EX-99.1 2 d346296dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO

FOR IMMEDIATE RELEASE

Heidrick & Struggles Reports First Quarter 2017 Financial Results

 

    Net revenue increased 7.5 percent

 

    Operating Income increased 71.6 percent

 

    Diluted earnings per share was $0.03; Adjusted diluted earnings per share(1) was $0.19 compared to $0.07 in the 2016 first quarter

CHICAGO, April 24, 2017 — Heidrick & Struggles International, Inc. (Nasdaq: HSII), a premier provider of senior-level executive search, leadership consulting and culture shaping services globally, today announced financial results for its first quarter ended March 31, 2017.

 

(In thousands, except per share amounts)

(Unaudited)

   Three Months Ended
March 31, 2017
     Three months ended
March 31, 2016
 
     GAAP      Adjusted*      GAAP  

Net revenue (before reimbursements)

   $ 140,006      $ 140,006      $ 130,189  

Operating income

     6,638        8,138        3,868  

Net Income

     650        3,646        1,325  

Diluted Earnings per Share

   $ 0.03      $ 0.19      $ 0.07  

 

* Adjusted operating income, net income and diluted earnings per share reflect results that exclude the impact of a cash settlement with the HMRC related to the taxation of a legacy U.K. benefit trust obligation.

Krishnan Rajagopalan, Heidrick & Struggles Acting President and Chief Executive Officer, said, “We are pleased with first quarter growth in revenue and profitability. Our Executive Search business showed solid results and has an improved backlog going into the second quarter. We continue to invest in consultant talent to drive future growth. Leadership Consulting continues to grow in size and significance, though it will show quarter to quarter variability in results as it continues to scale. Culture Shaping started off the year slower than we had expected, but our team remains confident in the growth potential for culture-related offerings. The year-over-year improvements in operating income and Adjusted EBITDA(2) reflect the increase in revenue without a corresponding increase in expenses.”

Consolidated net revenue (revenue before reimbursements) increased 7.5 percent, or $9.8 million, to $140.0 million from $130.2 million in the 2016 first quarter, and increased 9.6 percent, or $12.5 million, in constant currency.

Executive Search net revenue increased 7.6 percent year over year, or $8.8 million, to $124.5 million from $115.7 million in the 2016 first quarter. Excluding the impact of exchange rate fluctuations revenue increased $10.6 million or 9.1 percent. All three regions contributed to first quarter year-over-year revenue growth in Executive Search, with Americas up 5.1 percent, Europe up 12.0 percent (21.0 percent on a constant currency basis), and Asia Pacific up 11.9 percent (11.0 percent on a constant currency basis). The Industrial, Healthcare & Life Sciences and Consumer industry practice groups were the primary drivers of the year-over-year growth.

Reflecting the company’s well-established development and training program, 28 people were promoted to consultants as Principals effective January 1, 2017 and six were promoted from Principal to Partner. There


were 363 Executive Search consultants at March 31, 2017 compared to 313 at March 31, 2016. Mostly reflecting the large number of promotions in the quarter, productivity, as measured by annualized Executive Search net revenue per consultant, was $1.4 million in the 2017 first quarter compared to $1.5 million in the 2016 first quarter. The number of confirmed searches in the 2017 first quarter increased 7.8 percent compared to the 2016 first quarter and the average revenue per executive search was $103,300 compared to $103,600 in the 2016 first quarter.

Leadership Consulting net revenue increased 59.6 percent, or $3.7 million, to $9.8 million from $6.1 million in the 2016 first quarter. Excluding the impact of exchange rate fluctuations, which negatively impacted Leadership Consulting revenue by $0.7 million, revenue increased $4.4 million or 71.8 percent. The year-over-year increase mostly reflects the acquisitions of Decision Strategies International (DSI) in February 2016 and Philosophy IB in September 2016. There were 20 Leadership Consulting consultants at March 31, 2017 compared to 19 at March 31, 2016.

Culture Shaping net revenue declined 31.0 percent, or $2.5 million, to $5.8 million from $8.3 million in the 2016 first quarter. Excluding the impact of exchange rate fluctuations, which negatively impacted Culture Shaping revenue by $0.2 million, revenue declined $2.4 million or 29.0 percent. The decline in revenue reflected lower consulting revenue and a decline in enterprise agreements as a result of a slower than expected start to the year. There were 18 Culture Shaping consultants at March 31, 2017 compared to 17 at March 31, 2016.

On March 31, 2017, the company reached a settlement with Her Majesty’s Revenue & Customs (“HMRC”) in the United Kingdom regarding HMRC’s challenge of the tax treatment of certain contributions made to Employee Benefits Trusts (“EBT”) between 2002 and 2008. The net impact recorded in the 2017 first quarter was $3.7 million, less than HMRC’s proposed adjustment of $4.8 million as valued on December 31, 2016. HMRC had challenged that the contributions made to the Trusts should have been subject to Pay As You Earn Tax and Class 1 National Insurance Contributions in the United Kingdom. Heidrick & Struggles, among other companies, was first notified by HMRC of its challenge in 2010 and had been appealing since, as documented in the company’s filings with the SEC.

Consolidated salaries and employee benefits expense in the 2017 first quarter increased 6.7 percent, or $6.1 million, to $97.2 million from $91.1 million in the 2016 first quarter. Fixed compensation expense increased $6.4 million, mostly reflecting compensation related to the acquisitions made in 2016 and new hires, primarily in Search. The increase also reflects $1.5 million related to the settlement with the HMRC as noted above. Variable compensation expense decreased $0.3 million. The composition of salaries and employee benefits, between fixed and variable expense, reflects investments the company made in 2016 including a large increase in new consultants with higher fixed compensation who have yet to reach full productivity. Salaries and employee benefits expense was 69.5 percent of net revenue for the quarter compared to 70.0 percent in the 2016 first quarter.

General and administrative expenses increased 2.6 percent, or $0.9 million, to $36.1 million from $35.2 million in the 2016 first quarter. Most of this increase reflects costs associated with ongoing general and administrative expenses related to the acquisitions made in 2016, including the expense of third-party consultants and contractors to execute work for leadership consulting services. As a percentage of net revenue, general and administrative expenses were 25.8 percent compared to 27.0 percent in the 2016 first quarter.

 

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Operating income in the 2017 first quarter increased 71.6 percent to $6.6 million and operating margin was 4.7 percent. This compares to operating income of $3.9 million and operating margin of 3.0 percent in the 2016 first quarter. Adjusted EBITDA(2) in the 2017 first quarter increased 14.0 percent, or $1.5 million, to $12.3 million compared to $10.8 million in the 2016 first quarter. The Adjusted EBITDA margin (Adjusted EBITDA as a percentage of net revenue) in the 2017 first quarter was 8.8 percent compared to 8.3 percent in the 2016 first quarter. The improvements in operating income and adjusted EBITDA were primarily driven by the increase in revenue from Executive Search and Leadership Consulting.

Net income in the 2017 first quarter declined $0.7 million to $0.7 million and diluted earnings per share was $0.03, based on an effective tax rate of 84.1 percent in the quarter and a full-year projected tax rate of approximately 44 percent. The decline in net income largely reflects the net $3.7 million settlement with the HMRC described above and the non-deductibility of the settlement, as well as other discrete items in the first quarter. Excluding the settlement, diluted earnings per share would have been $0.19 based on an effective tax rate of 54.1 percent. In the 2016 first quarter, the company reported net income of $1.3 million and diluted earnings per share of $0.07 based on an effective tax rate of 66.8 percent in the quarter.

Net cash used by operating activities in the 2017 first quarter, which includes annual bonus payments, was $110.5 million, compared to $119.2 million in the 2016 first quarter. Following the payment of bonuses, cash and cash equivalents at March 31, 2017 were $68.3 million ($43.3 million net of debt) compared to $165.0 million at December 31, 2016, and $62.0 million at March 31, 2016.

2017 Second Quarter Outlook

The company is forecasting second quarter 2017 consolidated net revenue of between $153 million and $163 million. This forecast is based on the average currency rates in March 2017 and reflects, among other factors, management’s assumptions for the anticipated volume of new Executive Search confirmations, Leadership Consulting assignments and Culture Shaping services, the current backlog, consultant productivity, consultant retention, and the seasonality of its business.

Rajagopalan added, “Heidrick’s brand, influence and position in the global marketplace have never been stronger. Leveraging our current platform, we intend to expand our impact in Executive Search and to strengthen and grow our Leadership Consulting and Culture Shaping service offerings.”

Quarterly Conference Call

Executives of Heidrick & Struggles will host a conference call to review its first quarter 2017 results today, April 24, at 4:00 pm Central Time. Participants may access the company’s call and supporting slides through its website at www.heidrick.com. For those unable to participate on the live call, a webcast and copy of the slides will be archived at www.heidrick.com and available for up to 30 days following the investor call.

About Heidrick & Struggles International, Inc.

Heidrick & Struggles (Nasdaq: HSII) serves the executive talent and leadership needs of the world’s top organizations as a premier provider of leadership consulting, culture shaping and senior-level executive search services. Heidrick &

 

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Struggles pioneered the profession of executive search more than 60 years ago. Today, the firm serves as a trusted advisor, providing integrated leadership solutions and helping its clients change the world, one leadership team at a time. www.heidrick.com.

Non-GAAP Financial Measures

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

The non-GAAP financial measures used within this earnings release are Adjusted diluted earnings per share, Adjusted EBITDA and Adjusted EBITDA margin. (1)Adjusted diluted earnings per share reflects the exclusion of a cash settlement with the HMRC related to the taxation of a legacy U.K. benefit trust obligation. (2)Adjusted EBITDA refers to earnings before interest, taxes, depreciation, intangible amortization, stock-based compensation expense, compensation expense associated with Senn Delaney retention awards, earnout accretion expense related to acquisitions, restructuring charges, goodwill impairment, and other non-operating income (expense). Adjusted EBITDA margin refers to Adjusted EBITDA (as explained above) as a percentage of net revenue in the same period. A reconciliation of Adjusted EBITDA to Net Income is provided on the last page of this release. These measures are presented because management uses this information to monitor and evaluate financial results and trends. Management believes this information is also useful for investors.

Safe Harbor Statement

This press release contains forward-looking statements. The forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate and management’s beliefs and assumptions. Forward-looking statements may be identified by the use of words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,” “forecasts,” and similar expressions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied in the forward-looking statements. Factors that may affect the outcome of the forward-looking statements include, among other things, leadership changes, our ability to attract, integrate, manage and retain qualified consultants and senior leaders; our ability to develop and maintain strong, long-term relationships with our clients; declines in the global economy and our ability to execute successfully through business cycles; the timing, speed or robustness of any future economic recovery; social or political instability in markets where we operate; the impact of the U.K. referendum to leave the European Union (Brexit); the impact of foreign currency exchange rate fluctuations; unfavorable tax law changes and tax authority rulings; price competition; the ability to forecast, on a quarterly basis, variable compensation accruals that ultimately are determined based on the achievement of annual results; our ability to utilize our tax losses; the timing of the establishment or reversal of valuation allowances on deferred tax assets; the mix of profit and loss by country; our reliance on information management systems; any impairment of our goodwill and other intangible assets; and the ability to align our cost structure and headcount with net revenue. For more information on the factors that could affect the outcome of forward-looking statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2016, under Risk Factors in Item 1A and our quarterly filings with the SEC. We caution the reader that the list of factors may not be exhaustive. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

###

Press Release Contacts:

H&S Investors & Analysts Contact:

Julie Creed - Vice President, Investor Relations & Real Estate

1 312 496 1774, jcreed@heidrick.com

H&S Media Contact:

Jon Harmon - Vice President, Corporate Communications, Marketing

1 312 496 1593, jharmon@heidrick.com

 

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Heidrick & Struggles International, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended
March 31,
              
     2017     2016     $ Change      % Change  

Revenue:

         

Revenue before reimbursements (net revenue)

   $ 140,006     $ 130,189     $ 9,817        7.5

Reimbursements

     4,171       4,098       73        1.8
  

 

 

   

 

 

   

 

 

    

 

 

 

Total revenue

     144,177       134,287       9,890        7.4

Operating expenses:

         

Salaries and employee benefits

     97,235       91,118       6,117        6.7

General and administrative expenses

     36,133       35,203       930        2.6

Reimbursed expenses

     4,171       4,098       73        1.8
  

 

 

   

 

 

   

 

 

    

 

 

 

Total operating expenses

     137,539       130,419       7,120        5.5
  

 

 

   

 

 

   

 

 

    

 

 

 

Operating income

     6,638       3,868       2,770        71.6

Non-operating income (expense):

         

Interest, net

     197       72       

Other, net

     (2,741     49       
  

 

 

   

 

 

      

Net non-operating income (expense)

     (2,544     121       
  

 

 

   

 

 

      

Income before income taxes

     4,094       3,989       

Provision for income taxes

     3,444       2,664       
  

 

 

   

 

 

      

Net income

     650       1,325       

Other comprehensive income, net of tax

     2,625       1,330       
  

 

 

   

 

 

      

Comprehensive income

   $ 3,275     $ 2,655       
  

 

 

   

 

 

      

Basic weighted average common shares outstanding

     18,628       18,448       

Dilutive common shares

     591       531       
  

 

 

   

 

 

      

Diluted weighted average common shares outstanding

     19,219       18,979       
  

 

 

   

 

 

      

Basic net income per common share

   $ 0.03     $ 0.07       

Diluted net income per common share

   $ 0.03     $ 0.07       

Salaries and employee benefits as a % of net revenue

     69.5     70.0     

General and administrative expense as a % of net revenue

     25.8     27.0     

Operating income as a % of net revenue

     4.7     3.0     


Heidrick & Struggles International, Inc.

Segment Information

(In thousands)

(Unaudited)

 

     Three Months Ended March 31,  
                             2017     2016  
     2017     2016     $ Change     % Change     Margin *     Margin *  

Revenue:

            

Executive Search

            

Americas

   $ 77,098     $ 73,390     $ 3,708       5.1    

Europe

     26,205       23,401       2,804       12.0    

Asia Pacific

     21,182       18,937       2,245       11.9    
  

 

 

   

 

 

   

 

 

   

 

 

     

Total Executive Search

     124,485       115,728       8,757       7.6    

Leadership Consulting

     9,766       6,118       3,648       59.6    

Culture Shaping

     5,755       8,343       (2,588     -31.0    
  

 

 

   

 

 

   

 

 

   

 

 

     

Revenue before reimbursements (net revenue)

     140,006       130,189       9,817       7.5    

Reimbursements

     4,171       4,098       73       1.8    
  

 

 

   

 

 

   

 

 

   

 

 

     

Total revenue

   $ 144,177     $ 134,287     $ 9,890       7.4    
  

 

 

   

 

 

   

 

 

   

 

 

     

Operating income (loss):

            

Executive Search

            

Americas

   $ 19,067     $ 17,794     $ 1,273       7.2     24.7     24.2

Europe

     99       1,289       (1,190     -92.3     0.4     5.5

Asia Pacific

     3,320       619       2,701       436.3     15.7     3.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Executive Search

     22,486       19,702       2,784       14.1     18.1     17.0

Leadership Consulting

     (882     (2,561     1,679       65.6     -9.0     -41.9

Culture Shaping

     (2,965     (2,056     (909     -44.2     -51.5     -24.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total segments

     18,639       15,085       3,554       23.6     13.3     11.6

Global Operations Support

     (12,001     (11,217     (784     -7.0     -8.6     -8.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income

   $ 6,638     $ 3,868     $ 2,770       71.6     4.7     3.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* Margin based on revenue before reimbursements (net revenue).


Heidrick & Struggles International, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

 

     March 31,
2017
     December 31,
2016
 
     (Unaudited)         

Current assets:

     

Cash and cash equivalents

   $ 68,329      $ 165,011  

Accounts receivable, net

     111,366        93,191  

Prepaid expenses

     24,407        21,602  

Other current assets

     16,539        13,779  

Income taxes recoverable

     4,454        4,847  
  

 

 

    

 

 

 

Total current assets

     225,095        298,430  
  

 

 

    

 

 

 

Non-current assets:

     

Property and equipment, net

     40,057        35,099  

Assets designated for retirement and pension plans

     15,896        15,698  

Investments

     19,763        17,346  

Other non-current assets

     14,257        9,322  

Goodwill

     152,558        151,844  

Other intangible assets, net

     19,009        20,690  

Deferred income taxes

     30,873        33,073  
  

 

 

    

 

 

 

Total non-current assets

     292,413        283,072  
  

 

 

    

 

 

 

Total assets

   $ 517,508      $ 581,502  
  

 

 

    

 

 

 

Current liabilities:

     

Accounts payable

   $ 9,880      $ 7,952  

Accrued salaries and employee benefits

     72,076        155,523  

Deferred revenue, net

     32,482        28,367  

Other current liabilities

     23,200        24,133  

Income taxes payable

     4,402        4,617  
  

 

 

    

 

 

 

Total current liabilities

     142,040        220,592  
  

 

 

    

 

 

 

Non-current liabilities:

     

Non-current debt

     25,000        —    

Accrued salaries and employee benefits

     21,804        34,993  

Retirement and pension plans

     41,766        39,039  

Other non-current liabilities

     28,381        28,288  
  

 

 

    

 

 

 

Total non-current liabilities

     116,951        102,320  
  

 

 

    

 

 

 

Stockholders’ equity

     258,517        258,590  
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 517,508      $ 581,502  
  

 

 

    

 

 

 


Heidrick & Struggles International, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2017     2016  

Cash flows - operating activities:

    

Net income

   $ 650     $ 1,325  

Adjustments to reconcile net income to net cash used in operating activities:

    

Depreciation and amortization

     3,808       3,672  

Deferred income taxes

     2,381       2,270  

Stock-based compensation expense

     1,640       1,831  

Accretion expense related to earnout payments

     426       345  

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

    

Accounts receivable

     (17,179     (17,048

Accounts payable

     (325     1,523  

Accrued expenses

     (98,115     (105,719

Deferred revenue

     3,871       4,304  

Income taxes payable, net

     323       (5,812

Retirement and pension assets and liabilities

     2,393       2,294  

Prepaid expenses

     (2,604     (2,564

Other assets and liabilities, net

     (7,795     (5,603
  

 

 

   

 

 

 

Net cash used in operating activities

     (110,526     (119,182
  

 

 

   

 

 

 

Cash flows - investing activities:

    

Restricted cash

     —         6,501  

Acquisition of business

     —         (8,770

Capital expenditures

     (4,163     (721

Purchases of available for sale investments

     (1,806     (2,132

Proceeds from sale of available for sale investments

     256       119  
  

 

 

   

 

 

 

Net cash used in investing activities

     (5,713     (5,003
  

 

 

   

 

 

 

Cash flows - financing activities:

    

Proceeds from line of credit

     40,000       —    

Payments on line of credit

     (15,000     —    

Cash dividends paid

     (2,598     (2,450

Payment of employee tax withholdings on equity transactions

     (2,392     (2,676

Acquisition earnout payments

     (2,189     (387
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     17,821       (5,513
  

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

     1,736       1,293  
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (96,682     (128,405

Cash and cash equivalents at beginning of period

     165,011       190,452  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 68,329     $ 62,047  
  

 

 

   

 

 

 


Heidrick & Struggles International, Inc.

Reconciliation of Net Income and Operating Income (GAAP) to

Adjusted EBITDA (Non-GAAP)

(In thousands)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2017     2016  

Revenue before reimbursements (net revenue)

   $ 140,006     $ 130,189  

Net income

     650       1,325  

Interest, net

     (197     (72

Other, net

     2,741       (49

Provision for income taxes

     3,444       2,664  
  

 

 

   

 

 

 

Operating income

     6,638       3,868  

Adjustments

    

Salaries and employee benefits

    

Stock-based compensation expense

     1,640       1,831  

Senn Delaney retention awards

     —         1,073  

General and administrative expenses

    

Depreciation

     1,834       2,285  

Intangible amortization

     1,767       1,387  

Earnout accretion

     426       345  
  

 

 

   

 

 

 

Total adjustments

     5,667       6,921  
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 12,305     $ 10,789  
  

 

 

   

 

 

 

Adjusted EBITDA Margin

     8.8     8.3