CHICAGO, Feb. 24, 2009 (GLOBE NEWSWIRE) -- Heidrick & Struggles International, Inc. (Nasdaq:HSII), the world's premier executive search and leadership consulting firm, today announced financial results for the fourth quarter and year ended December 31, 2008.
Fourth Quarter 2008 Results
Consolidated net revenue of $134.9 million declined 12.1 percent from $153.6 million in the 2007 fourth quarter. On a constant currency basis, net revenue declined approximately 6 percent. Net revenue decreased 14.7 percent in the Americas, decreased 16.1 percent in Europe (approximately 3 percent on a constant currency basis), and increased 9.2 percent in the Asia Pacific region (approximately 18 percent on a constant currency basis).
The number of executive searches confirmed in the quarter decreased 16.9 percent compared to the 2007 fourth quarter and decreased 23.1 percent compared to the 2008 third quarter. The number of consultants at December 31, 2008 was 419, compared to 386 as of December 31, 2007, and 416 as of September 30, 2008. Productivity, as measured by annualized revenue per executive search consultant, was $1.2 million compared to $1.5 million in the 2007 fourth quarter. The average fee per executive search was $141,300, compared to $131,700 in last year's fourth quarter.
Chief Executive Officer L. Kevin Kelly said, "Our fourth quarter results reflect further deterioration in economies around the world, which resulted in slower hiring decisions in every region and in almost every industry practice. We continued to benefit from expense reductions as a result of cost-cutting initiatives adopted earlier in the year, but they could not fully offset the decline in net revenue."
Consolidated salaries and employee benefits declined 4.4 percent to $98.8 million, from $103.3 million in the comparable quarter of 2007. This decrease primarily reflects a decline in discretionary cash bonus expense, offset by higher fixed expenses associated with the year-over-year increase in consultants and search support staff. Salaries and employee benefits as a percentage of net revenue were 73.2 percent for the quarter, compared to 67.3 percent in the 2007 fourth quarter.
Consolidated general and administrative expenses were $31.0 million, down 3.3 percent from $32.1 million reported in the comparable prior-year period. The decline reflects the positive impact of cost savings initiatives and a reduction of professional fees compared to last year's fourth quarter, offset by an increase in bad debt expense in the 2008 fourth quarter. As a percentage of net revenue, consolidated general and administrative expenses were 23.0 percent, compared to 20.9 percent in the 2007 fourth quarter.
Operating income decreased 71.8 percent to $5.1 million from 2007 fourth quarter operating income of $18.2 million. The operating margin (measured as a percentage of net revenue) was 3.8 percent, compared to 11.9 percent in the 2007 fourth quarter.
Net income was $5.3 million and diluted earnings per share were $0.30, reflecting an effective tax rate in the quarter of 27.9 percent. The lower rate in the fourth quarter reflects the favorable settlement of a European tax audit and the release of tax reserves associated with the expiration of statutes of limitations for prior years. These results compare to net income in the 2007 fourth quarter of $9.2 million and diluted earnings per share of $0.49, which reflected an effective tax rate in the quarter of 55.3 percent after discrete items which included a charge related to the company's tax planning strategy to incorporate its UK branch.
Net cash generated by operating activities was $65.7 million, compared to $84.1 million in the 2007 fourth quarter. Cash and cash equivalents at December 31, 2008 were $234.5 million, compared to $183.0 million at September 30, 2008 and compared to cash and cash equivalents and short-term investments of $282.9 million at December 31, 2007.
Regional Review for the 2008 Fourth Quarter
Net revenue in the Americas of $68.2 million decreased 14.7 percent from the fourth quarter of 2007. Operating income of $7.5 million decreased 47.1 percent year over year, and the operating margin was 11.0 percent compared to 17.8 percent in the 2007 fourth quarter. The decrease in operating income and the resulting operating margin is primarily due to the decline in net revenue, but also an increase in fixed salaries and employee benefits expense for search support staff. Consultant headcount in the Americas was 205 at December 31, 2008 compared to 204 at December 31, 2007 and 211 at September 30, 2008.
In Europe, net revenue of $45.3 million decreased 16.1 percent from the prior-year quarter, and on a constant currency basis it declined approximately 3 percent. Operating income decreased 63.4 percent to $3.6 million and the operating margin was 8.0 percent compared to 18.2 percent in the 2007 fourth quarter. Lower operating income and the resulting operating margin reflect the decline in net revenue, higher salaries & employee benefits expense, and higher bad debt expense in the quarter. Consultant headcount in Europe was 127 at December 31, 2008 compared to 121 at December 31, 2007 and 129 at September 30, 2008.
In Asia Pacific, net revenue of $21.4 million increased 9.2 percent year over year, and on a constant currency basis increased approximately 18 percent. Operating income of $0.6 million decreased 60.4 percent year over year and the operating margin was 2.7 percent compared to 7.3 percent in the 2007 fourth quarter. Despite an increase in net revenue and a reduction in professional fees compared to last year's fourth quarter, operating income and the resulting operating margin were negatively impacted by higher fixed salaries and employee benefits expense associated with increasing consultant headcount and search support staff throughout the year. Consultant headcount in Asia Pacific was 87 at December 31, 2008, compared to 61 at December 31, 2007 and 76 at September 30, 2008.
2008 Results
For the year ended December 31, 2008, consolidated net revenue of $615.9 million declined 0.6% from $619.7 million in 2007. On a constant currency basis, net revenue declined approximately 2 percent. Net revenue declined 5.7 percent in the Americas, 2.9 percent in Europe (approximately 4 percent on a constant currency basis) and increased 27.3 percent in Asia Pacific (approximately 24 percent on a constant currency basis).
There were 4,812 confirmed executive searches in 2008, a 5.7 percent decline compared to 5,102 in 2007. Revenue growth achieved by the Technology, Life Sciences, Industrial, Education/Non-for Profit, and Business & Professional Services industry practice groups was offset by declines in Financial Services and Consumer practice groups. Productivity, as measured by annualized revenue per executive search consultant, was $1.4 million in 2008 compared to $1.5 million in 2007, and the average fee per executive search was $122,600, compared to $114,900 in 2007.
Operating income in 2008 was $55.5 million, representing an operating margin of 9.0 percent, compared to operating income in 2007 of $79.5 million and an operating margin of 12.8 percent. Net income in 2008 was $39.1 million, and diluted earnings per share were $2.20, reflecting an effective tax rate of 37.2 percent. In 2007, net income was $56.5 million and diluted earnings per share were $2.97, reflecting an effective tax rate of 35.2 percent.
Net cash provided by operating activities was $51.4 million in 2008, compared to $112.9 million in 2007. In 2008, the company repurchased 1,545,967 shares of its common stock at an average price of $30.06 per share for a total cost of $46.5 million, and paid quarterly cash dividends totaling $8.8 million.
Current 2009 Outlook
The company currently forecasts net revenue in the range of $450 million to $500 million and an operating margin of between zero and 5 percent for the year ending December 31, 2009. However, continued macroeconomic uncertainty and unprecedented volatility in the capital markets could cause the company's current forecasts to change materially during 2009.
Kelly added, "Although the timing is unclear, we are confident that organizations will actively reengage in the process of adding to or upgrading their management teams in the future and we are investing in Heidrick & Struggles in order to be their leadership advisory firm of choice. We are continuously focused on ways to grow and strengthen our search capabilities, but want to become just as successful at helping our clients develop and retain their senior talent. While positioning the company to take advantage of improving market conditions in the future, we are vigilant about achieving further improvements in our cost structure. In addition to the restructuring we announced in January, including a global headcount reduction of approximately 12 percent, we will be taking actions in 2009 towards our long-term goal to cut real estate expenses and support costs by approximately 30%."
Quarterly Conference Call
Executives of Heidrick & Struggles will host a conference call to review fourth quarter and 2008 results today, February 24, 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; further 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; 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 the establishment or reversal of valuation allowance on deferred tax assets; the mix of profit and loss by country; an impairment of our goodwill and other intangible assets; delays in the development and/or implementation of new technology and systems; and, the ability to meet and achieve the expected savings resulting from cost-reduction initiatives and restructuring activities. 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 December 31, ------------------ 2008 2007 $ Change % Change -------- -------- -------- -------- Revenue: Revenue before reimbursements (net revenue) $134,929 $153,574 $(18,645) -12.1% Reimbursements 6,848 8,137 (1,289) -15.8% -------- -------- -------- Total revenue 141,777 161,711 (19,934) -12.3% Operating expenses: Salaries and employee benefits 98,771 103,295 (4,524) -4.4% General and administrative expenses 31,022 32,071 (1,049) -3.3% Reimbursed expenses 6,848 8,137 (1,289) -15.8% -------- -------- -------- Total operating expenses 136,641 143,503 (6,862) -4.8% -------- -------- -------- Operating income 5,136 18,208 (13,072) -71.8% Non-operating income (expense): Interest income, net 976 2,526 Other, net 1,219 (61) -------- -------- Net non-operating income 2,195 2,465 Income before income taxes 7,331 20,673 Provision for income taxes 2,048 11,437 -------- -------- Net income $ 5,283 $ 9,236 ======== ======== Basic weighted average common shares outstanding 16,359 17,546 Diluted weighted average common shares outstanding 17,388 18,749 Basic earnings per common share $ 0.32 $ 0.53 Diluted earnings per common share $ 0.30 $ 0.49 Salaries and employee benefits as a percentage of net revenue 73.2% 67.3% General and administrative expense as a percentage of net revenue 23.0% 20.9% Operating income as a percentage of net revenue 3.8% 11.9% Effective tax rate 27.9% 55.3% Heidrick & Struggles International, Inc. Segment Information (In thousands) Three Months Ended December 31, ------------------------------------------------------- % 2008 2007 2008 2007 $ Change Change Margin* Margin* -------- -------- -------- ------ ------- ------- Revenue: Americas $ 68,229 $ 79,964 $(11,735) -14.7% Europe 45,346 54,052 (8,706) -16.1% Asia Pacific 21,354 19,558 1,796 9.2% -------- -------- -------- Revenue before reimbursements (net revenue) 134,929 153,574 (18,645) -12.1% Reimbursements 6,848 8,137 (1,289) -15.8% -------- -------- -------- Total revenue $141,777 $161,711 $(19,934) -12.3% ======== ======== ======== Operating Income: Americas $ 7,512 $ 14,206 $ (6,694) -47.1% 11.0% 17.8% Europe 3,607 9,859 (6,252) -63.4% 8.0% 18.2% Asia Pacific 567 1,433 (866) -60.4% 2.7% 7.3% -------- -------- -------- Total regions 11,686 25,498 (13,812) -54.2% 8.7% 16.6% Corporate (6,550) (7,290) 740 10.2% -------- -------- -------- Operating income $ 5,136 $ 18,208 $(13,072) -71.8% 3.8% 11.9% ======== ======== ======== * Margin based on revenue before reimbursements (net revenue). Heidrick & Struggles International, Inc. Consolidated Statements of Operations (In thousands, except per share data) Twelve Months Ended December 31, ---------------------- 2008 2007 $ Change % Change ---------- ---------- ---------- ---------- (Unaudited) Revenue: Revenue before reimbursements (net revenue) $ 615,904 $ 619,654 $ (3,750) -0.6% Reimbursements 28,956 28,612 344 1.2% ---------- ---------- ---------- Total revenue 644,860 648,266 (3,406) -0.5% Operating expenses: Salaries and employee benefits 435,306 418,952 16,354 3.9% General and administrative expenses 125,061 121,198 3,863 3.2% Reimbursed expenses 28,956 28,612 344 1.2% ---------- ---------- ---------- Total operating expenses 589,323 568,762 20,561 3.6% ---------- ---------- ---------- Operating income 55,537 79,504 (23,967) -30.1% Non-operating income (expense): Interest income, net 5,103 8,035 Other, net 1,613 (404) ---------- ---------- Net non-operating income 6,716 7,631 Income before income taxes 62,253 87,135 Provision for income taxes 23,179 30,672 ---------- ---------- Net income $ 39,074 $ 56,463 ========== ========== Basic weighted average common shares outstanding 16,747 17,854 Diluted weighted average common shares outstanding 17,727 18,984 Basic earnings per common share $ 2.33 $ 3.16 Diluted earnings per common share $ 2.20 $ 2.97 Salaries and employee benefits as a percentage of net revenue 70.7% 67.6% General and administrative expense as a percentage of net revenue 20.3% 19.6% Operating income as a percentage of net revenue 9.0% 12.8% Effective tax rate 37.2% 35.2% Heidrick & Struggles International, Inc. Segment Information (In thousands) Twelve Months Ended December 31, ------------------------------------------------------- % 2008 2007 2008 2007 $ Change Change Margin* Margin* -------- -------- -------- ------ ------- ------- Revenue: Americas $314,412 $333,561 $(19,149) -5.7% Europe 201,462 207,504 (6,042) -2.9% Asia Pacific 100,030 78,589 21,441 27.3% -------- -------- -------- Revenue before reimbursements (net revenue) 615,904 619,654 (3,750) -0.6% Reimbursements 28,956 28,612 344 1.2% -------- -------- -------- Total revenue $644,860 $648,266 $ (3,406) -0.5% ======== ======== ======== Operating Income: Americas $ 45,783 $ 67,480 $(21,697) -32.2% 14.6% 20.2% Europe 24,479 31,865 (7,386) -23.2% 12.2% 15.4% Asia Pacific 15,351 15,946 (595) -3.7% 15.3% 20.3% -------- -------- -------- Total regions 85,613 115,291 (29,678) -25.7% 13.9% 18.6% Corporate (30,076) (35,787) 5,711 16.0% -------- -------- -------- Operating income $ 55,537 $ 79,504 $(23,967) -30.1% 9.0% 12.8% ======== ======== ======== * Margin based on revenue before reimbursements (net revenue). Heidrick & Struggles International, Inc. Condensed Consolidated Balance Sheets (In thousands) December 31, December 31, 2008 2007 ------------ ------------ (Unaudited) Current assets: Cash and cash equivalents $ 234,531 $ 260,580 Short-term investments -- 22,275 Accounts receivable, net 68,233 82,240 Other receivables 8,586 5,868 Prepaid expenses 19,520 15,026 Other current assets 1,788 1,419 Income taxes recoverable, net 7,719 -- Deferred income taxes, net 13,893 15,290 ------------ ------------ Total current assets 354,270 402,698 ------------ ------------ Non-current assets: Property and equipment, net 28,172 18,730 Restricted cash 9,655 9,826 Assets designated for retirement and pension plans 24,973 26,067 Investments 12,594 7,832 Other non-current assets 7,203 6,296 Goodwill 101,234 84,217 Other intangible assets, net 13,543 15,363 Deferred income taxes, net 35,313 45,855 ------------ ------------ Total non-current assets 232,687 214,186 ------------ ------------ Total assets $ 586,957 $ 616,884 ============ ============ Current liabilities: Accounts payable $ 11,977 $ 8,699 Accrued salaries and employee benefits 163,695 197,954 Other current liabilities 51,723 47,189 Income taxes payable, net -- 995 ------------ ------------ Total current liabilities 227,395 254,837 ------------ ------------ Non-current liabilities: Retirement and pension plans 27,503 28,831 Other non-current liabilities 25,755 23,416 ------------ ------------ Total non-current liabilities 53,258 52,247 ------------ ------------ Stockholders' equity 306,304 309,800 ------------ ------------ Total liabilities and stockholders' equity $ 586,957 $ 616,884 ============ ============ Heidrick & Struggles International, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited) Three Months Ended December 31, ------------------ 2008 2007 -------- -------- Cash flows from operating activities: Net income $ 5,283 $ 9,236 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,476 2,927 Deferred income taxes 6,494 (12,497) Net realized and unrealized gains on equity and warrant portfolio 70 15 Stock-based compensation expense, net 6,005 5,018 Cash paid for restructuring charges (720) (791) Other, net -- (1,115) Changes in assets and liabilities, net of effects of acquisitions: Trade and other receivables 32,059 32,713 Accounts payable (36) 1,314 Accrued expenses 21,807 33,953 Income taxes recoverable (payable), net (6,007) 13,199 Retirement and pension plan assets and liabilities (2,608) (3,241) Prepayments 398 (749) Other assets and liabilities, net 436 4,072 -------- -------- Net cash provided by operating activities 65,657 84,054 -------- -------- Cash flows from investing activities: Restricted cash (9) (649) Acquisition of businesses, net of cash acquired (146) -- Capital expenditures (5,474) (1,937) Purchases of cost and equity method investments (2,812) (2,172) Proceeds from sales of equity securities 18 93 Payments to consultants related to sales of equity securities (104) (74) Proceeds from sales of short-term investments -- 87,550 Purchases of short-term investments -- (40,575) Other, net (3) 16 -------- -------- Net cash provided by (used in) investing activities (8,530) 42,252 -------- -------- Cash flows from financing activities: Proceeds from stock options exercised 67 128 Purchases of treasury stock (1,033) (13,336) Excess tax benefits related to stock-based compensation -- (198) Cash dividends paid (2,127) (2,295) Payment of employee tax withholdings from equity transactions (409) (488) -------- -------- Net cash used in financing activities (3,502) (16,189) -------- -------- Effect of foreign currency exchange rates on cash and cash equivalents (2,117) 1,469 -------- -------- Net increase in cash and cash equivalents 51,508 111,586 Cash and cash equivalents at beginning of period 183,023 148,994 -------- -------- Cash and cash equivalents at end of period $234,531 $260,580 ======== ======== Supplemental schedule of noncash financing activities: Beginning of period - Accrued treasury stock purchases $ 1,033 $ 1,311 Treasury stock purchases -- 13,630 Cash paid for treasury stock purchases (1,033) (13,336) -------- -------- Accrued treasury stock purchases $ -- $ 1,605 ======== ======== Heidrick & Struggles International, Inc. Consolidated Statements of Cash Flows (In thousands) Twelve Months Ended December 31, ---------------------- 2008 2007 ---------- ---------- (Unaudited) Cash flows from operating activities: Net income $ 39,074 $ 56,463 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,544 11,279 Impairment of intangible assets -- 1,029 Deferred income taxes 11,960 (21,990) Net realized and unrealized losses on equity and warrant portfolio 42 116 Stock-based compensation expense, net 24,772 30,689 Cash paid for restructuring charges (2,841) (3,294) Other, net -- (1,115) Changes in assets and liabilities, net of effects of acquisitions: Trade and other receivables 2,925 4,244 Accounts payable (349) (311) Accrued expenses (13,549) 41,986 Income taxes recoverable (payable), net (10,061) 2,143 Retirement and pension plan assets and liabilities (2,642) (3,230) Prepayments (5,696) (4,792) Other assets and liabilities, net (2,788) (298) ---------- ---------- Net cash provided by operating activities 51,391 112,919 ---------- ---------- Cash flows from investing activities: Restricted cash 129 (1,840) Acquisition of businesses, net of cash acquired (14,801) (1,277) Capital expenditures (13,402) (7,998) Purchases of cost and equity method investments (2,812) (2,172) Proceeds from sales of equity securities 797 444 Payments to consultants related to sales of equity securities (333) (219) Proceeds from sales of short-term investments 22,275 207,075 Purchases of short-term investments -- (155,975) Proceeds from sale of a business, net 1,559 -- Other, net 5 16 ---------- ---------- Net cash provided by (used in) investing activities (6,583) 38,054 ---------- ---------- Cash flows from financing activities: Proceeds from stock options exercised 897 19,353 Purchases of treasury stock (48,071) (67,752) Excess tax benefits related to stock-based compensation -- 7,977 Cash dividends paid (8,750) (2,295) Payment of employee tax withholdings from equity transactions (8,764) (4,978) ---------- ---------- Net cash used in financing activities (64,688) (47,695) ---------- ---------- Effect of foreign currency exchange rates on cash and cash equivalents (6,169) 9,862 ---------- ---------- Net increase (decrease) in cash and cash equivalents (26,049) 113,140 Cash and cash equivalents at beginning of period 260,580 147,440 ---------- ---------- Cash and cash equivalents at end of period $ 234,531 $ 260,580 ========== ========== Supplemental schedule of noncash financing activities: Beginning of period - Accrued treasury stock purchases $ 1,605 $ -- Treasury stock purchases 46,466 69,357 Cash paid for treasury stock purchases (48,071) (67,752) ---------- ---------- Accrued treasury stock purchases $ -- $ 1,605 ========== ==========