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spk02: Welcome to the third quarter 2022 Hydric and Struggles earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. As a reminder, today's conference is being recorded. It is now my pleasure to turn the conference over to Suzanne Rosenberg, Vice President of Investor Relations. Please go ahead, Ms. Rosenberg.
spk01: Thank you, and welcome to our 2022 third quarter conference call. On today's call is our President and CEO, Krishnan Rajagopalan, and Chief Financial Officer, Mark Harris. We posted our third quarter slides on the IR homepage of our website at hydric.com, and we encourage you to view these slides for additional contact information. Please note that in the materials 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. Krishnan, I'll now turn the call over to you.
spk09: Thank you, Suzanne. Good afternoon, everyone. We are pleased to report another set of strong results on both the top and bottom line compared to the record performance delivered last year. This was achieved while we continued to make investments in digital assets and weathered unfavorable foreign exchange rates, along with an inevitable market slowdown. Profitability neared historic highs. Specifically, our nine-month year-to-date operating income of $92 million, which is already approaching full year 2021's operating income, of $98 million. Third quarter operating margins remain robust at 11.1%. And on the bottom line, we achieved third quarter diluted EPS of $1.02. On the top line, constant currency net revenue of $266 million met our expectations and marked a new milestone as the highest third quarter of revenue in the company's history. In addition to these strong results, We ended the third quarter with our highest cash balance of $456 million, which provides us with great financial flexibility as we continue to invest in our diversification strategy, including the development of our digital assets. As we've discussed for several quarters now, the pace of business has been extraordinary over the past two years, and as we expected, we're now beginning to see a market slowdown. However, at this stage, we believe we'll continue to see revenue above the record years we delivered pre-pandemic in 2018 and 2019. As Mark will discuss in his comments, our fourth quarter guidance reflects the market slowdown, macro concerns, and the normal seasonality of our business. The advantage of our diversification strategy, which I'll discuss more in a minute, is that it's anchored in a strong core executive search business and supported by two large and growing complementary non-search businesses, on-demand talent, and hydric consulting. Each of these segments continue to operate in higher demand environments, and we intend to invest appropriately behind these growth opportunities. We believe on-demand talent will continue to grow in relevance and demand, particularly as the labor market is still very tight and companies are operating in an environment where variable versus fixed costs are priorities. Also, historically, the on-demand talent business has been better at weathering economic downturns. This was demonstrated most recently during the pandemic, when this segment bounced back in late 2020 following a relatively short dip. Similarly, hybrid consulting continues to operate in a higher demand environment. The tight labor market and a growing prioritization on succession planning is driving companies to invest more in leadership assessment and development of future leaders. versus solely relying on an inflow of new external talent to build their leadership bench. Bigger picture, beyond a quarterly snapshot, we continue to see that the world of work is changing on a global scale. Whether we're talking about mobility and hybrid workplaces, the need for agile leaders, identifying, assessing, and developing future-ready leaders, DE and I imperatives, and many other leadership and workplace shifts, Importantly, we believe Hydric is strategically positioned to address these various areas and our trusted premium brand gives us the permission to introduce new offerings and advise our clients to help solve for these increasingly complex issues. It's truly gratifying that our differentiated strategy of building a virtuous cycle of leadership offerings working in tandem and synergistically across our business segments is resonating in the marketplace with an increasing number of clients availing themselves of multiple services. In fact, year-to-date, over 40% of Hydric Consulting revenue was driven by referrals from executive search, and roughly 17% of on-demand talent was driven by the Hydric channel. We're building positive momentum for the future as our business becomes increasingly diversified with expanding cross-collaboration opportunities that drive not only our client success, but also create long-term shareholder value. Our strategy is focused on growth and diversification and reflects what our clients are asking for, broader, more comprehensive solutions to their talent and human capital challenges at the executive level. Each one of our business supports the other in a very natural way. Clients in need of executive search also often have near-term capacity challenges that can be solved with interim or project-based on-demand talent. At the same time, clients looking for new talent particularly in this type market, are also looking for ways to better assess and develop their existing and future leaders, as well as strengthen their workplace cultures and organizations overall. In addition, clients are looking for more powerful ways to leverage data and analytics to better attract, retain, develop, and predict the potential of their talent. While our business has historically had cyclicality because of its dependence on executive search, We believe our non-surge businesses have counter-cyclical attributes. So as these businesses grow, we'll expect to be more resilient in future cycles. We'll continue to build out our global platform to bring an even fuller suite of leadership advisory services to our clients, thereby creating broader, more sustainable engagements while helping them with their more pressing challenges. In addition, we remain focused on developing digital assets that can help bring visibility to our clients on key leadership and development topics, and transform how companies support their leaders. Now let me turn to each of our segments. Executive Search delivered a strong third quarter performance with constant currency revenue, slightly up compared to its record performance last year. Importantly, we believe we continue to gain market share and maintain an outstanding trailing 12-month productivity of $2.5 million per consultant. As we've discussed on prior calls, we expect productivity levels to settle above pre-pandemic levels, around $2 million per consultant, reflecting sustainable gains from greater automation and efficiencies in the hiring process. As anticipated, given the market slowdown, we did see global confirmations decrease in the quarter led by the Americas. However, year-to-date confirmations were slightly up from last year's incredible performance. Globally, we remain focused on growing search efficiently by optimizing our go-to-market strategy and growing through deepening client relationships in all industries. Regionally, we continue to assess expansion opportunities in new geographies and industry sectors and partner with our clients on burgeoning demand in areas such as DE&I, sustainability, in a variety of tech and digital hybrid roles that we continue to see emerging in every industry practice. Next, turning to on-demand talent. This growth segment continues to show great strength with year-to-date revenue up 60% to $69 million compared to $43 million in 2021. When looking at a trailing 12-month basis, we saw revenue grow to over $92 million, demonstrating the strength of this business. on the Hydric platform. Clients' response continues to be very positive as companies look for more leadership liquidity, whether that's through on-demand access to interim executive leaders or leadership on strategic project work. Overall, the on-demand talent space has a high TAM that continues to grow as clients increasingly see the need for fast, flexible talent. Key drivers of this market growth include increased ongoing client comfort with remote work, a tight labor market driving the need for faster and more flexible talent solutions, a growing awareness and openness to the on-demand model becoming enterprise-wide and at the C-suite level, and a changing talent landscape with significant growth in the number of high-end talent choosing to go independent. External sources who track this indicate that independent workers grew 34% in 2021. We expect organic growth to continue as the market grows and client awareness continues to expand. Building on our leadership position in the space, we're reinvesting in future growth, giving the accelerating market opportunity. We're focused on additional investments in sales and marketing, as well as geographic expansion outside the US and UK. We also expect to benefit from the accelerated growth through the Hydric Search Channel as we add resources to this side of the business. In Hydric Consulting, we continue to focus on delivering impactful solutions that develop future-ready leaders, organizations, and cultures. In the third quarter, this segment delivered net revenue of $19 million, up 14% on a constant currency basis. Growth was seen across nearly all our services and demonstrates our ability to drive higher revenue by expanding client relationships across multiple areas as we continue to increase our brand awareness and cross-sell more of our offerings. Importantly, we continue to see strong demand for our services as clients wrestle with strategic questions around talent, such as, do we have the right leaders in place? Who are our future leaders? And does our culture align with our strategy and purpose? In addition, we're advising clients as they confront return to office issues and how to navigate a challenging labor market and economic headwinds. Lastly, another piece of our diversification strategy and a key future growth area for our firm is the development of our digital assets. Today, many organizations lack the visibility and leadership intelligence systems they need to drive business impact. Current leadership solutions are often manual and fragmented, Leadership data is limited. Companies lack an organization-wide view of the experiences and capabilities of their leadership. And as a result, critical needs, such as succession planning, don't scale, and companies can't effectively identify or map leaders to roles, drive internal mobility, or build programs to address impactful development needs. We have been working actively with our partner, Eightfold AI, on our first digital asset to address these unmet needs. We have named it Hydric Navigator, and we've been beta testing it with clients. The beta program has been positive with strong initial client reception. We're now beginning to expand our beta program to several additional clients. The feedback from our early adopters will be incorporated into our product roadmaps over the course of the next six to nine months as we look to a full product launch. We're excited about our progress and positive market response to date, and look forward to sharing more as we advance our work over the coming quarters. In closing, our results reflect continued growth and successful execution, and we're heading in the right direction. With executive search as the strong cornerstone of our portfolio, we look forward to seeing faster-paced growth from our non-search businesses, hybrid consulting, on-demand talent, digital assets, and other adjacencies still to come. And as we continue on our multi-year journey, we are on an ambitious path to transform Hydric and Struggles into the world's leading leadership advisory firm, providing a new generation of business services that will enable companies to achieve higher performance from their executive-level talent in a fast-changing world. Before I turn the call over to Mark, I'd like to close with how proud I am of the contributions from our global team. In November, our team will participate in our annual Global Day of Service, where we as a firm give back to the communities in which we serve. I want to thank all of our employees in advance, not only for their time and commitment to this important event, but also for their hard work and many contributions they deliver each and every day towards advancing our clients' success and generating long-term shareholder value. With that, I'll turn the call over to Mark.
spk08: Thank you, Krishnan, and good afternoon, everyone. Thank you for joining our call today. As Krishnan mentioned, given we anticipated this market slowdown, we're very pleased to have kept pace with last year's phenomenal revenue trend on a constant currency basis, as the strengthening dollar has hurt our reported currency in Europe and Asia markets. Irrespective, this management team is steadfastly focused on delivering strong profitability through to the bottom line for our shareholders, which we achieved again this quarter by posting diluted EPS of $1.02. This marks the fifth time over the past six quarters that this company has generated quarterly EPS in excess of $1. It's also noteworthy that year-to-date 2022 operating income is only $6 million behind the record-breaking operating income generated for the entire year of 2021, an incredible achievement. Before speaking to our performance in the third quarter, our fourth quarter guidance reflects continued moderation as the summer holidays are a great vacation impact, works its way through our revenue recognition models, as well as the ongoing impact from the strengthening of the U.S. dollar. While there's much chatter about looming global market downturn, we believe we are well-positioned to navigate through the challenging market dynamics, as we have done in the past, given our digital transformation and the diversity of our business, along with key account growth and client stickiness resulting from our IP, technology, global reach, data, and insights. Now let me provide some details for our third quarter results. Net revenue on a consolidated basis for the quarter was $255.2 million, and on a constant currency basis, net revenue was $265.8 million compared to $263.8 million last year. Year-to-date, net revenue increased to $837.7 million compared to year-to-date revenue of $717.5 million, a 17% increase. Let me first turn to executive search, where quarterly net revenue declined about 4% year-over-year. However, excluding the fluctuations of currency, search revenue is essentially flat with record levels last year. Looking at our regions, the Americas decreased 3.4% versus a year ago period, reflecting an increase in the value of engagements offset by the number of engagements. Europe decreased 3.6% and Asia Pacific decreased 7.3%. However, on a constant currency basis, Europe was up 12.7% and Asia was essentially flat, down 0.6% versus last year, both driven by the value of engagements. Consultant productivity, $2.2 million was below last year, but remained strong and is beginning to reflect the new normal we are seeing in our business, where we expect this metric to settle in around $2 million over time, which is below the unsustainable post-pandemic rate of $2.6 million and above pre-pandemic levels of $1.7 million in 2019. On-demand talent revenue of $23.2 million was driven by an increase in average project size, which is reflective of the strategic initiative to expand and penetrate key accounts, along with increasing project extensions, all of which was offset by the anticipated seasonal slowdown. Nevertheless, third quarter results were up 4% from the second quarter of 2022, but down 4.3% from the third quarter of 2021. Given on-demand talent's current size and scale, this business is still a bit choppy, but as we grow, we expect increasing consistency over time. I'd remind our investors that on-demand talent is a key component of our diversification strategy and not only serves as a rapidly growing niche in the business services space, but also provides some offset to the economic cyclicality seen in the executive search. The environment for this business remains strong, and we're seeing continued demand across all company sizes and industries as clients are focusing on growth while recognizing and becoming more comfortable with the benefits of high-end on-demand talent and its expanding use. Therefore, we continue to invest to fuel the future growth of on-demand talent and expect to continue to invest in this segment as long as the market conditions support our growth vision. This means that we expect on-demand margins to be dilutive as this segment becomes a higher percentage of our overall revenue, but margin dollars in the aggregate will be higher, and most importantly, accretive to our bottom line. We continue to believe the true value of on-demand talent would be missed if one were to apply an EBITDA or PE multiples to today's results, given the nascency of this business, with trailing 12-month revenue of $93 million, but again, we see significant growth potential over time. Now let me turn to Hydra Consulting. where we're pleased to report Hydra Consulting quarterly revenue increased 6.9% or 14.4% from the prior year period on a constant currency basis. This is primarily driven by leadership assessment and development projects. Headcount also increased year-over-year, and we anticipate additional hiring in Hydra Consulting to capitalize on the market opportunities and the demand we're seeing, in particular in a tight labor market. Importantly, Hydra Consulting's backlog remains strong, near historical highs, and this segment continues to benefit from cross-collaboration within the company, with over 40% of its third quarter revenue driven by the referrals from executive search. Turning to operating expenses, salary benefits were lower in the quarter by $14.4 million, or 7.8% compared to last year's third quarter. Fixed compensation increased $3.4 million due to base salary and payroll taxes, and retirement and benefits partially offset by decreases in deferred compensation plan and talent acquisition and retention costs. Variable compensation decreased $17.9 million related to lower production in the quarter. As a result, salary and benefit expenses improved 330 basis points to 67.2% of revenue compared to 70.5% in the third quarter of 2021. General and administrative expenses were $32.2 million compared to $29.2 million in the third quarter of last year, primarily related to internal travel associated with business development. Despite the increase, as a percentage of net revenue, general and administrative expenses remained low at 12.6%, and this was down sequentially from the $35.2 million in the second quarter of 2022. In the third quarter, we reported $5.4 million in research and development, or 2.1% of net revenue. Year-to-date, we've expensed $14.3 million, which is in line with the anticipated $20 million run rate for R&D on a full-year spend basis. And we have capitalized $3.8 million that will be amortized upon product introduction into the market. At this stage in 2023, we expect R&D investment to be similar to 2022, and we'll continue to evaluate it as part of our annual planning process. We're very pleased to report our continued focus on profitability was evident in our third quarter results and exceeded expectations even as we continue to invest in our research and development initiatives for the future. Specifically, operating income is $28.3 million, and operating income margin was strong at 11.1%, even though we invested $5.4 million in R&D discussed earlier. This resulted in adjusted EBITDA, where it was also strong at $33.3 million with robust EBITDA margin of 13%. Our third quarter effective tax rate was 29.5%, and the year-to-day effective tax rate of 31.3% continues their company's two-year trend of a tax rate consistently in the low to mid-30% range. We anticipate this to continue into the fourth quarter, subject to any tax rule changes. Finally, net income for the quarter was $20.8 million, and diluted earnings per share was $1.02. On a year-to-date basis, we're very pleased to report that income rose to $63.4 million compared to $60.1 million in the same period last year. Now I'd like to turn to our balance sheet, which shows the company's highest third quarter cash balance of $456 million. As a reminder, our cash position typically builds to the year as employee bonuses accrue. Employee bonuses are paid in the first quarter along with their associated taxes and related costs. With no debt on our balance sheet, we're well positioned to fund our growth initiatives and be very strategic about future opportunities. We have complete access to our $200 million credit facility and robust cash and receivables, putting our liquidity in a strong position. Looking at our fourth quarter revenue guidance, we expect the range between $215 to $235 million. You will note that we've broadened our range given the scale of our business, which is on pace to do another $1 billion in revenue, and the diversification strategy that we have embarked upon. We have built in an expectation for executive search to slow down in the near term, coupled with normal seasonality that impacts new businesses into the fourth quarter. In summary, considering global market dynamics and the tremendous year-ago comparisons, we're extremely pleased with both our third quarter and year-to-date performance. Our management of the business continues to deliver meaningful improvements to our profitability and the bottom line. We're within the range of our record-setting company performance in 2021, which is a terrific accomplishment by everyone at the company. We're on an exciting path and we continue our transformation journey and focus on accelerating the growth of both our search and non-search businesses which in turn will give us more resilient business model in the future. Lastly, given our market position and liquidity strength, we have great flexibility to be highly strategic in capitalizing on the right opportunities, which we expect will create further value for our shareholders. With that, Chris and I are happy to take your questions. Operator, over to you.
spk02: At this time, I would like to remind everyone, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Toby Summer with Truist Securities. Your line is open.
spk06: Thanks. Good afternoon. In terms of executive search, what are you expecting annual productivity, annual production to measure and settle out at on a per consultant basis? I saw the confirmations down sequentially about 18%. So wondering where you kind of see that as you get in the next couple quarters.
spk05: Hey, Toby, it's Mark. So here's the answer to the question. I think that the first one is, as you know, in 2021 and into 2022, we've made comments that the rate of 2.5, 2.6 million of productivity was just too high and not really sustainable over the long term. We also made comments that back at the 1.7 million productivity that we saw in 2018, 2019, we still only feel like we have gains achieved either through technology or just redevelopment of the process and how we do our executive search are going to be able to give us some permanent gains. Our view is still pretty consistent that we think trailing 12 months, this will maintain around plus or minus $2 million as we kind of go into what we consider probably more of a steady state. But as you know, it would fluctuate a little bit between You know, recessions, expansions coming out of those recessions potentially, et cetera, and, of course, our promotionals that we do in the first quarter. But I think that's a pretty safe range to be guiding our productivity levels to. So I think we've gained some there. Chris, I don't know if you want to add to that.
spk09: No, I think that, look, that makes sense to us. The productivity levels, you know, shot up by well over 40%. So that wasn't that sustainable. But I think at about $2 million, we feel pretty comfortable.
spk06: Thanks. And as we look at the geographic distribution of those confirmations, we try to kind of model out, are there any – could you give us any color on the strengths or weakness on a relative basis among the geographies within executive search?
spk09: Yeah, let me start with that, Mark. And look, I think relatively speaking, we've been very happy with Europe. Europe has – has maintained its pace in a very nice way. So remains to be seen. There's a war going on there still, et cetera, as to what happens. But we've been rather pleased with that. We saw, as we mentioned, some declines in the Americas, which was a big growth engine. But look, I think we're still forecasting, really, that if we kind of drew in boundary lines over here, that we're not running at 100 miles an hour. We're still running faster than we were running in 2018 and 2019. There's still a good pace here for us in executive search. So that's how we're looking at the business right now, at least. Mark, I don't know if you want to add to that.
spk04: No, I don't think I would comment, Tubby.
spk05: We are seeing a little bit of A different mix than usual. We've seen actually strength coming out of Europe. Obviously, there's been a little bit less in the Americas and some strength coming out of Asia. So as we kind of look through some of the mixes and they're coming up, I would imagine that's going to shuffle us a little bit differently just because of the weight and the strength that we're getting from particular parts of those regions. But overall, they're still pretty consistent what we've been watching over the last 18 months post-COVID. So I don't think we've seen a big shift in that sense with the exception of minor inflationary amounts.
spk06: Okay. How do you, you know, you indicated that the capitalized investments and so forth in some of your transformational initiatives, you expect to kind of maybe stay on stable as you look into next year and you're doing your planning. How do you, in this environment with some forward indicators coming down, you know, your guidance sequentially, Yeah, pretty meaningfully. Do you shuffle the deck in managing the emerging, more rapid growing, but money losing businesses any differently?
spk04: Yeah, Toby, Christian here.
spk09: Yeah, look, I think the way we think about it is, you know, we think about it through a long lens. Some investments we need to make for us to be able to see those returns. We see markets in places that we think investment is required. We see the on-demand talent as being a reasonably strong market. I mean, if we look at the macro, it's a tight labor market. We're entering a market where we believe that variable talent, variable costs are going to be valued. We're seeing an acceptance of that solution that hasn't existed before as well. So awareness is going up. And, you know, external research shows us that large groups of people are opting into this model as well. So it leaves us bullish to say, hey, investing and growing and scaling that is for the benefit of the shareholder in the enterprise over the long term. So we're going to continue to focus on things like that. We'll have to we'll be thoughtful in managing our costs as we've been this quarter. And we'll continue to do that. But I think the investment theses that we have, we're going to be prudent on those and not get ahead of the market. But where we see the market, we're going to continue to double down on that.
spk06: Okay.
spk02: I'll get back to you. Thank you. Thank you.
spk04: Thanks, Toby.
spk02: Your next question comes from the line of Kevin Steinke with Barrington Research. Your line is open.
spk07: Hey, good afternoon. So you talked about the inevitable market slowdown that was anticipated. I'm just trying to maybe parse out a little bit more, you know, how you think the slowdown is evolving here? Is it, you know, more weighted towards just you coming off those record high kind of unsustainable confirmation levels that you had seen in the first quarter of 2022 and just kind of the market normalizing versus how much of the slowdown do you think is related to, to macro concerns among your clients? You know, you mentioned, uh, and the press release looming recessionary concerns. So just kind of wanted to get a sense of how you would weight those factors in terms of the market slowdown you're seeing.
spk05: So I think the first thing to remember on that, Kevin, is, again, when you are actually kind of taking a look at constant currency, the dollar clearly has been playing a very big part of that. When we take a look at the revenue side of it, right, the revenue has actually been pretty flat compared to Q3 last year when you look at it, you know, in terms of our performance this year. So I don't want to underscore that too much because I think that's really kind of important is the dollars been impacting both Asia, Europe, and they've become a bigger part of our platforms as well with our on-demand talent who's got a European business and Hydra Consulting, which has a European slash Asia business. So I think there's that element. The slowdown in and of itself wasn't unanticipated. We were expecting it. But it's just slower off the insanity of what we were watching in 2021 and 2022. The levels that we're seeing, and even these revenue multiples, are still clearly very much higher than 2018 and 2019. I think what that really does is put acute focus on us as to focus on the profitability side of it, which we've done, I think, a really good job even back in the insanity of the COVID crisis. this management team, I think we did a really, you know, excellent job of maintaining strong single digit margins, making sure that we understand kind of the different levels, levers, excuse me, that we can pull, which we did in real estate, reshaped our real estate strategy, reshaped our technology play, added on-demand talent. I think we've done a really good job in that to kind of buoy ourselves, you know, during the ebbs and flows of this. So, It is slowing down. It's expected. And we, again, I think are plotting a pretty good course of how to maintain it. And I think, you know, Christian can certainly go into how we work with our relationships, which we think we've positioned ourselves to be much more attached to our clients during these times versus maybe back in the historical days, we were much more transactional, Christian, if I could say it like that.
spk09: Yeah, no, no, no. I think our accounts programs are are really working well. We're able to, you know, we measure that and the stickiness of the relationships over there I think are really outstanding. And we're able to introduce in the other service offerings as well, which kind of allows that to be additionally sticky. I think fundamentally one of the things that gives us, you know, some confidence with where we are is that we are in a fundamentally tight labor market. from a talent perspective, okay? So the problems haven't changed. People need to solve them and they're looking for solutions. And so it's a supply side. There is a supply side issue still, okay, in terms of that. So we're going to continue to be in the market and we're going to continue to be in demand as a result of that.
spk04: All right, great. So, yeah, I mean, I guess it sounds like
spk07: given the tight labor market, and if it continues to remain tight, you think you could perform pretty well, I guess, even as the economy slows?
spk09: Yeah, I mean, as we've said here, I mean, again, trying to draw some guardrails into this thing here. We see ourselves at this point in time, as we look at the market and we talk to our clients, you know, performing at a level that's greater than 2018 and 2019. So we thought those were pretty heady markets for us as well. So we think that will be a good performance.
spk04: Okay.
spk07: Hey, Mark, you mentioned currency there. And just trying to get a sense of specific to the third quarter revenue results, $255.2 million. on a constant currency basis to 65.8. That constant currency was within your range, but does that imply that currency weakened more than you expected as the quarter progressed? My belief was that you already had some currency headwinds built into the 260 to 270 million guidance range, so does the 255.2 imply that the headwinds were greater than you had expected?
spk05: No, what I was trying to answer was I think two fundamentally different questions. Like the first one is how do we do compared to the same period last year? And my comment is, well, if you use constant currency between those periods, we would have been at 265.8 versus 263.8, which is our performance. So actually revenue would have been up 1%. And I think that's important because when you look at 255, I think the first thing you think of is It's slowing down a lot and the answer is what currency is really, you know, aggravating the situation, so to speak. And you can see that in search. I think we, on a constant currency basis, we would have done $222 million versus $222 million last year's third quarter, almost identical flat. So that's all I'm trying to convey is that the result actually, you're seeing this Q3, why it looks down to Q3 last year. On a constant currency, it was pretty flat. I think the second part of your question, which, or the first part of your question, excuse me, is how did the FX then change between the two periods? And that's a different answer. The answer there is we probably saw about $260 million from Q2 to Q3 FX if we were to use Q2's FX rate versus the 255 that we actually reported. So again, it would have been at the bottom end of the range in terms of our guidance and then we had about a $5 million impact that just really relied itself over to the currency situation. So it was a bit off. Now, typically we like to try to be within the range somewhere, but that slowness was because of the great vacation. A lot of people took off in July, the last two weeks in July, which was a little bit unanticipated. August is pretty much what we thought it was going to be with people pretty much shutting it down. I think September rolled in very slow, and I still think people rushed right back into it. So we were, again, I think we were caught off a little bit on that, but they weren't drastic number differentials that really we were seeing. I think the real answer there is currency and then a little bit more of a great vacation drag. And then, you know, again, Q4, as you can imagine, is is always the same. And that's, you know, typically it's a lighter quarter, typically because you've got two major holidays in there with, in the U.S. at least, with Thanksgiving and the holidays of December. We would normally see those numbers go down about the same type of pace. So again, when I think about the 215 to 235 from the 255, that sounds about right for a Q4 drop between Q3 and Q4. So nothing uncommon there, just a slowing of pace. But again, at those rates, You know, please keep in mind, Kevin, those are still very strong revenues, certainly far exceeding 2018 and 2019, where we did 716 and 707, I believe, or 706 million, respectively. So we're still well above that, even on those annual run rates at this quarterly basis. Hope that helps.
spk07: Okay, right. Yeah, no, yeah, understood. Thank you. That's helpful. And so, yeah, you know, the 17% decline in... Third confirmations in the third quarter, you called out and you talked quite a bit there about the increased vacation time. Do you think you can tie, I don't know how specifically you can do it, but would you tie a meaningful proportion of that decline to this heightened vacation time relative to the year-ago quarter?
spk05: I mean, when you look at the summer months that we had back, you know, again, using a similar type of comparative, excuse me, when you take a look at, you know, kind of how, you know, we would have performed at similar levels, the answer is absolutely. We saw a very big difference. So, we were probably, you know, again, just kind of looking at the metrics. You're looking at about, I'd say we were about 12, 15% higher in Q3 last year compared to what we saw in Q3 this year. I think a lot of that is just as we talked about, that was really the resignation side of the equation, or sorry, the vacation side of the equation, the great vacation, excuse me.
spk07: All right. Oh, great. Okay. And then I guess lastly, you talked about Hydric Navigator there. Sounds like nearing a broader pilot or an eventual launch. I guess, should we think about that as the first in a series of product and services launches on the digital side, just trying to get a sense as to how broad the offering will be, the number of offerings that are going to maybe come out of the digital R&D spend that you've been doing in 2022 and going into 2023? Yeah.
spk09: So, look, I think that's appropriate to think about it as the first of several. We're thinking about big, chunky ones, though, rather than small, little ones. So, Hydric Navigator is in beta right now, and we've done the first amount of investment into that. You'll kind of go through a cycle of learnings, probably do a little additional investment going back into it based on the learnings before we can really get it out to product launch. We've got a couple other ideas we're working on in parallel, which will be sequenced subsequently afterwards, to be clear. So I think that's right. I think that's the right way to think about it. But generally, ones that are meaty and big is what we're going after here.
spk07: Okay, thanks for taking the questions. Appreciate it. Welcome.
spk02: Your next question comes from the line of Mark Riddick with Sudoti. Your line is open.
spk04: Hi, good evening.
spk02: Hey.
spk03: So I was wondering if you could touch a little bit about some of the differentiation you're seeing in industry verticals, which you sort of have in the the slides around sort of what's taking place in the financial and technology areas. You had commentary specifically on life sciences. But I was wondering if you could talk a little bit about what your expectations are going forward to be fairly similar as far as industry composition and contributions and maybe what you're seeing is maybe some potential areas that are maybe doing a little better or maybe could bring us up to speed on that.
spk09: Sure. Mark, let me kick that off, and then you've probably got some thoughts to add. So, you know, look, I think, broadly speaking, our industry sizing and structure will remain the same for at least, you know, if we look out a couple of quarters. I mean, we think we've got opportunities for growth, clearly, in healthcare, life sciences, and industrial, where we'll continue to see some growth as well. Inside places like FFs, You know, FinTech is still relatively hot. Asset management, consumer finance, transaction banking, these were the kinds of things that were fairly robust for us in terms of the opportunities that we saw. In technology, the spike was probably closer to IT services and things that we saw recently, and we expect that to continue. You hear a lot about supply chain, transportation, logistics. So that's an opportunity inside industrial. The whole consumer products and hospitality space affords opportunity as well. And inside healthcare life sciences, you know, we've got strength in biotech and managed care as well. We saw opportunities over there. So I expect some of these, at least in the foreseeable future, will continue. I don't know, Mark, if you want to add to it.
spk05: I'd say the only thing I would add there is when you look at kind of Q2 compared to Q3, we saw a pretty gradual slowdown in pretty much across the board. I think the only one that was really kind of different to that was the consumer side. That maintained some good strength through the summer months. But when you look at financial services, GTS, health care, all of them were down in, again, a reasonable proximity, which is really just more of a fundamental slow down just during the several months, as I said, the last two weeks in July and certainly the month of August were very, very, very quiet again. And I think that's really kind of what was driving some of those. So I don't think I could specify one. I would specify, as Christian rightly articulates, that as you go into 2023, depending on what your economic outlook is looking, some industries will not perform as well as the other industries. But at least right now, we're not getting a good indication of which – which we're seeing as of yet into the Q4, it's just started, but we'll start to see kind of how things start to reshape themselves and have a better understanding of it.
spk09: Yeah, and I think we're, I would just add, we're beginning to clearly see, you know, tech as a horizontal, not only as a vertical, cutting across consumer tech, industrial tech, healthcare tech, so big themes that are out there still.
spk03: Great, and then I was wondering if we could sort of touch a little bit on the some of the activity as far as the types of order flow or types of assignments? Have those gradually changed a bit, you know, going into these last few weeks? Are you beginning to see clients sort of make sort of changes to those, you know, top priorities, or is that still to come in your view?
spk09: Yeah, that's still to come. We have not seen any, you know, Mark, change in terms of the kinds of projects that we're getting. I think there's still some that are quite hot. If you double-click, I mean, CFOs, functional positions, these all still remain quite hot. They were last quarter as well.
spk03: And then I was wondering if you could touch a little bit about headcount expectations on your side. I think they... If I remember seeing correctly, and bear with me, I've got too many windows open right now, but I think it's about a 5%, 6% year-over-year, sort of maybe what we're looking forward to end the year with and sort of how you're planning going forward there.
spk09: Yeah. So, you know, I think if we look at it as different businesses, you know, I think we will, you know, in the roughly January timeframe, We will continue with our promotion cycle. It's been an important element of growth for us, and so we'll have a new class of partners that will come through that process. Our executive search hiring will be very strategic. We've got some pockets and gaps that we see, so it's going to be pretty select from that perspective. We've got opportunities, as we've referenced, in on-demand talent to continue to grow that with sales. addition of sales headcount, so we'll continue to make those investments. Hydric Consulting gives us an opportunity to continue to grow as well, particularly along the lines of the leadership journeys that we support. So, you know, we're going to be very targeted in our growth as we look at it, and so I don't think that it's going to be enormous headcount growth, but we still see it in target pockets.
spk03: And is there room for, or maybe you can sort of update on your thoughts, maybe sort of given the current environments to, you know, what maybe some potential acquisition opportunities, if you think there might be something that is desirable, what your appetite would be, or maybe if there's, you know, maybe you could sort of talk a little bit about what that pipeline might look like for you, or maybe just sort of bring this up to speed on sort of how you're looking at things right now.
spk05: Thank you. I think there's... There's kind of three different ways that we're looking at the acquisition. I think the first one is, you know, on-demand talent. We're always, you know, looking and seeing what's going on in the markets and where we think we need extra air cover. I think the element of it with Hydra Consulting could be in specific products that we really wanted to add to help benefit what they do and allow us to continue delivering on their services that they have into the market. And I think The other one is, you know, again, as Christian rightly pointed out, which is Hydric Digital. And let's put more of investment than acquisition. It's just really, again, as we kind of see our path and really think that this is going to be an excellent part of our future and making that investment and working probably with partnerships and vendors versus acquisitions is probably how we're going to look at those. So I think what's been really intriguing at this point, Mark, is that it's, look, the valuations, I mean, depending which day you kind of look at the market, but They have started to come down. People's expectations, I think, have become more normalized. And I think it's engaging into interesting conversations that, you know, the right answer is, you know, if we really can get that one plus one to equal three and then execute on that. But always, always willing to entertain conversations around the same.
spk03: Excellent. I appreciate it. Thank you very much. Sure, Mark.
spk02: There are no further questions. I'd like to turn the call back to CEO Krishnan Rajagopalan for closing remarks.
spk09: Thank you, everyone, for your participation and ongoing support. We're very pleased with the progress we're making on our diversification journey, and we're excited to continue on our transformation. And we look forward to updating you again next quarter. Thank you so much.
spk02: This concludes today's conference call. You may now disconnect.
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