Heidrick & Struggles International, Inc. (NASDAQ:HSII) Q2 2022 Results Conference Call July 25, 2022 5:00 PM ET
Company Participants
Suzanne Rosenberg – VP, IR
Krishnan Rajagopalan – President and CEO
Mark Harris – CFO
Conference Call Participants
Kevin Steinke – Barrington Research
Tobey Sommer – Truist Securities
Marc Riddick – Sidoti
Operator
Good afternoon, and thank you for standing by. Welcome to the Heidrick & Struggles Q2 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] During today’s call there will be a question-and-answer session. [Operator Instructions]
I will now turn the conference over to Suzanne Rosenberg, Vice President, Investor Relations. Please go ahead.
Suzanne Rosenberg
Thank you, and welcome to our 2022 second quarter conference call.
On today’s call is our President and CEO, Krishnan Rajagopalan; and Chief Financial Officer, Mark Harris. We posted our second quarter slides on the IR home page of our website at heidrick.com, and we encourage you to view these slides for additional context.
Please note that in the material presented today, we may refer to non-GAAP financial measures that we believe provide additional insight into underlying results. A reconciliation between GAAP and non-GAAP financial measures may be found in the earnings press release.
Also in our remarks, we may make certain forward-looking statements. We ask that you please refer to the safe harbor language also contained in today’s press release.
With that, I’ll turn the call over to Krishnan.
Krishnan Rajagopalan
Thank you, Suzanne, and good afternoon, everyone. Let me begin with a brief recap of our financial highlights, which marked another truly stellar quarter of record results for our firm.
Today, we announced consolidated net revenue of $299 million, growing 15% over last year and marking a new milestone as the highest quarter of revenue in the Company’s history. Growth was seen across all segments of our business. And of note, Executive Search delivered its highest revenue quarter ever, and Heidrick Consulting reached its second highest level ever. On-Demand Talent posted revenue of more than $22 million, which puts us on an annual run rate of more than $90 million. Equally important, profitability was very strong with record operating income and record earnings per share.
Leadership trends in the marketplace remain strong, and we continue to see demand signals across each of our segments. While we have no current indication of any significant contraction, we do expect some near-term volatility given that we’re in a new and very dynamic environment with inflation at multi-decade high, central banks raising rates faster than previously anticipated, commodity prices holding at or near highs, continued uncertainty around COVID and the rising strength of the U.S. dollar. Importantly, we remain highly communicative with our clients as we actively monitor the horizon to respond quickly.
In the first half of the year in Executive Search, we saw a frenzy 3,600 confirmations, which is approximately 20% higher than our usual normalized pace, and we expect that rate to moderate to a more sustainable levels by year-end. To be clear, we still expect to see strong growth, stronger than the record years we experienced pre-COVID in 2018 and 2019. But again, slower than the feverish pace we have been experiencing. At the same time, we expect our non-search businesses to continue their growth cycles. And as Mark will soon discuss, our guidance for Q3 reflects overall continued strength.
Turning to our strategy. We are well positioned in the marketplace to serve our clients across a wide spectrum of new opportunities and challenges with our diversified set of Executive Search and advisory offerings.
With everything going on in the world today, geographic surges in COVID, the great resignation, demands for racial and social justice and ESG, there is a simple theme. The leadership responsibilities for boards and management teams are becoming increasingly complex. Companies are wrestling with the changing business models and entirely new ways of working while making stronger-than-ever commitments to purpose and DE&I, permanent shifts in the way people think about work and how they lead their organizations, including unprecedented mobility and hybrid workplaces, the need for agile leaders and identifying and assessing and developing future-ready leaders, these are just some of the seismic shifts at play.
Heidrick is perfectly positioned to advise our clients on the full depth and breadth of these issues, given our experience across a dynamic range of talent and human capital offerings we are bringing to the marketplace. Our differentiated strategy of building a virtuous cycle of leadership offering that addresses our clients’ evolving and most critical needs is working and resonating with our clients. Each of these offerings drives interconnectivity through our One Heidrick approach while leveraging our unique combination of assets, Executive Search, On-Demand Talent, Heidrick Consulting and new digital leadership solutions. Each of these areas serves key client imperatives that only continue to grow.
It’s truly inspiring to see our team’s tremendous efforts in executing our strategy, yielding strong results like those reported today. It’s also clear we’re building positive momentum for the future as our business becomes increasingly diversified and expanding cross-collaboration opportunities that drive not only our client success but also create long-term shareholder value.
At the center of this virtuous cycle is our trusted premium brand and the strength of our relationships and consultants, which gives us the permission to serve as leadership advisors, introducing new offerings and co-create solutions with our clients.
During the second quarter, we held our global consultants’ conference in person for the first time in nearly three years. This was an incredibly important event that brought our colleagues together under the theme of Reflect, Reconnect and Reimagine. Our time spent at the conference was critical as we came together and set in motion the next stage of growth and diversification for our firm. The energy and power of our One Heidrick approach with cross collaboration between Executive Search, Heidrick Consulting and On-Demand Talent was palpable as we shared the latest developments across these businesses related to our data-driven tech-enabled solutions, previewed some of our digital leadership capabilities under development and build deeper into how we can further serve our clients around the globe.
Now, let me turn to each of our segments to describe how we are creating value. Starting with Executive Search. It bears repeating that the largest segment of our business delivered its highest revenue quarter ever in company history. We believe we continue to gain market share with outstanding trailing 12-month productivity of $2.6 million per consultant.
All practices are significantly outperforming pre-COVID levels and none more so than our two largest practices, Financial Services and Global Technology & Services. Additionally, we continue to see new business coming in at a risk base.
Functionally, we’re seeing a few key leadership roles to drive recent demand. CEOs, technology officers, HR officers and supply chain officers are all roles bearing significant new burdens and challenges brought on by the pandemic, recovery and other macro factors.
Globally, we continue to efficiently grow search by optimizing our go-to-market strategy, our account management model is working, and we’re deepening client relationships in all industries.
Heidrick Consulting posted $22 million in net revenue. That was an impressive 31% higher than last year and marked this segment’s second highest revenue quarter in history. These results are being driven by expanding our client relationships across multiple offerings and to our centers of excellence as we continue to increase our brand awareness and cross-sell more of our offerings. Importantly, our focus on delivering impactful solutions that develop future-ready leaders, organizations and cultures, including DE&I, are now driving multiyear engagements. We’re also winning more work with existing clients.
Our scale and profitability strategy includes building broader, deeper and longer-lasting relationships with our clients by offering the best of Heidrick. We also intend to strategically invest in high-growth geographies and solutions, including leveraging digital-enabled services and developing scalable service offering. Taken together, we believe this strategy will enable us to continue growing the top line while also accelerating our margin expansion.
Turning to On-Demand Talent. Revenue of $22 million was 19% higher than last year, driven by the internal sales team and referrals by our Executive Search and Heidrick Consulting colleagues. Client response continues to be overwhelmingly positive as companies look for more leadership liquidity whether it’s through on-demand access to interim executive leaders or leadership on strategic project work.
Our fifth annual high-end independent talent report issued in March, only serves to amplify our positive view for this new segment. U.S. CEOs already ranked labor shortages as the number one external threat to their businesses. And nearly 60% of leaders report the closing skill gaps within their workforce has become a high priority since the pandemic began. This report highlighted, number one, on-demand talent is on the CXO agenda, more than 70% of all requests are now coming from VPs and above. This was the first time that CXOs and presidents hacked on-demand talent more than any other buying group. Number two, interim leadership continues to permeate the organization. Overall request for interim leaders increased by 137% year-over-year. Number three, the demand for strategic expertise and hands-on execution skills remained a top priority. And number four, there is a sharp growing interest in skills-associated business processes and workforce planning.
Heidrick is already the clear market leader in securing high-end project and interim on-demand talent engagements. On top of this, the market has a high TAM with significant runway, and we expect organic growth as the market and client awareness expands. We expect growth to accelerate through the Heidrick Search channel as clients become more increasingly comfortable with the On-Demand Talent model. Building on our leadership position in this space, we’re also reinvesting to fuel future growth, given the accelerating market opportunity. Specifically, additional investments will be made in sales and marketing, as well as geographic expansion outside the U.S. and UK and possible category expansion.
Before I conclude, as I mentioned on our last call, we continue to invest in our digital assets for future growth. Here, we’re developing new unique digital capabilities, tools, insights and intelligence that can at scale help bring visibility to our clients on key leadership and development topics, including succession, mobility and diversity and transform how companies support their leaders.
Client reception has been strong and we’ve been continuing to incorporate feedback and make enhancements and modifications following meaningful conversations with approximately 100 clients. We are excited. We’re on track to begin beta testing with several clients shortly.
In closing, our very strong results demonstrate that our diversification strategy is progressing in the right direction. Long term, we expect growth to continue across our company with our non-search businesses, Heidrick Consulting, On-Demand Talent, our digital assets plus other adjacencies still to come and to grow even faster than Executive Search. Leveraging this strength we are excited to invest in new opportunities to further expand our best-in-class enterprise. These factors, coupled with our strong balance sheet and record results support our continued growth plan with significant opportunity ahead. I’m especially proud of our amazing team of professionals around the world. Our power is our people, and I thank the entire team for their hard work, dedication and contributions to Heidrick’s future success.
With that, I’ll turn the call over to Mark.
Mark Harris
Thank you, Krishnan, and good afternoon, everyone. Thank you for joining our call today.
Once again, our Heidrick team around the world delivered very strong results, driven by their focused execution and setting performance records in the process. As a marked point of reference, our six-month EPS of $2.08 is higher than most of our annual EPS achievements pre-COVID. As Krishnan indicated that we’re very pleased with the second quarter market trends but remain very-focused on potential macro headwinds that may surface in the second half of 2022. In fact, you will see that our third quarter guidance, which I’ll discuss in a moment, reflects moderation, driven more by our high-growth revenue levels of nearly $300 million in the quarter as opposed to any recessionary indications at this time.
Our models are showing some macro-driven softness, but the primary driver related to the third quarter revenue guidance relates to historical summer holiday season, as travel restrictions have been lifted versus last year, and many people and companies are slowing down in late July and August to take time off as well as the impact from the recent strengthening of the U.S. dollar.
To be clear, when we talk about today’s moderation, it isn’t around recession levels that we’ve seen in 2001, 2007 or 2020. There’s a lot of momentum in our business with changes to our industry, with June finishing on a high note, with the highest confirmations total in the second quarter. Now, let me provide you some details on our record second quarter results.
On a consolidated basis, net revenue in the quarter reached a record $298.7 million, 14.9% higher than last year’s record achievement. This was near the high end of our guidance range and coupled with both, the demand momentum we have seen thus far in July, we’re encouraged about the third quarter, which is reflected in our guidance.
Executive Search net revenue was $253.9 million in the second quarter, 13.3% higher than in the prior year quarter. From a regional perspective, the Americas was up 19.4%, led by the number and value of engagements. Europe was up 7.2% and Asia Pacific was down 6.5%. However, given the strengthening of the U.S. dollar, looking at Europe and Asia on a constant currency basis shows us the true underlying performance, with Europe increasing by 20%, driven by a strong increase in the number of engagements and Asia Pacific decreasing by 1.4%, driven by a decrease in the number of engagements, offset by engagement value.
Consultant productivity of $2.6 million increased from $2.5 million in the first quarter of this year, and $2.4 million in the second quarter of last year and finished just behind a record $2.7 million set in the fourth quarter of 2021. A portion of the strength is due to the record high confirmation totals in the first quarter of 2022, which was up almost 15% versus the previous record set in the fourth quarter of 2021, coupled with the strong performance in the second quarter of 2022. As we’ve noted in prior quarters, we expect these heightened levels of productivities will modulate, but remain strong around $2 million per consultant over time.
Turning to On-Demand Talent, once again, showing great strength with the second quarter revenue of $22.4 million. This is generated by an increase in higher average project size, reflecting strategic initiatives to expand and penetrate key accounts, along with an increase in project extensions.
It’s important to point out that this business does have some seasonality on a quarter-to-quarter basis and typically has a stronger second half of the year than the first. Looking at On-Demand Talent this way, revenue was up 39% in the first half of 2022 to $45.7 million when compared to the previous six-month period.
At an annualized revenue rate of approximately $94 million, On-Demand Talent segment is rapidly growing, and we are reinvesting to fuel future growth, given the accelerating market opportunities we are seeing. We expect to continue to invest in On-Demand segment as long as the market conditions support this, and we continue to gain market share. Therefore, annualized EBITDA and bottom line performance from the first half would be approximately $2 million. Thus, if you use EBITDA or PE multiples, the value of this part of our business could be missed. For example, given our current EBITDA trading multiples, that is in low single digits, this would suggest a value of less than $10 million for a business with trailing 12-month revenue of $94 million.
Turning to Heidrick Consulting. This segment delivered its highest revenue quarter since the fourth quarter of 2016 with net revenue of $22.4 million. This was an increase of 31% over the prior year period and up 25% sequentially. This was driven by execution on our backlog and new client engagements.
Heidrick Consulting’s new business pipeline remains strong, and this segment continues to benefit from the collaborations with the company while also bringing new business opportunities to Executive Search and On-Demand Talent segments. In fact, over 40% of this segment’s second quarter revenue was driven by referrals from Executive Search. All of this helped drive our performance expectations for the third quarter, which is embedded in our revenue guidance. Now, let me turn to operating expenses.
As expected, with level of revenue performance in the quarter, we saw salary and benefit increase with fixed compensation decreasing by $6.6 million primarily driven by deferred compensation plan in RSUs, partially offset by an increase in base salaries and payroll taxes. The variable compensation increased $28.3 million and was driven by bonus accruals, primarily due to the strong production in the quarter. Nevertheless, salary and benefits as a percentage of revenue improved 210 basis points versus the prior year quarter to 69.5%.
General and administrative expenses were $35.2 million compared to $27.4 million in the 2021 second quarter. As a percentage of net revenue, general and administrative expenses were 11.8% compared to 10.5%. As expected, most of this increase is primarily due to the travel and other expenses related to our global consultants conference we held in May.
Turning to cost of services. We saw an increase to $17.4 million in the second quarter compared to $14.7 million last year, mostly due to our On-Demand Talent business and an increase in the volume of consultant engagements that require additional independent talent to deliver those tailored projects.
As a reminder, this line item is where we expense payments to independent consultants who perform high-level project and interim work and On-Demand Talent, and this, as a percentage of revenue, so as revenues continue to grow, still the cost of services.
As we continue to invest in our digital assets, last quarter, we introduced research and development as a new expense category. In the second quarter, we reported $4.5 million on the slide item, representing 1.5% of net revenues. We expected R&D to grow modestly over the back half of the year to an annual run rate of approximately $20 million in 2022 with some capitalization in accordance with generally accepted accounting principles. This capitalization will amortize upon product introduction into the market.
Our record-setting performance on the top-line translated to record levels of profitability even as we continue to invest in research and development initiatives. We’re very pleased to report the second quarter operating income of $33.9 million, an 18% increase from the prior year and an operating margin of 11.3%.
Adjusted EBITDA in the second quarter was $36.8 million, and adjusted EBITDA margin was 12.3%. As a reminder, moving forward, we do expect some EBITDA margin compression as our On-Demand Talent business EBITDA margin of 2.7% will initially be low as the segment continues its high growth, and we reinvest in the business, but it will be accretive to our shareholders as this drops to the bottom line. In short, margins of On-Demand Talent will be lower than Search, it is expected to be accretive to the earnings per share, and we believe this margin compression is well worth it.
Turning to our tax rate, which has been consistent over the last two years in the low- to mid-30% range, we saw our second quarter finish with a tax rate of 30.9%. We anticipate these levels will continue into the second half of the year, subject to any tax rule changes.
Adjusted net income in the second quarter of $24.1 million increased 5.4% over the prior year and the diluted earnings per share of $1.19 reached an all-time high.
Now let me turn to our strong balance sheet. We ended the quarter with cash and cash equivalents of $336.6 million. This marks an increase of $98.8 million or 41.5% compared to the same period last year. As we discussed before, our cash position typically builds through the year as employee bonuses are accrued. Employee bonuses are paid out in the first quarter along with their associated taxes and related costs. Our strong cash position with no debt, along with $200 million credit facility, gives us great strength and flexibility to invest and pursue continued growth, both organic and inorganic.
Now, let me turn to the third quarter revenue guidance, where we disclosed the revenue range between $260 million and $270 million. While the revenue is coming off last quarter’s historical revenue highs of nearly $300 million, please keep in mind that our guidance range is still at an annualized revenue rate of nearly $1.1 billion, thus demonstrating the continued high performance of our business.
In addition to my opening remarks, where I commented that we’ll have some macro headwinds, holiday travels and foreign exchange values imputed within, our guidance can be further impacted by our disclosures in our 10-Q filing. Our management team will continue to monitor those situations and move quickly, so we’re well positioned to meet such challenges.
In closing, we were very pleased with our performance, and we’re greatly encouraged by the progress we’ve made on our diversification strategy. We have an exciting road ahead of us as we continue our transformational journey and focus on accelerating the growth of both, our search and non-search businesses. We remain focused on delivering a powerful interconnected suite of services across Search, Consulting, On-Demand Talent and digital capabilities, which, in turn, will give us a more sustainable and resilient business model in the future. With that, Krishnan and I are happy to take your questions. Operator, over to you.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Thank you. Your first question comes from the line of Kevin Steinke of Barrington Research. Please go ahead.
Kevin Steinke
Good afternoon, everyone. I wanted to start out by asking a little bit more about the macro trends you’re seeing and what you’re hearing from clients. You noticed — you noted that you’re focused on, I guess, potential macro headwinds in the second half, but does it sound like you’ve seen a lot of impact yet to your business? Could you just kind of elaborate on the puts and takes you’re seeing from a macro perspective currently?
Krishnan Rajagopalan
Sure. Kevin, it’s Krishnan here. Thank you for that. Yes. Look, as we’ve said, we’re not seeing a significant contraction in this market. We’re seeing demand signals across the board. Our teams remain busy. It’s not the feverish pace that it was previously, but having said that, it’s much, much faster than 2018, 2019 that we can look back on. And then as our guidance points to as well, we’ve got a pretty strong forecast. The non-search businesses continue to grow as well, and we’re optimistic on that. So, that’s what we’re seeing in the marketplace right now.
Kevin Steinke
All right. Great. You mentioned trying to drive, I guess, average project size larger in the On-Demand Talent segment as well as extending projects. Can you just talk a little bit more about that initiative and kind of the rationale and success you’re seeing there?
Krishnan Rajagopalan
Yes, absolutely. Yes. So, one of the things we’re doing very jointly with search and consulting colleagues is going to market. And we’re beginning to see examples, and these are examples of where a client has a very critical search need. And while we’re filling that search need, we’re able to create an on-demand project as well. So, that ends up being additional revenue and kind of it extends off and beyond that they get used to that. We have the placement and we’ll create projects and the projects create add-on. So it’s very much working hand in hand to be able to do that. We’re also I think, getting much, much better at creating project work as well. And project work is where it’s not simply an interim placement. It’s a defined problem that we’re going after with one or multiple consultants, and that often leads to additional revenue as well. So, these are the kind of things that we’re doing in that space that portend a positive future for us.
Kevin Steinke
Okay, good. In terms of some of the digital product development that you’re investing in and working on currently, you mentioned, I think, starting to do some beta testing shortly. Are we — can you just update us on the time line as to when products might actually launch and start contributing to revenue, I believe last — on the last call, you talked about maybe starting to contribute in 2023, but any change to that road map you’ve discussed before?
Krishnan Rajagopalan
Yes. Look, I still see it happening in 2023. We’ve got multiple clients. We are starting to work with and typically, you learn through a cycle of doing that. And so, I think 2023 is the right timing for when we’ll have products available with multiple clients and revenue opportunity as well. I think that’s right.
Kevin Steinke
Okay. In the — you had $4.5 million of investment there on the research and development line in the quarter, about pretty similar to what you had in the first quarter. So, should we kind of continue to think about that as the appropriate quarterly run rate for investment in the second half of the year?
Mark Harris
Yes, Kevin, Mark. So jumping in, I think we talked about a $20 million plus or minus revenue run rate. So, it’s definitely in that approximation, it could go up marginally a little bit. But most, I think we’re in the right ZIP code on that amount. Obviously, depending on the feedback that we’re getting on the beta testing, an amount that we need to really look at in terms of any kind of tool age on it could change that number, but it’s definitely in the zone of where we think we’d be striking.
Kevin Steinke
Okay. And just also on the general and administrative expenses. Sorry if I missed it, but did you break out the amount spent on the global consultants’ conference, so maybe we can kind of strip that out and think about a run rate for the second half of the year?
Mark Harris
Yes. It was about — we get kind of an indication, it would be approximately around $4 million last quarter, and I think it came in around $3.5 million. So, that would be the month that we don’t expect to see in Q3 and forward.
Kevin Steinke
Okay. Great. So, yes, I think I was — I thought the consulting business had a nice sequential increase there in terms of revenue and you mentioned a strong pipeline there. Anything discernible that you’re seeing in the market in terms of maybe positive step change in the environment or your ability to execute internally and that led to that nice sequential increase there?
Krishnan Rajagopalan
Yes. Kevin, it is a favorable environment. I mean, let’s just think about it, we’re still — we are definitely in a [Technical Difficulty] for talent. There’s a lot of turnover that occurred. And companies recognize that [Technical Difficulty] not only attracting but keeping and developing that talent is absolutely critical to the strategy and that becomes clear in moments like this. And our Heidrick Consulting offering does a fantastic job of helping them assess their future leaders as well and thinks about culture from the perspective of their return to office model and things like that. So, these are all things that I think are favorable trends that will continue throughout the year as well, and we’ll continue to drive that model.
Kevin Steinke
Okay, great. And just lastly, any key takeaways you would highlight coming out of the global consultants’ conference, I think you touched on it a bit, but what were the takeaways or the benefits you saw from bringing your people together in that manner?
Krishnan Rajagopalan
Yes. Look, it was just amazing for the team to be together and reconnect, and many people hadn’t seen each other in a while. So collaboration, I think, is a huge element of optimism that comes out of that. I think, number two, understanding the breadth of the offerings, okay? And when we say we had a conference, I mean all of our businesses were there. So, our On-Demand Talent team was on the ground, Heidrick Consulting team was on the ground, and we were able to kind of walk through some of what we’re working on with our digital capabilities. So, we created a lot of mind share with our consultants, which I think is going to be really positive for us as we move ahead. So, that’s the excitement and alignment as well as to why we’re working on these things and why we’re focused on.
Operator
Your next question comes from the line of Tobey Sommer of Truist Securities. Please go ahead.
Tobey Sommer
Thank you. I wanted to start with confirmations in Executive Search. Could you remind us about the seasonality in your sort of any kind of seasonal pattern within the cadence of your quarters?
Mark Harris
Yes. Tobey, no problem. I’ll tell you what the theoretical answer is, then I’ll tell you that all gets blown up between last year and this year. So, we usually see kind of Q1 coming slow out of the gate after the seasons and just trying to get things back on track. Q2 and Q3 typically are very good quarters. Usually, it’s Q2 in front of Q3 marginally. As of last couple of years, it’s been Q3 over Q2. And then we typically see Q4 really kind of soften up a bit, really kind of more focused on delivery, trying to get people over and across getting a lot of closures out. We see a little bit more on the uptick side of it in Q4 and then we kind of roll, rinse and repeat. But I will tell you, last couple of years, it has been a complete random walk, it has not followed its normal path, for obvious reasons coming out of COVID. So — and we still saw that this year. I mean, the confirmation trends as an example, is nearly 2,000 coming out of Q1 this year. So, 8,000 run rate, that’s ridiculously high, and modulated back down to kind of last year’s run rate in Q2. So, we still came out of Q1 being so high, and that’s just very unique. Usually, we don’t see it that way.
So hard to get a trend out of it one way or the other until we kind of go back to what the new equilibrium is, but that’s historically what we see.
Tobey Sommer
So, that’s down, I don’t know, 15% or so sequentially. Are you seeing anything in any particular industry vertical that’s driving that? I know you mentioned financial services in the prepared remarks as a source of strength. Usually, that’s a segment I guess that we’re all sort of personally acutely aware over-hires and over fires throughout cycle. So any canary in the coal mine you can talk about?
Mark Harris
No. I mean I’ll let Krishnan kind of wait on this one. I mean, the first comment I would make is you’re looking at the down 15%. But like I said, when you look at Q1 versus Q2, Q1 was just a ridiculous number that is almost impossible to try to hold up, right? So last year, we did about 6,600 confirmations annually. So at an 8,000 pace, you can see how high that number was. I think it just kind of came back down to really what 2021 levels were. So totally anticipated and expected where we saw it in terms of the specific industries going to your question, lighter in financial services, GTS, industrial consumer, quite strong; healthcare & Life Sciences lighter. Again, I don’t know if I want to draw any conclusion yet. We came in very strong with those more inverted in Q1 versus Q2. So, it could have just been the timing of the heat map versus necessarily a trend. So, keep an eye on it for Q3. But Krishnan, I don’t know if you want to add anything to that?
Krishnan Rajagopalan
Yes. No, Mark, I think you said, well, look, we’re going to keep an eye on it. I mean you — Tobey, you heard me last — I guess in the fourth quarter, say, God, we’re running 100 miles an hour, okay, which we were. And then, we actually ran a little faster after that, which was the first quarter. So, I think things are modulating a bit and back to sustainable levels for the economy as well. And that’s what we’re seeing. I don’t think it’s anything more than that right now that I could call out.
Tobey Sommer
Okay. Thanks. Has there been a change in upticks, either for the better or worse in Q2 versus earlier in the year?
Mark Harris
Yes. We saw Q2 kind of do better than Q1. We saw a little bit more in terms of the completion side of it and able to execute on some of our backlog, et cetera. So, rolling in with a much bigger number, you would expect the volume of that to be increased. That’s what we saw.
Again, we’ve still got a very good backlog in Executive Search. I’d imagine and hopefully that trend continues into Q3 and Q4, but it’s — that was kind of the — the way you always have to look at it is almost like a six-month lag where you get a lot of confirmations in at one place, you’d expect those 140, 180 days to be worked themselves through the system and you would get that growth kind of coming through based on the amount of confirmations that came in earlier at the point of time. So, it’s just kind of a mathematical algorithm for anything else kind of algorithm, if you will, coming in.
Tobey Sommer
Okay. Shifting gears to On-Demand, if I could ask a question there. You talked about favorable long-term dynamics, sort of a shift in the marketplace that makes sense to me to have higher demand in this area. How do I square that with what looks like a few quarters of sequential revenue declines? Thanks.
Mark Harris
Yes, no problem. Go ahead, Krishnan.
Krishnan Rajagopalan
Yes. Look, I think we — if I take a step back, we feel really positive about the On-Demand business. Last year, Heidrick represented about $66 million in revenue. And we think that this year, it’s going to be in excess of $90 million. There is some seasonality built into that business. And then given its current scale and size, it’s still a little bit choppy. But as we scale, I think you’re going to see that trajectory change a bit as well. So, I acknowledge what you’re saying there, but I think if you take a step back, we’re very optimistic on this.
Tobey Sommer
Okay. Last question for me. How do you — how are you feeling about the pace of your investments both external and internal? You’ve got some development going on, and we’ll learn more about that later in the year. Internally, you’ve got some investments in adjacent businesses that are — you’re managing them more for growth. And we have these macro headwinds. Does it make you want to tap the brakes, press the accelerator or how do you react?
Krishnan Rajagopalan
Yes. That’s a terrific question. I mean, I think with some macro headwinds, we’re very careful with looking out into the marketplace and thinking about valuations and where they stand. But we’re continuing to — we’re pretty optimistic if we think about this long term as to where the trends go for leadership and talent and we continue to kind of invest really. But thoughtfully on in terms of the areas of growth that we know we can drive. I mean we think — there’s a lot more organically with On-Demand Talent, particularly in the U.S. we think that there’s some pockets of search where we need to continue to go. Heidrick Consulting, obviously, has got a lot more head space as well, particularly given these trends. So, it’s a pretty balanced view, but I don’t think we’re taking our lens away from any one of these choices that we’ve got. Mark, maybe you could add to that.
Mark Harris
Yes. I would only add that, Tobey, what we look for is obviously everything is a function of economics and structure. So, if we can find something that really kind of fits with our return profile and we can get the structure right, then we certainly will hit the button.
Also, I think we’re — people talk about recessionary headwinds. Again, I’m not predicting to have a recession or not to have a recession. My comment would be recession of this type, assuming it’s a central bank recession, they’re pretty shallow and pretty quick. I don’t think the opportunities in terms of any real price adjustments, I think, again, companies could just sit on the outside for just a very brief amount of time before the market kind of comes back. I don’t think this is going to be a 2007 with a Dow falls to 6,600. So I put things in kind of perspective. I don’t think it’s going to shine me off. I don’t think it’s going to change the pricing points where I should, if I really like the company, its culture to fit in our strategic vision and I can get the economics and structure to pan itself out. I’ll hit that button all day long. So, it’s not a problem.
Operator
Your next question comes from the line of Marc Riddick of Sidoti. Please go ahead.
Marc Riddick
Good afternoon. So, I wanted to follow up on sort of with the commentary that you had as far as gathering together for the first time in quite some time. I was wondering if you could sort of shift that to maybe what you’re seeing with travel and in-person meeting activity with your clients? And maybe what you’re seeing there with their receptivity? Are you beginning to engage with them more, not just as a back-ended way of trying to get to what we think we’re going to see higher travel and entertainment expenses, but really more a function of kind of what you’re seeing from an in-person desirability from your clients?
Krishnan Rajagopalan
Yes. Let me talk about sort of the activity that we’re seeing on that. And Mark, if you want to add to that as well. Look, we’re definitely seeing a spike in that in an upward trend. And you can see that with our client conferences, et cetera, everybody is trying to who is — believes and culture and believes in getting their teams together is trying to do something like this.
So we definitely see that. And we’re seeing that in the search business in particular, we’re seeing now more meetings in person, people flying and the final rounds of the interviews now more and more so are being completed like that. We’re seeing that in Consulting where our teams are spending more active time now with the clients rather than just doing all of the assessments, et cetera, if I assume.
So, there clearly is a trend line. It’s not where it was before, okay, to be clear. And maybe Search is the best example of that. Much of the processes can be done by a video type of format. But now, the last sets of interviews are definitely reverting back to in-person. Mark, I don’t know if you want to add…
Mark Harris
I think it’s all summarized. I mean, we’ve seen a little pickup in, as we talked about the G&A from the travel — unbilled travel and expense, but a lot of that pertained to the global conference. Our expectation is for it to really fall back down to kind of the levels it was in Q1.
We’re not seeing a lot of indication that it’s really shifting from that, but still very much suppressed from the pre-COVID time. So, it still feels like there’s a little bit, as Krishnan rightly points out, people doing some travels, et cetera. But I’d still say there’s again, given what’s going on in the world, a lot of people not really wanting to come necessarily together physically at least as of yet, just a little bit more than usual, but — or pre — during COVID, excuse me.
Marc Riddick
And then, I was wondering if you could comment on maybe what you’re seeing. You sort of touched on it a little bit as far as CEO challenges. And I was wondering if you could talk a little bit about C-suite activity and turnover that you might be seeing now if you’re seeing much of any of that relative to maybe what your expectations were and how that might then either help or hinder the pace of being able to introduce the digital capabilities? I mean, are you seeing much in the way of shifting of leadership? And are you getting to talk to the same folks, or are you beginning to see some musical tours there? Thank you.
Krishnan Rajagopalan
No, no. Look, we’ve definitely seen, as I referenced, spike and growth in CEO searches over the first half of this year, much of it driven by, I think, two things, people being now CEOs feeling like they’ve seen their teams through COVID and ready to make a change. And number two, just the change in the environment and people sort of deciding whether they want to be in that environment or not, and companies deciding and boards deciding as well. So, between all of that, lots of change, I mean just look at the headlines in retail. There seems to be so many CEO vacancies. So, I think that for us represents not just the opportunity, as you’re saying, for search-related activity, but for the introduction of the rest of Heidrick as well, as we work on those opportunities. It’s part of our optimism as we look ahead and say that there’s still positive signs of demand out there.
Marc Riddick
Okay, great. And then, the last thing for me. I was wondering if you could sort of — as you sort of looked at the process of beginning data testing with some of these opportunities. I was wondering if between the process of coming up with these capabilities and beginning to beta test, have you sort of found some — have opportunities shifted as to what you thought might be most — the thing that clients would most react to, or is it sort of similar to sort of what you thought might sort of get folks excited about six months ago? Thanks.
Krishnan Rajagopalan
Yes. I think it’s a little bit early to make that call for us. We’re seeing a wide range of opportunities that exist and so, — and how clients may want to use these capabilities through different lenses. Some — we’ve seen the application for sort of the — highlighting the diversity side of the equation and the diversity pipeline has been the most important thing, others who are kind of interested in from a mobility perspective and perhaps others purely from a succession perspective. So we’re seeing a lot of different dimensions. And I think over the next six months, we’re going to really figure out which of those dimensions stands out more or whether kind of they all rest. And I just talked about two of the dimensions, but these are different angles people are coming at this front.
Operator
There are no further questions at this time. I will turn the call back to Krishnan.
Krishnan Rajagopalan
Thank you, everyone, for your continued support. And most importantly, thank you again to our colleagues around the world. What a great performance and demonstration of the implementation of our strategy. We are very pleased with our progress, and we’re excited to continue our growth path. We look forward to updating you again in the next quarter. Thank you very much.
Operator
This concludes today’s conference call. You may now disconnect.
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