectively and efficiently, facilitating virtual engagement with clients. Recent upgrades to Heidrick Connect have further improved flexibility, increased productivity, and expanded the insights delivered to clients. The company's OneSearch platform also incorporates new tools designed to improve consultant-client partnerships.

HSII's commitment to innovation is evident in its ongoing research and development (R&D) initiatives. The company's R&D efforts are focused on developing new technologies to enhance existing products and services and to expand its offerings across Executive Search, Heidrick Consulting, and On-Demand Talent. R&D expenses, comprising payroll, employee benefits, stock-based compensation, and third-party professional fees, increased by 13% to $6.4 million for the three months ended September 30, 2025. This investment is critical in an era where rapid technological advances and digital disruption are reshaping client needs, ensuring HSII can provide timely and relevant technology-enabled solutions. The "so what" for investors is that these technological differentiators contribute to HSII's competitive moat by enabling more precise candidate evaluation, efficient client engagement, and a broader suite of integrated services, ultimately supporting higher client retention and potentially stronger financial performance.

Strategic Pillars: Building Deep and Durable Relationships

Heidrick & Struggles' strategy is built upon three interconnected pillars designed to create differentiated, deep, and durable client relationships, particularly in a world grappling with chronic leadership talent shortages and rapid technological shifts like AI.

First, the company aims to be the most trusted leadership partner to the C-suite and Board. This involves consistently growing its executive search and assessment capabilities, which are foundational to the enterprise. By focusing on top-level senior executives, HSII gains unparalleled access to leaders and their priorities, yielding valuable insights and rich datasets. The company's annual CEO and Board monitor, which digests feedback from over 900 executives, highlights deep boardroom concerns about political and economic volatility, creating clear opportunities for HSII to drive immediate client impact. A key area of focus is supporting Chief People Officers (CPOs) in architecting corporate strategies that address the interplay of human and digital workers in the age of AI, talent scarcity due to demographic headwinds, and the need for resilient leadership in volatile times.

Second, HSII works to deepen client relationships by partnering with them on transformation in the new world of leadership. Every leader across industries faces a transformation mandate, whether it's leveraging AI, entering new markets, or driving cost advantages. These transformations invariably require new leaders and new ways of leading. HSII aligns its diverse capabilities to support these objectives. For instance, a major industrial company undergoing portfolio transformation leveraged Heidrick Consulting for culture alignment and subsequently engaged On-Demand Talent for an interim CIO to address critical skill gaps. This integrated approach allows HSII to build larger, more impactful client relationships by linking its work directly to ambitious client goals. The company has also developed toolkits to guide clients through initiatives like creating cost-focused cultures and rationalizing corporate portfolios, which have gained prominence in the current environment.

Third, HSII is innovating to create continuous client engagement. Recognizing that leadership and talent decisions are becoming an "always-on activity," the company is moving beyond reactive engagements to proactive partnerships. This "leadership assurance" approach involves continually assessing top teams, advising on organizational effectiveness, evaluating teams against best-in-class rivals, and making selective external hires. This requires a different scale of operation, moving from assessing a few finalists to evaluating pipelines of dozens of high-performing leaders for future C-suite roles. The company's digital investments are targeting the tooling necessary to embed this work at scale within client workflows, ensuring consistent insight and rigor in leadership questions.

Financial Performance: Resilience and Growth in a Dynamic Market

Heidrick & Struggles has demonstrated a strong financial trajectory, particularly in the most recent reporting periods, reflecting the effectiveness of its strategic initiatives and its ability to capitalize on market demand for leadership advisory services.

For the three months ended September 30, 2025, consolidated total revenue increased by a robust 15.9% to $327.9 million, primarily driven by a similar increase in net revenue to $322.8 million. Foreign exchange rate fluctuations contributed positively by $4.6 million, or 1.7%. This top-line growth translated into solid profitability, with Adjusted EBITDA reaching $34.2 million, up 12.6% from the prior year period, and an Adjusted EBITDA margin of 10.6%. Net income for the quarter was $17.6 million, resulting in diluted earnings per share of $0.83.

For the nine months ended September 30, 2025, consolidated net revenue grew by 12.3% to $923.7 million, with Adjusted EBITDA reaching $97.2 million, an increase of 14.2%, and an Adjusted EBITDA margin of 10.5%.

Breaking down performance by segment:

• Executive Search remains the cornerstone, with net revenue increasing by 17% to $239.1 million for the three months ended September 30, 2025. This growth was fueled by a 7.1% increase in executive search confirmations and a rise in the average revenue per executive search to $162,000 from $149,000. Consultant productivity, measured by annualized net revenue per consultant, reached $2.3 million, up from $2.0 million in the prior year period, indicating strong demand and efficient execution. The Americas segment saw a 20.8% increase in net revenue, while Europe grew by 18.0%. Asia Pacific, however, experienced a 3.9% decrease in net revenue. Adjusted EBITDA for Executive Search was $57.2 million, with a margin of 24.0%.
• On-Demand Talent continued its outperformance, with net revenue growing by 10.1% to $50.9 million for the three months ended September 30, 2025, driven by an increase in the volume of projects. This segment reported Adjusted EBITDA of $2.8 million, significantly improving its margin to 5.6% from 3.8% in the prior year.
• Heidrick Consulting also showed strong momentum, with net revenue increasing by 17.6% to $32.8 million for the three months ended September 30, 2025, primarily due to increased leadership assessment consulting engagements. The segment reported Adjusted EBITDA of $1.9 million, with a margin of 5.7%.

Operating expenses reflect the company's investment in talent and technology. Salaries and benefits increased by 19% to $217.8 million for the three months ended September 30, 2025, primarily due to higher variable compensation from increased consultant productivity and increases in fixed compensation. General and administrative expenses saw a modest 5.1% increase to $41.8 million, driven by professional fees and information technology expenses. Cost of services rose by 21.3% to $37.6 million, in line with increased project volumes in On-Demand Talent and Consulting.

The company maintains a strong liquidity position, with cash, cash equivalents, and marketable securities totaling $528.1 million as of September 30, 2025. This includes $214.3 million held by foreign subsidiaries, a portion of which is permanently reinvested. HSII also benefits from a $100 million committed revolving credit facility, with a $75 million expansion feature, maturing in March 2030. Cash used in operating activities for the nine months ended September 30, 2025, was $28.9 million, primarily due to an increase in accounts receivable and a decrease in accrued expenses, partially offset by net income. The company's strong cash position and lack of outstanding borrowings provide significant financial flexibility for strategic execution and capital returns.

Competitive Positioning: Strengths in a Crowded Field

Heidrick & Struggles operates in a highly competitive global market, where its ability to differentiate and execute is paramount. The company's core competitive advantages stem from its established global network, strong brand reputation in executive search, and deep expertise in leadership development. These assets foster strong customer loyalty, leading to recurring revenue streams and enabling premium pricing for its specialized services. HSII's network, for instance, contributes to greater efficiency in executive placements, allowing it to compete effectively against larger, more diversified firms like Korn Ferry and specialized boutiques like Spencer Stuart.

Compared to Korn Ferry, HSII's more focused approach on high-level executive search and personalized advisory can lead to deeper client relationships, although Korn Ferry's scale and integrated digital platforms may offer advantages in broader talent solutions and operational efficiency. Against Robert Half, which has a wider focus on professional staffing, HSII's On-Demand Talent segment targets niche interim leadership roles and project-based initiatives, demonstrating outperformance even amidst a slowdown in the broader temporary staffing space. The company's strategy of offering a comprehensive suite of leadership advisory services, from executive search to consulting and on-demand talent, positions it to address a broader spectrum of client needs, enhancing its competitive resilience.

However, HSII is not without vulnerabilities. Its business is inherently sensitive to economic cycles, which can impact revenue and cash flow during downturns, potentially leading clients to delay or pause projects. While the company has a variable cost structure and no debt, prolonged economic uncertainty could still affect performance. Furthermore, while HSII is investing in technology, a lag in advanced tech integration compared to some rivals could impact efficiency in talent matching over the long term. The company's strategic response involves continuous investment in its talent base and technology, aiming to convert macroeconomic complexity into opportunities by providing indispensable leadership solutions.

Outlook and Guidance: Charting a Course for Future Expansion

Heidrick & Struggles' management maintains a confident outlook, grounded in strong demand signals and robust fundamentals across its businesses, despite ongoing global market uncertainties. The company's guidance reflects a strategic balance between capitalizing on current market opportunities and making necessary investments for future growth.

For the third quarter of 2025, the company provided a revenue outlook in the range of $295 million to $315 million. This guidance, while reflecting typical summer seasonality that causes a sequential decline from Q2, still implies significant year-over-year growth compared to Q3 2024. Management expressed confidence in achieving the upper end of this range, citing continued demand, clients' accelerated pace in launching searches, and the growing synergy between search and on-demand talent solutions.

Looking further ahead, HSII anticipates Adjusted EBITDA margin expansion for the full year 2025, with the majority of this improvement expected to materialize in the second half. This margin growth is primarily projected to come from the non-search businesses, as the company refines its offerings, aligns them more closely with client needs, and achieves greater consistency and leverage from shared corporate costs. The Executive Search segment is already considered to have a healthy margin profile.

A key assumption underlying the second half 2025 outlook is a planned increase in hiring, which is expected to cause quarterly margins to "cycle down" temporarily. This strategic hiring initiative is driven by the identification of substantial "white space" opportunities with both existing and new clients, aligning with the company's core growth driver of increasing its productive professional base. Management views this as an "evergreen" strategy to position the firm for sustained growth in 2026 and beyond, expecting annual margin progress despite the short-term impact.

The company's long-term targets, as shared at its Investor Day, include organic revenue growth of mid-to-high single digits and organic Adjusted EBITDA growth between 5% and 8% per year. The effective tax rate for 2025 is expected to be around 35% temporarily, influenced by the non-deductibility of acquisition earn-out costs. Once these costs run off, the tax rate is projected to return to the low 30% range, assuming no other statutory tax changes.

The Private Evolution: A New Chapter

A significant and transformative event for Heidrick & Struggles is the proposed acquisition by an investor consortium led by Advent International and Corvex Private Equity. On October 5, 2025, the company entered into a definitive merger agreement under which it will become a wholly-owned subsidiary of Heron BidCo, LLC. This all-cash transaction values each outstanding share of common stock at $59.00.

The merger agreement, unanimously approved by HSII's board of directors, is subject to customary closing conditions, including stockholder and regulatory approvals. Upon consummation, Heidrick & Struggles' shares will be delisted from the Nasdaq Stock Market and deregistered under the Securities Exchange Act of 1934. This transition to a private entity marks a pivotal moment in the company's long history, potentially allowing for greater long-term strategic flexibility away from public market pressures. The investor consortium includes significant investment from many Heidrick leaders, signaling internal confidence in the company's future direction.

Risks and Considerations

While Heidrick & Struggles presents a compelling investment thesis, several risks and considerations warrant attention. Foremost among these are the uncertainties surrounding the proposed merger. The transaction is subject to various conditions, and there is no guarantee it will close on a timely basis or at all. Failure to complete the merger could materially adversely affect the company's business, financial condition, and stock price, potentially leading to a termination fee of $38.9 million payable to Parent under specified circumstances. Operational disruptions and contractual restrictions during the pendency of the merger also pose risks.

Beyond the merger, macroeconomic and geopolitical volatility remains a persistent concern. Management acknowledges that "economic and geopolitical events remain very uncertain" and that "intermittent pockets of hesitance" can arise as clients digest industry-specific implications. While the company's diversified business mix and the non-discretionary nature of executive search mitigate some of this risk, client caution can still lead to project delays.

Other operational risks include the ability to attract, retain, and motivate qualified consultants, the aggressive competition in the industry, and potential impacts from foreign currency exchange rate fluctuations. The company's reliance on information management systems and the increasing threat of cybersecurity attacks also present ongoing challenges.

Conclusion

Heidrick & Struggles stands at a fascinating juncture, demonstrating strong operational and financial performance even as it prepares for a significant transition to private ownership. The company's 70-year legacy as a human capital leadership advisory firm has been marked by its ability to adapt and thrive amidst complexity, a trait that continues to drive its success in the current dynamic global environment. Its strategic pillars—being a trusted leadership partner, enabling client transformation, and fostering continuous engagement—are effectively leveraging its differentiated technology and deep talent pool to create unrivaled value.

The robust Q3 2025 financial results, characterized by double-digit revenue growth across all segments and healthy Adjusted EBITDA margins, underscore the resilience of its business model. While planned investments in talent acquisition are expected to temper short-term quarterly margins, the long-term outlook remains positive, with management committed to annual margin expansion and sustained organic growth. The proposed $59.00 per share all-cash merger offers a clear valuation for shareholders and signals a new chapter for the company, potentially allowing for enhanced strategic flexibility. Investors should weigh the company's proven ability to execute its strategy and its strong market positioning against the inherent risks associated with macroeconomic volatility and the successful completion of the privatization transaction.