UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2020

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 0-25837

HEIDRICK & STRUGGLES INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in its Charter)



Delaware		36-2681268
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

233 South Wacker Drive-Suite 4900

Chicago, Illinois

60606-6303

(Address of Principal Executive Offices)

(312) 496-1200

(Registrant’s Telephone Number, Including Area Code)



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	HSII	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period of time that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of ~~October 23, 2017,~~April 24, 2020, there were ~~18,785,831~~19,274,921 shares of the Company’s common stock outstanding.

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX



		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2020 (Unaudited) and December 31, ~~2016~~2019	1

	Unaudited Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019	2

	Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and 2019	3

	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019	4

	Unaudited Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1517

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2726

Item 4.	Controls and Procedures	2726

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	2927

Item 1A.	Risk Factors	28

Item 6.	Exhibits	3029

	SIGNATURE		3130

PART I. FINANCIAL INFORMATION

~~ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


	September 30, 2017			December 31, 2016			March 31, 2020			December 31, 2019
	(Unaudited)						(Unaudited)
Current assets:
Current assets
Cash and cash equivalents	$	105,718		$	165,011		$	251,000		$	271,719
Accounts receivable, net	129,640			93,191
Marketable securities							—			61,153
Accounts receivable, net of allowances of $5,209 and $5,140, respectively							131,371			109,163
Prepaid expenses	24,420			21,602			26,505			20,185
Other current assets	15,258			13,779			32,133			27,848
Income taxes recoverable	5,655			4,847			4,400			4,414
Total current assets	280,691			298,430			445,409			494,482
Non-current assets:

Non-current assets
Property and equipment, net	41,945			35,099			28,450			28,650
Operating lease right-of-use assets							98,943			99,391
Assets designated for retirement and pension plans	17,627			15,698			13,756			13,978
Investments	20,432			17,346			23,516			25,409
Other non-current assets	10,601			9,322			25,181			20,434
Goodwill	125,737			151,844			123,422			126,831
Other intangible assets, net	7,236			20,690			1,554			1,935
Deferred income taxes	49,158			33,073			32,299			33,063
Total non-current assets	272,736			283,072			347,121			349,691

Total assets	$	553,427		$	581,502		$	792,530		$	844,173
Current liabilities:

Current liabilities
Accounts payable	$	8,294		$	7,952		$	11,088		$	8,633
Accrued salaries and employee benefits	127,670			155,523
Deferred revenue, net	35,339			28,367
Accrued salaries and benefits							97,875			234,306
Deferred revenue							41,433			41,267
Operating lease liabilities							29,818			30,955
Other current liabilities	21,503			24,133			19,534			26,253
Income taxes payable	5,256			4,617			8,198			3,928
Total current liabilities	198,062			220,592			207,946			345,342
Non-current liabilities:
Accrued salaries and employee benefits	32,130			34,993

Non-current liabilities
Non-current debt							100,000			—
Accrued salaries and benefits							46,823			59,662
Retirement and pension plans	44,891			39,039			43,851			46,032
Operating lease liabilities							77,594			79,388
Other non-current liabilities	27,373			28,288			4,551			4,634
Total non-current liabilities	104,394			102,320			272,819			189,716

Total liabilities	302,456			322,912			480,765			535,058
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at September 30, 2017 and December 31, 2016	—			—
Common stock, $0.01 par value, 100,000,000 shares authorized, 19,585,777 shares issued, 18,781,433 and 18,578,176 shares outstanding at September 30, 2017 and December 31, 2016, respectively	196			196
Treasury stock at cost, 804,344 and 1,007,601 shares at September 30, 2017 and December 31, 2016, respectively	(26,097		)	(32,915		)

Commitments and contingencies (Note 17)

Stockholders’ equity
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at March 31, 2020 and December 31, 2019							—			—
Common stock, $0.01 par value, 100,000,000 shares authorized, 19,585,777 shares issued, 19,274,921 and 19,165,954 shares outstanding at March 31, 2020 and December 31, 2019, respectively							196			196
Treasury stock at cost, 310,856 and 419,823 shares at March 31, 2020 and December 31, 2019, respectively							(10,957		)	(14,795		)
Additional paid in capital	224,986			229,957			226,033			228,807
Retained earnings	40,927			58,030			96,415			91,083
Accumulated other comprehensive income	10,959			3,322			78			3,824
Total stockholders’ equity	250,971			258,590			311,765			309,115

Total liabilities and stockholders’ equity	$	553,427		$	581,502		$	792,530		$	844,173

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Revenue:
Revenue before reimbursements (net revenue) $ 159,800
$ 143,519
$ 452,020
$ 422,569
Reimbursements 4,665
4,720
13,740
13,773
Total revenue 164,465
148,239
465,760
436,342
Operating expenses:
Salaries and employee benefits 108,546
95,355
309,159
288,015
General and administrative expenses 37,232
36,158
111,454
106,986
Impairment charges —
—
39,158
—
Reimbursed expenses 4,665
4,720
13,740
13,773
Total operating expenses 150,443
136,233
473,511
408,774
Operating income (loss) 14,022
12,006
(7,751 ) 27,568
Non-operating income (expense):
Interest, net 94
42
195
172
Other, net 147
340
(2,773 ) 418
Net non-operating income (expense) 241
382
(2,578 ) 590
Income (loss) before income taxes 14,263
12,388
(10,329 ) 28,158
Provision for (benefit from) income taxes 6,092
5,448
(902 ) 13,238
Net income (loss) 8,171
6,940
(9,427 ) 14,920
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 995
(717 ) 5,779
(1,173 )
Net unrealized gain on available-for-sale investments 624
519
1,858
1,030
Other comprehensive income (loss), net of tax 1,619
(198 ) 7,637
(143 )
Comprehensive income (loss) $ 9,790
$ 6,742
$ (1,790 ) $ 14,777

Basic weighted average common shares outstanding 18,781
18,577
18,720
18,528
Dilutive common shares 235
273
—
273
Diluted weighted average common shares outstanding 19,016
18,850
18,720
18,801

Basic net income per common share $ 0.44
$ 0.37
$ (0.50 ) $ 0.81
Diluted net income per common share $ 0.43
$ 0.37
$ (0.50 ) $ 0.79
Cash dividends paid per share $ 0.13
$ 0.13
$ 0.39
$ 0.39



	Three Months Ended March 31,
	2020			2019
Revenue
Revenue before reimbursements (net revenue)	$	171,481		$	171,594
Reimbursements	3,366			4,680
Total revenue	174,847			176,274

Operating expenses
Salaries and benefits	121,089			120,818
General and administrative expenses	32,240			34,385
Reimbursed expenses	3,366			4,680
Total operating expenses	156,695			159,883

Operating income	18,152			16,391

Non-operating income (expense)
Interest, net	679			808
Other, net	(4,435		)	1,643
Net non-operating income (expense)	(3,756		)	2,451

Income before income taxes	14,396			18,842

Provision for income taxes	5,730			6,755

Net income	8,666			12,087

Other comprehensive income (loss), net of tax
Foreign currency translation adjustment	(3,716		)	320
Net unrealized loss on available-for-sale investments	(30		)	—
Other comprehensive income (loss), net of tax	(3,746		)	320

Comprehensive income	$	4,920		$	12,407

Weighted-average common shares outstanding
Basic	19,192			19,003
Diluted	19,776			19,504

Earnings per common share
Basic	$	0.45		$	0.64
Diluted	$	0.44		$	0.62

Cash dividends paid per share	$	0.15		$	0.15

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

Additional
Paid in
Capital

Retained
Earnings

Accumulated
Other
Compre-
hensive
Income
Total
Common Stock Treasury Stock
Shares Amount Shares Amount
Balance at December 31, 2016 19,586
$ 196
1,008
$ (32,915 ) $ 229,957
$ 58,030
$ 3,322
$ 258,590
Net loss —
—
—
—
—
(9,427 ) —
(9,427 )
Other comprehensive income, net of tax —
—
—
—
—
—
7,637
7,637
Treasury and common stock transactions:
Stock-based compensation —
—
—
—
3,915
—
—
3,915
Vesting of equity, net of tax withholdings —
—
(188 ) 6,310
(8,716 ) —
—
(2,406 )
Re-issuance of treasury stock —
—
(15 ) 508
(170 ) —
—
338
Cash dividends declared ($0.39 per share) —
—
—
—
—
(7,320 ) —
(7,320 )
Dividend equivalents on restricted stock units —
—
—
—
—
(356 ) —
(356 )
Balance at September 30, 2017 19,586
$ 196
805
$ (26,097 ) $ 224,986
$ 40,927
$ 10,959
$ 250,971



									Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income			Total
	Common Stock			Treasury Stock
	Shares	Amount		Shares		Amount
Balance at December 31, 2019	19,586	$	196	420		$	(14,795	)	$	228,807		$	91,083		$	3,824		$	309,115
Net income	—	—		—		—			—			8,666			—			8,666
Adoption of accounting standards	—	—		—		—			—			(332		)	—			(332		)
Other comprehensive loss, net of tax	—	—		—		—			—			—			(3,746		)	(3,746		)
Common and treasury stock transactions:
Stock-based compensation	—	—		—		—			2,614			—			—			2,614
Vesting of equity, net of tax withholdings	—	—		(109	)	3,838			(5,388		)	—			—			(1,550		)
Cash dividends declared ($0.15 per share)	—	—		—		—			—			(2,876		)	—			(2,876		)
Dividend equivalents on restricted stock units	—	—		—		—			—			(126		)	—			(126		)
Balance at March 31, 2020	19,586	$	196	311		$	(10,957	)	$	226,033		$	96,415		$	78		$	311,765



									Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income		Total
	Common Stock			Treasury Stock
	Shares	Amount		Shares		Amount
Balance at December 31, 2018	19,586	$	196	632		$	(20,298	)	$	227,147		$	56,049		$	4,062	$	267,156
Net income	—	—		—		—			—			12,087			—		12,087
Other comprehensive income, net of tax	—	—		—		—			—			—			320		320
Common and treasury stock transactions:
Stock-based compensation	—	—		—		—			1,343			—			—		1,343
Vesting of equity, net of tax withholdings	—	—		(160	)	5,155			(9,707		)	—			—		(4,552		)
Cash dividends declared ($0.15 per share)	—	—		—		—			—			(2,848		)	—		(2,848		)
Dividend equivalents on restricted stock units	—	—		—		—			—			(87		)	—		(87		)
Balance at March 31, 2019	19,586	$	196	472		$	(15,143	)	$	218,783		$	65,201		$	4,382	$	273,419

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2020			2019
Cash flows—operating activities:
Net income (loss)	$	(9,427	)	$	14,920
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Cash flows - operating activities
Net income							$	8,666		$	12,087
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	11,270			11,676			2,337			2,734
Deferred income taxes	(15,340		)	(1,731		)	110			336
Stock-based compensation expense	3,915			5,055			2,614			1,343
Accretion expense related to earnout payments	836			198			—			160
Impairment charges	39,158			—
Changes in assets and liabilities, net of effects of acquisitions:
Gain on marketable securities							(111		)	—
Loss on disposal of property and equipment							1			—
Changes in assets and liabilities:
Accounts receivable	(32,603		)	(33,267		)	(24,656		)	(20,167		)
Accounts payable	49			2,270			1,897			99
Accrued expenses	(38,043		)	(47,130		)	(147,265		)	(146,222		)
Restructuring accrual							(138		)	(681		)
Deferred revenue	6,061			1,298			837			(1,586		)
Income taxes payable, net	(44		)	(76		)	4,082			2,496
Retirement and pension plan assets and liabilities	2,798			3,009			2,033			1,550
Prepaid expenses	(1,631		)	(4,228		)	(6,566		)	(6,499		)
Other assets and liabilities, net	(3,000		)	(1,008		)	(9,441		)	(923		)
Net cash used in operating activities	(36,001		)	(49,014		)	(165,600		)	(155,273		)
Cash flows—investing activities:
Restricted cash	(3		)	7,228
Acquisition of businesses	(364		)	(27,722		)

Cash flows - investing activities
Capital expenditures	(13,161		)	(2,179		)	(1,753		)	(898		)
Purchases of available for sale investments	(2,117		)	(2,361		)
Proceeds from sales of available for sale investments	1,271			510
Net cash used in investing activities	(14,374		)	(24,524		)
Cash flows—financing activities:
Purchases of available-for-sale investments							(2,125		)	(1,678		)
Proceeds from sales of available-for-sale investments							61,395			113
Net cash provided by (used in) investing activities							57,517			(2,463		)

Cash flows - financing activities
Proceeds from line of credit	40,000			—			100,000			—
Payments on line of credit	(40,000		)	—
Cash dividends paid	(7,676		)	(7,442		)	(3,002		)	(2,935		)
Payment of employee tax withholdings on equity transactions	(2,392		)	(2,676		)	(1,550		)	(4,552		)
Acquisition earnout payments	(4,557		)	(7,461		)	(2,788		)	(407		)
Net cash used in financing activities	(14,625		)	(17,579		)
Effect of exchange rates fluctuations on cash and cash equivalents	5,707			640
Net decrease in cash and cash equivalents	(59,293		)	(90,477		)
Cash and cash equivalents at beginning of period	165,011			190,452
Cash and cash equivalents at end of period	$	105,718		$	99,975
Net cash provided by (used in) financing activities							92,660			(7,894		)

Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash							(5,296		)	130

Net decrease in cash, cash equivalents and restricted cash							(20,719		)	(165,500		)
Cash, cash equivalents and restricted cash at beginning of period							271,719			280,262
Cash, cash equivalents and restricted cash at end of period							$	251,000		$	114,762

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except ~~share and~~ per share figures)

(Unaudited)


1.	Basis of Presentation of Interim Financial Information

The accompanying unaudited Condensed Consolidated Financial Statements of Heidrick & Struggles International, Inc. and subsidiaries (the “Company”) have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Significant items subject to estimates and assumptions include revenue recognition, income taxes, interim effective tax rate and the assessment of goodwill and other intangible assets for impairment. Estimates are subject to a degree of uncertainty and actual results could differ from these estimates. In the opinion of management, all adjustments necessary to fairly present the financial position of the Company at March 31, 2020 and December 31, 2019, the results of operations for the three months ended March 31, 2020 and 2019 and its cash flow for the three months ended March 31, 2020 and 2019 have been included and are of a normal, recurring nature except as otherwise disclosed. These financial statements and notes are to be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, as filed with the SEC on ~~March 23, 2017.~~February 24, 2020.


2.	Summary of Significant Accounting Policies

A complete listing of the Company’s significant accounting policies is discussed in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

~~Recently Issued Financial Accounting Standards~~Revenue Recognition

~~In May 2017,~~See Note 3, Revenue.

Marketable Securities

The Company’s marketable securities consist of available-for-sale debt securities with original maturities exceeding three months.

Restricted Cash

Historically, the ~~Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-09, Compensation - Stock Compensation, Scope~~Company had lease agreements and business licenses with terms that required the Company to restrict cash through the termination dates of ~~Modification Accounting, which~~the agreements. Current and non-current restricted cash is ~~intended to provide clarity~~included in Other current assets and ~~reduce both diversity in practice, cost and complexity when implementing a change~~Other non-current assets, respectively, in the terms or conditions of a share-based payment award. ASU 2017-09 requires that an entity should account for the effects of a modification unless the fair value, vesting conditions, and whether the award is classified as a liability instrument or an equity instrument remain unchanged in the modification. ASU 2017-09 is effective for interim and annual periods beginning after December 15, 2017 with early adoption permitted. The Company will adopt this guidance effective January 1, 2018. The impact of this accounting guidance will be dependent on future modification events including the number of awards modified.Condensed Consolidated Balance Sheets.

In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost, which is intended to improve the consistency, transparency and usefulness of net benefit cost disclosures. ASU 2017-07 requires that an employer report the service cost component of net benefit cost in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Additionally, the other components of net benefit costs are required to be presented in the income statement separately from the service cost component and outsideThe following table provides a subtotal of income from operations. ASU 2017-07 is effective for interim and annual periods beginning after December 15, 2017 with early adoption permitted. The Company will adopt this guidance effective January 1, 2018. The impact of this accounting guidance will not be material to the Company's financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other, which eliminates Step 2 from the goodwill impairment test. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amountreconciliation of the reporting unit when measuring the goodwill impairment loss, if applicable. The Board also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The Company early adopted ASU 2017-04, during the three months ended June 30, 2017. The Company concluded that ASU 2017-04 is preferable to the current guidance included in ASC 350 due to the simplified process of subsequently measuring goodwill.

~~included with~~ cash and cash equivalents ~~when reconciling~~between the ~~beginning of period~~Condensed Consolidated Balance Sheets and end of period total amounts shown on the statement of cash flows. The Company currently does not include restricted cash amounts in the beginning and ending cash amounts and will change the presentation of the cash flow statement to include restricted cash in the beginning and ending cash totals. The standard is effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted.The Company will adopt this guidance effective January 1, 2018. If the Company had adopted the guidance as of September 30, 2017, the beginning and ending balance of cash, cash equivalents and restricted cash for the three months ended September 30, 2017 would have each increased by $0.6 million in the Condensed Consolidated Statement of Cash ~~Flows.~~

~~In August 2016, the Financial Accounting Standards Board ("FASB") issued accounting Standards Update ("ASU") No. 2016-15, Statement~~Flows as of ~~Cash Flows: Classification of Certain Cash Receipts~~March 31, 2020 and ~~Cash Payments, which is intended to reduce diversity in practice as to how certain cash receipts~~2019, and ~~cash payments should be presented~~December 31, 2019 and classified. The standard is effective for interim and annual reporting periods beginning after December 15, 2017 with early adoption permitted. The Company has evaluated the standard and noted the guidance for contingent consideration payments made after a business combination are applicable to the Condensed Consolidated Statements of Cash Flows. The Company currently classifies all contingent consideration payments as financing activities. The impact of this change is not expected to be significant to the classification of these activities on the Consolidated Statement of Cash Flows.

In February 2016, the FASB issued ASU No. 2016-02, Leases, intended to improve financial reporting about leasing transactions. The new guidance will require entities that lease assets to recognize on their balance sheets the assets and liabilities for the rights and obligations created by those leases and to disclose key information about the leasing arrangements. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018 with early adoption permitted. The guidance requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of this accounting guidance. The effect is not known or reasonably estimable at this time.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments including the recognition of unrealized changes in fair value within net income. The standard is effective for annual reporting periods beginning after December 15, 2017. The Company will adopt this guidance effective January 1, 2018 and is currently evaluating the impact of this accounting guidance.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The ASU requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for these goods or services. The guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The guidance permits the use of either of the following transition methods: (i) a full retrospective method reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients or (ii) a retrospective method with the cumulative effect upon initial adoption recognized at the date of initial application (modified retrospective). The Company will adopt the guidance on January 1, 2018 and will apply the modified retrospective method, which involves recognizing the cumulative effect of applying the guidance at the date of initial application with no restatement of the comparative periods presented.

The Company is performing its evaluation of ASU No. 2014-09. The Company is paid a retainer for its executive search services equal to approximately one-third of the estimated first year compensation for the position to be filled. If the actual compensation of a placed candidate exceeds the estimated compensation, the Company is often authorized to bill the client for one-third of the excess. The Company currently recognizes revenue associated with the difference between the estimated compensation and actual compensation at the time this amount is considered fixed and determinable. Under ASU 2014-09, the difference between estimated compensation and actual compensation is considered variable consideration. The Company will be required to estimate the amount of variable consideration for its executive search services at contract inception. The Company is still evaluating the financial impact of this change and if other changes will be required.

~~The Company is continuing to evaluate the impacts of adoption of this guidance and its preliminary assessments are subject to change.~~

~~Reclassifications~~

Certain prior year amounts have been recast as a result of the change in the Company's operating segments as first reported in the Company's Annual Report on Form 10-K filed on March 23, 2017. The reclassifications had no impact on net income, net cash flows or stockholders' equity.

2018:



	March 31,				December 31,
	2020		2019		2019		2018
Cash and cash equivalents	$	251,000	$	114,414	$	271,719	$	279,906
Restricted cash included within other current assets	—		106		—		108
Restricted cash included within other non-current assets	—		242		—		248
Total cash, cash equivalents and restricted cash	$	251,000	$	114,762	$	271,719	$	280,262

Earnings per Common Share

Basic earnings per common share is computed by dividing net income by weighted average common shares outstanding for the ~~year.~~period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Common equivalent shares are excluded from the determination of diluted earnings per share in periods in which they have an anti-dilutive effect.

The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
	2017		2016		2017			2016		2020		2019
Net income (loss)	$	8,171	$	6,940	$	(9,427	)	$	14,920
Net income										$	8,666	$	12,087
Weighted average shares outstanding:
Basic	18,781		18,577		18,720			18,528		19,192		19,003
Effect of dilutive securities:
Restricted stock units	187		202		—			202		418		319
Performance stock units	48		71		—			71		166		182
Diluted	19,016		18,850		18,720			18,801		19,776		19,504
Basic earnings (loss) per share	$	0.44	$	0.37	$	(0.50	)	$	0.81
Diluted earnings (loss) per share	$	0.43	$	0.37	$	(0.50	)	$	0.79
Basic earnings per share										$	0.45	$	0.64
Diluted earnings per share										$	0.44	$	0.62

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in Operating Lease Right-of-Use Assets, Operating Lease Liabilities - Current and Operating Lease Liabilities - Non-Current in our Condensed Consolidated Balance Sheets. The Company does not have any leases that meet the finance lease criteria.

Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease right-of-use asset also includes any lease payments made in advance and any accrued rent expense balances. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components. For office leases, we account for the lease and non-lease components as a single lease component. For equipment leases, such as vehicles and office equipment, we account for the lease and non-lease components separately.

Recently Adopted Financial Accounting Standards

On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") No. 2016-13, Measurement of Credit Losses on Financial Instruments, and all related ASU amendments, using the modified retrospective method. The guidance amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The adoption had an immaterial impact on the Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Cash Flows and Condensed Consolidated Statement of Changes in Stockholders' Equity for the three months ended March 31, 2020.

Recently Issued Financial Accounting Standards

In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to provide temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.

In December 2019, the FASB, issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. The guidance simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification ("ASC") 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the

tax basis of goodwill. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the impact of this accounting guidance. The effect is not known or reasonably estimable at this time.


3.	~~Allowance for Doubtful Accounts~~Revenue

~~The activity~~Executive Search

Revenue is recognized as we satisfy our performance obligations by transferring a good or service to a client. Generally, each of our executive search contracts contains one performance obligation which is the process of identifying potentially qualified candidates for a specific client position. In most contracts, the transaction price includes both fixed and variable consideration. Fixed compensation is comprised of a retainer, equal to approximately one-third of the ~~allowance~~estimated first year compensation for ~~doubtful~~the position to be filled, and indirect expenses, equal to a specified percentage of the retainer, as defined in the contract. The Company generally bills its clients for its retainer and indirect expenses in one-third increments over a three-month period commencing in the month of a client’s acceptance of the contract. If actual compensation of a placed candidate exceeds the original compensation estimate, the Company is often authorized to bill the client for one-third of the excess compensation. The Company refers to this additional billing as uptick revenue. In most contracts, variable consideration is comprised of uptick revenue and direct expenses. The Company bills its clients for uptick revenue upon completion of the executive search, and direct expenses are billed as incurred.

The Company estimates uptick revenue at contract inception, based on a portfolio approach, utilizing the expected value method based on a historical analysis of uptick revenue realized in the Company’s geographic regions and industry practices, and initially records a contract’s uptick revenue in an amount that is probable not to result in a significant reversal of cumulative revenue recognized when the actual amount of uptick revenue for that contract is known. Differences between the estimated and actual amounts of variable consideration are recorded when known. The Company does not estimate revenue for direct expenses as it is not materially different than recognizing revenue as direct expenses are incurred.

Revenue from our executive search engagement performance obligation is recognized over time as our clients simultaneously receive and consume the benefits provided by the Company's performance. Revenue from executive search engagements is recognized over the expected average period of performance, in proportion to the estimated personnel time incurred to fulfill our obligations under the executive search contract. Revenue is generally recognized over a period of approximately six months.

Our executive search contracts contain a replacement guarantee which provides for an additional search to be completed, free of charge except for expense reimbursements, should the candidate presented by the Company be hired by the client and subsequently terminated by the client for performance reasons within a specified period of time. The replacement guarantee is an assurance warranty, which is not a performance obligation under the terms of the executive search contract, as the Company does not provide any services under the terms of the guarantee that transfer benefits to the client in excess of assuring that the identified candidate complies with the agreed-upon specifications. The Company accounts for the replacement guarantee under the relevant warranty guidance in Accounting Standards Codification ("ASC") 460 - Guarantees.

Heidrick Consulting

Revenue is recognized as ~~follows:~~we satisfy our performance obligations by transferring a good or service to a client. Heidrick Consulting enters into contracts with clients that outline the general terms and conditions of the assignment to provide succession planning, executive assessment, top team and board effectiveness and culture shaping programs. The consideration the Company expects to receive under each contract is generally fixed. Most of our consulting contracts contain one performance obligation, which is the overall process of providing the consulting service requested by the client. The majority of our consulting revenue is recognized over time utilizing both input and output methods. Contracts that contain coaching sessions, training sessions or the completion of assessments are recognized using the output method as each session or assessment is delivered to the client. Contracts that contain general consulting work are recognized using the input method utilizing a measure of progress that is based on time incurred on the project.

The Company enters into enterprise agreements with clients to provide a license for online access, via the Company's Culture Connect platform, to training and other proprietary material related to the Company's culture shaping programs. The consideration the Company expects to receive under the terms of an enterprise agreement is comprised of a single fixed fee. Our enterprise agreements contain multiple performance obligations, the delivery of materials via Culture Connect and material rights related to options to renew enterprise agreements at a significant discount. The Company allocates the transaction price to the performance obligations in the contract on a stand-alone selling price basis. The stand-alone selling price for the initial term of the enterprise agreement is outlined in the contract and is equal to the price paid by the client for the agreement over the initial term of the contract. The stand-alone selling price for the options to renew, or material right, are not directly observable and must be estimated.

This estimate is required to reflect the discount the client would obtain when exercising the option to renew, adjusted for the likelihood that the option will be exercised. The Company estimates the likelihood of renewal using a historical analysis of client renewals. Access to Culture Connect represents a right to access the Company’s intellectual property that the client simultaneously receives and consumes as the Company performs under the agreement, and therefore the Company recognizes revenue over time. Given the continuous nature of this commitment, the Company utilizes straight-line ratable revenue recognition over the estimated subscription period as the Company's clients will receive and consume the benefits from Culture Connect equally throughout the contract period. Revenue related to client renewals of enterprise agreements is recognized over the term of the renewal, which is generally twelve months. Enterprise agreements do not comprise a significant portion of the Company's revenue.

Contract Balances

Contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. Contract assets and liabilities are classified as current due to the nature of the Company's contracts, which are completed within one year. Contract assets are included within Other Current Assets on the Condensed Consolidated Balance Sheets.

Unbilled receivables: Unbilled revenue represents contract assets from revenue recognized over time in excess of the amount billed to the client and the amount billed to the client is solely dependent upon the passage of time. This amount includes revenue recognized in excess of billed executive search retainers and Heidrick Consulting fees.

Contract assets: Contract assets represent revenue recognized over time in excess of the amount billed to the client and the amount billed to the client is not solely subject to the passage of time. This amount primarily includes revenue recognized for upticks and contingent placement fees in executive search contracts.

Deferred revenue: Contract liabilities consist of deferred revenue, which is equal to billings in excess of revenue recognized.

The following table outlines the changes in our contract asset and liability balances during the period:

Balance at December 31, 2016 $ 2,575
Provision charged to income 2,154
Write-offs (1,081 )
Foreign currency translation 95
Balance at September 30, 2017 $ 3,743



	March 31, 2020		December 31, 2019		Change
Contract assets
Unbilled receivables, net	$	11,366	$	7,585	$	3,781
Contract assets	14,858		14,672		186
Total contract assets	26,224		22,257		3,967

Contract liabilities
Deferred revenue	$	41,433	$	41,267	$	166

During the three months ended March 31, 2020, we recognized revenue of $25.0 million that was included in the contract liabilities balance at the beginning of the period. The amount of revenue recognized during the three months ended March 31, 2020, from performance obligations partially satisfied in previous periods as a result of changes in the estimates of variable consideration was $7.2 million.

Each of the Company's contracts has an expected duration of one year or less.Accordingly, the Company has elected to utilize the available practical expedient related to the disclosure of the transaction price allocated to the remaining performance obligations under its contracts. The Company has also elected the available practical expedients related to adjusting for the effects of a significant financing component and the capitalization of contract acquisition costs. The Company charges and collects from its clients, sales tax and value added taxes as required by certain jurisdictions. The Company has made an accounting policy election to exclude these items from the transaction price in its contracts.


4.	Credit Losses

The Company is exposed to credit losses primarily through the provision of its executive search and consulting services. The Company’s expected credit loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. Due to the short-term nature of such receivables, the estimate of amount of accounts receivable that may not be collected is primarily based on historical loss-rate experience. When required, the Company adjusts the loss-rate methodology to account for current conditions and reasonable and supportable expectations of future economic and market conditions. The Company generally assesses future economic conditions for a period of sixty to ninety days, which corresponds with the contractual life of its accounts receivables. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution,

payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding the novel coronavirus ("COVID-19") pandemic and determined that the estimate of credit losses was not significantly impacted.

The activity in the allowance for credit losses on the Company's trade receivables is as follows:



Balance at December 31, 2019	$	5,140
Provision for credit losses	639
Write-offs	(514		)
Foreign currency translation	(56		)
Balance at March 31, 2020	$	5,209

The fair value and unrealized losses on available for sale debt securities, aggregated by investment category and the length of time the security has been in an unrealized loss position, are as follows:



	Less Than 12 Months				Balance Sheet Classification
Balance at March 31, 2020	Fair Value		Unrealized Loss		Cash and Cash Equivalents		Marketable Securities
U.S. Treasury securities	$	151,750	$	18	$	151,750	$	—

The unrealized losses on three investments in U.S. Treasury securities were caused by fluctuations in market interest rates. The contractual cash flows of these investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the investments would not be settled at a price less than the amortized cost basis. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before the recovery of the amortized cost basis.


5.	Property and Equipment, net

The components of the Company’s property and equipment are as follows:


	September 30, 2017			December 31, 2016			March 31, 2020			December 31, 2019
Leasehold improvements	$	48,007		$	42,891		$	47,386		$	47,269
Office furniture, fixtures and equipment	17,638			16,677			17,744			17,740
Computer equipment and software	28,176			30,186			27,821			27,531
Property and equipment, gross	93,821			89,754			92,951			92,540
Accumulated depreciation	(51,876		)	(54,655		)	(64,501		)	(63,890		)
Property and equipment, net	$	41,945		$	35,099		$	28,450		$	28,650

Depreciation expense for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 was ~~$2.8~~$2.1 million and ~~$2.4 million, respectively. Depreciation expense for the nine months ended September 30, 2017 and 2016 was $7.4 million and $7.0~~$2.5 million, respectively.


6.	Leases

The Company's lease portfolio is comprised of operating leases for office space and equipment. The majority of the Company's leases include both lease and non-lease components, which the Company accounts for differently depending on the underlying class of asset. Certain of the Company's leases include one or more options to renew or terminate the lease at the Company's discretion. Generally, the renewal and termination options are not included in the right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal and termination options and when they are reasonably certain of exercise, includes the renewal or termination option in our lease term.

As most of the Company's leases do not provide an implicit interest rate, the Company utilizes its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company has a centrally managed treasury function; therefore, a portfolio approach is applied in determining the incremental borrowing rate. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a fully collateralized basis over a similar term in an amount equal to the total lease payments in a similar economic environment.

Office leases have remaining lease terms that range from less than one year to 10.1 years, some of which also include options to extend or terminate the lease. Most office leases contain both fixed and variable lease payments. Variable lease costs consist

primarily of rent escalations based on an established index or rate and taxes, insurance, and common area or other maintenance costs, which are paid based on actual costs incurred by the lessor. The Company has elected to utilize the available practical expedient to not separate lease and non-lease components for office leases.

Equipment leases, which are comprised of vehicle and office equipment leases, have remaining terms that range from less than one year to 4.6 years, some of which also include options to extend or terminate the lease. The Company's equipment leases do not contain variable lease payments. The Company separates the lease and non-lease components for its equipment leases. Equipment leases do not comprise a significant portion of the Company's lease portfolio.

Lease cost components included within General and Administrative Expenses in our Condensed Consolidated Statements of Comprehensive Income were as follows for the three months ended March 31:



	2020		2019
Operating lease cost	$	6,261	$	6,573
Variable lease cost	2,073		1,857
Total lease cost	$	8,334	$	8,430

Supplemental cash flow information related to the Company's operating leases is as follows for the three months ended March 31:



	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	7,812	$	8,481
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	1,641	$	8,726

The weighted average remaining lease term and weighted average discount rate for our operating leases as of March 31, is as follows:



	2020		2019
Weighted Average Remaining Lease Term
Operating leases	4.6 years		4.9 years
Weighted Average Discount Rate
Operating leases	3.84	%	3.97	%

The future maturities of the Company's operating lease liabilities as of March 31, 2020, for the years ended December 31 is as follows:



	Operating Lease Maturity
2020	$	21,796
2021	28,043
2022	24,314
2023	21,409
2024	10,950
Thereafter	10,275
Total lease payments	116,787
Less: Interest	(9,375		)
Present value of lease liabilities	$	107,412


7.	Financial Instruments and Fair Value

Cash, Cash Equivalents and Marketable Securities

The Company's investments in marketable debt securities, which consist of U.S. Treasury bills, are classified and accounted for as available-for-sale. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument's underlying contractual maturity date. Unrealized gains and losses on marketable debt securities classified as available-for-sale are recognized in Accumulated other comprehensive income in the Condensed Consolidated Balance Sheets until realized.

The Company's cash, cash equivalents, and marketable securities by significant investment category are as follows:



	Fair Value								Balance Sheet Classification
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
Balance at March 31, 2020
Cash									$	94,243	$	—

Level 1⁽¹⁾:
U.S. Treasury securities	156,774		1		18		156,757		156,757		—
Total Level 1	156,774		1		18		156,757		156,757		—

Total	$	156,774	$	1	$	18	$	156,757	$	251,000	$	—



	Fair Value								Balance Sheet Classification
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
Balance at December 31, 2019
Cash									$	177,493	$	—

Level 1⁽¹⁾:
Money market funds									15,661		—
U.S. Treasury securities	139,705		13		—		139,718		78,565		61,153
Total Level 1	139,705		13		—		139,718		94,226		61,153

Total	$	139,705	$	13	$	—	$	139,718	$	271,719	$	61,153


5.(1)	~~Investments~~ Level 1 – Quoted prices in active markets for identical assets and liabilities.

Investments, Assets Designated for Retirement and Pension Plans and Associated Liabilities

The Company has a U.S. non-qualified deferred compensation plan that consists primarily of U.S. marketable securities and mutual ~~funds, all of which are valued using Level 1 inputs (See Note 6, Fair Value Measurements). The fair value for these investments was $20.4 million and $17.3 million as of September 30, 2017 and December 31, 2016, respectively.~~funds. The aggregate cost basis for these investments was ~~$14.5~~$19.3 million and ~~$13.3~~$17.2 million as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, respectively.


6.	~~Fair Value Measurements~~

~~Fair value~~The Company also maintains a pension plan for certain current and former employees in Germany. The pensions are individually fixed Euro amounts that vary depending on the function and the eligible years of service of the employee. The Company’s investment strategy is ~~defined as~~to support its pension obligations through reinsurance contracts. The BaFin—German Federal Financial Supervisory Authority—supervises the ~~price that would be received~~insurance companies and the reinsurance contracts. The BaFin requires each reinsurance contract to ~~sell an asset or paid to transfer~~guarantee a ~~liability~~fixed minimum return. The Company’s pension benefits are fully reinsured by group insurance contracts with ERGO Lebensversicherung AG, and the group insurance contracts are measured in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputsaccordance with BaFin guidelines (including mortality tables and ~~minimize the use of unobservable inputs.~~

~~The three levels of inputs used to measure fair value~~discount rates) which are ~~as follows:~~

~~Level 1 – Quoted prices in active markets for identical assets and liabilities.~~

considered Level 2 – Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.inputs.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following tables provide a summary of the fair value measurements ~~at September 30, 2017 and December 31, 2016~~ for each major category of investments, assets designated for retirement and pension plans and associated liabilities measured at fair value on a recurring basis:

Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs
(Level 3)
Total
Balance at September 30, 2017
U.S. non-qualified deferred compensation plan $ 20,432
$ —
$ —
$ 20,432
Assets designated for retirement and pension plans —
19,065
—
19,065
Pension benefit obligation —
(24,878 ) —
(24,878 )
Acquisition earnout accruals —
—
(6,980 ) (6,980 )
$ 20,432
$ (5,813 ) $ (6,980 ) $ 7,639



				Balance Sheet Classification
	Fair Value			Other Current Assets		Assets Designated for Retirement and Pension Plans		Investments		Other Current Liabilities			Retirement and Pension Plans
Balance at March 31, 2020

Level 1⁽¹⁾:
U.S. non-qualified deferred compensation plan	$	23,516		$	—	$	—	$	23,516	$	—		$	—

Level 2⁽²⁾:
Retirement and pension plan assets	15,053			1,297		13,756		—		—			—
Pension benefit obligation	(20,586		)	—		—		—		(1,297		)	(19,289		)
Total Level 2	(5,533		)	1,297		13,756		—		(1,297		)	(19,289		)

Total	$	17,983		$	1,297	$	13,756	$	23,516	$	(1,297	)	$	(19,289	)

Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs
(Level 3)
Total
Balance at December 31, 2016
U.S. non-qualified deferred compensation plan $ 17,346
$ —
$ —
$ 17,346
Assets designated for retirement and pension plans —
16,979
—
16,979
Pension benefit obligation —
(22,128 ) —
(22,128 )
Acquisition earnout accruals —
—
(10,991 ) (10,991 )
$ 17,346
$ (5,149 ) $ (10,991 ) $ 1,206



				Balance Sheet Classification
	Fair Value			Other Current Assets		Assets Designated for Retirement and Pension Plans		Investments		Other Current Liabilities			Retirement and Pension Plans
Balance at December 31, 2019

Level 1⁽¹⁾:
U.S. non-qualified deferred compensation plan	$	25,409		$	—	$	—	$	25,409	$	—		$	—

Level 2⁽²⁾:
Retirement and pension plan assets	15,296			1,318		13,978		—		—			—
Pension benefit obligation	(20,918		)	—		—		—		(1,318		)	(19,600		)
Total Level 2	(5,622		)	1,318		13,978		—		(1,318		)	(19,600		)

Total	$	19,787		$	1,318	$	13,978	$	25,409	$	(1,318	)	$	(19,600	)


(1)	Level 1 – Quoted prices in active markets for identical assets and liabilities.


(2)	Level 2 – Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Contingent Consideration

The ~~Level 2 assets above~~former owners of the Company's prior year acquisitions are ~~reinsurance contracts fair~~eligible to receive additional cash consideration based on the attainment of certain operating metrics in the periods subsequent to acquisition. Contingent consideration is valued using significant inputs that are not observable in ~~accordance with BaFin - German Federal Financial Supervisory Authority guidelines,~~the market which ~~utilize observable inputs including mortality tables and discount rates. The~~are defined as Level 3 ~~liabilities include accruals for future earnout payments related~~inputs pursuant to ~~prior acquisitions, the values of which are determined based on discounted cash flow models.~~fair value measurement accounting. The Company ~~considers the recorded value of its financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, and accounts payable, to approximate~~determines the fair value of ~~the respective assets and liabilities at September 30, 2017 and December 31, 2016 based upon the short-term nature of the assets and liabilities.~~

contingent consideration using discounted cash flow models.

812

The following table provides a reconciliation of the beginning and ending balance of Level 3 ~~assets and~~ liabilities for ~~the nine months ended September 30, 2017.~~

Acquisition
Earnout
Accruals
Balance at December 31, 2016 $ (10,991 )
Earnout accretion (836 )
Earnout payments 4,557
Philosophy IB earnout adjustment (Note 7) 705
Foreign currency translation (415 )
Balance at September 30, 2017 $ (6,980 )


7.	~~Acquisitions~~

On October 1, 2015, the Company acquired Co Company, a UK-based management consulting firm that specializes in organizational development. The former owners of Co Company were eligible to receive additional cash consideration upon the realization of specific revenue and EBITDA Margin milestones achieved over the period October 2015 through December 2018. On August 25, 2016, the Company and the former owners of Co Company entered into a Deed of Amendment (the "Amendment") to the Share Purchase Agreement dated October 1, 2015. The Amendment adjusted the target fee revenue and targeted EBITDA margin for each remaining earn out period taking into consideration the unanticipated acquisitions completed subsequent to the Share Purchase Agreement. The new targets include subsequent acquisitions and took effect retrospectively from January 1, 2016. On June 14, 2017, the Company and the former owners of Co Company entered into an Earn Out Buyout Agreement (the “Buyout Agreement”) in accordance with the terms and conditions of the Share Purchase Agreement dated October 1, 2015, as amended by a Deed of Amendment dated August 25, 2016. Pursuant to the Buyout Agreement, in accordance with the Share Purchase Agreement and Deed of Amendment, the Company exercised its right to buy out all of the remaining earnout amounts. The price paid to buy out the Remaining Earn Out Amounts was calculated in accordance with the formula set forth in the Purchase Agreement and resulted in an aggregate buyout payment to the former owners of Co Company of $2.3 million during the three months ended ~~June 30, 2017.~~March 31, 2020:



	Acquisition Earnout Accruals
Balance at December 31, 2019	$	(5,278	)
Earnout payments	5,051
Foreign currency translation	227
Balance at March 31, 2020	$	—

On September 1, 2016, the Company acquired substantially all of the assets of Philosophy IB, LLP ("Philosophy IB"), a New Jersey-based leadership, organization development and management consulting firm for $6.0 million, which was funded from existing cash. The former owners of Philosophy IB are eligible to receive an additional cash consideration based on two components: achieving revenue milestones generated from its software products from September 2016 through August 2019 and percentage of consulting revenue achieved over the period September 2016 to August 2019, subject to a profitability test. During the three months ended September 30, 2017, the Company determined that the software and consulting revenue targets for the period from September 2016 to August 2017, or first installment, would not be achieved. As such, the Company reduced the first installment earnout accrual by $0.7 million.


8.	Goodwill and Other Intangible Assets

Goodwill

The Company's goodwill by segment is as follows:

September 30,
2017 December 31, 2016
Executive Search
Americas $ 88,712
$ 88,101
Europe 44,231
42,599
Asia Pacific 9,351
8,893
Total Executive Search 142,294
139,593
Leadership Consulting 6,950
6,534
Culture Shaping 29,317
29,224
Goodwill, gross 178,561
175,351
Accumulated impairment (52,824 ) (23,507 )
Goodwill, net $ 125,737
$ 151,844



	March 31, 2020		December 31, 2019
Executive Search
Americas	$	91,338	$	92,497
Europe	24,196		25,579
Asia Pacific	7,888		8,755
Total goodwill	$	123,422	$	126,831

Changes in the carrying amount of goodwill by segment for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020, are as follows:

Executive Search Leadership Consulting Culture
Shaping
Americas Europe Asia Pacific Total
Gross goodwill at December 31, 2016 $ 88,101
$ 42,599
$ 8,893
$ 6,534
$ 29,224
$ 175,351
Accumulated impairment —
(23,507 ) —
—
—
(23,507 )
Net goodwill at December 31, 2016 88,101
19,092
8,893
6,534
29,224
151,844
Philosophy IB acquisition 357
—
—
7
—
364
Foreign currency translation 254
1,632
458
409
93
2,846
Impairment —
—
—
—
(29,317 ) (29,317 )
Net goodwill at September 30, 2017 $ 88,712
$ 20,724
$ 9,351
$ 6,950
$ —
$ 125,737

In 2017, the Culture Shaping business continued the transition of senior-level personnel which began in 2016, primarily due to planned retirements. The Company has experienced lower than expected consultant productivity during the transition period. Also, the marketplace for culture shaping services has become increasingly more competitive and the business experienced lengthening sales cycles and decision processes within target client organizations. These events led to a decline in the revenue performance of the business and uncertainty around the timing of improving such performance. As a result, the Company identified a triggering event and performed an interim impairment evaluation on the goodwill related to its Culture Shaping reporting unit during the three months ended June 30, 2017.

During the impairment evaluation process, the Company used a discounted cash flow methodology to estimate the fair value of its Culture Shaping reporting unit. The discounted cash flow approach is dependent on a number of factors, including estimates of future market growth and trends, forecasted revenue and costs, capital investments, appropriate discount rates, certain assumptions to allocate shared costs, assets and liabilities, historical and projected performance of the reporting unit, and the macroeconomic conditions affecting each of the Company’s reporting units. The assumptions used in the determination of fair value were (1) a forecast of growth in the near and long term; (2) the discount rate; (3) working capital investments; and (4) other factors.

The Company early adopted ASU No. 2017-04, Intangibles - Goodwill and Other in conjunction with its impairment evaluation during the three months ended June 30, 2017. Under the adopted guidance, Step 2 of the goodwill impairment test is eliminated. Instead, the goodwill impairment test is completed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value of a the reporting unit exceeds its carrying amount, however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit.

Based on the results of the of the impairment evaluation, the Company determined that the goodwill within the Culture Shaping reporting unit was impaired, which resulted in an impairment charge of $29.3 million to write-off all of the goodwill. The impairment charge is recorded within ~~Impairment charges~~ in the Condensed Consolidated Statement of Comprehensive Income (Loss) for the nine months ended September 30, 2017. The impairment was non-cash in nature and did not affect our current liquidity, cash flows, borrowing capability or operations; nor did it impact the debt covenants under our credit agreement.

The Company continues to monitor potential triggering events for its other reporting units including changes in the business climate in which it operates, the Company’s market capitalization compared to its book value, and the Company’s recent operating performance. Any changes in these factors could result in an impairment charge for the Company's reporting units.



	Executive Search
	Americas			Europe			Asia Pacific			Total
Goodwill at December 31, 2019	92,497			25,579			8,755			126,831
Foreign currency translation	(1,159		)	(1,383		)	(867		)	(3,409		)
Goodwill at March 31, 2020	$	91,338		$	24,196		$	7,888		$	123,422

Other Intangible Assets, net

The Company’s other intangible assets, net by segment, are as follows:

September 30,
2017 December 31, 2016
Executive Search
Americas $ 311
$ 501
Europe 2,011
2,937
Asia Pacific 113
127
Total Executive Search 2,435
3,565
Leadership Consulting 4,801
6,223
Culture Shaping —
10,902
Total other intangible assets, net $ 7,236
$ 20,690

As discussed above, the Culture Shaping business was impacted by the transition of senior-level personnel, primarily due to planned retirements, and the Company experienced lower than expected consultant productivity. The Company has also experienced lengthening sales cycles and decision processes within target client organizations. Due to the impact of these events on revenue and earnings when compared to actual and forecasted results, and the impact to the revenue and earnings inputs utilized in the fair value assessment of the intangible assets, the Company identified a triggering event for its Culture Shaping intangible assets and performed an impairment evaluation during the three months ended June 30, 2017.

The analysis was conducted in accordance with accounting guidance on fair value measurements taking into consideration Level 3 inputs, primarily consisting of discounted cash flow and replacement cost methodologies. Based on this evaluation, the Company recorded an impairment charge related to its Culture Shaping client relationships, trade name, software and non-compete intangible assets of $9.9 million during the nine months ended September 30, 2017. The impairment charge is recorded within ~~Impairment charges~~ ~~in the Condensed Consolidated Statement of Comprehensive Income (Loss) for the nine months ended September 30, 2017.~~



	March 31, 2020		December 31, 2019
Executive Search
Americas	$	372	$	557
Europe	1,130		1,314
Asia Pacific	52		64
Total other intangible assets, net	$	1,554	$	1,935

The carrying amount of amortizable intangible assets and the related accumulated amortization are as follows:


	Weighted Average Life (in years)	September 30, 2017							December 31, 2016							Weighted Average Life (Years)	March 31, 2020							December 31, 2019
	Weighted Average Life (in years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Client relationships	8.2	$	21,454	$	(14,800	)	$	6,654	$	33,299	$	(21,653	)	$	11,646	6.6	$	15,816	$	(14,469	)	$	1,347	$	16,302	$	(14,683	)	$	1,619
Trade name	0.0	456		(456		)	—		9,436		(4,465		)	4,971		5.0	279		(72		)	207		362		(46		)	316
Software	0.0	—		—			—		7,200		(4,114		)	3,086
Non-compete	5.2	427		(169		)	258		974		(423		)	551
Technology	5.3	638		(314		)	324		604		(168		)	436
Total intangible assets	8.0	$	22,975	$	(15,739	)	$	7,236	$	51,513	$	(30,823	)	$	20,690	6.4	$	16,095	$	(14,541	)	$	1,554	$	16,664	$	(14,729	)	$	1,935

Intangible asset amortization expense for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 was ~~$0.9~~$0.2 million and ~~$1.6 million, respectively. Intangible asset amortization expense for the nine months ended September 30, 2017 and 2016 was $3.9 million and $4.7~~$0.2 million, respectively.

1113

The Company's estimated future amortization expense related to intangible assets as of ~~September 30, 2017~~March 31, 2020, for the years ended December ~~31st~~31 is as follows:


Remainder of 2017	$	824
2018	2,528
2019	1,526
			Estimated Future Amortization
2020	887		$	519
2021	614		458
2022			291
2023			172
2024			71
Thereafter	857		43
Total	$	7,236	$	1,554


9.	Other ~~Non-Current Liabilities~~Current Assets

The components of other ~~non-current liabilities~~current assets are as follows:

September 30,
2017 December 31,
2016
Premise related costs $ 18,735
$ 18,188
Accrued earnout payments 6,980
8,518
Other 1,658
1,582
Total other non-current liabilities $ 27,373
$ 28,288



	March 31, 2020		December 31, 2019
Contract assets	$	26,224	$	22,257
Other	5,909		5,591
Total other current assets	$	32,133	$	27,848


10.	Line of Credit

On ~~June 30, 2015,~~October 26, 2018, the Company entered into a new Credit Agreement (the "2018 Credit Agreement") to replace the Second Amended and Restated Credit Agreement (the ~~“Restated~~"Restated Credit ~~Agreement”~~Agreement")~~. The Restated Credit Agreement amended and restated the Credit Agreement~~ executed on June ~~22, 2011 (the “Credit Agreement”). Pursuant to the Restated~~30, 2015. The 2018 Credit Agreement provides the Company ~~replaced its Revolving Facility and Term Facility (“Existing Facility”)~~ with a ~~single~~ senior unsecured revolving line of credit with an aggregate commitment of ~~up to $100~~$175 million, which includes a sublimit of $25 million for letters of credit, and a ~~$50~~$10 million swingline loan sublimit. The agreement also includes a $75 million expansion ~~feature (the “Replacement Facility”).~~feature. The ~~Replacement Facility~~2018 Credit Agreement will mature ~~on June 30, 2020.~~in October 2023. Borrowings under the ~~Restated~~2018 Credit Agreement bear interest at the ~~Company’s~~Company's election atof the ~~existing~~ Alternate Base Rate (as defined in the 2018 Credit Agreement) or Adjusted LIBOR ~~Rate~~ (as defined in the 2018 Credit Agreement) plus a spread as determined by the ~~Company’s~~Company's leverage ratio.

Borrowings under the ~~Replacement Facility~~2018 Credit Agreement may be used for working capital, capital expenditures, Permitted Acquisitions (as defined in the 2018 Credit Agreement) and for other general ~~corporate~~ purposes of the Company and its subsidiaries. The obligations under the ~~Replacement Facility~~2018 Credit Agreement are guaranteed by certain of the ~~Company’s~~Company's subsidiaries.

The Company capitalized approximately $1.0 million of loan acquisition costs related to the 2018 Credit Agreement, which will be amortized over the term of the agreement.

During the three months ended March 31, ~~2017,~~2020, the Company borrowed ~~$40.0~~$100 million under the ~~Restated~~2018 Credit ~~Agreement and elected~~Agreement. The borrowings outstanding under the ~~Adjusted LIBOR Rate.~~revolving line of credit currently bear interest at a rate of 1.77% per annum. The Company ~~subsequently repaid $15.0 million during~~elected to draw down a portion of the ~~three months ended March 31, 2017~~available funds from its revolving line of credit as a precautionary measure to increase its cash position and ~~$25.0 million during~~further enhance its financial flexibility in light of current uncertainty in the ~~three months ended June 30, 2017.~~global markets resulting from the COVID-19 outbreak.

As of ~~September 30, 2017 and~~March 31, 2020, the Company had $100 million of outstanding borrowings. As of December 31, ~~2016,~~2019, the Company had no outstanding ~~borrowings under the Restated Credit Agreement and the~~borrowings. The Company was in compliance with the financial and other covenants under the ~~Restated~~2018 Credit Agreement and no event of default existed.


11.	Stock-Based Compensation

The Company’s Second Amended and Restated 2012 Heidrick & Struggles GlobalShare Program (the “2012 Program”) provides for grants of stock options, stock appreciation rights, and other stock-based awards that are valued based upon the grant date fair value of shares. These awards may be granted to directors, selected employees and independent contractors. ~~The 2012 Program originally authorized 1,300,000 shares of Common Stock for issuance pursuant to awards under the plan.~~

On May 22, 2014, the stockholders of the Company approved an amendment to the 2012 Program to increase the number of shares of Common Stock reserved for issuance under the 2012 Program by 700,000 shares. As of ~~September 30, 2017, 1,744,266~~March 31, 2020, 2,844,025 awards have been issued under the 2012 Program and ~~790,225~~689,098 shares remain available for future awards, ~~which includes 534,491~~including 683,123 forfeited awards. The 2012 Program provides that no awards can be granted after May 24, ~~2022.~~

In September 2017, the Company entered into an agreement with its former Chief Executive Officer pursuant to which Mr. Wolstencroft voluntarily agreed, with the concurrence of the Board of Directors, to forfeit 100 percent of his 2017 restricted stock unit and performance stock unit grants. Mr. Wolstencroft remains eligible to continue vesting in 100 percent of his 2014 sign-on restricted stock unit grant, without proration, subject to his continued service on the board through the future scheduled vesting dates. With respect to his outstanding 2015 and 2016 restricted stock unit and performance stock unit grants, Mr. Wolstencroft remains eligible to earn an agreed upon pro-rata portion of the tranches scheduled to vest in 2017, 2018 and 2019, subject to his continued service as a director through the scheduled vesting dates (and with the performance goals for performance stock unit deemed to have been achieved at target level performance), and he agreed to forfeit the remaining portions of such 2015 and 2016 restricted stock unit and performance stock unit awards.2028.

The Company measures its stock-based compensation costs based on the grant date fair value of the awards and recognizes these costs in the financial statements over the requisite service period.

A summary of information with respect to stock-based compensation is as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Salaries and employee benefits $ 199
$ 1,155
$ 3,915
$ 4,492
General and administrative expenses —
—
338
563
Income tax benefit related to stock-based compensation included in net income 79
437
1,561
2,005



	Three Months Ended March 31,
	2020		2019
Salaries and benefits (1)	$	1,804	$	1,671
Income tax benefit related to stock-based compensation included in net income	479		441

(1) Includes $0.8 million of income and $0.3 million of expense related to cash settled restricted stock units for the three months ended March 31, 2020 and 2019, respectively.

Restricted Stock Units

Restricted stock units are generally subject to ratable vesting over a three-year period. A portion of the Company's restricted stock units are subject to ratable vesting over a four-year period. Compensation expense related to service-based restricted stock units is recognized on a straight-line basis over the vesting period.

Restricted stock unit activity for the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2020 is as follows:


	Number of Restricted Stock Units		Weighted- Average Grant-date Fair Value		Number of Restricted Stock Units		Weighted- Average Grant-Date Fair Value
Outstanding on December 31, 2016	537,273		$	20.97
Outstanding on December 31, 2019					598,988		$	32.25
Granted	243,306		24.18		186,737		23.43
Vested and converted to common stock	(217,028	)	21.39		(125,257	)	30.64
Forfeited	(68,255	)	24.05		—		—
Outstanding on September 30, 2017	495,296		21.94
Outstanding on March 31, 2020					660,468		$	30.06

As of ~~September 30, 2017,~~March 31, 2020, there was ~~$4.1~~$12.2 million of pre-tax unrecognized compensation expense related to unvested restricted stock units, which is expected to be recognized over a weighted average of ~~2.0~~2.6 years.

Performance Stock Units

The Company grants performance stock units to certain of its senior executives. The performance stock units are generally subject to a cliff vesting at the end of a ~~three year~~three-year period. The vesting will vary between 0%— and 200% based on the attainment of operating income goals over the ~~three year~~three-year vesting period. The performance stock units are expensed on a straight-line basis over the ~~three year~~three-year vesting period.

During the three months ended March 31, 2020, performance stock units were granted to certain employees of the Company and are subject to a cliff vesting period of three years and certain other performance conditions. Half of the award is based on the achievement of certain operating margin thresholds and half of the award is based on the Company's total shareholder return, relative to a peer group. The fair value of the awards based on total shareholder return was determined using the Monte-Carlo simulation model. A Monte Carlo simulation model uses stock price volatility and other variables to estimate the probability of satisfying the performance conditions and the resulting fair value of the award.

Performance stock unit activity for the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2020 is as follows:


	Number of Performance Stock Units		Weighted- Average Grant-date Fair Value		Number of Performance Stock Units		Weighted- Average Grant-Date Fair Value
Outstanding on December 31, 2016	236,812		$	22.64
Outstanding on December 31, 2019					179,559		$	32.63
Granted	88,415		23.83		105,847		23.52
Vested and converted to common stock	(70,652	)	19.65		(50,472	)	26.69
Forfeited	(65,598	)	24.06		—		—
Outstanding on September 30, 2017	188,977		23.83
Outstanding on March 31, 2020					234,934		$	29.80

As of ~~September 30, 2017,~~March 31, 2020, there was ~~$1.4~~$5.1 million of pre-tax unrecognized compensation expense related to unvested performance stock units, which is expected to be recognized over a weighted average of ~~1.6~~2.3 years.

Phantom Stock Units

Phantom stock units are grants of phantom stock with respect to shares of the Company's common stock that are settled in cash and are subject to various restrictions, including restrictions on transferability, vesting and forfeiture provisions. Shares of phantom stock that do not vest for any reason will be forfeited by the recipient and will revert to the Company.

Phantom stock units were granted to certain employees of the Company and are subject to vesting over a period of four years and certain other conditions, including continued service to the Company. As a result of the cash-settlement feature of the awards, the Company considers the awards to be liability awards, which are measured at fair value at each reporting date and the vested portion of the award is recognized as a liability to the extent that the service condition is deemed probable. The fair value of the phantom stock awards on the balance sheet date was determined using the closing share price of the Company's common stock on that date.

The Company recorded phantom stock-based compensation income of $0.8 million during the three months ended March 31, 2020 due to a decline in the Company's share price. The Company recorded phantom stock-based compensation expense of $0.3 million during the three months ended March 31, 2019.

Phantom stock unit activity for the three months ended March 31, 2020 is as follows:



	Number of Phantom Stock Units
Outstanding on December 31, 2019	266,060
Granted	—
Vested	—
Forfeited	—
Outstanding on March 31, 2020	266,060

As of March 31, 2020, there was $2.9 million of pre-tax unrecognized compensation expense related to unvested phantom stock units, which is expected to be recognized over a weighted average of 3.0 years.

12. Restructuring

During the three months ended September 30, 2019, the Company recorded restructuring charges of $4.1 million in connection with initiatives to integrate the Company's existing Brazil operations into the 2GET business operation. The Americas incurred $4.1 million in restructuring charges, while Global Operations Support incurred less than $0.1 million. The restructuring charges primarily consist of employee-related costs for the Company's existing Brazil operations.

Changes to the accrual for restructuring charges for the three months ended March 31, 2020, are as follows:



	Employee Related
Outstanding on December 31, 2019	$	3,245
Cash payments	(94		)
Non cash write offs	(28		)
Exchange rate fluctuations	(735		)
Outstanding on March 31, 2020	$	2,388


~~12.~~13.	Income Taxes

The Company reported income before taxes of ~~$14.3~~$14.4 million and an income tax provision of ~~$6.1~~$5.7 million for the three months ended ~~September 30, 2017.~~March 31, 2020. The Company reported income before taxes of ~~$12.4~~$18.8 million and an income tax provision of ~~$5.4~~$6.8 million for the three months ended ~~September 30, 2016.~~March 31, 2019. The effective tax rates for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019, were ~~42.7%~~39.8% and ~~44.0%~~35.9%, respectively. The effective tax ~~rate~~rates for the three months ended ~~September 30, 2017 was~~March 31, 2020 and 2019 were each impacted by ~~losses that are not benefited for tax purposes~~one-time items and ~~the mix of income. The effective tax rate for the three months ended September 30, 2016 was impacted by~~ the mix of income.

The Company reported a loss before taxes of $10.3 million and an income tax benefit of $0.9 million for the nine months ended September 30, 2017. The Company reported income before taxes of $28.2 million and an income tax provision of $13.2 million for the nine months ended September 30, 2016. The effective tax rates for the nine months ended September 30, 2017 and 2016 were 8.7% and 47.0%, respectively. The effective tax rate for the nine months ended September 30, 2017 was impacted by the non-deductibility of the employee benefit tax settlement (See Note 16, ~~Commitments and Contingencies~~), the deferred tax effect on the long-lived assets and goodwill impairment and the inability to recognize losses in certain jurisdictions. The effective tax rate for the nine months ended September 30, 2016 was impacted by the mix of income.

The Company estimates that its effective tax rate for the year ended December 31, 2017 will be approximately 8%. The full year effective rate for 2017 is primarily the result of a loss before income taxes due to the goodwill impairment and losses that cannot be benefited for tax purposes.


~~13.~~14.	Changes in Accumulated Other Comprehensive Income

The changes in Accumulated other comprehensive income (“AOCI”) by component for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 is summarized below:

Available-
for-
Sale
Securities Foreign
Currency
Translation Pension AOCI
Balance at December 31, 2016 $ 3,429
$ 2,290
$ (2,397 ) $ 3,322
Other comprehensive income before classification, net of tax 2,241
5,779
—
8,020
Amount reclassified from AOCI (1) (383 ) —
—
(383 )
Net current period other comprehensive income 1,858
5,779
—
7,637
Balance at September 30, 2017 $ 5,287
$ 8,069
$ (2,397 ) $ 10,959

~~(1) Available-for-Sale Securities reclassifications from AOCI are included in~~ ~~Other, net~~ ~~in the Condensed Consolidated Statement of Comprehensive Income (Loss).~~



	Available- for- Sale Securities			Foreign Currency Translation			Pension			AOCI
Balance at December 31, 2019	$	13		$	6,102		$	(2,291	)	$	3,824
Other comprehensive income before classification, net of tax	(30		)	(3,716		)	—			(3,746		)
Balance at March 31, 2020	$	(17	)	$	2,386		$	(2,291	)	$	78


~~14.~~15.	Segment Information

The Company ~~operates its~~has four operating segments. The executive search business operates in the ~~Americas;~~Americas, Europe (which includes Africa); and Asia Pacific (which includes the Middle East), and the Heidrick Consulting business operates ~~its leadership consulting and culture shaping businesses as separate segments.~~globally.

For segment purposes, reimbursements of out-of-pocket expenses classified as revenue and other operating income are reported separately and, therefore, are not included in the results of each segment. The Company believes that analyzing trends in revenue before reimbursements (net revenue), analyzing operating expenses as a percentage of net revenue, and analyzing operating income, more appropriately ~~reflects~~reflect its core operations.

The revenue and operating income (loss) by segment are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2020		2019
Revenue:
Revenue
Executive Search
Americas	$	88,254	$	75,602	$	248,442	$	230,486	$	100,301	$	99,305
Europe	33,994		27,844		90,534		78,783		33,082		33,553
Asia Pacific	21,865		22,813		64,162		63,427		22,070		25,447
Total Executive Search	144,113		126,259		403,138		372,696		155,453		158,305
Leadership Consulting	8,771		8,635		29,970		23,203
Culture Shaping	6,916		8,625		18,912		26,670
Heidrick Consulting									16,028		13,289
Revenue before reimbursements (net revenue)	159,800		143,519		452,020		422,569		171,481		171,594
Reimbursements	4,665		4,720		13,740		13,773		3,366		4,680
Total revenue	$	164,465	$	148,239	$	465,760	$	436,342	$	174,847	$	176,274


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2020			2019
Operating income (loss):
Operating income (loss)
Executive Search
Americas	$	23,574		$	19,208		$	66,086		$	58,583		$	25,732		$	22,449
Europe	4,131			2,530			5,947			6,926			3,049			2,165
Asia Pacific	1,213			2,223			5,319			4,830			2,502			4,906
Total Executive Search	28,918			23,961			77,352			70,339			31,283			29,520
Leadership Consulting	(1,162		)	(1,009		)	(3,732		)	(5,914		)
Culture Shaping (1)	142			41			(42,355		)	(1,928		)
Total segment operating income (loss)	27,898			22,993			31,265			62,497
Heidrick Consulting													(4,092		)	(4,827		)
Total segment operating income													27,191			24,693
Global Operations Support	(13,876		)	(10,987		)	(39,016		)	(34,929		)	(9,039		)	(8,302		)
Total operating income (loss)	$	14,022		$	12,006		$	(7,751	)	$	27,568
Total operating income													$	18,152		$	16,391


~~(1)~~	~~Culture Shaping operating loss includes the impact of $39.2 million of impairment charges during the nine months ended September 30, 2017.~~


~~15.~~16.	Guarantees

The Company has ~~issued cash collateralized bank guarantees and letter~~utilized letters of credit ~~backed bank guarantees supporting~~to support certain obligations, primarily ~~the payment of~~for its office lease ~~obligations and business license requirements for certain of its subsidiaries~~agreements in Europe and Asia Pacific. The ~~bank guarantees~~letters of credit were made to secure the respective agreements and are for the terms of the agreements, which extend through ~~2019.~~2030. For each ~~bank guarantee~~letter of credit issued, the Company would have to ~~perform under~~use cash to fulfill the ~~guarantee~~obligation if ~~the subsidiary defaults~~there is a default on a ~~lease~~ payment. The maximum amount of undiscounted payments the Company would be required to make in the event of default on all outstanding ~~guarantees~~letters of credit is approximately ~~$2.6~~$3.6 million as of ~~September 30, 2017.~~March 31, 2020. The Company has not accrued for these arrangements as no event of default exists or is expected to exist.

1315


~~16.~~17.	Commitments and Contingencies

Litigation

The Company has contingent liabilities from various pending claims and litigation matters arising in the ordinary course of the Company’s business, some of which involve claims for damages that are substantial in amount. Some of these matters are covered by insurance. Based upon information currently available, the Company believes the ultimate resolution of such claims and litigation will not have a material adverse effect on its financial condition, results of operations or liquidity.

~~UK Employee Benefits Trust~~


18.	Subsequent Event

~~On March 31, 2017,~~The challenges posed by the ~~Company reached a settlement with Her Majesty’s Revenue~~COVID-19 pandemic on the global economy increased significantly as the first quarter progressed. The pandemic has created significant volatility, uncertainty and ~~Customs (“HMRC”)~~economic disruption. Certain governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of the pandemic. Additional, more restrictive proclamations and/or directives may be issued in the United Kingdom regarding HMRC’s challenge of the tax treatment of certain of the Company’s contributions in the United Kingdom to an Employee Benefits Trust between 2002 and 2008. HMRC alleged that the contributions should have been subject to Pay As You Earn tax and Class 1 National Insurance Contributions in the United Kingdom. In connection with the settlement, the Company agreed to pay approximately £5.4 million (equivalent to $6.8 million on the settlement date) related to Pay as You Earn tax, Class 1 National Insurance Contributions, inheritance tax and interest. Concurrently with the HMRC settlement, the Company also reached an agreement with the beneficiaries under the Employee Benefits Trust for the reimbursement of approximately £2.3 million (equivalent to $2.9 million on the settlement date) beneficiary-owed Pay as You Earn tax and Class 1 National Insurance Contributions.

future. The Company has ~~recorded $1.5 million related~~temporarily closed its offices and shifted its workforce to remote operations to ensure the safety of our employees. In addition, certain customers of the Company have closed or reduced their operations during this pandemic. While the Company has not incurred any significant disruptions to our business to date, the extent to which the pandemic impacts the Company's business, operations and financial results will depend on numerous evolving factors that may not be able to be accurately predicted. The Company expects that all of its business segments, across all of its geographies, will be impacted to some degree by the pandemic and actions taken in response to the ~~Pay as You Earn tax and Class 1 National Insurance Contributions~~pandemic, but the significance of the impact of the pandemic on the Company and the ~~respective beneficiary reimbursements as a component of~~ ~~Salaries and employee benefits~~ ~~in the Condensed Consolidated Statement of Comprehensive Income~~duration for ~~the nine months ended September 30, 2017. Inheritance tax and interest expense of $2.4 million incurred as a result of the settlement is recorded as a component of~~ ~~Other, net~~ ~~in the Condensed Consolidated Statement of Comprehensive Income for the nine months ended September 30, 2017.~~

During the three months ended June 30, 2017, the Company made payments of approximately £5.4 million (equivalent to $6.9 million on the payment date) related to the Pay as You Earn tax, and received reimbursement of £2.0 million (equivalent to $2.6 million on the reimbursement date) from the beneficiaries under the Employee Benefits Trust. Approximately £0.3 million (equivalent to $0.4 millionwhich it may have an impact cannot be determined at ~~September 20, 2017) of reimbursements related to beneficiary-owed Pay as You Earn tax is outstanding at September 30, 2017.~~

this time.

1416

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as other sections of this report on Form 10-Q contain forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements are not historical facts, but instead represent only our beliefs, assumptions, expectations, estimates, forecasts and projections regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements include statements other than historical information or statements of current condition and may relate to our future plans and objectives and results. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements.

Factors that may affect the outcome of the forward-looking statements include, among other things, the impacts, direct and indirect, of the COVID-19 pandemic on our business, our consultants and employees, and the overall economy; leadership ~~changes;~~changes, our ability to attract, integrate, develop, manage and retain qualified consultants and senior leaders; our ability to ~~develop and maintain strong, long-term relationships~~prevent our consultants from taking our clients with ~~our clients; fluctuations in the global and local economies and~~them to another firm; our ability to ~~execute successfully~~maintain our ~~strategies;~~professional reputation and brand name; the fact that our net revenue may be affected by adverse economic conditions; our clients’ ability to restrict us from recruiting their employees; the aggressive competition we face; our heavy reliance on information management systems; the fact that we face the risk of liability in the services we perform; the fact that data security, data privacy and data protection laws and other evolving regulations and cross-border data transfer restrictions may limit the use of our services and adversely affect our business; social, or political, ~~instability~~regulatory and legal risks in markets where we ~~operate, the impact of the U.K. referendum to leave the European Union (Brexit);~~operate; the impact of foreign currency exchange rate fluctuations; the fact that we may not be able to align our cost structure with net revenue; unfavorable tax law changes and tax authority rulings; ~~price competition; the ability to forecast, on a quarterly basis, variable compensation accruals that ultimately are determined based on the achievement of annual results;~~ our ability to realize our tax losses; the timing of the establishment or reversal of valuation allowance on deferred tax assets; ~~the mix of profit and loss by country; our ability to integrate future acquisitions; our reliance on information management systems;~~ any impairment of our goodwill, other intangible assets and other long-lived assets; our ability to execute and integrate future acquisitions; the fact that we have anti-takeover provisions that make an acquisition of us difficult and expensive; our ability to access additional credit; and the ~~ability~~increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks that could pose a risk to ~~align~~ our ~~cost structure~~systems, networks, solutions, services and ~~headcount with net revenue.~~data. For more information on the factors that could affect the outcome of forward-looking statements, refer to our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, under Risk Factors in Item 1A. We caution the reader that the list of factors may not be exhaustive. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Overview

Our Business. We are a leadership advisory firm providing executive search ~~leadership~~and consulting ~~and culture shaping services to businesses and business leaders worldwide.~~services. We help our clients build leadership teams by facilitating the recruitment, management and development of senior executives. We believe focusing on top-level services offers us several advantages that include access to and influence with key decision makers, increased potential for recurring search consulting engagements, higher fees per search, enhanced brand visibility and a leveraged global footprint, which create added barriers to entry for potential competitors. Working at the top of client organizations also allows us to attract and retain high-caliber consultants.

In addition to executive search, we provide consulting services including executive leadership assessment, leadership, team and board development, succession planning, talent strategy, people performance, inter-team collaboration, culture shaping and organizational transformation.

We provide our services to a broad range of clients through the expertise of ~~approximately 400~~over 450 consultants located in major cities around the world. Our executive search services are provided on a retained basis. Revenue before reimbursements of out-of-pocket expenses (“net revenue”) consists of retainers and indirect expenses billed to clients. Typically, we are paid a retainer for our executive search services equal to approximately one-third of the estimated first-year compensation for the position to be filled. In addition, if the actual compensation of a placed candidate exceeds the estimated compensation, we often are authorized to bill the client for one-third of the excess. Indirect expenses are calculated as a percentage of the retainer with certain dollar limits per search.

Executive Search. We partner with respected organizations globally to build and sustain the best leadership teams in the world, with a specialized focus on the placement of top-level senior executives. We believe focusing on top-level senior executives provides the opportunity for several advantages including access to and influence with key decision makers, increased potential for recurring search and consulting engagements, higher fees per executive search, enhanced brand visibility, and a leveraged global footprint. Working at the top of client organizations also facilitates the attraction and retention of high-caliber consultants who desire to serve top industry executives and their leadership needs.

We employ a global approach to executive search built on better insights, more data and faster decision making facilitated by the use of our proprietary Infinity Framework and Heidrick Connect. Our Infinity Framework allows clients to holistically evaluate

a candidate's pivotal experience and expertise, leadership capabilities, agility and potential, and culture fit and impact, thereby allowing our clients to find the right person for the role. We supplement our Infinity Framework through a series of additional online tools including our Leadership Accelerator, Leadership Signature and Culture Signature assessments. Heidrick Connect, a completely digital, always available, client experience portal allows our clients to access talent insights for each engagement, including the Infinity Framework and other proprietary assessment tools.

The executive search industry is highly fragmented, consisting of several thousand executive search firms worldwide. Executive search firms are generally separated into two broad categories: retained search and contingency search. Our executive search services are provided on a retained basis. ~~Revenue before reimbursements~~Retained executive search firms fulfill their clients’ senior leadership needs by identifying potentially qualified candidates and assisting clients in evaluating and assessing these candidates. Retained executive search firms generally are compensated for their services regardless of ~~out-of-pocket expenses (“net revenue”) consists of retainers~~whether the client employs a candidate identified by the search firm and ~~indirect expenses billed to clients.~~ are generally retained on an exclusive basis.

For each assignment, we enter into a contract with our client that outlines the general terms and conditions of the assignment. Typically, we are paid a retainer for our executive search services equal to approximately one-third of the estimated first year compensation for the position to be filled. In addition, ~~generally,~~ if the actual compensation of a placed candidate exceeds the estimated compensation, weexecutive search firms often are authorized to bill the client for one-third of the excess. ~~Indirect~~We refer to this excess compensation billing as uptick revenue. We also bill our clients for indirect expenses, which are calculated as a percentage of the retainer with certain dollar limits per search. Revenue before reimbursements of out-of-pocket expenses (“net revenue”) consists of retainers, an estimate of uptick revenue and indirect expenses billed to clients. We generally bill our clients for our retainer and indirect expenses in one-third increments over a three-month period commencing in the month of a client's acceptance of the ~~contract.~~contract with uptick revenue billed upon the completion of the engagement.

~~Leadership~~Heidrick Consulting. ~~Leadership~~Our consulting ~~works with clients to accelerate performance at the strategic, organization,~~services include leadership assessment and development, executive coaching and on-boarding, succession planning, team and ~~individual leader levels.~~board effectiveness, organizational performance acceleration, workforce planning and culture shaping. Our ~~leadership~~ consulting services generate revenue primarily through the professional fees generated for each engagement which are generally based on the size of the project and scope of services. Depending on the terms of the agreement, net revenue from leadership consulting is either recognized proportionally as services are performed or in accordance with the completion of the engagement deliverables. On September 1, 2016, we acquired Philosophy IB, LLP, a leadership, organizational development and management consulting firm. On February 29, 2016, we acquired Decision Strategies International, Inc., which specializes in advising organizations and institutions on strategic planning and decision making in certain operating environments, leadership development and talent strategy.

~~Culture Shaping~~. Our culture shaping business uses proprietary technology to analyze and interpret organizational cultures and drivers and partner with clients to administer methods that develop alignment on leadership teams and desired

organizational outcomes. Our culture shaping services generate revenue through a combination of professional service and license fees related to the engagement. Net revenue associated with culture shaping consulting is recognized proportionally as services are performed. Net revenue associated with licenses to use culture shaping proprietary materials is typically recognized over the term of the arrangement.

We have announced our intentions to combine our Leadership Consulting and Culture Shaping services to create Heidrick Consulting, a comprehensive offering of the firm's advisory services. We have not yet determined the the expected timing or impact of this change on our reportable segments.

Key Performance Indicators

We manage and assess ~~Heidrick & Struggles’~~our performance through various means, with ~~the~~ primary financial and operational measures including net revenue, operating income, operating margin, Adjusted EBITDA (non-GAAP), and Adjusted EBITDA margin (non-GAAP). Executive Search and ~~Leadership~~Heidrick Consulting performance is also measured using consultant ~~headcount and consultant productivity.~~headcount. Specific to Executive Search, confirmation trends, consultant productivity and average revenue per search ~~or project~~ are used to measure performance.

Revenue is driven by market conditions and a combination of the number of executive search engagements and ~~leadership~~ consulting ~~and culture shaping~~ projects and the average revenue per search or project. With the exception of compensation expense, incremental increases in revenue do not necessarily result in proportionate increases in costs, particularly operating and administrative expenses, thus ~~potentially improving~~creating the potential to improve operating margins.

The number of consultants, confirmation trends, number of searches or projects completed, productivity levels and the average revenue per search or project will vary from quarter to quarter, affecting net revenue and operating margin.

Our Compensation Model

At the Executive Search consultant level, there are fixed and variable components of compensation. Individuals are rewarded for their performance based on a system that directly ties a portion of their compensation to the amount of net revenue for which they are responsible. A portion of the reward ismay be based upon individual performance against a series of non-financial measures. Credit towards the variable portion of an ~~Executive Search~~executive search consultant’s compensation is earned by generating net revenue for winning and executing work. Each quarter, we review and update the expected annual performance of all Executive Search consultants and accrue variable compensation accordingly. The amount of variable compensation that is accrued for each Executive Search consultant is based on a tiered payout model. Overall Company performance determines the amount available for total variable compensation. The more net revenue that is generated by the consultant, the higher the percentage credited towards the consultant’s variable compensation and thus accrued by our Company as expense.

At the Heidrick Consulting consultant level, there are also fixed and variable components of compensation. Overall compensation is determined based on the total economic contribution of the Heidrick Consulting segment to the business as a whole. Individual consultant compensation can vary and is derived from credits earned for delivering client work plus credits earned for contributions of intellectual and human capital, client relationship development and consulting practice development. Each quarter, we review and update the expected annual performance of all Heidrick Consulting consultants and accrue variable compensation accordingly.

The mix of individual consultants who generate ~~the~~ revenue in Executive Search and economic contributions in Heidrick Consulting can significantly affect the total amount of compensation expense recorded, which directly impacts operating margin. As a result, the variable portion of the compensation expense may fluctuate significantly from quarter to quarter. The total variable compensation is discretionary and is based on Company-wide financial targets approved by the Human Resources and Compensation Committee of the Board of Directors.

A portion of our Executive Search consultants’ and management cash bonuses is deferred and paid over a three-year vesting period. The compensation expense related to the amounts being deferred is recognized on a graded vesting attribution method over the requisite service period. This service period begins on January 1 of the respective fiscal year and continues through the deferral date, which coincides with our bonus payments in the first quarter of the following year, and for an additional ~~three year~~three-year vesting period. The deferrals are recorded in Accrued salaries and ~~employee~~ benefits ~~within both current and non-current liabilities~~ in the ~~Condensed~~ Consolidated Balance Sheets.

~~Fourth Quarter 2017 Outlook~~Recent Developments

On March 11, 2020, the World Health Organization designated the recent novel coronavirus ("COVID-19") as a global pandemic. COVID-19 was first detected in Wuhan City, China and continued to spread, significantly impacting various markets around the world, including the United States.

With infections reported throughout the world, certain governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of the pandemic. Additional, more restrictive proclamations and/or directives may be issued in the future. We have temporarily closed our offices and shifted our workforce to remote operations to ensure the safety of our employees. During this uncertain time, our critical priorities are:

•the health and safety of our employees, clients and their families;

•providing support to our clients; and

•helping our clients accelerate their business performance and transform with agility

While we have not incurred any significant disruptions to our business to date, the extent to which the pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including, but not limited to:

the duration and scope of the pandemic;

the impact of the pandemic, and actions taken in response to the pandemic, on economic activity;

governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic;

restrictions inhibiting our employees’ ability to access our offices;

the effect on our clients and client demand for our services and solutions;

our ability to sell and provide our services and solutions, including as a result of travel restrictions and people working from home; and

the ability of our clients to pay for our services and solutions

We are currently forecasting 2017 fourth quarter net revenue of between $150 million and $160 million. Our 2017 fourth quarter guidance is based upon, among other things, management’s assumptions for the anticipated volume of new executive search confirmations and leadership consulting and culture shaping projects, the current backlog, consultant productivity, consultant retention, the seasonalityexpect that all of our business segments, across all of our geographies, will be impacted to some degree by the pandemic and ~~average currency rates~~actions taken in ~~September 2017.~~response to the pandemic, but the significance of the impact of the pandemic on our business and the duration for which it may have an impact cannot be determined at this time. Specific factors that may impact our business include, but are not limited to:

~~Our 2017 guidance is subject~~a decline in demand for our executive search and consulting services due to temporary and permanent workforce reductions, and general economic uncertainty;

a lengthening of the executive search process due to a ~~number~~slow-down in client decision making;

an increase in executive searches placed on hold due to delays in planned work by our clients;

an inability to execute in-person consulting engagements; and

disruptions in business operations for offices in areas most impacted by the pandemic, including the United States, United Kingdom, Italy, Spain and China

A sustained economic downturn may also result in the carrying value of ~~risks~~our goodwill, other intangible assets, and ~~uncertainties, including~~long-lived assets exceeding their fair value, which may require us to recognize an impairment to those ~~discussed under Item 1A -~~ ~~Risk Factors~~ inassets.

We believe we have sufficient liquidity to satisfy our ~~2016 Annual Report on Form 10-K. As such, actual results could vary from~~cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these ~~projections.~~uncertain times. On March 24,

1619

2020, we elected to draw down $100 million of the available funds from our revolving line of credit as a precautionary measure to increase our cash position and further enhance our financial flexibility in light of current uncertainty in the global markets.

We have not experienced any material impact to our internal controls over financial reporting despite the fact that our employees are working remotely due to the pandemic. We are continually monitoring and assessing the pandemic situation on our internal controls to minimize the impact on their design and operating effectiveness.

For more information, see Item 1A, "Risk Factors."

Results of Operations

The following table summarizes, for the periods indicated, our results of operations as a percentage of revenue before reimbursements (net revenue):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2020		2019
Revenue:
Revenue
Revenue before reimbursements (net revenue)	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Reimbursements	2.9		3.3		3.0		3.3		2.0		2.7
Total revenue	102.9		103.3		103.0		103.3		102.0		102.7
Operating expenses:
Salaries and employee benefits	67.9		66.4		68.4		68.2

Operating expenses
Salaries and benefits									70.6		70.4
General and administrative expenses	23.3		25.2		24.7		25.3		18.8		20.0
Impairment Charges	—		—		8.7		—
Reimbursed expenses	2.9		3.3		3.0		3.3		2.0		2.7
Total operating expenses	94.1		94.9		104.8		96.7		91.4		93.2
Operating income (loss)	8.8		8.4		(1.7	)	6.5
Non-operating income (expense):

Operating income									10.6		9.6

Non-operating income (expense)
Interest, net	0.1		—		—		—		0.4		0.5
Other, net	0.1		0.2		(0.6	)	0.1		(2.6	)	1.0
Net non-operating income (expense)	0.2		0.3		(0.6	)	0.1		(2.2	)	1.4
Income (loss) before income taxes	8.9		8.6		(2.3	)	6.7

Income before income taxes									8.4		11.0

Provision for income taxes	3.8		3.8		(0.2	)	3.1		3.3		3.9
Net income (loss)	5.1	%	4.8	%	(2.1	)%	3.5	%

Net income									5.1	%	7.0	%

Note: Totals and sub-totals may not equal the sum of individual line items due to rounding.

We operate our executive search services in the Americas; Europe (which includes Africa); and Asia Pacific (which includes the Middle East) and ~~operate~~ our ~~leadership consulting and culture shaping businesses as separate segments~~Heidrick Consulting services globally (See Note ~~14,~~15, Segment Information).

The following tables set forth, for the periods indicated, our revenue and operating income by segment (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2020		2019
Revenue:
Revenue
Executive Search
Americas	$	88,254	$	75,602	$	248,442	$	230,486	$	100,301	$	99,305
Europe	33,994		27,844		90,534		78,783		33,082		33,553
Asia Pacific	21,865		22,813		64,162		63,427		22,070		25,447
Total Executive Search	144,113		126,259		403,138		372,696		155,453		158,305
Leadership Consulting	8,771		8,635		29,970		23,203
Culture Shaping	6,916		8,625		18,912		26,670
Heidrick Consulting									16,028		13,289
Revenue before reimbursements (net revenue)	159,800		143,519		452,020		422,569		171,481		171,594
Reimbursements	4,665		4,720		13,740		13,773		3,366		4,680
Total revenue	$	164,465	$	148,239	$	465,760	$	436,342	$	174,847	$	176,274


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2020			2019
Operating income (loss):
Operating income (loss)
Executive Search
Americas	$	23,574		$	19,208		$	66,086		$	58,583		$	25,732		$	22,449
Europe	4,131			2,530			5,947			6,926			3,049			2,165
Asia Pacific	1,213			2,223			5,319			4,830			2,502			4,906
Total Executive Search	28,918			23,961			77,352			70,339			31,283			29,520
Leadership Consulting	(1,162		)	(1,009		)	(3,732		)	(5,914		)
Culture Shaping (1)	142			41			(42,355		)	(1,928		)
Total segment operating income (loss)	27,898			22,993			31,265			62,497
Heidrick Consulting													(4,092		)	(4,827		)
Total segment operating income													27,191			24,693
Global Operations Support	(13,876		)	(10,987		)	(39,016		)	(34,929		)	(9,039		)	(8,302		)
Total operating income (loss)	$	14,022		$	12,006		$	(7,751	)	$	27,568
Total operating income													$	18,152		$	16,391


~~(1)~~	~~Culture Shaping operating loss includes the impact of $39.2 million of impairment charges for the nine months ended September 30, 2017.~~

Three ~~months ended September 30, 2017~~Months Ended March 31, 2020 Compared to the Three Months Ended ~~September 30, 2016~~March 31, 2019

Total revenue. Consolidated total revenue ~~increased $16.2~~decreased $1.4 million, or ~~10.9%~~0.8%, to ~~$164.5~~$174.8 million for the three months ended ~~September 30, 2017~~March 31, 2020, from ~~$148.2~~$176.3 million for the three months ended ~~September 30, 2016.~~March 31, 2019. The ~~increase~~decrease in total revenue was primarily due ~~primarily~~ to the ~~increase~~decrease in revenue before reimbursements (net revenue).

Revenue before reimbursements (net revenue). Consolidated net revenue ~~increased $16.3~~decreased $0.1 million, or ~~11.3%~~0.1%, to ~~$159.8~~$171.5 million for the three months ended ~~September 30, 2017~~March 31, 2020 from ~~$143.5~~$171.6 million for the three months ended ~~September 30, 2016. Excluding the impact of~~March 31, 2019. Foreign exchange rate fluctuations ~~which~~ negatively impacted results by ~~$1.1~~$1.9 million, or ~~0.8%, consolidated net revenue increased $15.2 million or 10.6%~~1.1%. Executive Search net revenue was ~~$144.1~~$155.5 million for the three months ended ~~September 30, 2017, an increase~~March 31, 2020, a decrease of ~~$17.9~~$2.9 million, or 1.8%, compared to the three months ended ~~September 30, 2016. The increase in Executive Search net revenue was the result of growth in the Americas and Europe, partially offset by a decrease in revenue in Asia Pacific. Leadership~~March 31, 2019. Heidrick Consulting net revenue increased ~~$0.1~~$2.7 million, or ~~1.6%~~20.6%, to ~~$8.8~~$16.0 million for the three months ended September 30, 2017 from $8.6 million for the three months ended September 30, 2016. Culture Shaping net revenue was $6.9 million for the three months ended September 30, 2017, a decrease of $1.7 million compared to the three months ended September 30, 2016.March 31, 2020.

The number of Executive Search and ~~Leadership~~Heidrick Consulting consultants was ~~351~~396 and ~~18,~~70, respectively, as of ~~September 30, 2017~~March 31, 2020, compared to ~~334~~370 and ~~22,~~67, respectively, as of ~~September 30, 2016. Specific to~~March 31, 2019. Executive Search ~~our largest business,~~ productivity, as measured by annualized net Executive Search revenue per consultant, was $1.6 million and ~~$1.5~~$1.7 million for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively. The number of confirmed searches increased ~~4.0%~~2.4% compared to ~~2016.~~2019. The average revenue per executive search ~~increased~~decreased to ~~$128,000~~$118,600 for the three months ended ~~September 30, 2017~~March 31, 2020, compared to ~~$116,600~~$123,700 for the three months ended ~~September 30, 2016.~~
March 31, 2019.

Salaries and ~~employee~~ benefits. Consolidated salaries and ~~employee~~ benefits expense increased ~~$13.2~~$0.3 million, or ~~13.8%~~0.2%, to ~~$108.5~~$121.1 million for the three months ended ~~September 30, 2017~~March 31, 2020 from ~~$95.3~~$120.8 million for the three months ended ~~September 30, 2016. The increase was due to higher fixed compensation of $1.4 million and higher variable compensation of $11.8 million.~~March 31, 2019. Fixed compensation ~~increased~~decreased $0.4 million primarily due to ~~base salaries, payroll taxes~~the deferred compensation plan and ~~benefits related to our recent acquisitions~~talent acquisition and ~~new hires over the last year. These increases were~~retention costs, partially offset by ~~lower minimum guarantee~~increases in base salaries and ~~sign-on bonus amortization.~~payroll taxes, stock compensation, retirement and benefits, and separation. Variable compensation increased ~~primarily~~$0.6 million due to ~~improved productivity in~~contingent compensation related to the ~~Executive Search business. Excluding the impact~~acquisition of 2GET. Foreign exchange rate fluctuations ~~which negatively~~positively impacted results by ~~$0.7~~$1.6 million, or ~~0.7%, consolidated salaries and benefits expense increased $12.5 million, or 13.1%, compared to the three months ended September 30, 2016.~~1.3%.

For the three months ended ~~September 30, 2017,~~March 31, 2020, we had an average of ~~1,816~~1,781 employees compared to an average of ~~1,770~~1,620 employees for the three months ended ~~September 30, 2016.~~March 31, 2019.

As a percentage of net revenue, salaries and ~~employee~~ benefits expense was ~~67.9%~~70.6% for the three months ended ~~September 30, 2017,~~March 31, 2020, compared to ~~66.4%~~70.4% for the three months ended ~~September 30, 2016.~~

March 31, 2019.

General and administrative expenses. Consolidated general and administrative expenses ~~increased $1.1~~decreased $2.1 million, or ~~3.0%,~~6.2% to ~~$37.2~~$32.2 million for the three months ended ~~September 30, 2017~~March 31, 2020 from ~~$36.2~~$34.4 million for the three months ended ~~September 30, 2016.~~March 31, 2019. The increase is due to expenses associated with our annual global partners meeting and office occupancy expenses, partially offset by lower professional fees. Excluding the impact of exchange rate fluctuations, which negatively impacted results by $0.2 million, or 0.6%, consolidateddecrease in general and administrative expenses ~~increased $0.9~~was due to decreases in internal travel, taxes and licenses, and office occupancy, partially offset by increases in professional fees and information technology. Foreign exchange rate fluctuations positively impacted results by $0.3 million, or ~~2.4%, compared to the three months ended September 30, 2016.~~1.0%.

As a percentage of net revenue, general and administrative expenses were ~~23.3%~~18.8% for the three months ended ~~September 30, 2017,~~March 31, 2020, compared to ~~25.2%~~20.0% for the three months ended ~~September 30, 2016.~~March 31, 2019.

Operating ~~income (loss).~~income. Consolidated operating income was ~~$14.0~~$18.2 million for the three months ended ~~September 30, 2017~~March 31, 2020, compared to ~~$12.0~~$16.4 million ~~of operating income~~ for the three months ended ~~September 30, 2016. Exchange~~March 31, 2019. Foreign exchange rate fluctuations positively impacted operating income by ~~$0.2~~less than $0.1 million, or ~~1.5%, for the three months ended September 30, 2017.~~0.2%.

Net non-operating income (expense). Net non-operating ~~income~~expense was ~~$0.2~~$3.8 million for the three months ended ~~September 30, 2017~~March 31, 2020, compared to $2.5 million of net non-operating income ~~of approximately $0.4~~for the three months ended March 31, 2019.

Interest, net, was $0.7 million for the three months ended ~~September 30, 2016.~~March 31, 2020, compared to $0.8 million for the three months ended March 31, 2019.

~~Interest,~~Other, net, was ~~$0.1~~$4.4 million of expense for the three months ended March 31, 2020, compared to $1.6 million of income for the three months ended ~~September 30, 2017 compared~~March 31, 2019. The additional expense in the current year is due to ~~less than $0.1~~an unrealized loss of $3.9 million ~~of income for~~on the Company’s deferred compensation plan. Investments held in the Company’s deferred compensation plan are recorded at fair value, which declined significantly during the three months ended ~~September 30, 2016.~~

~~Other, net was income~~March 31, 2020 as a result of ~~$0.1 million for~~overall declines in the ~~three months ended September 30, 2017 and income of $0.3 million for the three months ended September 30, 2016.~~stock market.

Income taxes. See Note ~~12,~~13, Income Taxes.

Executive Search

Americas

The Americas segment reported net revenue of ~~$88.3~~$100.3 million for the three months ended ~~September 30, 2017,~~March 31, 2020, an increase of ~~16.7%~~1.0% from ~~$75.6~~$99.3 million for the three months ended ~~September 30, 2016.~~March 31, 2019. The increase in net revenue was due to an ~~increase in consultant headcount and an~~8.6% increase in the number of ~~confirmed searches. All~~executive search confirmations. The Consumer Markets and Industrial practice groups ~~contributed to~~exhibited growth over the ~~increase in net revenue.~~prior year. Foreign exchange rate fluctuations negatively impacted results by $0.4 million or 0.4%. There were ~~169 Partner and Principal~~206 Executive Search consultants as of ~~September 30, 2017~~March 31, 2020, compared to ~~154~~191 as of ~~September 30, 2016.~~March 31, 2019.

Salaries and ~~employee~~ benefits expense ~~increased $8.6~~decreased $2.0 million, asor 3.1%, compared to the three months ended ~~September 30, 2016.~~March 31, 2019. Fixed compensation ~~increased $0.7~~decreased $2.8 million, primarily due to ~~higher~~the deferred compensation plan, talent acquisition and retention costs, and retirement and benefits, partially offset by an increase in base salaries and payroll taxes. Variable compensation increased ~~$7.9 million primarily due to higher bonus accruals as a result of increased productivity.~~

~~General and administrative expenses decreased $0.3 million primarily due to lower internal travel costs.~~

~~Operating income was $23.6 million for the three months ended September 30, 2017, an increase of $4.4 million compared to $19.2 million for the three months ended September 30, 2016.~~

~~Europe~~

Europe reported net revenue of $34.0 million for the three months ended September 30, 2017, an increase of 22.1% from $27.8 million for the three months ended September 30, 2016. The increase in net revenue was due to a 6.3% increase in the number of executive search confirmations and an increase in consultant headcount. Our acquisition of JCA Group in August 2016 contributed to the year-over-year growth in net revenue. All industry practice groups contributed to net revenue growth with the exception of the Global Technology & Services practice group. Excluding the impact of exchange rate fluctuations which positively impacted results by $0.9 million, or 3.2%, net revenue increased $5.2 million or 18.9%. There were 103 Partner and Principal consultants as of September 30, 2017 as compared to 95 as of September 30, 2016.

Salaries and employee benefits expense increased $4.6 million as compared to the three months ended September 30, 2016. Fixed compensation increased $1.5 million for the three months ended September 30, 2017 primarily due to compensation expense associated with the JCA acquisition in August 2016. Variable compensation increased $3.1 million due to higher bonus accruals.

General and administrative expense remained consistent with the prior year, primarily due to increases in intangible amortization, earnout accretion and office occupancy costs related to the JCA acquisition in August 2016, offset by a decrease in professional fees and internal travel costs.

The Europe segment reported operating income of $4.1 million for the three months ended September 30, 2017, an increase of $1.6 million compared to $2.5 million for the three months ended September 30, 2016.

~~Asia Pacific~~

Asia Pacific reported net revenue of $21.9 million for the three months ended September 30, 2017, an decrease of 4.2% compared to $22.8 million for the three months ended September 30, 2016. The decrease in net revenue was due to a 10.4% decrease in the number of executive search confirmations. Foreign exchange rates did not have an impact on revenue. There were 79 Partner and Principal consultants as of September 30, 2017 compared to 85 as of September 30, 2016.

Salaries and employee benefits expense increased $0.3 million compared to the three months ended September 30, 2016. Fixed compensation decreased $0.1 million due to lower base salaries and payroll taxes and amortization of sign-on bonuses. Variable compensation increased $0.4 million due to higher bonus accruals due to increased productivity.

General and administrative expenses decreased $0.3 million compared to the three months ended September 30, 2016, primarily due to lower professional services and internal travel costs, partially offset by higher occupancy costs.

~~The Asia Pacific segment reported operating income of $1.2 million for the three months ended September 30, 2017, a decrease of $1.0 million compared to the three months ended September 30, 2016.~~

~~Leadership Consulting~~

The Leadership Consulting segment reported net revenue of $8.8 million for the three months ended September 30, 2017, an increase of 1.6% compared to $8.6 million for the three months ended September 30, 2016. Contributing to the increase in net revenue were our DSI and Philosophy IB acquisitions and an increase in the number of Leadership Consulting engagements. Excluding the impact of exchange rate fluctuations, which positively impacted results by $0.1 million, or 0.8%, net revenue increased $0.1 million or 0.8%. There were 18 Leadership Consulting Partner consultants at September 30, 2017 compared to 22 at September 30, 2016.

Salaries and employee benefits expense increased $0.9 million compared to the prior year. Fixed compensation increased $0.8 million due to additional headcount related to the Philosophy IB acquisition, partially offset by lower amortization of minimum guarantees. Variable compensation was consistent with the prior year.

General and administrative expenses decreased $0.6 million due to lower internal travel costs and reductions in certain earnout accruals, partially offset by increased intangible amortization and earnout accretion related to our Philosophy IB acquisition in September 2016.

The Leadership Consulting segment reported an operating loss of $1.2 million for the three months ended September 30, 2017, a decrease of $0.2 million compared to an operating loss of $1.0 million for the three months ended September 30, 2016.

~~Culture Shaping~~

The Culture Shaping segment reported net revenue of $6.9 million for the three months ended September 30, 2017, a decrease of $1.7 million, or 19.8%, compared to $8.6 million for the three months ended September 30, 2016. Net revenue decreased due to a decline in the volume of enterprise agreements, partially offset by an increase in consulting revenue. Foreign exchange rates did not have an impact on revenue. There were 17 Partner and Principal consultants at both September 30, 2017 and 2016.

~~Salaries and employee benefits expense decreased~~ $0.7 ~~million due to $1.3 million of investments in new and existing consultants incurred in the prior year that did not reoccur in the three months ended September 30, 2017.~~

~~General and administrative expenses decreased $1.1 million primarily due to lower intangible amortization due to the impairment recorded during the three months ended June 30, 2017.~~

The Culture Shaping segment reported an operating income of $0.1 million for the three months ended September 30, 2017, compared to operating income of less than $0.1 million for the three months ended September 30, 2016.

~~Global Operations Support~~

~~Global Operations Support expenses for the three months ended September 30, 2017 increased $2.9 million, or 26.3%, to $13.9 million from $11.0 million for the three months ended September 30, 2016.~~

~~Salaries and employee benefits expense decreased $0.4 million due to lower stock compensation expense, partially offset by higher management and support bonuses.~~

General and administrative expenses increased $3.3 million due to expenses related to our annual global partners meeting and information technology costs, partially offset by lower hiring and temporary labor costs.

~~Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016~~

~~Total revenue.~~ Consolidated total revenue increased $29.4 million, or 6.7%, to $465.8 million for the nine months ended September 30, 2017 from $436.3 million for the nine months ended September 30, 2016. The increase in total revenue was due primarily to the increase in revenue before reimbursements (net revenue).

~~Revenue before reimbursements (net revenue).~~ Consolidated net revenue increased $29.5 million, or 7.0%, to $452.0 million for the nine months ended September 30, 2017 from $422.6 million for the nine months ended September 30, 2016. Excluding the impact of exchange rate fluctuations which negatively impacted results by $4.9 million, or 1.2%, consolidated net revenue increased $34.4 million or 8.1%. Executive Search net revenue was $403.1 million for the nine months ended September 30, 2017, an increase of $30.4 million compared to the nine months ended September 30, 2016. The increase in Executive Search net revenue was the result of growth in all regions. Leadership Consulting net revenue increased $6.8 million, or 29.2%, to $30.0 million for the nine months ended September 30, 2017 from $23.2 million for the nine months ended September 30, 2016. The increase in Leadership Consulting net revenue was primarily the result of the DSI and Philosophy IB acquisitions. Culture Shaping net revenue was $18.9 million for the nine months ended September 30, 2017, a decrease of $7.8 million compared to the nine months ended September 30, 2016 due to a lower volume of client work.

Specific to Executive Search, our largest business, productivity as measured by annualized net Executive Search revenue per consultant was $1.5 million and $1.5 million for the nine months ended September 30, 2017 and 2016, respectively. The number of confirmed searches increased 4.5% compared to 2016. The average revenue per executive search increased to $116,300 for the nine months ended September 30, 2017 compared to $112,300 for the nine months ended September 30, 2016.

~~Salaries and employee benefits.~~ Consolidated salaries and employee benefits expense increased $21.1 million, or 7.3%, to $309.2 million for the nine months ended September 30, 2017 from $288.0 million for the nine months ended September 30, 2016. The increase was due to higher fixed compensation of $11.5 million and higher variable compensation of $9.6 million. Fixed compensation increased due to higher compensation related to our recent acquisitions, new hires over the last year and the HMRC employee benefit tax settlement of $1.5 million. Variable compensation increased primarily due to increased productivity in our Executive Search and Leadership Consulting businesses. Excluding the impact of exchange rate fluctuations, which positively impacted results by $2.9 million, or 1.0%, consolidated salaries and benefits expense increased $24.0 million, or 8.3%, compared to the nine months ended September 30, 2016.

~~For the nine months ended September 30, 2017, we had an average of 1,812 employees compared to an average of 1,721 employees for the nine months ended September 30, 2016.~~

~~As a percentage of net revenue, salaries and employee benefits expense was 68.4% for the nine months ended September 30, 2017, compared to 68.2% for the nine months ended September 30, 2016.~~

~~General and administrative expenses.~~ Consolidated general and administrative expenses increased $4.5 million, or 4.2%, to $111.5 million for the nine months ended September 30, 2017 from $107.0 million for the nine months ended September 30, 2016. The increase reflects costs associated with ongoing general and administrative expenses related to the acquisitions made in 2016, including the use of third-party consultants and contractors to execute work for leadership consulting services, higher office occupancy and higher audit fees. Excluding the impact of exchange rate fluctuations, which positively impacted results by $1.5 million, or 1.4%, consolidated general and administrative expenses increased $6.0 million, or 5.6%, compared to the nine months ended September 30, 2016.

~~As a percentage of net revenue, general and administrative expenses were 24.7% for the nine months ended September 30, 2017, compared to 25.3% for the nine months ended September 30, 2016.~~

~~Impairment charges.~~ In 2017, the Culture Shaping business continued the transition of senior-level personnel which began in 2016, primarily due to planned retirements. The Company has experienced lower than expected consultant productivity during the transition period. Also, the marketplace for culture shaping services has become increasingly more competitive and the business experienced lengthening sales cycles and decision processes within target client organizations. These events led to a decline in the revenue performance of the business and uncertainty around the timing of improving such performance. As a result, the Company identified a triggering event and performed an interim impairment evaluation on the goodwill and intangible assets related to its Culture Shaping reporting unit during the quarter ended June 30, 2017.

Based on the results of the of the impairment evaluation, the Company determined that the goodwill and intangible assets within the Culture Shaping reporting unit were impaired, which resulted in an impairment charge of $39.2 million to write-off

~~all of the goodwill and intangible assets. The impairment charge is recorded within~~ ~~Impairment charges~~ in the Condensed Consolidated Statements of Comprehensive Income (Loss) for the nine months ended September 30, 2017. The impairment was non-cash in nature and did not affect our current liquidity, cash flows, borrowing capability or operations; nor did it impact the debt covenants under our credit agreement.

~~Operating income (loss).~~ Consolidated operating loss was $7.8 million for the nine months ended September 30, 2017 compared to operating income of $27.6 million for the nine months ended September 30, 2016. The decrease in operating income is the result of a $39.2 million impairment of intangible assets and goodwill within the Culture Shaping segment. When excluding impairment charges, the Company reported $31.4 million of operating income for the nine months ended September 30, 2017. Exchange rate fluctuations negatively impacted operating income by $0.5 million for the nine months ended September 30, 2017.

~~Net non-operating income (expense). Net non-operating expense was $2.6 million for the nine months ended September 30, 2017 compared to net non-operating income of $0.6 million for the nine months ended September 30, 2016.~~

~~Interest, net was $0.2 million of income for each of the nine months ended September 30, 2017 and 2016.~~

Other, net was expense of $2.8 million for the nine months ended September 30, 2017 and income of $0.4 million for the nine months ended September 30, 2016. Other, net decreased primarily due to the HMRC employee benefit tax settlement of $2.4 million.

~~Income taxes.~~ ~~See Note 12,~~ ~~Income Taxes~~.

~~Executive Search~~

~~Americas~~

The Americas segment reported net revenue of $248.4 million for the nine months ended September 30, 2017, an increase of 7.8% from $230.5 million for the nine months ended September 30, 2016. The increase in net revenue was due to a 5.7% increase in the number of executive search confirmations and an increase in consultant headcount. All practice groups contributed to the increased net revenue. There were 169 Partner and Principal consultants as of September 30, 2017 compared to 154 as of September 30, 2016.

Salaries and employee benefits expense increased $8.4 million from the nine months ended September 30, 2016. Fixed compensation increased $4.0 million primarily due to higher base salaries, payroll taxes and benefits. Variable compensation increased by $4.4 million primarily due to higher bonus accruals resulting from increased productivity.

~~General and administrative expenses increased $2.0 million primarily due to office occupancy, litigation expense and the use of external third-party consultants to perform client work.~~

~~Operating income was $66.1 million for the nine months ended September 30, 2017, an increase of $7.5 million compared to $58.6 million for the nine months ended September 30, 2016.~~

~~Europe~~

Europe reported net revenue of $90.5 million for the nine months ended September 30, 2017, an increase of 14.9% from $78.8 million for the nine months ended September 30, 2016. The increase in net revenue was due to a 7.0% increase in the number of executive search confirmations and an increase in consultant headcount. Our acquisition of JCA Group in August 2016 also contributed to the year-over-year growth in net revenue. All industry practice groups contributed to net revenue growth except for the Global Technology & Services practice group. Excluding the impact of exchange rate fluctuations which negatively impacted results by $3.5 million, or 4.4%, net revenue increased $15.2 million or 19.4%. There were 103 Partner and Principal consultants as of September 30, 2017 compared to 95 as of September 30, 2016.

Salaries and employee benefits expense increased $10.4 million compared to the nine months ended September 30, 2016. Fixed compensation increased $7.1 million for the nine months ended September 30, 2017 primarily due to compensation expense associated with the JCA acquisition in August 2016, increases in legacy base salaries and payroll taxes and the HMRC employee benefit tax settlement, net of reimbursements, of $1.5 million. Variable compensation increased $3.3 million due to higher bonus accruals as a result of increased ~~productivity.~~consultant productivity and contingent compensation related to the acquisition of 2GET.

General and administrative ~~expense increased $2.3~~expenses decreased $0.3 million, ~~from~~or 2.1%, compared to the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2019, due to taxes and licenses, and internal travel, partially offset by increases in professional fees, the use of external third-party consultants, and office occupancy.

Operating income was $25.7 million for the three months ended March 31, 2020, an increase of $3.3 million compared to $22.4 million for the three months ended March 31, 2019.

Europe

Europe reported net revenue of $33.1 million for the three months ended March 31, 2020, a decrease of 1.4% from $33.6 million for the three months ended March 31, 2019. The decrease in net revenue was primarily due to ~~ongoing general~~a 3.4% decrease in the number of executive search confirmations. The Education and ~~administrative expenses related to the JCA Group acquisition.~~Social Enterprises, Consumer Markets, Global Technology Services,

and Life Sciences practice groups exhibited growth over the prior year. Foreign exchange rate fluctuations negatively impacted results by $0.7 million, or 2.2%. There were 110 Executive Search consultants as of March 31, 2020, compared to 105 as of March 31, 2019.

Salaries and benefits expense increased $0.1 million, or 0.2%, compared to the three months ended March 31, 2019. Fixed compensation increased $0.3 million for the three months ended March 31, 2020, primarily due to base salaries and payroll taxes, talent acquisition and retention costs, and retirement and benefits. Variable compensation decreased $0.2 million due to lower bonus accruals as a result of decreased consultant productivity.

General and administrative expense decreased $1.4 million, or 17.7%, compared to the three months ended March 31, 2019, primarily due to decreases in internal travel, office occupancy, and professional fees.

The Europe segment reported operating income of ~~$5.9~~$3.0 million for the ~~nine~~three months ended ~~September 30, 2017, a decrease~~March 31, 2020, an increase of ~~$1.0~~$0.9 million compared to ~~$6.9~~$2.2 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2019.

Asia Pacific

Asia Pacific reported net revenue of ~~$64.2~~$22.1 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, a decrease of 13.3% compared to $25.4 million for the three months ended March 31, 2019. The decrease in net revenue was due to a 3.1% decrease in the number of executive search confirmations compared to the prior year. The decline in executive search confirmations is attributable to a general decline in business volume due to COVID-19, primarily in China and Singapore. Foreign exchange rate fluctuations negatively impacted results by $0.7 million, or 3.1%. There were 80 Executive Search consultants as of March 31, 2020, compared to 74 as of March 31, 2019.

Salaries and benefits expense decreased $0.6 million, or 3.5%, compared to the three months ended March 31, 2019. Fixed compensation increased $0.1 million due to retirement and benefits, and talent acquisition and retention costs, partially offset by a decrease in base salaries and payroll taxes. Variable compensation decreased $0.6 million due to lower bonus accruals as a result of decreased consultant productivity.

General and administrative expenses decreased $0.4 million, or 8.7%, compared to the three months ended March 31, 2019, primarily due to decreases in internal travel, and taxes and licenses, partially offset by an increase in bad debt expense.

The Asia Pacific segment reported operating income of $2.5 million for the three months ended March 31, 2020, a decrease of $2.4 million compared to the three months ended March 31, 2019.

Heidrick Consulting

Heidrick Consulting reported net revenue of $16.0 million for the three months ended March 31, 2020, an increase of ~~1.2%~~20.6% compared to ~~$63.4~~$13.3 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2019. The ~~Life Sciences and Industrial industry practice groups contributed to~~increase in Heidrick Consulting net revenue ~~growth. Excluding the impact of~~is primarily due to one large consulting engagement. Foreign exchange rate fluctuations ~~which positively~~negatively impacted results by $0.1 million, or ~~0.1%, net revenue increased $0.7 million or 1.0%~~0.5%. There were ~~79 Partner and Principal~~70 Heidrick Consulting consultants ~~as of September 30, 2017~~at March 31, 2020, compared to ~~85 as of September 30, 2016.~~67 at March 31, 2019.

Salaries and ~~employee~~ benefits expense increased ~~$0.9 million.~~$2.1 million, or 17.1%, compared to the three months ended March 31, 2019. Fixed compensation ~~declined by $0.1~~increased $1.2 million due to ~~lower amortization of sign-on bonuses and guarantees and~~ base salaries and payroll taxes, ~~partially offset by increases in~~and retirement and ~~benefits expense.~~benefits. Variable compensation increased $1.0 million due to higher bonus accruals ~~resulting from~~as a result of increased consultant productivity.

General and administrative expenses decreased ~~$0.7~~$0.1 million, or 2.5%, compared to the three months ended March 31, 2019, primarily due to ~~lower office occupancy expenses and~~ internal travel ~~costs, partially offset by increased professional fees.~~

~~The Asia Pacific segment reported operating income of $5.3 million for the nine months ended September 30, 2017, an increase of $0.5 million compared to the nine months ended September 30, 2016.~~

~~Leadership Consulting~~

The Leadership Consulting segment reported net revenue of $30.0 million for the nine months ended September 30, 2017, an increase of 29.2% compared to $23.2 million for the nine months ended September 30, 2016. The increase in net revenue was partially driven by our DSI and Philosophy IB acquisitions. Excluding the impact of exchange rate fluctuations which negatively impacted results by $1.4 million, or 6.0%, net revenue increased $8.2 million or 35.2%. There were 18 Leadership Consulting Partner consultants at September 30, 2017 compared to 22 at September 30, 2016.

Salaries and employee benefits expense increased $4.0 million compared to the prior year. Fixed compensation increased $3.2 million primarily due to the acquisitions of DSI and Philosophy IB, partially offset by lower amortization of minimum guarantees and separation expenses. Variable compensation increased $0.8 million compared to the prior year due to higher bonus accruals.

~~General and administrative expenses increased $0.6 million primarily due to ongoing general and administrative expenses related to the acquisitions of DSI and Philosophy IB~~ and the use of external third-party consultants, ~~to complete client work,~~ partially offset by ~~declines~~increases in ~~litigation expense, other~~ professional fees and ~~internal travel expenses.~~information technology.

The ~~Leadership~~Heidrick Consulting segment reported an operating loss of ~~$3.7~~$4.1 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, an improvement of ~~$2.2~~$0.7 million compared to an operating loss of ~~$5.9~~$4.8 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2019.

~~Culture Shaping~~Global Operations Support

~~The Culture Shaping segment reported net revenue of $18.9~~

Global Operations Support expenses for the three months ended March 31, 2020, increased $0.7 million, or 8.9%, to $9.0 million from $8.3 million for the ~~nine~~three months ended September 30, 2017, a decrease of $7.8 million, or 29.1%, compared to $26.7 million for the nine months ended September 30, 2016. Net revenue decreased due to a decline in the volume of client work. Excluding the impact of exchange rate fluctuations which negatively impacted results by $0.3 million, or 1.2%, net revenue decreased $7.4 million or 27.9%. There were 17 Partner and Principal consultants at both September 30, 2017 and 2016.

Salaries and employee benefits expense decreased $4.5 million primarily due to investments in new and existing consultants incurred in the prior year that did not reoccur in the nine months ended September 30, 2017.March 31, 2019.

General and administrative expenses decreased $2.0 million primarily due to lower intangible amortization and earnout accretion, partially offset by higher internal travel costs, information technology expenses, and office occupancy costs.

Impairment charges for the nine months ended September 30, 2017 were $39.2 million as a result of an interim impairment evaluation on the goodwill and amortizable intangible assets related to our Culture Shaping reporting unit. The impairment charge is recorded within ~~Impairment charges~~ ~~in the Condensed Consolidated Statement of Comprehensive Income (Loss) for the nine months ended September 30, 2017.~~

The Culture Shaping segment reported an operating loss of $42.4 million for the nine months ended September 30, 2017, a decline of $40.4 million compared to an operating loss of $1.9 million for the nine months ended September 30, 2016. The

increase in operating loss primarily reflects the write-off of $39.2 million of goodwill and intangible assets due to impairment. When excluding goodwill and intangible asset impairment charges, the Culture Shaping segment report an operating loss of $3.2 million.

~~Global Operations Support~~

~~Global Operations Support expenses for the nine months ended September 30, 2017 increased $4.1 million, or 11.7%, to $39.0 million from $34.9 million for the nine months ended September 30, 2016.~~

Salaries and ~~employee~~ benefits expense increased ~~$1.9~~$0.7 million, or ~~9.9%~~14.4%, due to ~~higher bonus accruals,~~stock compensation and separation, partially offset by ~~lower separation costs.~~a decrease in base salaries and payroll taxes.

General and administrative expenses increased ~~$2.2~~$0.1 million, or ~~13.8%~~2.3%, primarily due to ~~higher internal travel~~professional fees and information technology, ~~costs,~~ partially offset by ~~lower~~decreases in office occupancy ~~costs~~ and ~~hiring~~taxes and ~~temporary labor fees.~~licenses.

Liquidity and Capital Resources

General. We continually evaluate our liquidity requirements, capital needs and availability of capital resources based on our operating needs. We believe that our available cash balances, ~~together with the~~ funds expected to be generated from operations and funds available under our committed revolving credit facility will be sufficient to finance our operations for the foreseeable future, as well as to finance the cash payments associated with our cash dividends and stock repurchase program.

We pay the non-deferred portion of annual bonuses in the first quarter following the year in which they are earned. Employee bonuses are accrued throughout the year and are based on our performance and the performance of the individual employee.

Lines of credit. On ~~June 30, 2015, the Company~~October 26, 2018, we entered into a new Credit Agreement (the "2018 Credit Agreement") to replace the Second Amended and Restated Credit Agreement (the ~~“Restated~~"Restated Credit ~~Agreement”~~Agreement")~~. The Restated Credit Agreement amended and restated the Credit Agreement~~ executed on June ~~22, 2011 (the “Credit Agreement”). Pursuant to the Restated~~30, 2015. The 2018 Credit Agreement ~~the Company replaced its Revolving Facility and Term Facility (“Existing Facility”)~~provides us with a ~~single~~ senior unsecured revolving line of credit with an aggregate commitment of ~~up to $100~~$175 million, which includes a sublimit of $25 million for letters of credit and a ~~$50~~$10 million swingline loan sublimit. The agreement also includes a $75 million expansion ~~feature (the “Replacement Facility”).~~feature. The ~~Replacement Facility~~2018 Credit Agreement will mature ~~on June 30, 2020.~~in October 2023. Borrowings under the ~~Restated~~2018 Credit Agreement bear interest at ~~the Company’s~~our election atof the ~~existing~~ Alternate Base Rate (as defined in the 2018 Credit Agreement) or Adjusted LIBOR ~~Rate~~ (as defined in the 2018 Credit Agreement) plus a spread as determined by ~~the Company’s~~our leverage ratio.

Borrowings under the ~~Replacement Facility~~2018 Credit Agreement may be used for working capital, capital expenditures, Permitted Acquisitions (as defined in the 2018 Credit Agreement) and for other general ~~corporate purposes of the Company and its subsidiaries.~~purposes. The obligations under the ~~Replacement Facility~~2018 Credit Agreement are guaranteed by certain of our subsidiaries.

We capitalized approximately $1.0 million of loan acquisition costs related to the ~~Company’s subsidiaries.~~2018 Credit Agreement, which will be amortized over the remaining term of the agreement.

During the three months ended March 31, ~~2017,~~2020, we borrowed ~~$40.0~~$100 million under the ~~Restated~~2018 Credit ~~Agreement~~Agreement. The borrowings outstanding under the revolving line of credit currently bear interest at a rate of 1.77% per annum. We elected to draw down a portion of the available funds from our revolving line of credit as a precautionary measure to increase our cash position and further enhance our financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak. We believe that we have more than sufficient liquidity, even prior to taking this action, but elected to draw down available funds out of an abundance of caution in this period of uncertainty. The draw-down proceeds from the ~~Adjusted LIBOR Rate. We subsequently repaid $15.0 million during the three months ended March 31, 2017~~revolving line of credit are currently being held on our balance sheet and ~~repaid $25.0 million during the three months ended June 30, 2017.~~have been invested in short-term securities.

As of ~~September 30, 2017~~March 31, 2020, we had $100 million in outstanding borrowings and as of December 31, ~~2016, the Company~~2019, we had no outstanding ~~borrowings under the Restated Credit Agreement and the Company was~~borrowings. In both periods, we were in compliance with the financial and other covenants under the ~~Restated Credit Agreement~~facility and no event of default existed.

Cash, cash equivalents and ~~cash equivalents.~~marketable securities. Cash, ~~and~~ cash equivalents and marketable securities at ~~September 30, 2017,~~March 31, 2020, December 31, ~~2016~~2019, and ~~September 30, 2016~~March 31, 2019 were ~~$105.7~~$251.0 million, ~~$165.0~~$332.9 million and ~~$100.0~~$114.4 million, respectively. The ~~$105.7~~$251.0 million of cash, ~~and~~ cash equivalents and marketable securities at ~~September 30, 2017~~March 31, 2020, includes ~~$66.4~~$73.6 million held by our foreign subsidiaries. A portion of the ~~$66.4~~$73.6 million is considered permanently reinvested in these foreign subsidiaries. If these funds were required to satisfy obligations in the U.S., the repatriation of these funds could cause us to incur additional U.S. income taxes or foreign withholding taxes. Any additional taxes could be offset, in part or in whole, by foreign tax credits. The amount of such taxes and application of tax credits would be dependent on the income tax laws and other circumstances at the time these amounts are repatriated. Based on these variables, it is not practicable to determine the income tax liability that might be incurred if these earnings were to be repatriated.

Cash flows used in operating activities. For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, cash used in operating activities was ~~$36.0~~$165.6 million. This use of cash was primarily the result of ~~a reduction in accrued expenses due to~~ cash bonus payments ~~of $137.0 million~~ related to ~~2016~~2019 and prior year cash bonus deferrals ~~with 2017 variable compensation~~of $222.1 million partially offset by 2020 bonus accruals, an increase in accounts receivable of ~~$112.0~~$24.7 million, an increase in other assets of $9.4 million and an increase in prepaid expenses of $6.6 million, partially offset by net income of $8.7 million and an increase in taxes payable of $4.1 million.

For the three months ended March 31, 2019, cash used in operating activities was $155.3 million. This use of cash was primarily the result of cash bonus payments related to 2018 and prior year cash bonus deferrals of $199.0 million partially offset by an increase in 2019 bonus accruals, an increase in accounts receivable of $20.2 million and increases in prepaid expenses of $6.5

million, partially ~~offsetting these payments. Also contributing to the use~~offset by net income of ~~cash was an increase in accounts receivable~~$12.1 million, depreciation and amortization of ~~$32.6 million, net loss of $9.4 million, increase in deferred tax assets of $15.3 million, a $6.5 million payment for Senn Delaney retention awards, an increase in other assets and liabilities of $3.0~~$2.7 million and an increase in prepaid expenses of $1.6 million. These uses of cash were partially offset by impairment charges of $39.2 million, depreciation and amortization of $11.3 million, deferred revenue of $6.1 million, a net increase in retirement and pension plan liabilities of $2.8 million and stock compensation expense of $3.9 million.

For the nine months ended September 30, 2016, cash used in operating activities was $49.0 million. This use of cash was primarily the result of a reduction in accrued expenses due to cash bonus payments of $145.0 million related to 2015 and prior year cash bonus deferrals with 2016 variable compensation accruals of $101.0 million partially offsetting these payments, an increase in accounts receivable of $33.3 million, the payment of $6.5 million for the retention bonus paid to certain key executives related to the Senn Delaney acquisition and an increase in prepaid expenses of $4.2 million. These uses of cash were partially offset by a net income ~~of $14.9 million, depreciation and amortization expense of $11.7 million, stock compensation expense of $5.1 million an increase in accounts~~taxes payable of ~~$2.3 million and an increase in deferred revenue of $1.3~~$2.5 million.

Cash flows used in investing activities. Cash ~~used in~~provided by investing activities was ~~$14.4~~$57.5 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020, primarily due to ~~capital expenditures~~proceeds from available for sale investments of ~~$13.1~~$61.4 million, ~~and~~partially offset by purchases of available for sale investments of $2.1 million, ~~related to the Company's non-qualified deferred compensation plan.~~and capital expenditures of $1.8 million for office build-outs.

~~Cash~~For the three months ended March 31, 2019, cash used in investing activities was $24.5 million for the nine months ended September 30, 2016 primarily due to our acquisitions of JCA Group, DSI and Philosophy IB for $14.9 million, $9.0 million and $6.0 million, respectively. This use of cash was partially offset by a reduction in restricted cash of $7.2$2.5 million, primarily due to ~~a release~~purchases of ~~funds~~available for ~~the retention bonuses paid to certain key executives~~sale investments of $1.7 million and capital expenditures related to ~~the Senn Delaney acquisition.~~office build-outs of $0.9 million, partially offset by proceeds from sales available for sale investments of $0.1 million.

Cash flows used in financing activities. Cash ~~used in~~provided by financing activities was $92.7 million for the ~~nine~~three months ended ~~September 30, 2017 was $14.6 million~~March 31, 2020, primarily due to the draw on the line of credit of $100.0 million, partially offset by dividend payments of ~~$7.6~~$3.0 million, the final earnout payment for the Amrop acquisition ~~earnout payments related to the Co Company and Scambler MacGregor acquisitions~~ of ~~$4.6~~$2.8 million, and employee tax withholding payments on equity transactions of ~~$2.4~~$1.6 million. ~~The Company borrowed and repaid $40.0 million under its line of credit during the nine months ended September 30, 2017.~~

~~Cash~~For the three months ended March 31, 2019, cash used inby financing activities ~~for the nine months ended September 30, 2016~~ was ~~$17.6~~$7.9 million primarily due to earnout payments for Senn Delaney, Scambler MacGregor and Co Company acquisitions of $6.8 million, $0.4 million and $0.2 million, respectively, cash dividend payments of $7.4 million and the payment of employee tax ~~withholdings~~withholding payments on equity transactions of ~~$2.7~~$4.6 million, dividend payments of $2.9 million and the final earnout payment for the Scambler MacGregor acquisition of $0.4 million.

Off-Balance Sheet Arrangements. We do not have material off-balance sheet arrangements, special purpose entities, trading activities of non-exchange traded contracts or transactions with related parties.

Application of Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements, which have been prepared using accounting principles generally accepted in the United States of America. Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 as filed with the U.S. Securities and Exchange Commission (“SEC”) on ~~March 23, 2017,~~February 24, 2020, and in Note 2, Summary of Significant Accounting Policies, in the Notes to Condensed Consolidated Financial Statements included in Item 1. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. If actual amounts are ultimately different from previous estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or if changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes its critical accounting policies that reflect its more significant estimates and assumptions relate to revenue recognition, income taxes, interim effective tax rate and assessment of goodwill and other

intangible assets for impairment. See Application of Critical Accounting Policies and Estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, as filed with the SEC on ~~March 23, 2017.~~February 24, 2020.

Recently Adopted Financial Accounting Standards

Recently Issued Financial Accounting Standards

In ~~May 2017,~~March 2020, the Financial Accounting Standards Board ("FASB") issued ~~Accounting Standards Update ("ASU") No. 2017-09, Compensation - Stock Compensation, Scope~~ASU 2020-04, Facilitation of ~~Modification Accounting, which~~the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to provide ~~clarity~~temporary optional expedients and ~~reduce both diversity in practice, cost~~exceptions to the guidance on contract modifications and ~~complexity when implementing a change in~~hedge accounting to ease the ~~terms or conditions of a share-based payment award. ASU 2017-09 requires that an entity should account for~~financial reporting burdens related to the ~~effects of a modification unless~~expected market transition from the ~~fair value, vesting conditions,~~London Interbank Offered Rate (LIBOR) and ~~whether the award is classified as a liability instrument or an equity instrument remain unchanged in the modification. ASU 2017-09~~other interbank offered rates to alternative reference rates. This guidance is effective ~~for interim~~beginning on March 12, 2020, and ~~annual periods beginning after~~the Company may elect to apply the amendments prospectively through December ~~15, 2017 with early adoption permitted.~~31, 2022. The Company ~~will adopt~~is currently evaluating the impact this guidance ~~effective January 1, 2018. The impact of this accounting guidance will be dependent~~may have on ~~future modification events including the number of awards modified.~~its consolidated financial statements and related disclosures.

In ~~March 2017,~~December 2019, the FASB, issued ASU No. ~~2017-07, Compensation - Retirement Benefits: Improving~~2019-12, Simplifying the ~~Presentation~~Accounting for Income Taxes. The guidance simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification ("ASC") 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of ~~Net Periodic Pension Cost~~deferred tax liabilities for outside basis differences. The guidance also simplifies aspects of the accounting for franchise taxes and ~~Net Periodic Post-retirement Benefit Cost, which is intended to improve~~enacted changes in tax laws or rates and clarifies the ~~consistency, transparency and usefulness of net benefit cost disclosures. ASU 2017-07 requires~~accounting for transactions that ~~an employer report the service cost component of net benefit cost~~result in a step-up in the ~~same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Additionally, the other components~~tax basis of ~~net benefit costs are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. ASU 2017-07~~goodwill. The guidance is effective for fiscal years, and interim ~~and annual~~ periods within those fiscal years, beginning after December 15, ~~2017 with early~~2021. Early adoption ~~permitted. The Company will adopt this guidance effective January 1, 2018. The impact of this accounting guidance will not be material to the Company's financial statements.~~

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other, which eliminates Step 2 from the goodwill impairment test. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Board also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The Company early adopted ASU 2017-04, during the three months ended June 30, 2017. The Company concluded that ASU 2017-04 is preferable to the current guidance included in ASC 350 due to the simplified process of subsequently measuring goodwill.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. The Company currently does not include restricted cash amounts in the beginning and ending cash amounts and will change the presentation of the cash flow statement to include restricted cash in the beginning and ending cash totals. The standard is effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted.The Company will adopt this guidance effective January 1, 2018. If the Company had adopted the guidance as of September 30, 2017, the beginning and ending balance of cash, cash equivalents and restricted cash for the three months ended September 30, 2017 would have each increased by $0.6 million in the Condensed Consolidated Statement of Cash Flows.

In August 2016, the Financial Accounting Standards Board ("FASB") issued accounting Standards Update ("ASU") No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice as to how certain cash receipts and cash payments should be presented and classified. The standard is effective for interim and annual reporting periods beginning after December 15, 2017 with early adoption permitted. The Company has evaluated the standard and noted the guidance for contingent consideration payments made after a business combination are applicable to the Condensed Consolidated Statements of Cash Flows. The Company currently classifies all contingent consideration payments as financing activities. The impact of this change is not expected to be significant to the classification of these activities on the Consolidated Statement of Cash Flows.

ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018 with early adoption permitted. The guidance requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of this accounting guidance. The effect is not known or reasonably estimable at this time.

~~The Company is continuing to evaluate the impacts of adoption of this guidance and its preliminary assessments are subject to change.~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Currency market risk. With our operations in the Americas, Europe and Asia Pacific, we conduct business using various currencies. Revenue earned in each country is generally matched with the associated expenses incurred, thereby reducing currency risk to earnings. A 10% change in the average exchange rate for currencies of all foreign countries in which we operate would have increased or decreased our net income for the three months ended March 31, 2020 by approximately $0.1 million. However, because certain assets and liabilities are denominated in currencies other than ~~the U.S. dollar,~~their respective functional currency, changes in currency rates may cause fluctuations in the valuation of such assets and liabilities. AsBased on balances exposed to fluctuation in exchange rates as of March 31, 2020, a 10% increase or decrease equally in the value of currencies could result in a foreign exchange gain or loss of approximately $1.4 million. In addition, as the local currency of our subsidiaries has generally been designated as the functional currency, we are affected by the translation of foreign currency financial statements into U.S. dollars. A 10% change in the average exchange rate for currencies of all foreign countries in which we operate would have increased or decreased our net income for the nine months ended September 30, 2017 by $0.6 million). For financial information by geographic segment, see Note ~~14,~~15, Segment Information, in the Notes to Condensed Consolidated Financial Statements.

ITEM 4. CONTROLS AND PROCEDURES


(a)	Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures as defined in the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) ~~Rule~~Rules 13a-15(e) and 15d-15(e), that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Management of the Company, with the participation of the principal executive officer and the principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of ~~September 30, 2017.~~March 31, 2020. Based on the evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of ~~September 30, 2017.~~March 31, 2020.

27(b) Changes in Internal Control Over Financial Reporting


~~(b)~~	~~Changes in Internal Control Over Financial Reporting~~

There ~~have been~~were no changes into our internal control over financial reporting as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f) that occurred during the ~~period covered by this Quarterly Report on Form 10-Q~~three months ended March 31, 2020 that ~~have~~ materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

2826

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information presented in Note ~~16,~~17, Commitments and Contingencies, to our Condensed Consolidated Financial Statements within this Quarterly Report on Form 10-Q is incorporated herein by reference.

2927

ITEM 1A. RISK FACTORS

There have been no material changes in the Company's risk factors from those set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, except for the following risk factor which supplements the risk factors previously disclosed and should be considered in conjunction with the Risk Factors section in the Company's Annual report on Form 10-K for the year ended December 31, 2019.

The current COVID-19 pandemic, or the future outbreak of other highly infectious or contagious diseases, could adversely impact or cause disruption to our business, financial condition, results of operations and cash flows. Further, the COVID-19 pandemic has caused severe disruptions in the U.S. and global economy, may further disrupt financial markets and could potentially create widespread business continuity issues.

In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China. COVID-19 has since spread to over 100 countries, including the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19.

With infections reported throughout the world, certain governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of the pandemic. Additional, more restrictive proclamations and/or directives may be issued in the future. We have temporarily closed our offices and shifted our workforce to remote operations to ensure the safety of our employees. In addition, certain of our customers have closed or reduced their operations during this pandemic.

The global pandemic has created significant volatility, uncertainty and economic disruption. While we have not incurred any significant disruptions to our business to date, the extent to which the pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic, and actions taken in response to the pandemic, on economic activity; the effect on our clients and client demand for our services and solutions; our ability to sell and provide our services and solutions, including as a result of travel restrictions and people working from home; the ability of our clients to pay for our services and solutions; and any closures of our and our clients’ offices and facilities. Restrictions inhibiting our employees’ and clients' ability to access those offices and facilities, has disrupted, and are expected to continue to disrupt, our ability to provide our services and solutions. These disruptions could result in, among other things, a decline in demand for our executive search and consulting services due to temporary and permanent workforce reductions; a lengthening of the executive search process due to a slow-down in client decision making; an increase in executive searches placed on hold due to delays in planned work by our clients; an inability to execute in-person consulting engagements; prolonged disruptions in business operations for offices in areas most impacted by the pandemic, including the United States, United Kingdom, Italy, Spain and China; terminations of client contracts and losses of revenue.

Management expects that all of its business segments, across all of its geographies, will be impacted to some degree by the pandemic and actions taken in response to the pandemic, but the significance of the impact of the pandemic on our business and the duration for which it may have an impact cannot be determined at this time. A sustained economic downturn may also result in the carrying value of our goodwill, other intangible assets, and long-lived assets exceeding their fair value, which may require us to recognize an impairment to those assets.

The impact of the COVID-19 pandemic may also exacerbate other risks discussed in Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, any of which could have a material effect on us. The ultimate effect that the COVID-19 pandemic may have on our business, financial condition or results of operations is not presently known to us or may present unanticipated risks that cannot be determined at this time.

Item 6. Exhibits



Exhibit No.		Description

#3.01		Restated Certificate of Incorporation of the Registrant

#3.02		Certificate of Amendment of the Registrant

*31.1		Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*31.2		Certification of the Company’s Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*32.1		Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*32.2		Certification of the Company’s Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*101.INS		XBRL Instance Document

*101.SCH		XBRL Taxonomy Extension Schema Document

*101.CAL		XBRL Taxonomy Calculation Linkbase Document

*101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

*101.LAB		XBRL Taxonomy Extension Label Linkbase Document

*101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document



#	Refiled herewith to provide an updated hyperlink to the appropriate prior filing.
*	Filed herewith.

3029

SIGNATURE

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: ~~October 26, 2017~~April 27, 2020




	Heidrick & Struggles International, Inc.
	(Registrant)


	/s/ Stephen A. Bondi
	Stephen A. Bondi
	Vice President, Controller (On behalf of the registrant and in his capacity as Chief Accounting Officer)

3130



									Additional Paid in Capital			Retained Earnings			Accumulated Other Compre- hensive Income		Total
	Common Stock			Treasury Stock
	Shares	Amount		Shares		Amount
Balance at December 31, 2016	19,586	$	196	1,008		$	(32,915	)	$	229,957		$	58,030		$	3,322	$	258,590
Net loss	—	—		—		—			—			(9,427		)	—		(9,427		)
Other comprehensive income, net of tax	—	—		—		—			—			—			7,637		7,637
Treasury and common stock transactions:
Stock-based compensation	—	—		—		—			3,915			—			—		3,915
Vesting of equity, net of tax withholdings	—	—		(188	)	6,310			(8,716		)	—			—		(2,406		)
Re-issuance of treasury stock	—	—		(15	)	508			(170		)	—			—		338
Cash dividends declared ($0.39 per share)	—	—		—		—			—			(7,320		)	—		(7,320		)
Dividend equivalents on restricted stock units	—	—		—		—			—			(356		)	—		(356		)
Balance at September 30, 2017	19,586	$	196	805		$	(26,097	)	$	224,986		$	40,927		$	10,959	$	250,971



Balance at December 31, 2016	$	2,575
Provision charged to income	2,154
Write-offs	(1,081		)
Foreign currency translation	95
Balance at September 30, 2017	$	3,743



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total
Balance at September 30, 2017
U.S. non-qualified deferred compensation plan	$	20,432	$	—		$	—		$	20,432
Assets designated for retirement and pension plans	—		19,065			—			19,065
Pension benefit obligation	—		(24,878		)	—			(24,878		)
Acquisition earnout accruals	—		—			(6,980		)	(6,980		)
	$	20,432	$	(5,813	)	$	(6,980	)	$	7,639



	Acquisition Earnout Accruals
Balance at December 31, 2016	$	(10,991	)
Earnout accretion	(836		)
Earnout payments	4,557
Philosophy IB earnout adjustment (Note 7)	705
Foreign currency translation	(415		)
Balance at September 30, 2017	$	(6,980	)



	Executive Search							Leadership Consulting		Culture Shaping
	Americas		Europe			Asia Pacific		Leadership Consulting		Culture Shaping			Total
Gross goodwill at December 31, 2016	$	88,101	$	42,599		$	8,893	$	6,534	$	29,224		$	175,351
Accumulated impairment	—		(23,507		)	—		—		—			(23,507		)
Net goodwill at December 31, 2016	88,101		19,092			8,893		6,534		29,224			151,844
Philosophy IB acquisition	357		—			—		7		—			364
Foreign currency translation	254		1,632			458		409		93			2,846
Impairment	—		—			—		—		(29,317		)	(29,317		)
Net goodwill at September 30, 2017	$	88,712	$	20,724		$	9,351	$	6,950	$	—		$	125,737



	September 30, 2017		December 31, 2016
Premise related costs	$	18,735	$	18,188
Accrued earnout payments	6,980		8,518
Other	1,658		1,582
Total other non-current liabilities	$	27,373	$	28,288

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