CHICAGO, Oct. 28, 2008 (GLOBE NEWSWIRE) -- Heidrick & Struggles International, Inc. (Nasdaq:HSII), the world's premier executive search and leadership consulting firm, today announced financial results for the third quarter ended September 30, 2008.
Consolidated net revenue of $158.3 million declined 2.8 percent from $162.9 million in the 2007 third quarter. On a constant currency basis, net revenue declined approximately 5 percent. Net revenue decreased 0.2 percent in the Americas, decreased 14.6 percent in Europe (or approximately 17 percent on a constant currency basis), and increased 18.2 percent in the Asia Pacific region (approximately 15 percent on a constant currency basis).
The number of executive searches confirmed in the quarter decreased 4.0 percent compared to the 2007 third quarter and decreased 11.8 percent compared to the 2008 second quarter. The number of consultants at September 30, 2008 was 416, compared to 393 as of September 30, 2007, and 408 as of June 30, 2008. Productivity, as measured by annualized revenue per executive search consultant, was $1.4 million compared to $1.6 million in the 2007 third quarter. The average fee per executive search was $127,200, compared to $125,500 in last year's third quarter.
Chief Executive Officer L. Kevin Kelly said, "Our global network and diversified practice offerings have helped us weather challenging economies in many parts of the world. Although our business has softened, organizations around the world continue to need talented leadership to navigate through these difficult conditions. In addition, the improvements that we have made to our cost structure over the years have enabled us to better manage our profitability than in past downturns."
Consolidated salaries and employee benefits were $108.6 million, an increase of 1.9 percent from $106.6 million in the comparable quarter of 2007. This increase primarily reflects an increase in fixed expense for new employees added since last year, partially offset by a decrease in discretionary compensation as a result of lowered expectations for full-year net revenue and operating margin. Salaries and employee benefits as a percentage of net revenue were 68.6 percent for the quarter, compared to 65.4 percent in the 2007 third quarter.
Consolidated general and administrative expenses were $28.8 million, down 6.4 percent from $30.8 million reported in the comparable prior-year period. As a percentage of net revenue, consolidated general and administrative expenses were 18.2 percent, compared to 18.9 percent in the 2007 third quarter. The year-over-year decline primarily reflects several items in last year's third quarter which did not recur in the 2008 third quarter, partially offset by an increase in premise-related costs.
Operating income decreased 18.1 percent to $20.9 million from 2007 third quarter operating income of $25.5 million. The operating margin (measured as a percentage of net revenue) was 13.2 percent, compared to 15.6 percent in the 2007 third quarter.
Net income was $14.0 million and diluted earnings per share were $0.80, reflecting an effective tax rate in the quarter of 38.0 percent. These results compare to net income in the 2007 third quarter of $16.1 million and diluted earnings per share of $0.84, which reflected an effective tax rate in the quarter of 39.4 percent.
Net cash generated by operating activities was $61.0 million, compared to $62.8 million in the 2007 third quarter. Cash and cash equivalents at September 30, 2008 were $183.0 million, compared to cash and cash equivalents and short-term investments of $218.2 million at September 30, 2007 and $146.1 million at June 30, 2008.
During the third quarter, the company repurchased 177,746 shares of its common stock at an average price of $30.26 per share for a total of $5.4 million. As of September 30, 2008, $22.8 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 Third Quarter
In the third quarter, the Americas represented 52 percent of consolidated net revenue, Europe represented 31 percent, and Asia Pacific was 17 percent. This compares to the 2007 third quarter when the Americas represented 50 percent, Europe was 36 percent and Asia Pacific was 14 percent.
Net revenue in the Americas of $81.8 million decreased 0.2 percent from the third quarter of 2007. The Industrial and Technology industry groups delivered good year-over-year net revenue growth, but this growth was offset by weakness in the Financial Services, Consumer, and Business and Professional Services industry groups. Operating income of $14.0 million decreased 18.6 percent year over year, and the operating margin was 17.1 percent, compared to 21.0 percent in the 2007 third quarter. The decrease in operating income and the resulting operating margin is mostly due to an increase in fixed salaries and employee benefits expense for associates and search support staff, and for severance. Consultant headcount in the Americas was 211 at September 30, 2008 compared to 213 at June 30, 2008 and 202 at September 30, 2007.
In Europe, net revenue of $49.9 million decreased 14.6 percent from the prior-year quarter; and on a constant currency basis it declined approximately 17 percent. The Life Sciences and Consumer industry groups achieved solid year-over-year growth, but this was offset by declines in the Financial Services, Industrial, and Business and Professional Services industry groups. Operating income decreased 26.7 percent to $7.9 million and the operating margin was 15.9 percent, compared to 18.5 percent in the 2007 third quarter. The decrease in operating income and the resulting operating margin are primarily a result of a decline in net revenue. Consultant headcount in Europe was 129 at September 30, 2008 compared to 120 at June 30, 2008 and 130 at September 30, 2007.
In Asia Pacific, net revenue of $26.6 million increased 18.2 percent year over year, and on a constant currency basis increased approximately 15 percent. Every industry group except Technology achieved year-over-year revenue growth. Operating income of $5.4 million increased 10.3 percent year over year and the operating margin was 20.5 percent, compared to 21.9 percent in the 2007 third quarter. Consultant headcount in Asia Pacific was 76 at September 30, 2008, compared to 75 at June 30, 2008, and 61 at September 30, 2007.
Nine Months Results
For the nine months ended September 30, 2008, consolidated net revenue was $481.0 million, a 3.2 percent increase from $466.1 million in the first nine months of 2007. The number of executive searches confirmed in the first nine months of 2008 declined 2.9 percent compared to the first nine months of 2007. Operating income in the first nine months of 2008 was $50.4 million, representing an operating margin of 10.5 percent, compared to operating income in the first nine months of 2007 of $61.3 million and an operating margin of 13.2 percent. Net income for the first nine months of 2008 was $33.8 million, and diluted earnings per share were $1.89, reflecting an effective tax rate of 38.5 percent. For the same period of 2007, net income was $47.2 million and diluted earnings per share were $2.48, reflecting an effective tax rate of 28.9 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
As previously announced on October 14, 2008, the company currently expects net revenue of approximately $630 million and an operating margin of approximately 10% for the year ending December 31, 2008. 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.
Quarterly Conference Call
Executives of Heidrick & Struggles will host a conference call to review 2008 third quarter results today, October 28, at 9:00 a.m. 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
September 30,
-------------------
2008 2007 $ Change % Change
-------- -------- ------- -------
Revenue:
Revenue before reimbursements
(net revenue) $158,318 $162,901 $(4,583) -2.8%
Reimbursements 7,009 6,717 292 4.3%
-------- -------- -------
Total revenue 165,327 169,618 (4,291) -2.5%
Operating expenses:
Salaries and employee benefits 108,611 106,612 1,999 1.9%
General and administrative
expenses 28,849 30,832 (1,983) -6.4%
Reimbursed expenses 7,009 6,717 292 4.3%
-------- -------- -------
Total operating expenses 144,469 144,161 308 0.2%
-------- -------- -------
Operating income 20,858 25,457 (4,599) -18.1%
Non-operating income (expense):
Interest income 1,199 2,061
Interest expense (18) (9)
Other, net 499 (901)
-------- --------
Net non-operating income 1,680 1,151
Income before income taxes 22,538 26,608
Provision for income taxes 8,559 10,476
-------- --------
Net income $ 13,979 $ 16,132
======== ========
Basic weighted average
common shares outstanding 16,455 17,994
Diluted weighted average
common shares outstanding 17,395 19,185
Basic earnings per common share $ 0.85 $ 0.90
Diluted earnings per common
share $ 0.80 $ 0.84
Salaries and employee benefits
as a percentage of net revenue 68.6% 65.4%
General and administrative
expense as a percentage of net
revenue 18.2% 18.9%
Operating income as a percentage
of net revenue 13.2% 15.6%
Effective tax rate 38.0% 39.4%
Heidrick & Struggles International, Inc.
Segment Information
(In thousands)
Three Months Ended September 30,
---------------------------------------------------
2008 2007
2008 2007 $ Change % Change Margin* Margin*
-------- -------- ------- ------- ------- -------
Revenue:
Americas $ 81,844 $ 81,994 $ (150) -0.2%
Europe 49,906 58,422 (8,516) -14.6%
Asia Pacific 26,568 22,485 4,083 18.2%
-------- -------- -------
Revenue before
reimbursements
(net revenue) 158,318 162,901 (4,583) -2.8%
Reimbursements 7,009 6,717 292 4.3%
-------- -------- -------
Total revenue $165,327 $169,618 $(4,291) -2.5%
======== ======== =======
Operating Income:
Americas $ 13,989 $ 17,185 $(3,196) -18.6% 17.1% 21.0%
Europe 7,931 10,822 (2,891) -26.7% 15.9% 18.5%
Asia Pacific 5,443 4,935 508 10.3% 20.5% 21.9%
-------- -------- -------
Total regions 27,363 32,942 (5,579) -16.9% 17.3% 20.2%
Corporate (6,505) (7,485) 980 13.1%
-------- -------- -------
Operating
income $ 20,858 $ 25,457 $(4,599) -18.1% 13.2% 15.6%
======== ======== =======
* Margin based on revenue before reimbursements (net revenue)
Heidrick & Struggles International, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
September 30,
------------------
2008 2007 $ Change % Change
-------- -------- -------- -------
Revenue:
Revenue before reimbursements
(net revenue) $480,975 $466,080 $ 14,895 3.2%
Reimbursements 22,108 20,475 1,633 8.0%
-------- -------- --------
Total revenue 503,083 486,555 16,528 3.4%
Operating expenses:
Salaries and employee benefits 336,535 315,657 20,878 6.6%
General and administrative
expenses 94,039 89,127 4,912 5.5%
Reimbursed expenses 22,108 20,475 1,633 8.0%
-------- -------- --------
Total operating expenses 452,682 425,259 27,423 6.4%
-------- -------- --------
Operating income 50,401 61,296 (10,895) -17.8%
Non-operating income (expense):
Interest income 4,199 5,564
Interest expense (72) (55)
Other, net 394 (343)
-------- --------
Net non-operating income 4,521 5,166
Income before income taxes 54,922 66,462
Provision for income taxes 21,131 19,235
-------- --------
Net income $ 33,791 $ 47,227
======== ========
Basic weighted average common
shares outstanding 16,877 17,958
Diluted weighted average
common shares outstanding 17,841 19,064
Basic earnings per common share $ 2.00 $ 2.63
Diluted earnings per common share $ 1.89 $ 2.48
Salaries and employee benefits
as a percentage of net revenue 70.0% 67.7%
General and administrative
expense as a percentage of
net revenue 19.6% 19.1%
Operating income as a percentage
of net revenue 10.5% 13.2%
Effective tax rate 38.5% 28.9%
Heidrick & Struggles International, Inc.
Segment Information
(In thousands)
Nine Months Ended September 30,
---------------------------------------------------
2008 2007
2008 2007 $ Change % Change Margin* Margin*
-------- -------- -------- ------ ------ ------
Revenue:
Americas $246,183 $253,597 $ (7,414) -2.9%
Europe 156,116 153,452 2,664 1.7%
Asia Pacific 78,676 59,031 19,645 33.3%
-------- -------- --------
Revenue before
reimbursements
(net revenue) 480,975 466,080 14,895 3.2%
Reimbursements 22,108 20,475 1,633 8.0%
-------- -------- --------
Total revenue $503,083 $486,555 $ 16,528 3.4%
======== ======== ========
Operating Income:
Americas $ 38,271 $ 53,274 $(15,003) -28.2% 15.5% 21.0%
Europe 20,872 22,006 (1,134) -5.2% 13.4% 14.3%
Asia Pacific 14,784 14,513 271 1.9% 18.8% 24.6%
-------- -------- --------
Total regions 73,927 89,793 (15,866) -17.7% 15.4% 19.3%
Corporate (23,526) (28,497) 4,971 17.4%
-------- -------- --------
Operating
income $ 50,401 $ 61,296 $(10,895) -17.8% 10.5% 13.2%
======== ======== ========
* Margin based on revenue before reimbursements (net revenue).
Heidrick & Struggles International, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
Sept. 30, Dec. 31,
2008 2007
-------- --------
(Unaudited)
Current assets:
Cash and cash equivalents $183,023 $260,580
Short-term investments -- 22,275
Accounts receivable, net of
allowance for doubtful accounts 105,635 82,240
Other receivables 7,413 5,868
Prepaid expenses 20,440 15,026
Other current assets 1,378 1,419
Income taxes recoverable, net 1,404 --
Deferred income taxes, net 15,211 15,290
-------- --------
Total current assets 334,504 402,698
-------- --------
Non-current assets:
Property and equipment, net 19,753 18,730
Restricted cash 9,650 9,826
Assets designated for retirement
and pension plans 25,125 26,067
Investments 9,479 7,832
Other non-current assets 7,701 6,296
Goodwill 98,197 84,217
Other intangible assets, net 14,450 15,363
Deferred income taxes, net 40,475 45,855
-------- --------
Total non-current assets 224,830 214,186
-------- --------
Total assets $559,334 $616,884
======== ========
Current liabilities:
Accounts payable $ 7,638 $ 8,699
Accrued salaries and employee benefits 140,692 197,954
Other accrued liabilities 44,991 44,376
Current portion of accrued
restructuring charges 2,508 2,813
Income taxes payable, net -- 995
-------- --------
Total current liabilities 195,829 254,837
-------- --------
Non-current liabilities:
Retirement and pension plans 29,578 28,831
Non-current portion of accrued
restructuring charges 4,543 6,735
Other non-current liabilities 27,775 16,681
-------- --------
Total non-current liabilities 61,896 52,247
-------- --------
Stockholders' equity 301,609 309,800
-------- --------
Total liabilities and stockholders' equity $559,334 $616,884
======== ========
Heidrick & Struggles International, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
September 30,
----------------------
2008 2007
--------- ---------
Cash flows from operating activities:
Net income $ 13,979 $ 16,132
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,708 2,836
Impairment of intangibles -- 1,029
Deferred income taxes 491 (1,049)
Net realized and unrealized gains on
equity and warrant portfolio (30) (22)
Stock-based compensation expense, net 6,198 7,624
Cash paid for restructuring charges (716) (456)
Changes in assets and liabilities:
Trade and other receivables 4,649 5,085
Accounts payable (674) (2,307)
Accrued expenses 33,175 45,408
Income taxes recoverable, net 3,039 (9,209)
Other assets and liabilities, net (1,859) (2,305)
--------- ---------
Net cash provided by
operating activities 60,960 62,766
--------- ---------
Cash flows from investing activities:
Restricted cash -- 45
Acquisition of businesses, net of
cash acquired (3,610) (16)
Capital expenditures (2,760) (3,051)
Proceeds from sales of equity securities 353 46
Payments to consultants related to sales
of equity securities (60) (21)
Proceeds from sales of short-term
investments -- 38,200
Purchases of short-term investments -- (36,675)
Other, net -- (17)
--------- ---------
Net cash used in investing
activities (6,077) (1,489)
--------- ---------
Cash flows from financing activities:
Proceeds from stock options exercised 250 2,242
Purchases of treasury stock (5,051) (29,529)
Excess tax benefits related to
stock-based compensation -- 604
Cash dividends paid (2,142) --
Other (51) (270)
--------- ---------
Net cash used in financing
activities (6,994) (26,953)
--------- ---------
Effect of foreign currency exchange
rates on cash and cash equivalents (10,940) 5,476
--------- ---------
Net increase in cash and cash equivalents 36,949 39,800
Cash and cash equivalents at beginning
of period 146,074 109,194
--------- ---------
Cash and cash equivalents at end of period $ 183,023 $ 148,994
========= =========
Supplemental schedule of noncash financing
activities:
Beginning of period - Accrued treasury
stock purchases $ 706 $ 1,020
Treasury stock purchases 5,378 29,820
Cash paid for treasury stock purchases (5,051) (29,529)
--------- ---------
Accrued treasury stock purchases $ 1,033 $ 1,311
========= =========
Heidrick & Struggles International, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
---------------------
2008 2007
-------- ---------
Cash flows from operating activities:
Net income $ 33,791 $ 47,227
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 8,068 8,352
Impairment of intangibles -- 1,029
Deferred income taxes 5,466 (9,493)
Net realized and unrealized (gains)
losses on equity and warrant portfolio (28) 101
Stock-based compensation expense, net 18,767 25,671
Cash paid for restructuring charges (2,121) (2,503)
Changes in assets and liabilities:
Trade and other receivables (29,134) (28,469)
Accounts payable (313) (1,625)
Accrued expenses (43,788) 3,520
Income taxes recoverable, net (4,054) (11,056)
Other assets and liabilities, net (9,352) (8,402)
-------- ---------
Net cash provided by (used in)
operating activities (22,698) 24,352
-------- ---------
Cash flows from investing activities:
Restricted cash 138 (1,191)
Acquisition of businesses, net of cash
acquired (14,655) (1,277)
Capital expenditures (7,928) (6,061)
Proceeds from sales of equity securities 779 351
Payments to consultants related to sales of
equity securities (229) (145)
Proceeds from sales of short-term investments 22,275 119,525
Purchases of short-term investments -- (115,400)
Proceeds from sale of a business 1,559 --
Other, net 8 --
-------- ---------
Net cash provided by (used in) investing
activities 1,947 (4,198)
-------- ---------
Cash flows from financing activities:
Proceeds from stock options exercised 830 19,225
Purchases of treasury stock (47,038) (54,416)
Excess tax benefits related to stock-based
compensation -- 8,175
Cash dividends paid (6,623) --
Other 77 23
-------- ---------
Net cash used in financing activities (52,754) (26,993)
-------- ---------
Effect of foreign currency exchange rates
on cash and cash equivalents (4,052) 8,393
-------- ---------
Net increase (decrease) in cash and cash
equivalents (77,557) 1,554
Cash and cash equivalents at beginning of
period 260,580 147,440
-------- ---------
Cash and cash equivalents
at end of period $183,023 $ 148,994
======== =========
Supplemental schedule of noncash financing
activities:
Beginning of period - Accrued treasury
stock purchases $ 1,605 $ --
Treasury stock purchases 46,466 55,727
Cash paid for treasury stock purchases (47,038) (54,416)
-------- ---------
Accrued treasury stock purchases $ 1,033 $ 1,311
======== =========