Financial Instruments and Fair Value

12 Months Ended

Dec. 31, 2023

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 Consolidated Balance Sheets until realized.

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



	Amortized Cost		Unrealized Gains		Fair Value		Cash and Cash Equivalents		Marketable Securities
Balance at December 31, 2023
Cash							$	221,980	$	—

Level 1(1):
Money market funds							13,906
U.S. Treasury securities	242,228		42		242,270		176,732		65,538
Total Level 1	242,228		42		242,270		190,638		65,538




Total	$	242,228	$	42	$	242,270	$	412,618	$	65,538



	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
Balance at December 31, 2022
Cash									$	247,198	$	—

Level 1(1):
Money market funds									62,338
U.S. Treasury securities	312,121		15		(56)		312,080		45,911		266,169
Total Level 1	312,121		15		(56)		312,080		108,249		266,169

Total	$	312,121	$	15	$	(56)	$	312,080	$	355,447	$	266,169

(1)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. The aggregate cost basis for these investments was $37.2 million and $29.1 million as of December 31, 2023, and December 31, 2022, respectively.

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 to support its pension obligations through reinsurance contracts. The BaFin—German Federal Financial Supervisory Authority—supervises the insurance companies and the reinsurance contracts. The BaFin requires each reinsurance contract to guarantee a 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 accordance with BaFin guidelines (including mortality tables and discount rates) which are considered Level 2 inputs.

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


			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, 2023

Measured on a recurring basis:
Level 1(1):
U.S. non-qualified deferred compensation plan	$	47,287	$	—	$	—	$	47,287	$	—	$	—

Level 2(2):
Retirement and pension plan assets	12,394		1,289		11,105		—		—		—
Pension benefit obligation	(14,416)		—		—		—		(1,289)		(13,127)
Total Level 2	(2,022)		1,289		11,105		—		(1,289)		(13,127)





Total	$	45,265	$	1,289	$	11,105	$	47,287	$	(1,289)	$	(13,127)


			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, 2022

Measured on a recurring basis:
Level 1(1):
U.S. non-qualified deferred compensation plan	$	34,354	$	—	$	—	$	34,354	$	—	$	—

Level 2(2):
Retirement and pension plan assets	12,584		1,252		11,332		—		—		—
Pension benefit obligation	(13,951)		—		—		—		(1,252)		(12,699)
Total Level 2	(1,367)		1,252		11,332		—		(1,252)		(12,699)





Total	$	32,987	$	1,252	$	11,332	$	34,354	$	(1,252)	$	(12,699)

(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 former owners of certain of the Company's acquired businesses are eligible to receive additional cash consideration based on the attainment of certain operating metrics in the periods subsequent to acquisition. Contingent consideration and compensation are valued using significant inputs that are not observable in the market, which are defined as Level 3 inputs pursuant to fair value measurement accounting. The Company determines the fair value of contingent consideration and compensation using using a variation of the income approach, known as the real options method. The significant unobservable inputs utilized in the real options method include (1) revenue forecasts; (2) operating expense forecasts; (3) the discount rate; and (4) volatility.

The following table provides a reconciliation of the beginning and ending balance of Level 3 liabilities for the year ended December 31, 2023:


	Earnout		Contingent Compensation
Balance at December 31, 2022	$	(36,010)	$	(8,192)
Purchase accounting (see Note 8, Acquisitions)	(36,266)		—
Earnout accretion	(1,554)		—
Compensation expense	—		(11,934)
Payments	35,946		2,038
Foreign currency translation	(717)		(790)
Balance at December 31, 2023	$	(38,601)	$	(18,878)

Earnout accruals of zero and $36.0 million are recorded within Current liabilities - Other current liabilities as of December 31, 2023, and 2022, respectively, and earnout accruals of $38.6 million and zero are recorded within Non-current liabilities - Other non-current liabilities as of December 31, 2023, and 2022, respectively. Contingent compensation accruals of $6.0 million and $1.5 million are recorded within Current liabilities - Accrued salaries and benefits as of December 31, 2023, and 2022, respectively, and contingent compensation accruals of $12.9 million and $6.7 million are recorded within Non-current liabilities - Accrued salaries and benefits as of December 31, 2023, and 2022, respectively.

Goodwill

Goodwill represents the difference between the purchase price of acquired companies and the related fair value of the net assets acquired, which is accounted for by the acquisition method of accounting. The Company performs assessments of the carrying value of goodwill at least annually and whenever events occur or circumstances indicate that a carrying amount of goodwill may not be recoverable. During the three months ended June 30, 2023, an interim goodwill impairment evaluation was conducted to determine the fair value of the Company's reporting units. As a result of this evaluation, the Company recorded an impairment charge of $7.2 million in the Heidrick Consulting reporting unit. During the 2023 fourth quarter, the Company conducted its annual goodwill impairment evaluation as of October 31, 2023, to determine the fair value of the Company's reporting units. As of October 31, 2023, the fair value of each reporting unit exceeded its carrying value. Goodwill is valued using significant inputs that are not observable in the market which are defined as Level 3 inputs pursuant to fair value measurement accounting. The Company determines the fair value of its reporting units using discounted cash flow models.

The following table provides a reconciliation of the beginning and ending balance of Level 3 assets for the year ended December 31, 2023:


	Goodwill
Balance at December 31, 2022	$	138,361
Acquired goodwill	69,444
Impairment	(7,246)
Foreign currency translation	1,693
Balance at December 31, 2023	$	202,252

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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