CHICAGO, Aug. 6, 2008 (PRIME NEWSWIRE) -- Heidrick & Struggles International, Inc. (Nasdaq:HSII), the world's premier executive search and leadership consulting firm, today announced financial results for the second quarter ended June 30, 2008.
Consolidated net revenue of $169.5 million increased 5.9 percent from $160.1 million in the 2007 second quarter. The positive impact of changes in foreign currency exchange rates represented approximately 4 percentage points of the growth. Net revenue decreased 1.4 percent in the Americas, increased 1.7 percent in Europe (but decreased approximately 7 percent on a constant currency basis), and increased 50.6 percent in the Asia Pacific region (approximately 41 percent on a constant currency basis).
The number of executive searches confirmed in the quarter decreased 2.1 percent compared to the 2007 second quarter and 2.5 percent compared to the 2008 first quarter. The number of consultants at June 30, 2008 was 408, compared to 398 as of June 30, 2007, and 408 as of March 31, 2008. Productivity, as measured by annualized revenue per executive search consultant, increased to $1.6 million from $1.5 million in the 2007 second quarter. The average fee per executive search was $122,200, compared to $111,000 in last year's second quarter.
Chief Executive Officer L. Kevin Kelly said, "The strength of our global network and industry practice diversification drove second quarter results. The Asia Pacific region achieved record revenue and improved its operating margin compared to the first quarter, offsetting softness in the Americas and Europe regions. The Life Sciences, Business and Professional Services, and Education/Nonprofit industry groups each achieved record revenue quarters, which along with growth in the Technology and Industrial practices, offset weakness we saw in the Financial Services and Consumer industry groups. We are also very pleased that initiatives we've taken to increase productivity led to a new record of $1.6 million of annualized revenue per search consultant."
Consolidated salaries and employee benefits were $117.3 million, an increase of 6.0 percent from $110.7 million in the comparable quarter of 2007. This increase primarily reflects an increase in fixed costs related to a 9.4 percent year-over-year increase in employee headcount and an increase in variable expense largely related to higher bonus accruals. Salaries and employee benefits as a percentage of net revenue were 69.2 percent for the quarter, the same as in the 2007 second quarter.
Consolidated general and administrative expenses were $33.5 million, up 12.3 percent from $29.9 million reported in the comparable prior-year period. As a percentage of net revenue, consolidated general and administrative expenses were 19.8 percent, compared to 18.7 percent in the 2007 second quarter. The year-over-year increase is primarily related to an increase in premise-related costs for new offices and lease renewals for existing offices.
Operating income decreased 4.3 percent to $18.7 million from 2007 second quarter operating income of $19.5 million. The operating margin (measured as a percentage of net revenue) was 11.0 percent, compared to 12.2 percent in the 2007 second quarter.
Net income was $12.7 million and diluted earnings per share were $0.72, reflecting an effective tax rate in the quarter of 38.0 percent. These results compare to net income in the 2007 second quarter of $21.0 million and diluted earnings per share of $1.11, which reflected an effective tax rate in the quarter of 2.3 percent as a result of the company's release of a valuation allowance related to certain of its foreign tax credits.
Net cash generated by operating activities was $36.0 million, compared to $30.0 million in the 2007 second quarter. Cash and cash equivalents at June 30, 2008 were $146.1 million, compared to cash and cash equivalents and short-term investments of $180.0 million at June 30, 2007 and $142.8 million at March 31, 2008.
During the second quarter, the company repurchased 773,414 shares of its common stock at an average price of $28.23 per share for a total of $21.8 million. As of June 30, 2008, $28.2 million remained available under the $50 million stock repurchase program authorized by the company's Board of Directors in February 2008.
Regional Review for the 2008 Second Quarter
In the second quarter, the Americas represented 51 percent of consolidated net revenue, Europe represented 32 percent, and Asia Pacific was 17 percent. This compares to the 2007 second quarter when the Americas represented 55 percent, Europe was 33 percent and Asia Pacific was 12 percent.
Net revenue in the Americas of $87.0 million decreased 1.4 percent from the second quarter of 2007. The Technology, Industrial, and Education/Nonprofit industry groups delivered strong year-over-year net revenue growth, but this growth was offset by weakness in the Consumer and Financial Services industry groups. Net revenue in the Americas increased 12.5 percent compared to the 2008 first quarter driven largely by growth in the Financial Services industry group. Operating income of $12.6 million decreased 35.3 percent year over year, and the operating margin was 14.4 percent, compared to 22.0 percent in the 2007 second quarter. The decrease in operating income and the resulting operating margin are a result of an increase in salaries and employee benefits expense, as well as premise-related expenses for new offices and lease renewals for existing offices. Consultant headcount in the Americas was 213 at June 30, 2008 compared to 207 at March 31, 2008 and 212 at June 30, 2007.
In Europe, net revenue of $53.3 million increased 1.7 percent from the prior-year quarter; however, on a constant currency basis it declined approximately 7 percent. All of the industry groups in this region achieved double-digit net revenue growth except Financial Services, which declined year over year. Compared to the 2008 first quarter, net revenue in Europe increased 0.9 percent. Operating income increased to $7.7 million and the operating margin improved to 14.4 percent, compared to 14.1 percent in the 2007 second quarter. Consultant headcount in Europe was 120 at June 30, 2008 compared to 131 at March 31, 2008 and at June 30, 2007.
In Asia Pacific, net revenue of $29.2 million increased 50.6 percent year over year and increased 27.2 percent compared to the 2008 first quarter. On a constant currency basis, year-over-year net revenue growth in Asia Pacific was approximately 41 percent. The Financial Services, Industrial, Technology, and Business and Professional Services industry groups were the primary drivers of growth. Operating income of $6.6 million represents an increase of 27.3 percent year over year and the operating margin was 22.7 percent, compared to 26.8 percent in the 2007 second quarter. The lower operating margin reflects planned investments to grow this region implemented during the past year, including salaries and employee benefits expense associated with new consultant hires who are not yet fully productive as well as infrastructure costs related to new and existing offices. Consultant headcount in Asia Pacific was 75 at June 30, 2008, compared to 70 at March 31, 2008, and 55 at June 30, 2007.
Six Months Results
For the six months ended June 30, 2008, consolidated net revenue was $322.7 million, a 6.4 percent increase from $303.2 million in the first six months of 2007. The number of executive searches confirmed in the first six months of 2008 declined 2.4 percent compared to the first six months of 2007. Operating income in the first six months of 2008 was $29.5 million, representing an operating margin of 9.2 percent, compared to operating income in the first six months of 2007 of $35.8 million and an operating margin of 11.8 percent. Net income for the first six months of 2008 was $19.8 million, and diluted earnings per share were $1.10, reflecting an effective tax rate of 38.8 percent. For the same period of 2007, net income was $31.1 million and diluted earnings per share were $1.64, reflecting an effective tax rate of 22.0 percent, which included a net tax benefit of $8.5 million realized in the 2007 second quarter related to a tax valuation allowance reversal related to certain foreign tax credits.
2008 Outlook
Based on current economic conditions in each of its regions and after considering its other operating metrics, the company expects to achieve net revenue in 2008 of between $650 and $660 million and continues to target a full-year operating margin of approximately 13%. The company's ability to achieve this guidance is based on its performance to date, but is also dependent on achieving anticipated cost savings from certain initiatives it has implemented, effectively deploying its resources, and reacting quickly to any unexpected deterioration in market conditions. Net income and earnings per share in 2008 are expected to reflect a full-year effective tax rate of between 38% and 40%. Quarterly and full-year tax estimates can be impacted by country level results and can also vary significantly by reporting period as a result of discrete items that require immediate recognition in a particular period.
"We are confident that worldwide demand for executive talent, driven in part by secular and demographic trends, will continue to provide us with opportunities for growth," Kelly said. "We expect there will be continued pockets of softness in our business in the Americas and in Europe, but our consolidated results will highlight the advantages of being a global firm with consultants in more than 30 countries around the world specializing in many industries. We are aggressively pursuing the benefit of cost savings initiatives identified in the second quarter as well as additional measures we have recently taken, while balancing investments in our business that will position us to capitalize on improving market conditions."
Quarterly Conference Call
Executives of Heidrick & Struggles will host a conference call to review 2008 second quarter results today, August 6, at 9:00 am central time. Participants may access the company's call and supporting slides 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 International, Inc. is the world's premier provider of senior-level executive search and leadership consulting services, including talent management, board building, executive on-boarding and M&A effectiveness. For more than 50 years, we have focused on quality service and built strong leadership teams through our relationships with clients and individuals worldwide. Today, Heidrick & Struggles leadership experts operate from principal business centers in North America, Latin America, Europe and Asia Pacific. For more information about Heidrick & Struggles, please visit www.heidrick.com.
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 and retain qualified executive search consultants; the condition of the economies in the United States, Europe, or elsewhere; social or political instability in markets where we operate; the impact of foreign currency exchange rate fluctuations; 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 loss carryforwards; the timing of a partial release or full reversal of deferred tax asset valuation allowance; the mix of profit and loss by country; an impairment of our goodwill and other intangible assets; and delays in the development and/or implementation of new technology and systems. Our reports filed with the U.S. Securities and Exchange Commission also include information on factors that may affect the outcome of forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Heidrick & Struggles International, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
June 30,
--------------------
2008 2007 $ Change % Change
--------- --------- --------- ---------
Revenue:
Revenue before
reimbursements (net
revenue) $ 169,518 $ 160,053 $ 9,465 5.9%
Reimbursements 8,297 7,308 989 13.5%
--------- --------- ---------
Total revenue 177,815 167,361 10,454 6.2%
Operating expenses:
Salaries and employee
benefits 117,318 110,686 6,632 6.0%
General and
administrative
expenses 33,533 29,855 3,678 12.3%
Reimbursed expenses 8,297 7,308 989 13.5%
--------- --------- ---------
Total operating
expenses 159,148 147,849 11,299 7.6%
--------- --------- ---------
Operating income 18,667 19,512 (845) -4.3%
Non-operating income
(expense):
Interest income 942 1,627
Interest expense (37) (8)
Other, net 982 384
--------- ---------
Net non-operating
income 1,887 2,003
Income before income
taxes 20,554 21,515
Provision for income
taxes 7,810 496
--------- ---------
Net income $ 12,744 $ 21,019
========= =========
Basic weighted average
common shares
outstanding 16,884 18,034
Diluted weighted
average common shares
outstanding 17,672 18,981
Basic earnings per
common share $ 0.75 $ 1.17
Diluted earnings per
common share $ 0.72 $ 1.11
Salaries and employee
benefits as a
percentage of net
revenue 69.2% 69.2%
General and
administrative expense
as a percentage of net
revenue 19.8% 18.7%
Operating income as a
percentage of net
revenue 11.0% 12.2%
Effective tax rate 38.0% 2.3%
Heidrick & Struggles International, Inc.
Segment Information
(In thousands)
Three Months Ended June 30,
---------------------------------------------------
% 2008 2007
2008 2007 $ Change Change Margin* Margin*
-------- -------- -------- ------ ------ ------
Revenue:
Americas $ 87,002 $ 88,204 $ (1,202) -1.4%
Europe 53,344 52,475 869 1.7%
Asia Pacific 29,172 19,374 9,798 50.6%
-------- -------- --------
Revenue
before
reim-
bursements
(net
revenue) 169,518 160,053 9,465 5.9%
Reim-
bursements 8,297 7,308 989 13.5%
-------- -------- --------
Total
revenue $177,815 $167,361 $ 10,454 6.2%
======== ======== ========
Operating
Income:
Americas $ 12,558 $ 19,421 $ (6,863) -35.3% 14.4% 22.0%
Europe 7,680 7,385 295 4.0% 14.4% 14.1%
Asia Pacific 6,619 5,199 1,420 27.3% 22.7% 26.8%
-------- -------- --------
Total
regions 26,857 32,005 (5,148) -16.1% 15.8% 20.0%
Corporate (8,190) (12,493) 4,303 34.4%
-------- -------- --------
Operating
income $ 18,667 $ 19,512 $ (845) -4.3% 11.0% 12.2%
======== ======== ========
* Margin based on revenue before reimbursements (net revenue).
Heidrick & Struggles International, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Six Months Ended
June 30,
-------------------- %
2008 2007 $ Change Change
--------- --------- --------- -------
Revenue:
Revenue before
reimbursements (net
revenue) $ 322,657 $ 303,179 $ 19,478 6.4%
Reimbursements 15,099 13,758 1,341 9.7%
--------- --------- ---------
Total revenue 337,756 316,937 20,819 6.6%
Operating expenses:
Salaries and employee
benefits 227,924 209,045 18,879 9.0%
General and administrative
expenses 65,190 58,295 6,895 11.8%
Reimbursed expenses 15,099 13,758 1,341 9.7%
--------- --------- ---------
Total operating expenses 308,213 281,098 27,115 9.6%
--------- --------- ---------
Operating income 29,543 35,839 (6,296) -17.6%
Non-operating income
(expense):
Interest income 3,000 3,503
Interest expense (54) (46)
Other, net (105) 558
--------- ---------
Net non-operating income 2,841 4,015
Income before income taxes 32,384 39,854
Provision for income taxes 12,572 8,759
--------- ---------
Net income $ 19,812 $ 31,095
========= =========
Basic weighted average
common shares outstanding 17,090 17,939
Diluted weighted average
common shares outstanding 18,066 19,002
Basic earnings per common
share $ 1.16 $ 1.73
Diluted earnings per common
share $ 1.10 $ 1.64
Salaries and employee
benefits as a percentage
of net revenue 70.6% 69.0%
General and administrative
expense as a percentage of
net revenue 20.2% 19.2%
Operating income as a
percentage of net revenue 9.2% 11.8%
Effective tax rate 38.8% 22.0%
Heidrick & Struggles International, Inc.
Segment Information
(In thousands)
Six Months Ended June 30,
---------------------------------------------------
% 2008 2007
2008 2007 $ Change Change Margin* Margin*
-------- -------- -------- ------ ------ ------
Revenue:
Americas $164,339 $171,603 $ (7,264) -4.2%
Europe 106,210 95,030 11,180 11.8%
Asia Pacific 52,108 36,546 15,562 42.6%
-------- -------- --------
Revenue
before
reim-
bursements
(net
revenue) 322,657 303,179 19,478 6.4%
Reim-
bursements 15,099 13,758 1,341 9.7%
-------- -------- --------
Total
revenue $337,756 $316,937 $ 20,819 6.6%
======== ======== ========
Operating
Income:
Americas $ 24,282 $ 36,089 $(11,807) -32.7% 14.8% 21.0%
Europe 12,941 11,184 1,757 15.7% 12.2% 11.8%
Asia Pacific 9,341 9,578 (237) -2.5% 17.9% 26.2%
-------- -------- --------
Total
regions 46,564 56,851 (10,287) -18.1% 14.4% 18.8%
Corporate (17,021) (21,012) 3,991 19.0%
-------- -------- --------
Operating
income $ 29,543 $ 35,839 $ (6,296) -17.6% 9.2% 11.8%
======== ======== ========
* Margin based on revenue before reimbursements (net revenue).
Heidrick & Struggles International, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
June 30, Dec. 31,
2008 2007
-------- --------
(Unaudited)
Current assets:
Cash and cash equivalents $146,074 $260,580
Short-term investments -- 22,275
Accounts receivable, net of allowance for
doubtful accounts 115,828 82,240
Other receivables 7,072 5,868
Prepaid expenses 21,159 15,026
Other current assets 1,537 1,419
Income taxes recoverable, net 4,039 --
Deferred income taxes, net 15,211 15,290
-------- --------
Total current assets 310,920 402,698
-------- --------
Non-current assets:
Property and equipment, net 19,615 18,730
Restricted cash 9,806 9,826
Assets designated for retirement
and pension plans 28,106 26,067
Investments 9,831 7,832
Other non-current assets 6,002 6,296
Goodwill 92,223 84,217
Other intangible assets, net 15,621 15,363
Deferred income taxes, net 40,986 45,855
-------- --------
Total non-current assets 222,190 214,186
-------- --------
Total assets $533,110 $616,884
======== ========
Current liabilities:
Accounts payable $ 8,251 $ 8,699
Accrued salaries and employee benefits 113,763 197,954
Other accrued liabilities 43,856 44,376
Current portion of accrued restructuring
charges 2,741 2,813
Income taxes payable, net -- 995
-------- --------
Total current liabilities 168,611 254,837
-------- --------
Non-current liabilities:
Retirement and pension plans 33,271 28,831
Non-current portion of accrued restructuring
charges 5,439 6,735
Other non-current liabilities 24,276 16,681
-------- --------
Total non-current liabilities 62,986 52,247
-------- --------
Stockholders' equity 301,513 309,800
-------- --------
Total liabilities and stockholders' equity $533,110 $616,884
======== ========
Heidrick & Struggles International, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
June 30,
--------------------
2008 2007
--------- ---------
Cash flows from operating activities:
Net income $ 12,744 $ 21,019
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,653 2,816
Deferred income taxes 3,457 (8,728)
Net realized and unrealized (gains) losses
on equity and warrant portfolio (22) 64
Stock-based compensation expense, net 5,920 10,488
Cash paid for restructuring charges (681) (972)
Changes in assets and liabilities:
Trade and other receivables (7,346) (13,806)
Accounts payable 668 1,902
Accrued expenses 27,274 23,639
Income taxes recoverable, net (4,319) (6,904)
Other assets and liabilities, net (4,311) 463
--------- ---------
Net cash provided by operating
activities 36,037 29,981
--------- ---------
Cash flows from investing activities:
Restricted cash (53) (1,236)
Acquisition of businesses, net of cash
acquired (10,874) (235)
Capital expenditures (1,616) (1,093)
Proceeds from sales of equity securities 346 80
Payments to consultants related to sales of
equity securities (151) (35)
Proceeds from sales of short-term
investments -- 29,825
Purchases of short-term investments -- (70,775)
Proceeds from sale of a business 1,559 --
Other, net 8 10
--------- ---------
Net cash used in investing activities (10,781) (43,459)
--------- ---------
Cash flows from financing activities:
Proceeds from stock options exercised 249 8,750
Purchases of treasury stock (23,974) (12,155)
Excess tax benefits related to stock-based
compensation -- 3,590
Cash dividends paid (2,235) --
Other (12) (835)
--------- ---------
Net cash used in financing activities (25,972) (650)
--------- ---------
Effect of foreign currency exchange rates on
cash and cash equivalents 3,967 1,846
--------- ---------
Net increase (decrease) in cash and cash
equivalents 3,251 (12,282)
Cash and cash equivalents at beginning of
period 142,823 121,476
--------- ---------
Cash and cash equivalents at end of period $ 146,074 $ 109,194
========= =========
Supplemental schedule of noncash financing
activities:
Beginning of period - Accrued treasury stock
purchases $ 2,847 $ 724
Treasury stock purchases 21,833 12,451
Cash paid for treasury stock purchases (23,974) (12,155)
--------- ---------
Accrued treasury stock purchases $ 706 $ 1,020
========= =========
Heidrick & Struggles International, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended
June 30,
--------------------
2008 2007
--------- ---------
(Unaudited)
Cash flows from operating activities:
Net income $ 19,812 $ 31,095
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 5,360 5,516
Deferred income taxes 4,975 (8,444)
Net realized and unrealized losses on
equity and warrant portfolio 2 123
Stock-based compensation expense, net 12,569 18,047
Cash paid for restructuring charges (1,405) (2,047)
Changes in assets and liabilities:
Trade and other receivables (33,783) (33,554)
Accounts payable 361 682
Accrued expenses (76,963) (41,888)
Income taxes recoverable, net (7,093) (1,847)
Other assets and liabilities, net (7,493) (6,097)
--------- ---------
Net cash used in operating activities (83,658) (38,414)
--------- ---------
Cash flows from investing activities:
Restricted cash 138 (1,236)
Acquisition of businesses, net of cash
acquired (11,045) (1,261)
Capital expenditures (5,168) (3,010)
Proceeds from sales of equity securities 426 305
Payments to consultants related to sales of
equity securities (169) (124)
Proceeds from sales of short-term investments 22,275 81,325
Purchases of short-term investments -- (78,725)
Proceeds from sale of a business 1,559 --
Other, net 8 17
--------- ---------
Net cash provided by (used in) investing
activities 8,024 (2,709)
--------- ---------
Cash flows from financing activities:
Proceeds from stock options exercised 580 16,983
Purchases of treasury stock (41,987) (24,887)
Excess tax benefits related to stock-based
compensation -- 7,571
Cash dividends paid (4,481) --
Other 128 293
--------- ---------
Net cash used in financing activities (45,760) (40)
--------- ---------
Effect of foreign currency exchange rates on
cash and cash equivalents 6,888 2,917
--------- ---------
Net decrease in cash and cash equivalents (114,506) (38,246)
Cash and cash equivalents at beginning of
period 260,580 147,440
--------- ---------
Cash and cash equivalents at end of period $ 146,074 $ 109,194
========= =========
Supplemental schedule of noncash financing
activities:
Beginning of period - Accrued treasury stock
purchases $ 1,605 $ --
Treasury stock purchases 41,088 25,907
Cash paid for treasury stock purchases (41,987) (24,887)
--------- ---------
Accrued treasury stock purchases $ 706 $ 1,020
========= =========