CHICAGO, July 26, 2011 (GLOBE NEWSWIRE) -- Heidrick & Struggles International, Inc. (Nasdaq:HSII), the leadership advisory firm providing executive search and leadership consulting services worldwide, today announced financial results for its second quarter ended June 30, 2011.
Consolidated net revenue of $142.8 million increased 13.3 percent (approximately 7 percent on a constant currency basis) from $126.1 million in the 2010 second quarter. Exchange rate fluctuations positively impacted net revenue by $7.5 million. Year over year, net revenue increased 18.0 percent in the Americas, 8.8 percent in Europe (a decline of approximately 3 percent on a constant currency basis), and 7.7 percent in Asia Pacific (a decline of approximately 3 percent on a constant currency basis). Net revenue from Leadership Consulting Services increased 50.0 percent to $12.3 million and represented 8.6 percent of consolidated net revenue in the quarter.
The number of executive search and leadership consulting consultants at June 30, 2011 was 386, compared to 343 at June 30, 2010, and 372 at March 31, 2011. The number of executive search confirmations in the quarter increased 12.4 percent compared to the 2010 second quarter, and increased 14.8 percent compared to the 2011 first quarter. Productivity, as measured by annualized net revenue per consultant, was $1.5 million, compared to $1.4 million in the 2010 second quarter and $1.3 million in the 2011 first quarter. The average revenue per executive search was $107,400 compared to $108,600 in the 2010 second quarter and $101,200 in the 2011 first quarter.
Consolidated salaries and employee benefits increased 15.4 percent to $99.2 million, from $86.0 million in the comparable quarter of 2010. The increase primarily reflects an increase in the variable component of compensation associated with the increase in net revenue as well as higher base compensation and payroll taxes associated with a 12.8 percent increase in employee headcount. Salaries and employee benefits were 69.5 percent of net revenue for the quarter, compared to 68.2 percent in the 2010 second quarter.
Consolidated general and administrative expenses increased 1.3 percent to $33.3 million from $32.9 million in the 2010 second quarter. As a percentage of net revenue, consolidated general and administrative expenses were 23.3 percent, compared to 26.1 percent in the 2010 second quarter.
Operating income in the quarter improved to $10.3 million and the operating margin was 7.2 percent compared to operating income of $7.6 million and an operating margin of 6.0 percent in the 2010 second quarter.
Net income was $7.4 million and diluted earnings per share $0.41, based upon an effective tax rate in the quarter of 32.5 percent. In the 2010 second quarter, net income was $2.7 million and diluted earnings per share were $0.15, which reflected an effective tax rate of 49.9 percent.
Net cash provided by operating activities in the quarter was $17.6 million, compared to $23.8 million in the 2010 second quarter. Cash and cash equivalents at June 30, 2011 were $103.1 million compared to $92.6 million at June 30, 2010, and $92.2 million at March 31, 2011.
Regional Review
| $ in millions | 2Q 11 | 2Q 10 | Change | 1Q 11 | Change |
| Americas | |||||
| Net revenue | $ 76.7 | $ 65.1 | $ 11.6 | $ 63.5 | $ 13.3 |
| Operating income | $ 18.7 | $ 13.8 | $ 4.9 | $ 7.6 | $ 11.1 |
| Consultants | 178 | 160 | 18 | 170 | 8 |
| Europe | |||||
| Net revenue | $ 34.5 | $ 31.7 | $ 2.8 | $ 27.6 | $ 6.9 |
| Operating income (loss) | $ (2.4) | $ 0.5 | $ (2.9) | $ (2.1) | $ (0.3) |
| Consultants | 128 | 110 | 18 | 125 | 3 |
| Asia Pacific | |||||
| Net revenue | $ 31.5 | $ 29.3 | $ 2.2 | $ 24.6 | $ 7.0 |
| Operating income | $ 4.9 | $ 7.1 | $ (2.2) | $ 2.5 | $ 2.3 |
| Consultants | 80 | 73 | 7 | 77 | 3 |
| Global Operations Support | $ (10.9) | $ (14.1) | $ 3.2 | $ (12.2) | $ 1.3 |
| Total operating income (loss) | $ 10.3 | $ 7.6 | $ 2.7 | $ (4.1) | $ 14.4 |
Totals and subtotals may not equal the sum of individual line items due to rounding.
Net revenue in the Americas increased 18.0 percent year over year and 20.9 percent compared to the 2011 first quarter. The Industrial, Consumer, and Leadership Consulting practices were the largest drivers of year-over-year growth and also key drivers of sequential growth, along with the Financial Services Practice. Second quarter operating income increased 35.5 percent year-over-year, and the operating margin was 24.4 percent.
Net revenue in Europe increased 8.8 percent year over year (declined approximately 3 percent on a constant currency basis) and increased 25.2 percent sequentially (approximately 22 percent on a constant currency basis). Exchange rate fluctuations positively impacted year-over-year net revenue by $3.8 million. The Industrial Practice was a key driver of the reported year-over-year and sequential growth in this region. The Financial Services Practice experienced a year-over-year decline but was the largest driver of growth sequentially. The operating loss was $2.4 million compared to operating income of $0.5 million in the 2010 second quarter primarily reflecting an increase in fixed compensation expense.
The Asia Pacific region reported a 7.7 percent year-over-year increase in second quarter net revenue (a decline of approximately 3 percent on a constant currency basis) and 28.3 percent growth sequentially (approximately 25 percent on a constant currency basis). Exchange rate fluctuations positively impacted year-over-year net revenue by $3.1 million. The Consumer and Industrial practices drove the reported year-over-year growth as well as sequential growth. The Financial Services Practice was also key to sequential growth. Operating income declined 31.0 percent compared to the 2010 second quarter and the operating margin was 15.4 percent primarily reflecting higher base compensation and payroll taxes associated with an 18.9 percent increase in employee headcount, including newer consultants who are not yet fully productive.
Expenses related to Global Operations Support declined 22.8 percent compared to the 2010 second quarter. The largest component of the decline related to the absence of a worldwide partners' meeting in the 2011 second quarter.
Chief Executive Officer L. Kevin Kelly said, "We were pleased with how confirmation trends improved in the second quarter and helped drive double digit sequential revenue growth in each region. The improving productivity is also encouraging given the number of new hires and promotions we've made in the last year. With consultant and employee hiring essentially complete for the year, we are focused on leveraging productivity and lowering operating costs in order to achieve and sustain higher operating margins."
Six Months Results
For the six months ended June 30, 2011 consolidated net revenue of $258.4 million increased 7.8 percent (approximately 4 percent on a constant currency basis) from $239.7 million in the first six months of 2010. Exchange rate fluctuations positively impacted net revenue by $10.1 million. Productivity, as measured by annualized net revenue per consultant, was $1.4 million compared to $1.3 million for the first six months of 2010. The number of executive searches confirmed in the first six months of 2011 increased 5.4 percent compared to the first six months of 2010. The average revenue per executive search was $104,500 compared to $103,500 for the same period in 2010. Operating income for the first six months was $6.2 million and the operating margin was 2.4 percent, compared to operating income of $3.8 million for the first six months of 2010 and an operating margin of 1.6 percent. Net income for the first six months of 2011 was $2.8 million and diluted earnings per share were $0.15, reflecting an effective tax rate of 45.7 percent. The reported net income for the first six months of 2010 was $1.1 million and diluted earnings per share were $0.06, reflecting an effective tax rate of 38.8 percent.
2011 Outlook
The company expects that third quarter 2011 net revenue will be between $134 million and $144 million and that the operating margin will be between 6 percent and 8 percent. The company is forecasting that 2011 net revenue will be within its previously disclosed range of $515 million to $545 million and that the operating margin will likely be at the lower end of the range it had provided earlier, or between 6 percent and 8 percent. Net income and earnings per share in 2011 are expected to reflect a full-year effective tax rate of between 42 percent and 50 percent, but will be impacted by country-level results and tax planning initiatives.
Quarterly Conference Call
Executives of Heidrick & Struggles will host a conference call to review the second quarter 2011 results today, July 26, at 9:00 am Central Time. Participants may access the company's call and supporting slides through the internet 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., (Nasdaq:HSII) is the leadership advisory firm providing executive search and leadership consulting services, including succession planning, executive assessment, talent retention management, executive development, transition consulting for newly appointed executives, and M&A human capital integration consulting. For almost 60 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 around the world. 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; our ability to develop and maintain strong, long-term relationships with our clients; 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 losses; 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 or improved technology and systems; and the ability to align our cost structure and headcount with net revenue. 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, | ||||
| 2011 | 2010 | $ Change | % Change | |
| Revenue: | ||||
| Revenue before reimbursements (net revenue) | $ 142,799 | $ 126,071 | $ 16,728 | 13.3% |
| Reimbursements | 6,815 | 4,589 | 2,226 | 48.5% |
| Total revenue | 149,614 | 130,660 | 18,954 | 14.5% |
| Operating expenses: | ||||
| Salaries and employee benefits | 99,219 | 85,995 | 13,224 | 15.4% |
| General and administrative expenses | 33,270 | 32,854 | 416 | 1.3% |
| Reimbursed expenses | 6,815 | 4,589 | 2,226 | 48.5% |
| Restructuring charges | -- | 701 | (701) | -100.0% |
| Other operating income | -- | (1,072) | 1,072 | |
| Total operating expenses | 139,304 | 123,067 | 16,237 | 13.2% |
| Operating income | 10,310 | 7,593 | 2,717 | 35.8% |
| Non-operating income (expense): | ||||
| Interest income, net | 258 | 188 | ||
| Other, net | 441 | (2,448) | ||
| Net non-operating income (expense) | 699 | (2,260) | ||
| Income before income taxes | 11,009 | 5,333 | ||
| Provision for income taxes | 3,580 | 2,661 | ||
| Net income | $ 7,429 | $ 2,672 | ||
| Basic weighted average common shares outstanding | 17,803 | 17,487 | ||
| Diluted weighted average common shares outstanding | 17,955 | 17,859 | ||
| Basic earnings per common share | $ 0.42 | $ 0.15 | ||
| Diluted earnings per common share | $ 0.41 | $ 0.15 | ||
| Salaries and employee benefits as a percentage of net revenue | 69.5% | 68.2% | ||
| General and administrative expense as a percentage of net revenue | 23.3% | 26.1% | ||
| Operating income as a percentage of net revenue | 7.2% | 6.0% | ||
| Effective income tax rate | 32.5% | 49.9% | ||
| Heidrick & Struggles International, Inc. | ||||||
| Segment Information | ||||||
| (In thousands) | ||||||
| (Unaudited) | ||||||
| Three Months Ended June 30, | ||||||
| 2011 | 2010 | |||||
| 2011 | 2010 | $ Change | % Change | Margin * | Margin * | |
| Revenue: | ||||||
| Americas | $ 76,745 | $ 65,062 | $ 11,683 | 18.0% | ||
| Europe | 34,512 | 31,721 | 2,791 | 8.8% | ||
| Asia Pacific | 31,542 | 29,288 | 2,254 | 7.7% | ||
| Revenue before reimbursements (net revenue) | 142,799 | 126,071 | 16,728 | 13.3% | ||
| Reimbursements | 6,815 | 4,589 | 2,226 | 48.5% | ||
| Total revenue | $ 149,614 | $ 130,660 | $ 18,954 | 14.5% | ||
| Operating income (loss): | ||||||
| Americas | $ 18,729 | $ 13,822 | $ 4,907 | 35.5% | 24.4% | 21.2% |
| Europe | (2,365) | 486 | (2,851) | -586.6% | 1.5% | |
| Asia Pacific | 4,863 | 7,051 | (2,188) | -31.0% | 15.4% | 24.1% |
| Total regions | 21,227 | 21,359 | (132) | -0.6% | 14.9% | 16.9% |
| Global Operations Support | (10,917) | (14,137) | 3,220 | 22.8% | ||
| Operating income before restructuring charges and other operating income | 10,310 | 7,222 | 3,088 | 42.8% | 7.2% | 5.7% |
| Restructuring charges | -- | (701) | 701 | |||
| Other operating income | -- | 1,072 | (1,072) | |||
| Operating income: | $ 10,310 | $ 7,593 | $ 2,717 | 35.8% | 7.2% | 6.0% |
| * 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, | ||||
| 2011 | 2010 | $ Change | % Change | |
| Revenue: | ||||
| Revenue before reimbursements (net revenue) | $ 258,421 | $ 239,739 | $ 18,682 | 7.8% |
| Reimbursements | 12,072 | 9,275 | 2,797 | 30.2% |
| Total revenue | 270,493 | 249,014 | 21,479 | 8.6% |
| Operating expenses: | ||||
| Salaries and employee benefits | 187,600 | 169,125 | 18,475 | 10.9% |
| General and administrative expenses | 64,599 | 62,950 | 1,649 | 2.6% |
| Other charges | -- | 4,218 | (4,218) | -100.0% |
| Reimbursed expenses | 12,072 | 9,275 | 2,797 | 30.2% |
| Restructuring charges | -- | 701 | (701) | |
| Other operating income | -- | (1,072) | 1,072 | |
| Total operating expenses | 264,271 | 245,197 | 19,074 | 7.8% |
| Operating income | 6,222 | 3,817 | 2,405 | 63.0% |
| Non-operating income (expense): | ||||
| Interest income, net | 553 | 416 | ||
| Other, net | (1,674) | (2,394) | ||
| Net non-operating expense | (1,121) | (1,978) | ||
| Income before income taxes | 5,101 | 1,839 | ||
| Provision for income taxes | 2,333 | 713 | ||
| Net income | $ 2,768 | $ 1,126 | ||
| Basic weighted average common shares outstanding | 17,714 | 17,337 | ||
| Diluted weighted average common shares outstanding | 17,995 | 17,896 | ||
| Basic earnings per common share | $ 0.16 | $ 0.06 | ||
| Diluted earnings per common share | $ 0.15 | $ 0.06 | ||
| Salaries and employee benefits as a percentage of net revenue | 72.6% | 70.5% | ||
| General and administrative expense as a percentage of net revenue | 25.0% | 26.3% | ||
| Operating income as a percentage of net revenue | 2.4% | 1.6% | ||
| Effective income tax rate | 45.7% | 38.8% | ||
| Heidrick & Struggles International, Inc. | ||||||
| Segment Information | ||||||
| (In thousands) | ||||||
| (Unaudited) | ||||||
| Six Months Ended June 30, | ||||||
| 2011 | 2010 | |||||
| 2011 | 2010 | $ Change | % Change | Margin * | Margin * | |
| Revenue: | ||||||
| Americas | $ 140,222 | $ 122,576 | $ 17,646 | 14.4% | ||
| Europe | 62,078 | 64,524 | (2,446) | -3.8% | ||
| Asia Pacific | 56,121 | 52,639 | 3,482 | 6.6% | ||
| Revenue before reimbursements (net revenue) | 258,421 | 239,739 | 18,682 | 7.8% | ||
| Reimbursements | 12,072 | 9,275 | 2,797 | 30.2% | ||
| Total revenue | $ 270,493 | $ 249,014 | $ 21,479 | 8.6% | ||
| Operating income (loss): | ||||||
| Americas | $ 26,377 | $ 18,222 | $ 8,155 | 44.8% | 18.8% | 14.9% |
| Europe | (4,422) | (3,504) | (918) | -26.2% | ||
| Asia Pacific | 7,405 | 10,372 | (2,967) | -28.6% | 13.2% | 19.7% |
| Total regions | 29,360 | 25,090 | 4,270 | 17.0% | 11.4% | 10.5% |
| Global Operations Support | (23,138) | (21,644) | (1,494) | -6.9% | ||
| Operating income before restructuring charges and other operating income | 6,222 | 3,446 | 2,776 | 80.6% | 1.4% | |
| Restructuring charges | -- | (701) | 701 | |||
| Other operating income | -- | 1,072 | (1,072) | |||
| Operating income | $ 6,222 | $ 3,817 | $ 2,405 | 63.0% | 2.4% | 1.6% |
| ` | ||||||
| * Margin based on revenue before reimbursements (net revenue). | ||||||
| Heidrick & Struggles International, Inc. | ||
| Condensed Consolidated Balance Sheets | ||
| (In thousands) | ||
| June 30, | December 31, | |
| 2011 | 2010 | |
| (Unaudited) | ||
| Current assets: | ||
| Cash and cash equivalents | $ 103,078 | $ 181,124 |
| Restricted cash | 952 | 393 |
| Accounts receivable, net | 109,710 | 83,360 |
| Other receivables | 9,641 | 7,724 |
| Prepaid expenses | 19,485 | 15,323 |
| Other current assets | 1,520 | 1,871 |
| Income taxes recoverable | 14,062 | 11,912 |
| Deferred income taxes | 11,916 | 10,759 |
| Total current assets | 270,364 | 312,466 |
| Non-current assets: | ||
| Property and equipment, net | 42,338 | 34,406 |
| Restricted cash | 1,904 | 1,609 |
| Assets designated for retirement and pension plans | 25,649 | 23,647 |
| Investments | 10,189 | 11,021 |
| Other non-current assets | 9,486 | 8,593 |
| Goodwill | 115,979 | 109,888 |
| Other intangible assets, net | 6,065 | 6,480 |
| Deferred income taxes | 36,509 | 36,917 |
| Total non-current assets | 248,119 | 232,561 |
| Total assets | $ 518,483 | $ 545,027 |
| Current liabilities: | ||
| Accounts payable | $ 11,818 | $ 8,408 |
| Accrued salaries and employee benefits | 87,421 | 124,969 |
| Other current liabilities | 41,013 | 34,064 |
| Income taxes payable | 2,015 | 3,208 |
| Deferred income taxes | 1,694 | 1,807 |
| Total current liabilities | 143,961 | 172,456 |
| Non-current liabilities: | ||
| Retirement and pension plans | 34,147 | 30,907 |
| Other non-current liabilities | 41,455 | 47,015 |
| Deferred income taxes | 109 | 107 |
| Total non-current liabilities | 75,711 | 78,029 |
| Stockholders' equity | 298,811 | 294,542 |
| Total liabilities and stockholders' equity | $ 518,483 | $ 545,027 |
| Heidrick & Struggles International, Inc. | ||
| Consolidated Statements of Cash Flows | ||
| (In thousands) | ||
| (Unaudited) | ||
| Three Months Ended | ||
| June 30, | ||
| 2011 | 2010 | |
| Cash flows from operating activities: | ||
| Net income | $ 7,429 | $ 2,672 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Depreciation and amortization | 2,206 | 2,902 |
| Deferred income taxes | (1,907) | 444 |
| Net realized gains on investments | (2) | (187) |
| Stock-based compensation expense | 1,410 | 1,095 |
| Other operating income | -- | (1,072) |
| Allowance for doubtful accounts | 315 | 272 |
| Restructuring charges | -- | 701 |
| Cash paid for restructuring charges | (79) | (565) |
| Changes in assets and liabilities: | ||
| Trade and other receivables | (16,671) | (16,590) |
| Accounts payable | (650) | 3,399 |
| Accrued expenses | 24,215 | 29,716 |
| Income taxes recoverable, net | 1,440 | 1,152 |
| Retirement and pension assets and liabilities | 182 | 224 |
| Prepayments | (891) | (964) |
| Other assets and liabilities, net | 617 | 626 |
| Net cash provided by operating activities | 17,614 | 23,825 |
| Cash flows from investing activities: | ||
| Restricted cash | 180 | 2,622 |
| Capital expenditures | (5,360) | (8,542) |
| Purchases of available for sale investments | (193) | (110) |
| Proceeds from sale of available for sale investments | 15 | 11 |
| Net cash used in investing activities | (5,358) | (6,019) |
| Cash flows from financing activities: | ||
| Cash dividends paid | (2,484) | (2,379) |
| Payment of employee tax withholdings on equity transactions | (531) | (418) |
| Net cash used in financing activities | (3,015) | (2,797) |
| Effect of exchange rate fluctuations on cash and cash equivalents | 1,667 | (3,587) |
| Net increase in cash and cash equivalents | 10,908 | 11,422 |
| Cash and cash equivalents at beginning of period | 92,170 | 81,171 |
| Cash and cash equivalents at end of period | $ 103,078 | $ 92,593 |
| Heidrick & Struggles International, Inc. | ||
| Consolidated Statements of Cash Flows | ||
| (In thousands) | ||
| (Unaudited) | ||
| Six Months Ended | ||
| June 30, | ||
| 2011 | 2010 | |
| Cash flows from operating activities: | ||
| Net income | $ 2,768 | $ 1,126 |
| Adjustments to reconcile net income to net cash used in operating activities: | ||
| Depreciation and amortization | 4,311 | 7,195 |
| Write-off of investment | 2,810 | -- |
| Deferred income taxes | (1,250) | 1,055 |
| Net realized losses on investments | 255 | 233 |
| Stock-based compensation expense | 3,148 | 4,509 |
| Other operating income | -- | (1,072) |
| Allowance for doubtful accounts | (259) | 993 |
| Restructuring charges | -- | 701 |
| Cash paid for restructuring charges | (560) | (1,820) |
| Changes in assets and liabilities: | ||
| Trade and other receivables | (25,597) | (37,147) |
| Accounts payable | 2,046 | 3,193 |
| Accrued expenses | (41,738) | 16,743 |
| Income taxes payable, net | (3,253) | (2,352) |
| Retirement and pension plan assets and liabilities | 582 | 351 |
| Prepayments | (3,579) | (2,289) |
| Other assets and liabilities, net | (1,333) | 309 |
| Net cash used in operating activities | (61,649) | (8,272) |
| Cash flows from investing activities: | ||
| Restricted cash | (692) | 2,762 |
| Acquisition of businesses, net of cash acquired | -- | (554) |
| Capital expenditures | (9,787) | (11,409) |
| Purchases of available for sale investments | (607) | (434) |
| Proceeds from sale of available for sale investments | 30 | 208 |
| Loan to equity method investment | (1,008) | -- |
| Net cash used in investing activities | (12,064) | (9,427) |
| Cash flows from financing activities: | ||
| Cash dividends paid | (5,056) | (5,085) |
| Payment of employee tax withholdings on equity transactions | (2,749) | (4,546) |
| Net cash used in financing activities | (7,805) | (9,631) |
| Effect of exchange rate fluctuations on cash and cash equivalents | 3,472 | (3,107) |
| Net decrease in cash and cash equivalents | (78,046) | (30,437) |
| Cash and cash equivalents at beginning of period | 181,124 | 123,030 |
| Cash and cash equivalents at end of period | $ 103,078 | $ 92,593 |