Heidrick & Struggles International, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Hydric and Struggles Q3 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. And if you would like to withdraw your question, simply press star 1 again. Now, at this time, I'd like to turn things over to Mr. Steve Horowitz, Interim Head of Investor Relations. Please go ahead, sir.

Thank you, and welcome to our 2023 third quarter conference call. Before we begin, we'd like to congratulate VP of IR, Suzanne Rosenberg, on her newborn and a wonderful addition to our Hydric family. While she is on maternity leave for the quarter and year end, I will be serving as the interim head of IR, having been placed through the on-demand talent group. Moving on to the business of the day, joining me on today's call is our president and CEO, Krishnan Rajagopalan. and Chief Financial Officer Mark Harris. We posted our accompanying slides on the IR homepage of our website at hydric.com, and we encourage you to view these slides for additional context to our prepared remarks. Please note that in the materials presented today, we may refer to non-GAAP financial measures that we believe provide additional insight into our underlying results. Reconciliations between these non-GAAP financial measures and most comparable GAAP 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 now turn the call over to you.

Thank you, Steve. Good afternoon, everyone, and thank you for joining us today. Before we turn to our results, I'd like to take a moment to acknowledge the terrorist attacks on Israel that occurred a few weeks ago and the tragic events continuing to unfold in Israel and Gaza. Our thoughts go out to the countless people whose lives have been lost and changed forever. As a firm, we condemn all acts of terror and violence and reject all forms of racism and hate. We continue to focus on ensuring the safety and well-being of our colleagues and supporting friends and families around the world who've been impacted by these devastating events. Now turning to our financial results. We're very pleased with our third quarter results, where we delivered 263 million of revenue, which was at the upper end of guidance, and within a million dollars from being the largest third quarter in our history. Our revenue was 3% stronger than last year's third quarter, a return to year-over-year growth. With our continued focus on robust profitability, we're also proud to have achieved our 13th consecutive quarter of double-digit adjusted EBITDA margin. Our execution this quarter was impressive, especially given the uncertain macro environment in which we have been operating. Clearly, geopolitical risk has also meaningfully increased over the past few weeks, which will make our markets harder to navigate, but we're prepared to do so, just as we have in the past. It's important to note, however, that while we've historically demonstrated our ability to execute in difficult environments, these factors, among many others, make it difficult for anyone to accurately predict exactly what business conditions will look like over the coming few quarters and beyond. In response to current conditions, our clients are creating a wide range of scenario planning expectations based on a range of outcomes, as we are as well. With that as the backdrop, I want to be explicitly clear that regardless of how the economy moves in the short to medium term, we'll remain relentlessly focused on executing our one hydric strategy, As I mentioned before, this strategy encompasses the two main areas we focus on with our clients as their global leadership advisor. First, we bring the best talent to their companies, whether it's permanent executive-level talent or on-demand talent. And second, we help leadership and organizations be more effective through our consulting and now our digital offering. In doing so, we are continuing our decades-long position as a global market leader within executive search, while also investing in the diversification of our product offerings. Alongside our executive search services, we have a clear set of diversified solutions, which includes offerings in on-demand talent, Hydric Consulting, and the relatively soon-to-be contributor, Hydric Digital. These diversified solutions now represent nearly 25% of our revenues, providing higher growth potential for the broader Hydric and Struggles enterprise, while also beginning to lessen the impact of revenue cyclicality that have always existed within Executive Search. These diversified solutions also make us a stronger partner to our clients as we're able to provide them with a more comprehensive suite of talent, leadership, and human capital offerings. Critically, our diversified approach is more important than ever. Our clients' talent and human capital needs are continuing to grow and evolve and at a much faster pace. For example, rapid business transformations, including more recent AI-driven ones, are putting even more demands on leadership talent. Topics such as cybersecurity and sustainability are growing in importance for boards and companies. And there's a continued push-pull around leader and employee expectations and culture related to remote, hybrid, and traditional workplace environments. As our clients navigate through these needs, we're working closely with them, advising them on these issues, and providing them with a set of integrated talent and human capital advisory services in ways that previously have not been available to them. Now turning to each of our businesses. Beginning with executive search, there has been a moderate slowdown, reflecting macro and portfolio mix changes within the verticals in which we operate. While global technology services and financial services experienced some headwinds, all other practice groups grew year over year. Generally, the search business has been somewhat stabilized over the last few quarters, and our pricing remains strong. Demand has been more resilient with CEO, divisional CEO, supply chain, financial officers, and board of director roles. Now, as we talk about demand stabilization, we should keep in mind that the last few years have included an abnormally low demand period during the pandemics. followed by an abnormally high demand environment as companies began to refocus on future leadership needs. To more effectively measure our progress, it makes sense to take a longer-term view and a more comprehensive look at the growth patterns. From the beginning of 2017 until now, we've delivered a very respectable 7.5% compound annual growth rate. Additionally, the business has been meaningfully profitable, producing north of $50 million in adjusted EBITDA in eight of the last 10 quarters, including nearly $52 million this quarter. This profitability is very important to us as it helps us drive investments into our diversified solutions. Turning to our diversified solutions. In on-demand talent, we're very excited that our strategic acquisition of Atreus continues to drive outsized growth, and we now have a larger presence in Europe as a result of the acquisition. Additionally, demanding the Americas is showing strength. As I mentioned last quarter, we realigned our sales efforts to more directly pursue targeted market opportunities, and this realignment has enabled us to focus on the large talent constraints impacting our clients in areas such as AI, HR, CFO, and CISO roles. For example, we're seeing an increased number of opportunities and roles for AI business applications, for interim finance leaders, for event-driven strategic implementations, and for leadership in uncertain situations. While the labor market remains very tight and we're able to fill these interim positions effectively because of our expansive network of on-demand talent. At the same time, talent application volume is at the highest level ever. Diving deeper into the tight labor market, our ability to combine executive search and on-demand talent is one powerful illustration of our One Hydric strategy, where we're providing our clients with an expanded set of complementary talent offerings. For example, if a company is rapidly expanding, they may have difficulty quickly filling all of their positions. By partnering with us while they're working towards the placement of a permanent executive, they can also tap into our vast network of senior independent talent to fill vacant roles on an interim basis. In addition, there are numerous opportunities to help with high-priority project-related work. Another key component of our diversified solutions offering is the Hydric Consulting segment. As a reminder, the focus of our consulting business is to help clients with leadership assessment and development, to help them align around purpose, culture, and strategy, and to provide pragmatic DE&I solutions. This quarter, the consulting business achieved solid organic year-over-year growth and inorganic growth via the Business 4.0 or B4Z business. As I mentioned last quarter, our backlog was fairly encouraging, and that strength continued through the third quarter. We did see some of those projects that were on hold begin to flow through the business, and that execution has been a positive driver of our revenues. In addition to the nice growth of confirmations compared to last year, we increased our consultant headcount from 72 to 90. This helped drive the meaningful revenue growth we achieved compared to last year through purpose-driven culture and leadership projects. As part of the OneHydric strategy, and similar to our on-demand talent business, a significant amount of these projects were referred by our surge business. And finally, I'll discuss Hydric Digital. As we know, this business has the opportunity to be a large contributor to our diversified solutions, albeit further down the road. We feel strongly that the opportunity for our digital offerings, especially Hydric Navigator, will be significant. When companies take a systematic approach to viewing their talent, they can make better leadership decisions. Whether it's in identifying leaders to promote internally, more effectively aligning leadership talent to business needs, retaining top talent, ensuring that diversity, equity, and inclusion goals are being met. Our offering enables companies to maximize the value of their human capital. To that end, we're excited to share that we converted one of our first early access partners from our Hydric Navigator pilot program into a three-year subscription. This is great early proof of concept success measure. Looking ahead through 2024, we'll be focused on our early adopters and we're responding to their feedback with periodic opportunities to convert them into subscription clients. We're excited that the feedback for Navigator has been universally positive. The success of the digital offering has also allowed us to target higher-volume assessment engagements for Hydric Consulting. Again, we're still very early in our Hydric digital business journey, but we're excited by some of our early successes. Now, you've all heard me speak quite a bit today about the One Hydric Strategy and how all our businesses are strategically linked. Before we conclude, I'll share a client example that illustrates how our different businesses work together to provide a more diversified, comprehensive solution. This example is that of a large company that recently IPO'd. Their goals were to drive expansion into new markets, accelerate the pace of change and innovation, transform their culture to pursue more strategic growth opportunities, reshape their leadership team, and further globalize their business. Our search team introduced the client to our consulting team to perform assessments on potential COO successors from within their organization. After conducting the assessments, they decided that they would continue their search externally with us. The comprehensive nature of our approach coupled with our clear analysis gave this client a the confidence in our ability to be their leadership advisor, and has led to a stronger partnership. We now have multiple projects in place with them to drive organization-wide culture change, executive team acceleration, and CEO succession planning. This example really gets to the heart of what we are accomplishing with so many of our clients, which is to be their leadership advisor, guiding them to be a stronger company. So in closing, We continue to be a market leader and we're relentlessly focused on our One Hydric strategy, bringing clients to best permanent executive and on-demand talent and helping leadership be more effective through our consulting and digital offerings. Looking ahead, we will continue to develop our diversified solutions as we provide broader, more comprehensive offerings for talent and human capital challenges at the executive level. The fundamentals of the business are solid We're excited by the opportunities in front of us. Finally, a big thank you to the Hydric team for their continued hard work and incredible dedication to our clients. I would now like to turn the call over to Mark.

Thank you, Krishnan. And good afternoon and evening to everyone on today's call. Today I will start off with a review of our third quarter results, which came in at the upper end of our guidance, demonstrating strong execution by our team in all business segments. As Krishnan mentioned, Growth through our diversified solutions and continuing strong profitability remain at the forefront of what we're trying to accomplish for our shareholders in 2023 and beyond. Before I dive into the consolidated results for the quarter, I'd like to highlight some numbers associated with our diversified solutions. As Krishan mentioned, this platform consists of our on-demand talent and Hydric Consulting businesses and will soon include Hydric Digital. These businesses now represent nearly 25% of total revenue. a considerable change from the 9% when we embarked upon this journey in 2018. In fact, our diversified solutions quadrupled in that time, going from $63 million to $257 million on an annualized basis today, or an annual growth rate of 32%. Our strategy will be to continue to invest in these businesses, and we expect they will become increasingly part of our bottom-line profitability. Moving on to this quarter results, on a consolidated basis, third quarter revenue was $263.2 million, or 3.1% above revenue for the third quarter of 2022. More specifically, executive search revenue decreased 6.6% from Q3 2022 to $198.8 million. Looking at our regional performance compared to the prior quarters, we saw America's search revenue was down 8%, Europe was up 8% and Asia Pacific was down 22%. This performance was in line with our expectations due to normal seasonality. Compared to last year's third quarter, we saw a 5% reduction in confirmations. Consultant productivity on a trillion-12-month basis in the third quarter was $1.9 million and compares to $2.5 million in the trillion-12 months of the third quarter of 2022. This is right in the middle of the range we expect in a post-pandemic environment where technology has been enhanced, embraced, and accepted by the market. Turning to on-demand talent, revenue was $41.1 million, up 77% compared to the third quarter of 2022. As we have previously discussed, this growth was driven by the positive effects of our Atreus acquisition. Backing out the acquisition for a more comparative result, we saw our legacy on-demand talent business revenue fall by approximately 16% compared to the same period last year. While we saw drops in wins, average project sizes, and the number of extensions, these seemed consistent with the market. However, we are expecting to see strength in our markets in the short to medium term. Hydra Consulting's third quarter revenue grew 22% year-over-year to $23.3 million, partially due to the acquisition of B4Z, and even without their contributions, our legacy HC business was up nearly 10%. Our business is benefiting from the approach to invest in both organic and inorganic growth, where one plus one equals three or greater. In addition to revenue growth, we delivered a 17% increase in confirmations from the previous quarter, and we increased the number of consultants by 25% to 90, which we believe will have strong returns in the future. Thus, we're currently in the investment and scaling phase, and we look forward to delivering continued success with the combination of organic, of the hydro consulting business, along with future acquisitions that fit within our strategic vision. Turning to operating expenses, including recent acquisitions, we saw salary and benefits increase 2.5% from the third quarter of 2022. Variable compensation decreased $13.5 million year-over-year due to a decrease in production. Fixed compensation increased $9.2 million over the third quarter of 2022 due to base salary and payroll taxes, the deferred compensation plan, and other costs, partially offset by decreases in RSU amortization and retirement benefits. As a percentage of net revenue, value benefits were 63.5% versus 67.2% last year. General and administrative expenses increased to $37.6 million, or 14.3% of net revenue compared to 12.6% of net revenue in the third quarter of 2022. The increase is due to intangible amortization and accretion costs from acquisitions, Office occupancy costs and marketing partially offset by a decrease in other costs. Last, we remain focused on progressing the development of Hydric Navigator and other digital assets through R&D spending. R&D spend for the third quarter was $5.6 million, or 2.1% of net revenue, versus $5.4 million, or 2.1% of net revenue in the third quarter of 2022. Overall, the spending is consistent with prior quarters. As we continue to incorporate M&A activity into our business, we must also record non-cash charges related to purchase accounting. Therefore, in terms of underlying profitability and consistent with comments we made in the previous quarter, we view adjusted EBITDA as the best proxy of our operating performance of the business, and we'll use this going forward as we're doing internally. In the third quarter, adjusted EBITDA was $32.3 million compared to $33.3 million in the third quarter of 2022. As Krishna mentioned, we recorded our 13th consecutive double-digit adjusted EBITDA margin at 12.3%, which compares to 13% last year. On a segment basis, executive search remains very profitable, even with the decrease in revenue, with an adjusted EBITDA of $51.9 million compared to $51.5 million in the third quarter of 2022, or a margin of 26.1% compared to 24.2%, respectively. On-demand talent recorded an adjusted EBITDA loss of $0.6 million versus a gain of $0.2 million in the third quarter of 2022. However, as we've discussed, we expect EBITDA margins to continue to be negligible while we both reposition ourselves in the market and invest in people and technology to capture more of this expanding market. Finally, Hydra Consulting posted an adjusted EBITDA loss of $2.2 million compared to a $1.4 million loss in the same quarter last year as we continue to invest in the business to build scale. Finally, adjusted net income for the quarter was $15 million, and adjusted diluted earnings per share was 73 cents, which is down from the $20.5 million in adjusted diluting EPS of $1 in the same quarter last year due to the factors just discussed. Now I'll turn to the balance sheet. At the end of the third quarter, our cash and marketable securities increased sequentially by $95 million to $334 million from the previous quarter, but was down to $122 million by the same quarter last year. The year-over-year decrease is due to our acquisition of BTG, B4Z, Atreus, and executive search expansions in Finland, South Africa, and South America. Taking a closer look at how we prioritize the uses of cash, we first take care of our current operations, and then we believe our next greatest returns will come from reinvesting our cash in inorganic opportunities that accelerate our strategy and are accretive to our sheltered bottom line. When we believe we have discretionary cash that isn't needed for the previous mentioned priorities, we will then review our dividend policy, followed by potential stock repurchases. Moving forward, while there is pressure on corporate spending in the market, we are still seeing good demand signals and strong fundamentals across our business lines. Therefore, we expect the fourth quarter to be strong compared to last year, allowing us to finish another year north of the $1 billion in revenue. That said, turning to our fourth quarter 2023 revenue guidance, we expect to range between $240 million and $260 million. As I mentioned last quarter, we'll continue to leverage our leading executive search business and grow our diversified solution segment as they carry different macro risks, which tend to be less cyclical and more predictable. While they generally carry lower margins versus executive search, and therefore will put pressure on our enterprise EBITDA margins, I would point out that they are expected to grow aggregate dollars in both EBITDA and bottom line, which is expected to expand our EPS in the future. With that, Christian and I would be glad to take your questions.

Thank you, Mr. Harris. Ladies and gentlemen, at this time, if you do have any questions, simply press star 1. And just a reminder, if you find your question has been addressed, you can remove yourself from the queue by pressing star 1 again. And we'll pause for just a moment to assemble the queue.

We'll take our first question this afternoon from Kevin Steinke at Barrington Research.

Good afternoon, Krishnan and Mark.

Hey, Kevin.

I want to start out by asking about your comment about a moderate slowdown in executive search. This is something I guess you've mentioned on the last couple calls, but I just was wondering if that comment was meant to indicate that uh things have slowed down meaningfully since your your second quarter call or is it kind of uh as it was you know several months ago in terms of the the overall uh pace of the demand environment in search yeah um kevin thanks yeah look i will i would say that we uh have been in a choppy environment for a bit of time and uh

and it kind of feels the same to us, though there are many more macro things we're talking about today than we were even a month ago. So we think it's a choppy environment. We think talent is constrained still in this choppy environment. Decision-making is a little bit slower than what we've seen in the past, but I don't want to say that it's worse than in the second quarter. It sort of feels the same to me, and it feels like it's going to continue a little bit as well.

Okay, that's good to hear. Thanks. And you did mention on the consulting side of the business that some projects that had been delayed started up. You know, maybe could you just talk about the rationale from the client side to start up those projects or what might have been the impetus to move forward that might have... you know, gotten them past the hurdles that they had been kind of concerned about before?

Yeah, look, I would say the majority of those hurdles look like, you know, trying to prioritize their own business in the first and second quarters, clearly wanting to go on particularly culture and leadership journeys with us, but getting their priorities together, getting their teams together And so they signed up for the project work, thinking that they could kick it off, and I think they felt far more comfortable about where their own teams were and what their priorities were to be able to engage with us on these projects.

I think there's nothing more than that, but just how do you prioritize?

Okay, great, thank you. And you mentioned again there the realignment and the onsite. demand talent sales effort? You know, maybe, I know it's still early days, but any indications early on of some of the benefits of that realignment or, you know, what you would hope to accomplish going forward with that initiative?

Super, yeah. Look, we definitely feel we're beginning to see green shoots from that initiative. So we've got a lot of metrics in place that we look at the number of conversations people are having, opportunity pipelines, et cetera. And those are all pointed way up now from where they were in the middle, so we're feeling good about that. We're able to bring sales and the talent side of the equation together a little bit closer. We've got a couple of very targeted projects as well on initiatives that we see out there where talent is scarce and we've got opportunity. We call them our greenhouse projects. AI would be one of them, and we're seeing nice momentum in there as well to be able to put part-time or interim people in place on those kinds of projects. So that's why we're feeling pretty good about that sales realignment.

Okay, thank you. I also wanted to ask about digital, and congratulations on converting one of the pilot programs to a for your subscription. I don't know if you can give any sense about how you look to establish subscription prices. I mean, is that completely fixed, or is there any variation based on volume or usage, or I guess any insight into kind of the pricing model that you could provide?

Sure, let me give it a try, Kevin. So I think the first one is there'll be the typical fee, upfront fee, if you will, for installing and making sure that everything kind of goes at the outset of putting everything in place. Then you'll have a subscription fee that's really based off the user count. And there's two different elements to that. The first one, obviously, is the number of users that you have. Obviously, the more and the per pricing would come down. And the other thing that we do is we do benchmark that off some other SaaS companies to see what the pricing and the market really is in terms of a fair value. of what we charge for it. So we kind of get our nods, if you will, from the market as well as the upfront fee in order to put everything kind of in place so it's a combo. You can figure that, again, typically whatever we put in place would more or less have a two or three year runway in front of it in terms of how we would build a business and expectations of how we'd build that business.

Okay, perfect. That's helpful. And just lastly, I wanted to ask about The acquisition pipeline, you mentioned there that acquisitions continue to be a top priority for capital allocation. Maybe what you're seeing in this environment and if the pipeline has changed at all just based on the macro outlook.

The only thing you see on the pipeline is that the pipeline always continues to be quite strong. I mean, just to be clear, the first priority is always our internal, our organic operations, right? And we still believe that we've got things to do in terms of technology development, broad demand talent, hydro consulting, some embed there, et cetera. So don't please don't underestimate the fact that we are spending money rightfully on what we currently hold today. And inorganic was kind of the second priority on the second priority of inorganic. Pipeline is strong. It's still some things are probably outside our reach in terms of pricing, structure, et cetera. And I don't believe really what we've seen, even though we've seen an increase in interest rates. I think I saw somewhere they said credit cards were topping at 28 percent department credit card interest rates. That isn't really impacted a lot of the financings that I would have expected to see as of yet in terms of people going back. trying to get their series G and H done, so to speak. So that will most likely, I think, start to come to focus in Q4, Q1 and Q2 next year. And I think then real valuations probably come within striking distance of where we think we can be accreted to our shareholders.

So that's kind of the way that we see it. Okay, thanks for all the color. I will turn it over. Thanks, Tim. Thank you. We'll go next now to Toby Sommer at Truistic. I'm going to call. Hello.

I was wondering if you could help bridge us to profitability in some of the smaller businesses that you're investing in and managing for growth, given the market opportunity that you see. I think investors kind of want to understand what that looks like and need more information to construct a vision of sort of what the company's

future financial profile will be? Let me see if I can try to answer that, Tobias.

I think what you're currently seeing, look, in terms of executive search and our even emergence on that side of the business, I think you have it, and it's obviously a very skilled business, and that's always going to kind of remain in that mid-20s context. I think if you're asking me long-term, I'll answer it both ways, long-term and short-term. I think long-term on-demand talent as we discussed, is an 8% to 12% margin business, depending on the weighting between the U.S. and Europe and how those kind of forces play out. I think in terms of Hydra Consulting, as we've talked about, we're at that near break-even point. And again, as we get scale into the business, it should be at 10% to 12%, maybe a little bit higher if we get severe scale into that business. And that's where we expect it to come out. And then I think on the digital side, once it kind of goes, scales, we get the amortization kind of covered off. And moving ourselves past that point, we'd be in what I'll call the low 30s in terms of what that margin on a SaaS, because we have the upfront fees and everything else that we really, we don't try to get a lot of margin on. We're trying to get them up. And that's the benefits in the back of that. So that's where we'd expect it to be. I think the overall EBITDA margins long-term for our business are still probably mid-teens because you've got a couple of those that would weight you down from what we have in executive search, and then you've got the digital side that'll weight you up from executive search. So long-term vision, that's what we're trying to see. I think your next question, which is embedded, is when are we going to get there? My honest assessment is I think on the on-demand talent side, it's still very much in two different forces. One, getting the sales force correlated correctly, which is really what the whole re-transition of what we're trying to do. And the second element is looking at the technology side of it and really putting an investment into that, because I think that's going to pay dividends down the road in terms of our ability to scale that and really try to help the margins kind of release themselves. And then Hydro Consulting, I think it's there, as we've talked about a million times, it's really all about scale. And again, I think that's going to be a 10 to 12 percent, hopefully, revenue growth long-term. uh, business. And then you can figure out really in terms of how we get to, you know, 150, $200 million of revenue, what it's going to take to get there outside of inorganic. And of course, inorganic can accelerate us, but it's about the best line of sight I can give you. I don't know if that helps you a bunch.

Sure. I appreciate that, that, uh, that perspective and that color, um, with respect to, uh, the executive search business, particularly in the North American geography. Could you speak to the degree to which being resident in the city where a company is headquartered is required at this point? I'm sure there's been a decent amount of ebb and flow in recent years as a result of the pandemic, but I kind of wanted to get a snapshot of where that is currently. if there are any implications of that for the business in demand and sort of the aperture that you can do to do your recruiting, and do you have an expectation for a trend along those lines going out in the future?

Yeah, and is your question for on the candidate side or on the hydric side?

On the candidate and a customer employer side, not specifically your internal preferences, but more market-related.

Sure, yeah. Look, we're seeing a lot more flexibility on that in terms of recruitment and the ability to look across, particularly the U.S., for talent. I think that... Many leadership roles have changed from five days a week to expecting somebody to be in the office two to three days a week. So there's that movement which supports that. So we're definitely looking more across the U.S. Having said that, people want people to have a home office and want people to commit to particularly on our leadership jobs, to be resident in that home office as well. So that requirement is still there, but flexibility more than ever before.

And have you felt a change in any demand or customer conversations as a result of the emerging Middle East conflict? I'm sure it's not necessarily a a large exposure for the firm geographically, but where you are present, could you speak to what the last three weeks have sort of looked like for your business?

Yeah, I mean, look, I think we have a small team in Israel and there are projects there that are clearly, you know, people evaluating and getting delayed, but that's a small bit of work. In the rest of the world, we haven't seen an impact yet. In the last couple of weeks, we've got our eye on that. We're talking to the teams, and we haven't seen anything yet.

Thank you very much. Thank you. We'll go next now to Mark Riddick at Sedoti.

Hi, good evening. A lot of my questions have been answered. I was just sort of curious if you could maybe elaborate a little bit more on some of the AI-driven opportunities and challenges in your prepared remarks that you talked a bit about. And maybe you could share a little bit about maybe how you feel as though your position from a talent standpoint to begin to work on those opportunities and how they may evolve going forward.

Sure. So look, we've got AI as we think about it in three buckets. The first bucket obviously is a service offering that we offer to clients on helping them with their AI needs. And that conversation, we had tons of conversations and project work that's emerging as a result of that. So that's the first bucket. The second bucket is basically into our tools that we use with clients and others and being able to leverage AI for that. We already do that. I mean, so for example, on the digital side with Hydric Navigator, you know, AI is a component to that, which is why we partnered with Eightfold AI. And we're looking at a whole host of other things that we are piloting now inside the firm to figure out, you know, how does that impact matching? How does it impact a whole host of other things? And a third leg to our AI is all of our business processes that we've got that enable us to run more efficiently. And we're looking at all different approaches over there from simply data and analytics and taking that to the next level with Gen AI. We'd already kind of established a pretty good platform on technology for search, but now how can we leverage that even further? How can we combine our databases using AI to leverage information people are gathering on individuals and bring that to one spot in a far easier way. So there's all kinds of technology that's out there. I think the advantage or where I feel good about our team and talent here is we're working very collaboratively on it. We've got lots of pilots going. We're reporting out on it regularly. And we're sharing it with the firm as well, you know, what things are working, what things aren't, what kind of prompts can people be using, how do you create greater efficiency. So that's kind of the approach that we're taking on this and probably more to come on it soon.

Yeah, that's very helpful. I appreciate that. And I was wondering if you could also then a quick follow-up as to maybe what we're seeing with visibility, with projects, assignments, and the like. I was wondering if, you know, granted we're going into sort of the fourth quarter and the seasonality of holidays and what have you, but I was wondering if you're seeing much of any difference in – and that level of visibility that you would normally have or if it's similar to what you would see at this time of year. Thank you.

Yeah, look, I think it's fairly similar. I think, you know, we have, you know, macro concerns that are out there that are emerging, you know, day to day. So we're keeping an eye on that to figure out how does that impact, going back to the previous question as well, our visibility and thoughts on markets. Does it hit, you know, supply chain? Does it hit oil? You know, what does it do? So we're keeping an eye on that right now. Excuse me. I would say that it's pretty consistent to what we've seen before and throughout the year. We've been pleased to see that, as I referenced, you know, we've seen more CEO searches this year than ever before. So we're tracking trend lines like that and, you know, AI searches and things like that that we can keep our eye on that are markers for where the market's going as well.

Thank you very much. Thank you. We'll take a follow-up question now from Toby Turner.

Thanks. Just wanted to ask you a question about that CEO search comment in sort of the year-to-date demand. Do you have good data in your executive search marketplace to indicate whether there's simply going to be a an elevated velocity of turnover as a result of the baby boomers around the cusp of it. This is something we've talked about in and around the industry for, gosh, decades. And I'm wondering if you've got sort of evidence and a basis for describing a change that could last for a period of years.

Yeah. You know, sort of The way I think about that is that we weren't surprised with seeing elevated number of CEO searches this year just based on conversations that we have, understanding the demographics, et cetera, and also people kind of having run the race on COVID a bit and experienced a great resignation of potentially their teams as to where people were at this stage. So we weren't surprised by that. You know, if we forecast ahead, you know, what we would imagine and would expect to see is changes on teams as a result of that. You know, often CEO changes lead to changes among the executive teams as well. So we would be forecasting that that talent is short and there may be changes that happen over there. As to how much longer the CEO change wave lasts, I'm probably – I don't think I can predict that too much better than what we –

kind I was seeing today. Okay, thank you. You're welcome. Thank you, and ladies and gentlemen, just a final reminder, star one, please, for any further questions this afternoon.

Gentlemen, it appears we have no further questions today. Mr. Rajagopalan, I'd like to hand things back to you for any closing comments.

Super, thank you. Thank you, everyone, for your participation and continued support. Look, we're very encouraged by our results and continue to see good demand signals despite this broader macro uncertainty. So in tandem with navigating the economic challenges, we remain focused on growing our business and continue to execute on our diversification strategy. We look forward to speaking with you again next quarter. Thank you very much.

Thank you. And ladies and gentlemen, that will conclude the Hydric and Struggles Q3 2023 earnings call. Again, we'd like to thank you all so much for joining us and wish you all a great evening. Goodbye.