CHICAGO, July 24, 2017 /PRNewswire/ -- 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 second quarter ended June 30,
2017.
(In thousands,
except per share amounts)
|
Three Months
Ended
|
|
Three months
ended
|
(Unaudited)
|
June 30,
2017
|
|
June 30,
2016
|
|
GAAP
|
|
Adjusted*
|
|
GAAP
|
|
|
|
|
|
|
Net revenue
(before reimbursements)
|
$152,214
|
|
$152,214
|
|
$148,861
|
Operating income
(Loss)
|
(28,411)
|
|
10,747
|
|
11,694
|
Net income
(Loss)
|
(18,248)
|
|
6,281
|
|
6,655
|
Diluted Earnings
(Loss) per Share
|
($0.97)
|
|
$0.33
|
|
$0.35
|
|
*Adjusted operating
income, net income and diluted earnings per share reflect results
that exclude the non-cash impairment charge of $39.2 million in the
2017 second quarter.
|
"Our 2017 second quarter results reflect solid performance in
our core business, Executive Search, and strong growth in
Leadership Consulting," said Krishnan
Rajagopalan, Heidrick & Struggles President and Chief
Executive Officer. "Going forward, we will integrate our Leadership
Consulting and Culture Shaping operations into a single business,
Heidrick Consulting, which will provide a comprehensive service
offering that will help our clients accelerate their performance.
We have built a scalable foundation for Heidrick Consulting through
the development and acquisition of relevant tools and intellectual
property, and are now in a position to drive operational
efficiencies and move to a better trajectory of profitable
growth."
Consolidated net revenue (revenue before reimbursements)
increased 2.3 percent, or $3.4
million, to $152.2 million
from $148.9 million in the 2016
second quarter. Excluding the impact of exchange rate fluctuations
which negatively impacted results by $2.7
million, or 1.8 percent, consolidated net revenue increased
$6.1 million or 4.1 percent.
Executive Search net revenue increased 2.9 percent year over
year, or $3.8 million, to
$134.5 million from $130.7 million in the 2016 second quarter.
Excluding the impact of exchange rate fluctuations, revenue
increased $5.7 million or 4.3
percent. Net revenue increased 2.0 percent in the Americas region
and 10.2 percent in Europe (16.4
percent on a constant currency basis), but declined 2.6 percent in
Asia Pacific (2.2 percent on a
constant currency basis). Growth in the Industrial, Education &
Social Enterprise, Healthcare & Life Sciences, and Financial
Services industry practices was partially offset by declines in the
Global Technology & Services and Consumer Markets
practices.
There were 355 Executive Search consultants at June 30, 2017 compared to 316 at June 30, 2016. Mostly reflecting the large number
of promotions in the first quarter, productivity, as measured by
annualized Executive Search net revenue per consultant, was
$1.5 million in the 2017 second
quarter compared to $1.7 million in
the 2016 second quarter. The number of confirmed searches in the
2017 second quarter increased 1.5 percent compared to the 2016
second quarter and the average revenue per executive search was
$118,300 compared to $116,700 in the 2016 second quarter.
Leadership Consulting net revenue increased 35.3 percent, or
$3.0 million, to $11.4 million from $8.5
million in the 2016 second quarter. Excluding the impact of
exchange rate fluctuations, Leadership Consulting revenue increased
43.9 percent or $3.7 million. The
year-over-year increase reflects organic growth as well as
contribution from the acquisition of Philosophy IB in September 2016. There were 18 Leadership
Consulting consultants at June 30,
2017 compared to 20 at June 30,
2016.
Culture Shaping net revenue declined 35.7 percent, or
$3.5 million, to $6.2 million from $9.7
million in the 2016 second quarter. Excluding the impact of
exchange rate fluctuations, Culture Shaping revenue declined
$3.3 million or 34.0 percent. The
decline in revenue reflects lower consulting revenue and a decline
in enterprise agreements. There were 17 Culture Shaping consultants
at June 30, 2017 compared to 17 at
June 30, 2016.
Consolidated salaries and employee benefits expense in the 2017
second quarter increased 1.8 percent, or $1.8 million, to $103.4 million from $101.5
million in the 2016 second quarter. Fixed compensation
expense increased $3.8 million,
mostly reflecting compensation related to the acquisitions made in
2016 and new hires, primarily in Search. Variable compensation
expense decreased $1.9 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 67.9 percent of net revenue for the
quarter compared to 68.2 percent in the 2016 second
quarter.
General and administrative expenses increased 6.9 percent, or
$2.5 million, to $38.1 million from $35.6 million in the 2016
second quarter. The increase reflects higher bad debt expense
incurred in the quarter, as well as an increase in professional
services related to litigation and audit fees during the period. An
increase in occupancy costs and the inclusion of G&A from
acquisitions made late last year were offset by savings in run rate
expenses. As a percentage of net revenue, general and
administrative expenses were 25.0 percent compared to 23.9 percent
in the 2016 second quarter.
In the second quarter, the company recorded a non-cash
impairment charge of $39.2 million to
write off the carrying value of the intangible assets and goodwill
related to its Culture Shaping business. The long-lived asset
and goodwill impairment was triggered by the current performance of
this business and uncertainty around the timing of improving
performance. This non-cash impairment charge does not impact the
company's normal business operations, cash flow from operating
activities, free cash flow, liquidity, or availability under its
credit facilities. Going forward, Culture Shaping will be combined
with Leadership Consulting to create Heidrick Consulting, a
comprehensive offering of the firm's advisory services.
Reflecting the impairment charge, the company reported an
operating loss in the 2017 second quarter of $28.4 million. This compares to operating income
of $11.7 million and operating margin
of 7.9 percent in the 2016 second quarter. Excluding the impairment
charge, operating income in the 2017 second quarter would have been
$10.7 million and the operating
margin would have been 7.1 percent. Adjusted
EBITDA(1) in the 2017 second quarter declined
$1.5 million, to $16.6 million compared to $18.1 million in the 2016 second quarter. The
Adjusted EBITDA margin(1) (Adjusted EBITDA as a
percentage of net revenue) in the 2017 second quarter was 10.9
percent compared to 12.2 percent in the 2016 second quarter.
The net loss in the 2017 second quarter was $18.2 million and basic and diluted loss per
share was $0.97, based on an
effective tax rate of 36.4 percent in the quarter. This tax rate
reflects the deferred tax benefit on the long-lived assets and
goodwill impairment and the inability to recognize losses in
certain jurisdictions. Excluding the impairment charge, adjusted
net income(2) would have been $6.3 million and adjusted diluted earnings per
share(2) would have been $0.33 based on an effective tax rate of 40.0
percent. In the 2016 second quarter, the company reported net
income of $6.7 million and diluted
earnings per share of $0.35 based on
an effective tax rate of 43.5 percent in the quarter.
Net cash provided by operating activities in the 2017 second
quarter was $24.3
million, compared to $34.2
million in the 2016 second quarter. Reflecting the payment
of bonuses and the repayment of $25.0
million that was outstanding under our Credit Agreement,
cash and cash equivalents at June 30,
2017 were $58.2 million
compared to $165.0 million at
December 31, 2016, and $85.4 million at June
30, 2016.
Six Months Results
For the six months ended
June 30, 2017 consolidated net
revenue of $292.2 million increased
4.7 percent, or $13.2 million, from
$279.1 million in the first six
months of 2016. Excluding the impact of exchange rate fluctuations
which negatively impacted results by $5.4
million, or 1.9 percent, consolidated net revenue increased
$18.6 million or 6.7 percent.
Executive Search net revenue increased 5.1 percent, or
$12.6 million, to $259.0 million from $246.4
million in the first six months of 2016. Excluding the
impact of exchange rate fluctuations which negatively impacted
results by $3.6 million, or 1.5
percent, consolidated net revenue increased $16.2 million or 6.6 percent. Net revenue
increased 3.4 percent in the Americas, 11.0 percent (approximately
18.4 percent on a constant currency basis) in Europe, and 4.1 percent (approximately 4.0
percent on a constant currency basis) in Asia Pacific. All of the industry practices
contributed to growth in the first six months except the Global
Technology & Services practice. Productivity, as measured by
annualized Executive Search net revenue per consultant, was
$1.5 million for the first six months
of 2017 compared to $1.6 million in
the first six months of 2016. The number of executive searches
confirmed in the first six months of 2017 increased 4.7 percent and
the average revenue per executive search was $110,600 compared to $110,200 for the same period in 2016.
Leadership Consulting net revenue increased 45.5 percent, or
$6.6 million, to $21.2 million from $14.6
million in the first six months of 2016. Excluding the
impact of exchange rate fluctuations, Leadership Consulting revenue
increased 55.6 percent or $8.1
million. The year-over-year increase reflects organic growth
as well as contribution from the acquisitions of Decision
Strategies International (DSI) in February
2016 and Philosophy IB in September
2016. There were 18 Leadership Consulting consultants at
June 30, 2017 compared to 20 at
June 30, 2016.
Culture Shaping net revenue declined 33.5 percent, or
$6.0 million, to $12.0 million from $18.0
million in the first six months of 2016. Excluding the
impact of exchange rate fluctuations, Culture Shaping revenue
declined $5.7 million or 31.7
percent. The decline in revenue reflected lower consulting revenue
and a decline in enterprise agreements. There were 17 Culture
Shaping consultants at June 30, 2017
compared to 17 at June 30, 2016.
The operating loss for the first six months of 2017 was
$21.8 million compared to operating
income of $15.6 million and operating
margin of 5.6 percent for the first six months of 2016. Two unusual
items contributed to the reported decline in operating income in
the first six months of 2017. In the first quarter, 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. This settlement resulted in $1.5
million of salaries & employee benefits expense. In the
second quarter, as noted above, the company recorded a non-cash
impairment charge of $39.2 million in
the second quarter to write off the carrying value of intangible
assets and goodwill related to its Culture Shaping business.
Two unusual items impacted operating income in the first six
months of 2016. Following the acquisitions of Co Company in the
2015 fourth quarter and Decision Strategies International (DSI) in
the 2016 first quarter, the company took the opportunity to realign
its Leadership Consulting business which resulted in approximately
$2.1 million of non-recurring
expenses in the 2016 first quarter, primarily in Europe.
Additionally, the company invested $3.8
million in the first six months of 2016 in new and existing
leadership and client service talent for its Culture Shaping
business.
Adjusted EBITDA(1) for the first six months of
2017 was $29.0 million and Adjusted
EBITDA margin was 9.9 percent, compared to Adjusted EBITDA of
$28.9 million and Adjusted EBITDA
margin of 10.4 percent for the same period of 2016.
Net loss for the first six months of 2017 was $17.6 million and the diluted loss per share was
$0.94, reflecting an effective tax
rate of 28.4 percent. Net income for the first six months of 2016
was $8.0 million and diluted earnings
per share were $0.43, reflecting an
effective tax rate of 49.4 percent. The tax rate for the first six
months of 2017 reflects the deferred tax benefit on the long-lived
assets and goodwill impairment as well as the impact of the net
$3.7 million settlement with the HMRC
and the non-deductibility of the settlement, as well as other
discrete items in the first six months of the year. Excluding the
EBT settlement and the impairment charge, adjusted diluted earnings
per share(2) would have been $0.52 based on an effective tax rate of 46.2
percent.
2017 Third Quarter Outlook
The company is forecasting
third quarter 2017 consolidated net revenue of between $148 million and $158 million. This forecast is
based on the average currency rates in June
2017 and reflects, among other factors, management's
assumptions for the anticipated volume of new Executive Search
confirmations, Heidrick Consulting assignments, the current
backlog, consultant productivity, consultant retention, and the
seasonality of its business.
"As a trusted advisor to our clients, we will increasingly
combine distinctive, data-driven talent, leadership and culture
solutions to accelerate the performance of the world's most
influential organizations. We will continue to develop Heidrick
Consulting to deliver exceptional and relevant advisory services as
a full complement to our Executive Search business," Rajagopalan
said. "We firmly believe our clients, our employees and our
shareholders also will benefit from the operational efficiency of
our integrated services. We see great opportunity ahead and are
focused on positioning the firm for sustainable, profitable
growth."
Quarterly Conference Call
Executives of Heidrick &
Struggles will host a conference call to review its second quarter
2017 results today, July 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 & 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 EBITDA, Adjusted EBITDA margin and Adjusted
diluted earnings per share (1)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. (2)Adjusted net income
and 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 in the 2017 first quarter, and the
exclusion of the $39.2 million
impairment charge in the 2017 second quarter. 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
Heidrick & Struggles International,
Inc.
|
Condensed
Consolidated Statements of Comprehensive
Income
|
(In thousands,
except per share data)
|
(Unaudited)
|
|
|
Three Months
Ended
|
|
|
|
|
|
|
June
30
|
|
|
|
|
|
|
2017
|
|
2016
|
|
$
Change
|
|
%
Change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Revenue before
reimbursements (net revenue)
|
$152,214
|
|
$148,861
|
|
$3,353
|
|
2.3%
|
|
Reimbursements
|
4,904
|
|
4,955
|
|
(51)
|
|
-1.0%
|
|
Total
revenue
|
157,118
|
|
153,816
|
|
3,302
|
|
2.1%
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Salaries and employee
benefits
|
103,378
|
|
101,542
|
|
1,836
|
|
1.8%
|
|
General and
administrative expenses
|
38,089
|
|
35,625
|
|
2,464
|
|
6.9%
|
|
Impairment
charges
|
39,158
|
|
0
|
|
39,158
|
|
NM
|
|
Reimbursed
expenses
|
4,904
|
|
4,955
|
|
(51)
|
|
-1.0%
|
|
Total operating
expenses
|
185,529
|
|
142,122
|
|
43,407
|
|
30.5%
|
|
Operating income
(loss)
|
(28,411)
|
|
11,694
|
|
(40,105)
|
|
-343.0%
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income (expense):
|
|
|
|
|
|
|
|
|
Interest,
net
|
(96)
|
|
58
|
|
|
|
|
|
Other, net
|
(179)
|
|
29
|
|
|
|
|
|
Net non-operating
income (expense)
|
(275)
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before income taxes
|
(28,686)
|
|
11,781
|
|
|
|
|
|
Provision for
(benefit from) income taxes
|
(10,438)
|
|
5,126
|
|
|
|
|
|
Net income
(loss)
|
(18,248)
|
|
6,655
|
|
|
|
|
|
Other comprehensive
income (loss), net of tax
|
3,393
|
|
(1,275)
|
|
|
|
|
|
Comprehensive
income (loss)
|
(14,855)
|
|
$5,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted
average common shares outstanding
|
18,749
|
|
18,557
|
|
|
|
|
|
Dilutive common
shares
|
-
|
|
260
|
|
|
|
|
|
Diluted weighted
average common shares outstanding
|
18,749
|
|
18,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income
(loss) per common share
|
($0.97)
|
|
$0.36
|
|
|
|
|
|
Diluted net income
(loss) per common share
|
($0.97)
|
|
$0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee
benefits as a % of net revenue
|
67.9%
|
|
68.2%
|
|
|
|
|
|
General and
administrative expense as a % of net revenue
|
25.0%
|
|
23.9%
|
|
|
|
|
|
Operating income
(loss) as a % of net revenue
|
-18.7%
|
|
7.9%
|
|
|
|
|
|
Heidrick &
Struggles International, Inc.
|
Segment
Information
|
(In
thousands)
|
(Unaudited)
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
$
|
|
%
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Change
|
|
Change
|
|
Margin
*
|
|
Margin
*
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Executive Search
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$83,090
|
|
$81,494
|
|
$1,596
|
|
2.0%
|
|
|
|
|
|
Europe
|
30,335
|
|
27,538
|
|
2,797
|
|
10.2%
|
|
|
|
|
|
Asia
Pacific
|
21,115
|
|
21,677
|
|
(562)
|
|
-2.6%
|
|
|
|
|
|
Total Executive
Search
|
134,540
|
|
130,709
|
|
3,831
|
|
2.9%
|
|
|
|
|
Leadership Consulting
|
11,433
|
|
8,450
|
|
2,983
|
|
35.3%
|
|
|
|
|
Culture Shaping
|
6,241
|
|
9,702
|
|
(3,461)
|
|
-35.7%
|
|
|
|
|
|
Revenue before
reimbursements (net revenue)
|
152,214
|
|
148,861
|
|
3,353
|
|
2.3%
|
|
|
|
|
|
Reimbursements
|
4,904
|
|
4,955
|
|
(51)
|
|
-1.0%
|
|
|
|
|
|
Total
revenue
|
$157,118
|
|
$153,816
|
|
$3,302
|
|
2.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
Executive Search
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$23,445
|
|
$21,581
|
|
$1,864
|
|
8.6%
|
|
28.2%
|
|
26.5%
|
|
Europe
|
1,717
|
|
3,107
|
|
(1,390)
|
|
-44.7%
|
|
5.7%
|
|
11.3%
|
|
Asia
Pacific
|
786
|
|
1,988
|
|
(1,202)
|
|
-60.5%
|
|
3.7%
|
|
9.2%
|
|
Total Executive
Search
|
25,948
|
|
26,676
|
|
(728)
|
|
-2.7%
|
|
19.3%
|
|
20.4%
|
Leadership Consulting
|
(1,688)
|
|
(2,344)
|
|
656
|
|
28.0%
|
|
-14.8%
|
|
-27.7%
|
Culture Shaping (1)
|
(39,532)
|
|
87
|
|
(39,619)
|
|
NM
|
|
NM
|
|
0.9%
|
|
Total
segments
|
(15,272)
|
|
24,419
|
|
(39,691)
|
|
-162.5%
|
|
-10.0%
|
|
16.4%
|
Global Operations Support
|
(13,139)
|
|
(12,725)
|
|
(414)
|
|
-3.3%
|
|
-8.6%
|
|
-8.5%
|
|
Operating income
(loss)
|
($28,411)
|
|
$11,694
|
|
($40,105)
|
|
-343.0%
|
|
-18.7%
|
|
7.9%
|
|
* Margin
based on revenue before reimbursements (net revenue).
|
(1) Culture Shaping
operating loss includes $39.2 million of impairment
charges.
|
Heidrick &
Struggles International, Inc.
|
Condensed
Consolidated Statements of Comprehensive
Income
|
(In thousands, except
per share amounts)
|
(Unaudited)
|
|
|
Six Months
Ended
|
|
|
|
|
|
June
30,
|
|
|
|
|
|
2017
|
|
2016
|
|
$
Change
|
|
%
Change
|
Revenue:
|
|
|
|
|
|
|
|
Revenue before
reimbursements (net revenue)
|
$ 292,220
|
|
$ 279,050
|
|
$
13,170
|
|
4.7%
|
Reimbursements
|
9,075
|
|
9,053
|
|
22
|
|
0.2%
|
Total
revenue
|
301,295
|
|
288,103
|
|
13,192
|
|
4.6%
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Salaries and employee
benefits
|
200,613
|
|
192,660
|
|
7,953
|
|
4.1%
|
General and
administrative expenses
|
74,222
|
|
70,828
|
|
3,394
|
|
4.8%
|
Impairment
charges
|
39,158
|
|
-
|
|
39,158
|
|
NM
|
Reimbursed
expenses
|
9,075
|
|
9,053
|
|
22
|
|
0.2%
|
Total operating
expenses
|
323,068
|
|
272,541
|
|
50,527
|
|
18.5%
|
Operating income
(loss)
|
(21,773)
|
|
15,562
|
|
(37,335)
|
|
-239.9%
|
|
|
|
|
|
|
|
|
Non-operating
income (expense):
|
|
|
|
|
|
|
|
Interest,
net
|
101
|
|
130
|
|
|
|
|
Other, net
|
(2,920)
|
|
78
|
|
|
|
|
Net non-operating
income (expense)
|
(2,819)
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before income taxes
|
(24,592)
|
|
15,770
|
|
|
|
|
Provision for
(benefit from) income taxes
|
(6,994)
|
|
7,790
|
|
|
|
|
Net income
(loss)
|
(17,598)
|
|
7,980
|
|
|
|
|
Other comprehensive
income, net of tax
|
6,018
|
|
55
|
|
|
|
|
Comprehensive
income (loss)
|
$ (11,580)
|
|
$
8,035
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted
average common shares outstanding
|
18,689
|
|
18,503
|
|
|
|
|
Dilutive common
shares
|
-
|
|
260
|
|
|
|
|
Diluted weighted
average common shares outstanding
|
18,689
|
|
18,763
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income
(loss) per common share
|
$
(0.94)
|
|
$
0.43
|
|
|
|
|
Diluted net income
(loss) per common share
|
$
(0.94)
|
|
$
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee
benefits as a % of net revenue
|
68.7%
|
|
69.0%
|
|
|
|
|
General and
administrative expense as a % of net revenue
|
25.4%
|
|
25.4%
|
|
|
|
|
Operating income
(loss) as a % of net revenue
|
-7.5%
|
|
5.6%
|
|
|
|
|
Heidrick &
Struggles International, Inc.
|
Segment
Information
|
(In
thousands)
|
(Unaudited)
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
$
Change
|
|
%
Change
|
|
Margin
*
|
|
Margin
*
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Executive Search
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$ 160,188
|
|
$ 154,884
|
|
$
5,304
|
|
3.4%
|
|
|
|
|
|
Europe
|
56,540
|
|
50,939
|
|
5,601
|
|
11.0%
|
|
|
|
|
|
Asia
Pacific
|
42,297
|
|
40,614
|
|
1,683
|
|
4.1%
|
|
|
|
|
|
Total Executive
Search
|
259,025
|
|
246,437
|
|
12,588
|
|
5.1%
|
|
|
|
|
Leadership Consulting
|
21,199
|
|
14,568
|
|
6,631
|
|
45.5%
|
|
|
|
|
Culture Shaping
|
11,996
|
|
18,045
|
|
(6,049)
|
|
-33.5%
|
|
|
|
|
|
Revenue before
reimbursements (net revenue)
|
292,220
|
|
279,050
|
|
13,170
|
|
4.7%
|
|
|
|
|
|
Reimbursements
|
9,075
|
|
9,053
|
|
22
|
|
0.2%
|
|
|
|
|
|
Total
revenue
|
$ 301,295
|
|
$ 288,103
|
|
$
13,192
|
|
4.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
Executive Search
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
42,512
|
|
$
39,375
|
|
$
3,137
|
|
8.0%
|
|
26.5%
|
|
25.4%
|
|
Europe
|
1,816
|
|
4,396
|
|
(2,580)
|
|
-58.7%
|
|
3.2%
|
|
8.6%
|
|
Asia
Pacific
|
4,106
|
|
2,607
|
|
1,499
|
|
57.5%
|
|
9.7%
|
|
6.4%
|
|
Total Executive
Search
|
48,434
|
|
46,378
|
|
2,056
|
|
4.4%
|
|
18.7%
|
|
18.8%
|
Leadership Consulting
|
(2,570)
|
|
(4,905)
|
|
2,335
|
|
47.6%
|
|
-12.1%
|
|
-33.7%
|
Culture Shaping (1)
|
(42,497)
|
|
(1,969)
|
|
(40,528)
|
|
NM
|
|
-354.3%
|
|
-10.9%
|
|
Total
segments
|
3,367
|
|
39,504
|
|
(36,137)
|
|
-91.5%
|
|
1.2%
|
|
14.2%
|
Global Operations Support
|
(25,140)
|
|
(23,942)
|
|
(1,198)
|
|
-5.0%
|
|
-8.6%
|
|
-8.6%
|
|
Total operating income
(loss)
|
$ (21,773)
|
|
$
15,562
|
|
$ (37,335)
|
|
-239.9%
|
|
-7.5%
|
|
5.6%
|
|
* Margin
based on revenue before reimbursements (net revenue).
|
(1) Culture Shaping
operating loss includes $39.2 million of impairment
charges.
|
Heidrick &
Struggles International, Inc.
|
Condensed
Consolidated Balance Sheets
|
(In
thousands)
|
|
June
30,
|
|
December
31,
|
|
|
2017
|
|
2016
|
|
|
(Unaudited)
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
$
58,178
|
|
$
165,011
|
|
|
Accounts receivable,
net
|
124,410
|
|
93,191
|
|
|
Prepaid
expenses
|
23,784
|
|
21,602
|
|
|
Other current
assets
|
13,783
|
|
13,779
|
|
|
Income taxes
recoverable
|
5,467
|
|
4,847
|
|
|
|
Total current
assets
|
225,622
|
|
298,430
|
|
|
|
|
|
|
Non-current
assets:
|
|
|
|
|
|
Property and
equipment, net
|
41,491
|
|
35,099
|
|
|
Assets designated for
retirement and pension plans
|
17,050
|
|
15,698
|
|
|
Investments
|
19,717
|
|
17,346
|
|
|
Other non-current
assets
|
11,913
|
|
9,322
|
|
|
Goodwill
|
124,671
|
|
151,844
|
|
|
Other intangible
assets, net
|
8,027
|
|
20,690
|
|
|
Deferred income
taxes
|
48,946
|
|
33,073
|
|
|
|
Total non-current
assets
|
271,815
|
|
283,072
|
|
|
|
|
|
|
Total
assets
|
$
497,437
|
|
$
581,502
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts
payable
|
$
8,170
|
|
$
7,952
|
|
|
Accrued salaries and
employee benefits
|
88,073
|
|
155,523
|
|
|
Deferred revenue,
net
|
32,301
|
|
28,367
|
|
|
Other current
liabilities
|
21,761
|
|
24,133
|
|
|
Income taxes
payable
|
7,064
|
|
4,617
|
|
|
|
Total current
liabilities
|
157,369
|
|
220,592
|
|
|
|
|
|
|
Non-current
liabilities:
|
|
|
|
|
|
Accrued salaries and
employee benefits
|
26,619
|
|
34,993
|
|
|
Retirement and
pension plans
|
43,351
|
|
39,039
|
|
|
Other non-current
liabilities
|
26,585
|
|
28,288
|
|
|
|
Total non-current
liabilities
|
96,555
|
|
102,320
|
|
|
|
|
|
|
Stockholders'
equity
|
243,513
|
|
258,590
|
|
|
|
|
|
|
Total liabilities
and stockholders' equity
|
$
497,437
|
|
$
581,502
|
|
Heidrick &
Struggles International, Inc.
|
Condensed
Consolidated Statements of Cash Flows
|
(In
thousands)
|
(Unaudited)
|
|
|
Three Months
Ended
|
|
June
30,
|
|
2017
|
|
2016
|
|
|
|
|
Cash flows -
operating activities:
|
|
|
|
|
Net income
(loss)
|
($18,248)
|
|
$6,655
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
Depreciation and
amortization
|
3,758
|
|
3,973
|
|
|
Deferred income
taxes
|
(17,704)
|
|
(1,258)
|
|
|
Stock-based
compensation expense
|
2,076
|
|
2,069
|
|
|
Accretion expense
related to earnout payments
|
199
|
|
212
|
|
|
Impairment
charges
|
39,158
|
|
-
|
|
|
Changes in assets and
liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
Accounts
receivable
|
(11,337)
|
|
(13,090)
|
|
|
|
Accounts
payable
|
388
|
|
(2,534)
|
|
|
|
Accrued
expenses
|
17,557
|
|
18,464
|
|
|
|
Deferred
revenue
|
(537)
|
|
(620)
|
|
|
|
Income taxes payable,
net
|
1,695
|
|
5,100
|
|
|
|
Retirement and
pension assets and liabilities
|
499
|
|
236
|
|
|
|
Prepaid
expenses
|
1,253
|
|
1,338
|
|
|
|
Other assets and
liabilities, net
|
5,557
|
|
13,676
|
|
|
|
|
Net cash provided by
operating activities
|
24,314
|
|
34,221
|
|
|
|
|
|
|
|
|
Cash flows -
investing activities:
|
|
|
|
|
Restricted
cash
|
(2)
|
|
-
|
|
Acquisition of
businesses
|
(114)
|
|
(236)
|
|
Capital
expenditures
|
(6,280)
|
|
(371)
|
|
Purchases of
available for sale investments
|
(157)
|
|
(115)
|
|
Proceeds from sale of
available for sale investments
|
118
|
|
125
|
|
|
|
|
Net cash used in
investing activities
|
(6,435)
|
|
(597)
|
|
|
|
|
|
|
|
|
Cash flows -
financing activities:
|
|
|
|
|
Payments on line of
credit
|
(25,000)
|
|
-
|
|
Cash dividends
paid
|
(2,561)
|
|
(2,496)
|
|
Acquisition earnout
payments
|
(2,308)
|
|
(7,074)
|
|
|
|
|
Net cash used in
financing activities
|
($29,869)
|
|
(9,570)
|
|
|
|
|
|
|
|
|
Effect of exchange
rate fluctuations on cash and cash equivalents
|
1,839
|
|
(710)
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
(10,151)
|
|
23,344
|
Cash and cash
equivalents at beginning of period
|
68,329
|
|
62,047
|
Cash and cash
equivalents at end of period
|
$ 58,178
|
|
$ 85,391
|
Heidrick &
Struggles International, Inc.
|
Condensed
Consolidated Statements of Cash Flows
|
(In
thousands)
|
(Unaudited)
|
|
|
Six Months
Ended
|
|
June
30,
|
|
2017
|
|
2016
|
|
|
|
|
Cash flows -
operating activities:
|
|
|
|
|
Net income
(loss)
|
$(17,598)
|
|
$
7,980
|
|
Adjustments to
reconcile net income to net cash used in operating
activities:
|
|
|
|
|
|
Depreciation and
amortization
|
7,566
|
|
7,645
|
|
|
Deferred income
taxes
|
(15,323)
|
|
1,012
|
|
|
Stock-based
compensation expense
|
3,716
|
|
3,900
|
|
|
Accretion expense
related to earnout payments
|
625
|
|
558
|
|
|
Impairment
charges
|
39,158
|
|
-
|
|
|
Changes in assets and
liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
Accounts
receivable
|
(28,516)
|
|
(30,138)
|
|
|
|
Accounts
payable
|
63
|
|
(1,011)
|
|
|
|
Accrued
expenses
|
(80,558)
|
|
(87,255)
|
|
|
|
Deferred
revenue
|
3,334
|
|
3,684
|
|
|
|
Income taxes payable,
net
|
2,018
|
|
(712)
|
|
|
|
Retirement and
pension assets and liabilities
|
2,892
|
|
2,530
|
|
|
|
Prepaid
expenses
|
(1,351)
|
|
(1,226)
|
|
|
|
Other assets and
liabilities, net
|
(2,238)
|
|
8,072
|
|
|
|
|
Net cash used in
operating activities
|
(86,212)
|
|
(84,961)
|
|
|
|
|
|
|
|
|
Cash flows -
investing activities:
|
|
|
|
|
Restricted
cash
|
(2)
|
|
6,501
|
|
Acquisition of
business
|
(114)
|
|
(9,006)
|
|
Capital
expenditures
|
(10,443)
|
|
(1,092)
|
|
Purchases of
available for sale investments
|
(1,963)
|
|
(2,247)
|
|
Proceeds from sale of
available for sale investments
|
374
|
|
244
|
|
|
|
|
Net cash used in
investing activities
|
(12,148)
|
|
(5,600)
|
|
|
|
|
|
|
|
|
Cash flows -
financing activities:
|
|
|
|
|
Proceeds from line of
credit
|
40,000
|
|
-
|
|
Payments on line of
credit
|
(40,000)
|
|
-
|
|
Cash dividends
paid
|
(5,159)
|
|
(4,946)
|
|
Payment of employee
tax withholdings on equity transactions
|
(2,392)
|
|
(2,676)
|
|
Acquisition earnout
payments
|
(4,497)
|
|
(7,461)
|
|
|
|
|
Net cash used in
financing activities
|
(12,048)
|
|
(15,083)
|
|
|
|
|
|
|
|
|
Effect of exchange
rate fluctuations on cash and cash equivalents
|
3,575
|
|
583
|
|
|
|
|
|
|
|
|
Net decrease in
cash and cash equivalents
|
(106,833)
|
|
(105,061)
|
Cash and cash
equivalents at beginning of period
|
165,011
|
|
190,452
|
Cash and cash
equivalents at end of period
|
$
58,178
|
|
$
85,391
|
Heidrick
& Struggles International, Inc.
|
Reconciliation of Net Income and Operating
Income (GAAP) to
|
Adjusted
EBITDA (Non-GAAP)
|
(In
thousands)
|
(Unaudited)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
June
30,
|
|
June
30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Revenue
before reimbursements (net revenue)
|
$ 152,214
|
|
$ 148,861
|
|
$ 292,220
|
|
$ 279,050
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
(18,248)
|
|
6,655
|
|
(17,598)
|
|
7,980
|
|
|
Interest,
net
|
(96)
|
|
58
|
|
101
|
|
130
|
|
|
Other,
net
|
(179)
|
|
29
|
|
(2,920)
|
|
78
|
|
|
Provision for
(benefit from) income taxes
|
(10,438)
|
|
5,126
|
|
(6,994)
|
|
7,790
|
|
Operating
income
|
(28,411)
|
|
11,694
|
|
(21,773)
|
|
15,562
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
Salaries and
employee benefits
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
1,737
|
|
1,506
|
|
3,378
|
|
3,337
|
|
|
|
Senn Delaney
retention awards
|
-
|
|
730
|
|
-
|
|
1,803
|
|
|
General and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
2,712
|
|
2,275
|
|
4,546
|
|
4,561
|
|
|
|
Intangible
amortization
|
1,253
|
|
1,698
|
|
3,020
|
|
3,084
|
|
|
|
Earnout
accretion
|
200
|
|
212
|
|
626
|
|
558
|
|
|
|
Impairment
charges
|
39,158
|
|
-
|
|
39,158
|
|
-
|
|
|
|
|
Total
adjustments
|
45,060
|
|
6,421
|
|
50,728
|
|
13,343
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
$
16,649
|
|
$
18,115
|
|
$
28,955
|
|
$
28,905
|
|
Adjusted
EBITDA Margin
|
10.9%
|
|
12.2%
|
|
9.9%
|
|
10.4%
|
|
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SOURCE Heidrick & Struggles International, Inc.