Attached files

file filename
8-K - FORM 8-K - HEIDRICK & STRUGGLES INTERNATIONAL INCd916379d8k.htm

Exhibit 99.1

 

LOGO

FOR IMMEDIATE RELEASE

Heidrick & Struggles Reports First Quarter 2015 Financial Results

CHICAGO April 28, 2015 - Heidrick & Struggles, a premier provider of senior-level Executive Search, Leadership Consulting and Culture Shaping services globally, today announced financial results for its first quarter ended March 31, 2015.

Consolidated net revenue (revenue before reimbursements) increased 3.6 percent, or $4.0 million, to $115.2 million from $111.1 million in the 2014 first quarter. Exchange rate fluctuations negatively impacted results by $4.9 million, or approximately 4 percent.

Executive Search and Leadership Consulting net revenue increased 2.3 percent year over year, or $2.4 million, to $107.0 million. The improvement was driven by a 12.0 percent increase in the Americas and a 10.1 percent increase in Asia Pacific (16.5 percent on a constant currency basis), partially offset by a 25.0 percent decline in Europe (13.5 percent decline on a constant currency basis). From a global practices perspective, the Financial Services and Industrial industry practices were the primary drivers of year-over-year growth.

Net revenue from Culture Shaping services increased 24.6 percent, or $1.6 million, to $8.1 million from $6.5 million in the 2014 first quarter. The improvement in net revenue primarily reflects a higher volume of client work in the quarter.

“Revenue growth and an increase in profitability underscore a solid first quarter for the firm globally,” said Tracy R. Wolstencroft, Heidrick & Struggles’ President and Chief Executive Officer. “We are pleased with the improved results in our Americas and Asia Pacific regions, and in our Culture Shaping business. Europe experienced a slower than anticipated start to 2015, in addition to being impacted by foreign currency exchange rates.”


The company ended the first quarter with 323 Executive Search and Leadership Consulting consultants compared to 303 at March 31, 2014 and 307 at December 31, 2014. Productivity, as measured by annualized Executive Search and Leadership Consulting net revenue per consultant, was $1.4 million in the 2015 first quarter, the same as in the 2014 first quarter. Specific to Executive Search, the company’s largest business, the number of confirmed searches in the 2015 first quarter increased 2.0 percent compared to the 2014 first quarter, while the average revenue per executive search was $102,700 compared to $101,200 in the 2014 first quarter.

Salaries and employee benefits expense in the 2015 first quarter increased 3.4 percent, or $2.6 million, to $78.5 million from $75.9 million in the 2014 first quarter. Variable compensation expense increased $2.0 million, primarily related to improved company performance, and fixed compensation expense increased $0.6 million. Salaries and employee benefits expense was 68.1 percent of net revenue for the quarter, compared to 68.3 percent in the 2014 first quarter.

General and administrative expenses declined 12.8 percent, or $4.4 million, to $30.0 million from $34.4 million in the 2014 first quarter. The decrease primarily reflects lower professional services fees, a decline in internal travel-related expenses, and the absence of a tax-related matter in last year’s first quarter. As a percentage of net revenue, general and administrative expenses were 26.1 percent compared to 31.0 percent in the 2014 first quarter.

Adjusted EBITDA(1) in the 2015 first quarter improved to $12.3 million, compared to $6.0 million in the 2014 first quarter. The Adjusted EBITDA margin (Adjusted EBITDA as a percentage of net revenue) in the 2015 first quarter was 10.7 percent, compared to 5.4 percent in the 2014 first quarter. The year-over-year improvements reflect higher net revenue and a decline in general and administrative expenses, partially offset by the increase in salaries and employee benefits expense.

 

(1) Adjusted EBITDA refers to earnings before interest, taxes, depreciation, intangible amortization, stock-based compensation expense, compensation expense associated with Senn Delaney retention awards, earn-out accretion expense related to acquisitions, restructuring charges, and other non-operating income (expense). Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures which the company believes are useful to management and meaningful to investors because they provide insight into the ongoing operating results of the company’s core business. A reconciliation to the most directly comparable GAAP measures are provided on the last page of the financial statements in this release.


Operating income in the 2015 first quarter increased by $5.9 million to $6.7 million, and operating margin (operating income as a percentage of net revenue) improved to 5.8 percent. This compares to operating income of $0.8 million and operating margin of 0.7 percent in the 2014 first quarter.

Net income in the 2015 first quarter was $3.4 million and diluted earnings per share were $0.18, based on an effective tax rate of 47.5 percent in the quarter and a full-year projected tax rate of approximately 41 percent. In the 2014 first quarter, the company reported a net loss of $0.7 million and a net loss per share of $0.04 after recording $1.3 million of income tax expense based on a full-year projected tax rate of approximately 51 percent.

Net cash used by operating activities in the 2015 first quarter, which includes annual bonus payments, was $87.8 million, compared to $74.9 million in the 2014 first quarter. Following the payment of bonuses, cash and cash equivalents were $107.6 million at March 31, 2015 ($79.6 million net of debt) compared to $211.4 million at December 31, 2014 ($181.9 million net of debt) and $101.4 million at March 31, 2014 ($67.4 million net of debt).

Second Quarter 2015 Outlook

The company is forecasting second quarter 2015 consolidated net revenue of between $127 million and $137 million. This forecast is based on the average currency rates in March 2015 and reflects, among other factors, management’s assumptions for the anticipated volume of new Executive Search confirmations, Leadership Consulting assignments and Culture Shaping services, the current backlog, consultant productivity, consultant retention, and the seasonality of its business.

“We are adding to the talent base of our firm,” Wolstencroft added. “Through a combination of hiring initiatives, annual promotions and lower turnover, our worldwide consultant base increased by almost seven percent year over year at the end of the first quarter. As important, we have doubled our training and development budget to ensure the success of our new consultants. We’ll continue to invest capital to attract and retain the best consultants in the world and to expand our service offerings so that Heidrick & Struggles is enabled to provide increasing value to our clients as a trusted leadership advisory firm.”


Quarterly Conference Call

Executives of Heidrick & Struggles will host a conference call to review its first quarter 2015 results today, April 28, at 9 a.m. Central Time. Participants may access the company’s call and supporting slides through its website at www.heidrick.com. For those unable to participate on the live call, a webcast and copy of the slides will be archived at www.heidrick.com and available for up to 30 days following the investor call.

About Heidrick & Struggles International, Inc.

Heidrick & Struggles (Nasdaq: HSII) is a premier provider of senior-level Executive Search, Culture Shaping and Leadership Consulting services. For more than 60 years, we have helped our clients build strong leadership teams through quality service, deep insights and our relationships with talented individuals worldwide. Today, Heidrick & Struggles’ leadership experts operate from principal business centers in North America, Latin America, Europe, Asia Pacific, Africa and the Middle East. For more information about Heidrick & Struggles, please visit www.heidrick.com.

Non-GAAP Financial Measures

This earnings release contains certain non-GAAP financial measures. A “non-GAAP financial measure” is defined as a numerical measure of a company’s financial performance that excludes or includes amounts different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of comprehensive income, balance sheets or statements of cash flow of the company. Pursuant to the requirements of Regulation G, this earnings release contains the most directly comparable GAAP financial measure to the non-GAAP financial measure.

The non-GAAP financial measures used within this earnings release are Adjusted EBITDA and Adjusted EBITDA margin. Adjusted EBITDA refers to earnings before interest, taxes, depreciation, intangible amortization, stock-based compensation expense, compensation expense associated with Senn Delaney retention awards, earnout accretion expense related to acquisitions, restructuring charges, and other non-operating income (expense). Adjusted EBITDA margin refers to Adjusted EBITDA (as explained above) as a percentage of net revenue in the same period. A reconciliation of Adjusted EBITDA to Net Income is provided on the last page of this release.

These measures are presented because management uses this information to monitor and evaluate financial results and trends. Management believes this information is also useful for investors.

Safe Harbor Statement

This press release contains forward-looking statements. The forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate and management’s beliefs and assumptions. Forward-looking statements may be identified by the use of words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,” “forecasts,” and similar expressions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied in the forward-looking statements. Factors that may affect the outcome of the forward-looking statements include, among other things, our ability to attract, integrate, manage and retain qualified executive search consultants; our ability to develop and maintain strong, long-term relationships with our clients; declines in the global economy and our ability to execute successfully through business cycles; the timing, speed or robustness of any future economic recovery; social or political instability in markets where we operate, the impact of foreign currency exchange rate fluctuations; 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 utilize 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 reliance on information management systems; any impairment of our goodwill and other intangible assets; and the ability to align our cost structure and headcount with net revenue. 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, 2014, under Risk Factors in Item 1A and our quarterly filings with the SEC. 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.

###

Press Release Contacts:

H&S Investors & Analysts Contact:

Julie Creed - Vice President, Investor Relations & Real Estate:

1 312 496 1774, jcreed@heidrick.com

H&S Media Contact:

Lia Randazzo - Marketing Manager:

312.496.1788, lrandazzo@heidrick.com


Heidrick & Struggles International, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended              
     March 31,              
     2015     2014     $ Change     % Change  

Revenue:

        

Revenue before reimbursements (net revenue)

   $ 115,153      $ 111,121      $ 4,032        3.6

Reimbursements

     3,326        4,411        (1,085     -24.6
  

 

 

   

 

 

   

 

 

   

Total revenue

  118,479      115,532      2,947      2.6

Operating expenses:

Salaries and employee benefits

  78,473      75,915      2,558      3.4

General and administrative expenses

  30,008      34,426      (4,418   -12.8

Reimbursed expenses

  3,326      4,411      (1,085   -24.6
  

 

 

   

 

 

   

 

 

   

Total operating expenses

  111,807      114,752      (2,945   -2.6
  

 

 

   

 

 

   

 

 

   

Operating income

  6,672      780      5,892      755.4

Non-operating expense:

Interest, net

  (71   30   

Other, net

  (75   (298
  

 

 

   

 

 

     

Net non-operating expense

  (146   (268
  

 

 

   

 

 

     

Income before income taxes

  6,526      512   

Provision for income taxes

  3,100      1,256   
  

 

 

   

 

 

     

Net income (loss)

  3,426      (744

Other comprehensive (loss) income, net of tax

  (682   1,097   
  

 

 

   

 

 

     

Comprehensive income

$ 2,744    $ 353   
  

 

 

   

 

 

     

Basic weighted average common shares outstanding

  18,249      18,152   

Dilutive common shares

  315      —     
  

 

 

   

 

 

     

Diluted weighted average common shares outstanding

  18,564      18,152   
  

 

 

   

 

 

     

Basic net income (loss) per common share

$ 0.19    ($ 0.04

Diluted net income (loss) per common share

$ 0.18    ($ 0.04

Salaries and employee benefits as a % of net revenue

  68.1   68.3

General and administrative expense as a % of net revenue

  26.1   31.0

Operating income as a % of net revenue

  5.8   0.7


Heidrick & Struggles International, Inc.

Segment Information

(In thousands)

(Unaudited)

 

     Three Months Ended March 31,  
                             2015     2014  
     2015     2014     $ Change     % Change     Margin *     Margin *  

Revenue:

            

Executive Search and Leadership Consulting

            

Americas

   $ 64,475      $ 57,586      $ 6,889        12.0    

Europe

     19,658        26,224        (6,566     -25.0    

Asia Pacific

     22,904        20,795        2,109        10.1    
  

 

 

   

 

 

   

 

 

       

Total Executive Search and Leadership Consulting

  107,037      104,605      2,432      2.3

Culture Shaping

  8,116      6,516      1,600      24.6
  

 

 

   

 

 

   

 

 

       

Revenue before reimbursements (net revenue)

  115,153      111,121      4,032      3.6

Reimbursements

  3,326      4,411      (1,085   -24.6
  

 

 

   

 

 

   

 

 

       

Total revenue

$ 118,479    $ 115,532    $ 2,947      2.6
  

 

 

   

 

 

   

 

 

       

Operating income (loss): ^

Executive Search and Leadership Consulting

Americas

$ 13,902    $ 11,869    $ 2,033      17.1   21.6   20.6

Europe

  (497   640      (1,137   -177.7   -2.5   2.4

Asia Pacific

  2,890      175      2,715      1551.4   12.6   0.8
  

 

 

   

 

 

   

 

 

       

Total Executive Search and Leadership Consulting

  16,295      12,684      3,611      28.5   15.2   12.1

Culture Shaping

  821      (530   1,351      254.9   10.1   -8.1
  

 

 

   

 

 

   

 

 

       

Total segments

  17,116      12,154      4,962      40.8   14.9   10.9

Global Operations Support

  (10,444   (11,374   930      8.2   -9.1   -10.2
  

 

 

   

 

 

   

 

 

       

Operating income

$ 6,672    $ 780    $ 5,892      755.4   5.8   0.7
  

 

 

   

 

 

   

 

 

       

 

* Margin based on revenue before reimbursements (net revenue).
^ In the third quarter of 2014, consistent with the Company’s practice to periodically review its reporting structure and segments, the Company evaluated its allocation of corporate and support costs to each of its regions. In conjunction with that review, to better align our cost and reporting structure, additional costs were allocated to the regions reflecting the Company’s current view of the costs necessary to support the regional operations. The prior period results have been recast to reflect these changes and present comparative year-over-year results.


Heidrick & Struggles International, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

 

     March 31,      December 31,  
     2015      2014  
     (Unaudited)         

Current assets:

     

Cash and cash equivalents

   $ 107,625       $ 211,352   

Restricted cash

     6,500         6,501   

Accounts receivable, net

     83,004         68,353   

Other receivables

     11,578         10,613   

Prepaid expenses

     15,085         14,536   

Other current assets

     1,292         1,592   

Income taxes recoverable

     5,645         5,288   

Deferred income taxes

     12,454         12,094   
  

 

 

    

 

 

 

Total current assets

  243,183      330,329   
  

 

 

    

 

 

 

Non-current assets:

Property and equipment, net

  34,348      30,417   

Restricted cash

  1,305      1,411   

Assets designated for retirement and pension plans

  17,235      19,426   

Investments

  15,281      13,989   

Other non-current assets

  7,706      6,601   

Goodwill

  121,316      122,176   

Other intangible assets, net

  19,632      20,939   

Deferred income taxes

  22,077      23,413   
  

 

 

    

 

 

 

Total non-current assets

  238,900      238,372   
  

 

 

    

 

 

 

Total assets

$ 482,083    $ 568,701   
  

 

 

    

 

 

 

Current liabilities:

Current portion of debt

$ 6,000    $ 6,000   

Accounts payable

  7,702      5,493   

Accrued salaries and employee benefits

  60,931      130,434   

Deferred revenue, net

  30,164      30,452   

Other current liabilities

  32,979      26,835   

Income taxes payable

  2,535      6,684   
  

 

 

    

 

 

 

Total current liabilities

  140,311      205,898   
  

 

 

    

 

 

 

Non-current liabilities:

Non-current debt, less current maturities

  22,000      23,500   

Retirement and pension plans

  38,294      39,892   

Other non-current liabilities

  36,130      54,747   
  

 

 

    

 

 

 

Total non-current liabilities

  96,424      118,139   
  

 

 

    

 

 

 

Stockholders’ equity

  245,348      244,664   
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

$ 482,083    $ 568,701   
  

 

 

    

 

 

 


Heidrick & Struggles International, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

     Three Months Ended  
     March 31,  
     2015     2014  

Cash flows - operating activities:

    

Net income (loss)

   $ 3,426      ($ 744

Adjustments to reconcile net income (loss) to net cash used in operating activities:

    

Depreciation and amortization

     3,732        3,850   

Deferred income taxes

     296        399   

Stock-based compensation expense

     1,033        336   

Accretion expense related to earnout payments

     298        423   

Cash paid for restructuring charges

     (33     (36

Changes in assets and liabilities, net of effects of acquisitions:

    

Accounts and other receivables

     (17,581     (13,258

Accounts payable

     2,315        214   

Accrued expenses

     (76,923     (54,297

Deferred revenue

     228        (4,997

Income taxes payable, net

     (4,612     (4,569

Retirement and pension assets and liabilities

     1,308        426   

Prepaid expenses

     (794     (1,621

Other assets and liabilities, net

     (464     (1,034
  

 

 

   

 

 

 

Net cash used in operating activities

  (87,771   (74,908
  

 

 

   

 

 

 

Cash flows - investing activities:

Restricted cash

  —        137   

Capital expenditures

  (6,282   (1,127

Purchases of available for sale investments

  (1,154   (754

Proceeds from sale of available for sale investments

  119      467   
  

 

 

   

 

 

 

Net cash used in investing activities

  (7,317   (1,277
  

 

 

   

 

 

 

Cash flows - financing activities:

Debt repayment

  (1,500   (1,500

Cash dividends paid

  (2,511   (2,472

Payment of employee tax withholdings on equity transactions

  (820   (382

Acquisition earnout payments

  (723   —     
  

 

 

   

 

 

 

Net cash used in financing activities

  (5,554   (4,354
  

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

  (3,085   298   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

  (103,727   (80,241

Cash and cash equivalents at beginning of period

  211,352      181,646   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

$ 107,625    $ 101,405   
  

 

 

   

 

 

 


Heidrick & Struggles International, Inc.

Reconciliation of Net Income (Loss) and Operating Income (GAAP) to

Adjusted EBITDA (Non-GAAP)

(In thousands)

(Unaudited)

 

     Three Months Ended  
     March 31,  
     2015     2014  

Revenue before reimbursements (net revenue)

   $ 115,153      $ 111,121   

Net income (loss)

     3,426        (744

Interest, net

     (71     30   

Other, net

     (75     (298

Provision for income taxes

     3,100        1,256   
  

 

 

   

 

 

 

Operating income

  6,672      780   

Adjustments

Salaries and employee benefits

Stock-based compensation expense

  1,033      336   

Senn Delaney retention awards

  542      578   

General and administrative expenses

Depreciation

  2,566      2,470   

Intangible amortization

  1,166      1,380   

Earnout accretion

  298      423   
  

 

 

   

 

 

 

Total adjustments

  5,605      5,187   
  

 

 

   

 

 

 

Adjusted EBITDA

$ 12,277    $ 5,967   
  

 

 

   

 

 

 

Adjusted EBITDA Margin

  10.7   5.4