ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as other sections of this annual report on Form 10-K contain forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for 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 expectations regarding our revenues, expenses and operations and our ability to sustain profitability; our ability to recruit and retain qualified executive search consultants to staff our operations appropriately; our ability to expand our customer base and relationships, especially given the off-limit arrangements we are required to enter into with certain of our clients; further declines in the global economy and our ability to execute successfully through business cycles; our anticipated cash needs; our anticipated growth strategies and sources of new revenues; unanticipated trends and challenges in our business and the markets in which we operate; 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; the mix of profit and loss by country; and our ability to estimate accurately for purposes of preparing our consolidated financial statements. For more information on the factors that could affect the outcome of forward-looking statements, see Risk Factors in Item 1A of this Form 10-K. 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.
Management’s Discussion and Analysis of Financial Condition and Results of operations has been prepared for the twelve-month periods ending December 31, 2013, and 2012.
Overview
Business Overview
We are a leading performance-driven executive search firm serving clients across the globe. Committed to a philosophy of partnering with our clients, we offer a proven record in C-Suite, senior executive, and board searches, as well as expertise serving private equity and venture capital firms. Our organizational structure is designed to provide high quality, industry-focused executive search services to our clients worldwide. Our executive search consultants are dedicated to specific industry verticals and are leading experts in their given sectors. We believe that industry specialization enables us to better understand our clients' cultures, operations, business strategies and industries. Our six largest industry practice groups are financial services, professional services, life sciences, technology/media/telecom (“TMT”), consumer/retail and industrial.
Components of Our Statement of Operations
Net Revenue.
Our executive search services are provided on a retained basis. Net revenue is comprised of the following two components:
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Fee Revenue
.
The vast majority of our revenue for retained executive search and board advisory services is received as retainer fees (which we refer to as “fee revenue”). Our retainer fee is typically equal to 33% of the first year total cash compensation for the position being filled. Generally, our retainer fee is paid in three installments commencing in the month of our engagement by the client. At the time of placement, the total fee is trued up to an amount equal to 33% of the difference between the actual total cash compensation agreed to be paid and the estimate. In the event that a client hires a candidate for a position other than the position identified in the original search assignment, we typically are paid 30% of the first year’s total cash compensation for the position filled.
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•
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Indirect Expenses Billed to Clients
.
For each engagement, we are paid a flat fee, up to $9,000, to cover certain costs associated with the search process. These costs include research and research tools; other outside services; and the development and maintenance of our proprietary database and communication systems.
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In addition to the components of our net revenue, we also track certain performance metrics that drive revenue. In the executive search industry, revenue in any given period is driven by:
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the number of search assignments;
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the number of executive search consultants;
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•
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executive search consultant productivity, measured by average annualized net revenue per executive search consultant; and
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average revenue per executive search.
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Reimbursements and Reimbursed Expenses.
We are generally reimbursed by our clients for the direct expenses associated with our search activity on their behalf. These direct expenses include travel, other out-of-pocket expenses and third-party costs, and we report such reimbursements as a separate component of total revenue. In addition, we record such direct expenses as a separate component of operating expenses when incurred.
Compensation and Benefits Expenses.
At the consultant level, we utilize a combination of base salary, revenue and volume bonuses and equity compensation to compensate our employees. Each executive search consultant is paid a tiered bonus based upon the amount of collected revenue that is credited to such consultant. The higher the revenue credited, the higher the percentage of such revenue that is paid to the executive search consultant as a bonus and thus accrued by us as an expense. As a result of this tiered bonus system, the mix of individual consultants’ performance levels can significantly affect the total amount of compensation expense we record. We pay a volume bonus to our executive search consultants based upon the total amount of collected revenue originated by an executive search consultant.
We periodically grant equity compensation to our executive officers and executive search consultants in order to:
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align our employees’ interest with those of our stockholders;
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•
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facilitate ownership of our common stock by our executive officers and executive search consultants; and,
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attract and retain talent.
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General and Administrative Expenses.
General and administrative expenses are comprised primarily of rent, depreciation, business development, professional fees, communications and IT, networking costs and insurance. Incremental increases in revenue do not necessarily result in proportional increases in general and administrative expenses.
2013 Overview
On May 2, 2013, the Company acquired a
51%
controlling ownership interest in Augmentum Consulting, Ltd. ("Augmentum"), a London based search firm. This acquisition complements CTPartners' existing UK business in a variety of practice areas, provides increased competitive advantage and enhances growth opportunity. The Company paid
$1.5 million
in cash on the acquisition date, recorded a seller note payable valued at
$2.5 million
, payable in
two
equal installments on August 31, 2014 and 2015, and a redeemable noncontrolling interest of
$3.8 million
. The aggregate maximum purchase price may be adjusted based on certain revenue targets over
3
years, not to exceed
$8.6 million
in total.
On November 5, 2013, the Company acquired Taylor Executive Consultancy Latam S. de R.L. ("Taylor Consultancy"), a Mexico-based executive search firm. The purchase price consists of
$0.2 million
of initial cash payment, and a contingent consideration based on certain revenue targets of up to
$0.7 million
.
During 2013, the Company expanded its reorganization efforts globally. The plan consists of a workforce reorganization, and elimination of redundant or unneeded positions, which allowed the Company to combine business operations in certain geographic locations and serve our clients more efficiently. We expect that the reorganization will result in annualized cost savings of approximately
$2.5 million
.
Net revenue for the year ended December 31, 2013, increased
$1.9 million
while operating loss improved by
$2.4 million
, compared to the year ended December 31, 2012.
Operating loss for the year ended December 31, 2013 was
$2.7 million
, compared to an operating loss of
$5.1 million
for the year ended December 31, 2012. Excluding certain non-recurring charges of $5.9 million for the year ended December 31, 2013, and $7.3 million for the year ended December 31, 2012, as defined in the reconciliation of Non-GAAP measures, operating income improved by $1.0 million, to $3.2 million at December 31, 2013. The increase primarily reflects an increase in net revenues of
$1.9 million
and a decrease in compensation expense of $0.4 million offset by a $1.1 million increase in general and administrative expenses.
For the year ended December 31, 2013, we were engaged to perform 1,395 searches, for the year ended December 31, 2012, we were engaged to perform 1,352 searches. During the twelve months ended December 31, 2013, we placed candidates in 509 U.S. searches and in 522 non-U.S. searches. For the twelve-month period ended December 31, 2012, we placed candidates in 462 U.S. searches and in 571 non-U.S. searches.
Relevant data is set forth below:
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Performance Metrics
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Year Ended December 31, 2013
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Year Ended December 31, 2012
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Increase/
Decrease
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Percentage
Increase/
Decrease
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(in thousands, except number of search assignments and search consultants)
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Number of new search assignments
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1,395
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1,352
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43
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3.2
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%
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Number of executive search consultants (as of period end)
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128
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103
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25
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24.3
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%
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Productivity, as measured by average annualized net revenue per executive search consultant
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$
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1,018
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$
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1,246
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$
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(228
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)
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(18.3
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)%
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Average revenue per executive search
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$
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97
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$
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92
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$
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5
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5.4
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%
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The number of search consultants in the calculation of productivity includes the number of consultants at December 31, 2013. Our productivity measure excluding partners acquired in 2013 would be $1.2 million.
Adjusted Performance Measure, Excluding Non-Operational Charges
We utilize Adjusted Net Income/(Loss) and Adjusted Income/(Loss) per common share, non-GAAP financial measures, as a measures of our results of operations. We calculated Adjusted Net Income/(Loss) as Net Income/(Loss) excluding the following charges which we do not believe are reflective of our operational results:
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Post-combination compensation expense
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Gain or loss on foreign currency related to funding of foreign subsidiaries
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Fees and expenses incurred by us in connection with the restatement of our 2012 interim financial statements
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Fees and expenses incurred in connection with acquisitions, including non-recurring integration costs
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Tax effect of the above adjustments
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We calculate Adjusted earnings/(loss) per common share using the weighted average shares outstanding amounts used in the calculation of diluted earnings per share in accordance with GAAP.
Management evaluates the Company’s performance based on Adjusted Net Income/(Loss), and Adjusted Net Income/(Loss) per share. These measures should not be viewed as substitutes for financial information determined in accordance with GAAP, nor are necessarily comparable to the non-GAAP performance measures that may be presented by other companies. We believe the presentation of these non-GAAP measures provides meaningful supplemental information regarding our performance, excluding certain charges that may not be indicative of our core operating results. We include these non-GAAP measures because we believe they are useful to investors in providing more
transparency with respect to operational drivers of the business and the supplemental information used by management in evaluation of our ongoing operations.
Reconciliation of Non-GAAP Measures
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(in thousands, except per share amounts)
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Year ended December 31
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2013
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2012
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CALCULATION OF "AS ADJUSTED" PERFORMANCE MEASURE
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Net income/(loss)
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$
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(1,770
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)
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$
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(3,584
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)
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Adjustments:
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Post-combination compensation and reorganization expense
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2,659
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7,311
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Foreign exchange loss/(gain) on funding of foreign subsidiaries
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867
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(468
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)
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Costs incurred for restatement, acquisition and integration
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1,748
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462
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Impairment charges
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594
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—
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Tax effect of the adjustments
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(2,280
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)
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(2,593
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)
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Adjusted net income
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$
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1,818
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$
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1,128
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Earnings per common share, as adjusted
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$
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0.24
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$
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0.16
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Use of non-GAAP measures: The table above contains selected financial information calculated other than in accordance with U.S. Generally Acceptable Accounting Principles (“GAAP”).
Results of Operations
Twelve Month Period Ended December 31, 2013 Compared to Twelve Month Period Ended December 31, 2012
Net Revenue.
Net revenue increased
$1.9 million
, or
1.5%
, to
$130.3 million
in 2013 from
$128.4 million
in 2012. The increase in net revenue is primarily attributed to revenue generated by Augmentum.
Compensation and Benefits Expenses.
Compensation and employee benefits expense decreased
$5.2 million
, or
4.9%
, to
$100.6 million
in 2013 from
$105.7 million
in 2012. As a percentage of net revenue, compensation and benefits decreased to
77.2%
in 2013 from
82.4%
in 2012. Excluding non-operational charges of $2.7 million and $7.5 million for the year ended December 31, 2013 and 2012, respectively, as defined in reconciliation of non-GAAP measures, compensation and benefits expense decreased to 75.1% of net revenue in 2013, compared to 76.5% in 2012. Decrease in compensation and benefits expense as a percentage of net revenue is mainly due to our cost savings initiative.
General and Administrative Expenses.
General and administrative expenses increased
$4.5 million
, or
16.3%
, to
$32.0 million
in 2013 from
$27.5 million
in 2012. Excluding non-operational charges of $3.2 million and miscellaneous gain of $0.2 million for the years ended December 31, 2013 and 2012, as defined in the reconciliation of non-GAAP measures, general and administrative expenses increased by $1.1 million, to $28.8 million in 2013. The increase is comprised primarily of (i) the $0.5 million increase in advertising and marketing expense, (iii) an increase of $0.3 million in amortization of intangible assets, and (iii) additional $0.2 million of expense due to Augmentum acquisition.
Operating Loss.
Operating loss was
$2.7 million
for the year ended 2013, a decrease of
$2.4 million
compared to an operating loss of
$5.1 million
in 2012. Excluding certain non-recurring charges, adjusted operating income improved by $1.0 million, to an operating income of $3.2 million in 2013. The improvement primarily reflects an increase in net revenue of
$1.9 million
and decrease of $0.4 million in compensation and benefits, offset by an increase in general administrative costs of $1.1 million.
Net Interest Expense.
Net interest expense was
$0.2 million
in 2013 and 2012. The net interest expense reflects the discount on seller-financed notes issued in acquisitions as well as interest paid on the use of our line of credit.
Loss Before Taxes and Income Tax Benefit.
In 2013 we recorded a loss before income taxes of
$2.9 million
and an income tax benefit of
$1.1 million
, compared to a loss before income taxes of
$5.3 million
and an income tax benefit of
$1.7 million
in 2012. The decrease in income tax benefit is primarily due to a
$2.4 million
increase in loss before income taxes. The Company's effective tax rate was 38.6% and 31.9% for the years ended December 31, 2013 and 2012, respectively.
Liquidity and Capital Resources
General.
Our primary sources of liquidity are cash, cash flows from operations and borrowing availability under our revolving credit facility. We continually evaluate our liquidity requirements, capital needs and availability of capital resources based on our operating needs. We believe that our existing cash balances together with the funds expected to be generated from operations and funds available under our committed revolving credit facility will be sufficient to finance our operations for the foreseeable future.
The following table summarizes our cash flow for the periods shown:
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(in thousands)
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Year Ended December 31,
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2013
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2012
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Net cash provided by (used in) operating activities
|
$
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2,918
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$
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(514
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)
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Net cash used in investing activities
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(9,735
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)
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(3,834
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)
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Net cash used in financing activities
|
(3,745
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)
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(1,179
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)
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Net increase (decrease) in cash
|
$
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(10,562
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)
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$
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(5,527
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)
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Cash.
Cash at December 31, 2013 was
$5.7 million
, as compared to
$15.9 million
at December 31, 2012. The decrease in cash principally reflects the use of cash in partner and businesses acquisitions.
Cash Flow from Operating Activities.
In
2013
, cash provided by operating activities was
$2.9 million
, compared to cash used in operating activities of
$0.5 million
in 2012. The improvement is primarily due to a collection on accounts receivable acquired in Augmentum business combination and timing differences within working capital, offset by an increase in net loss of $2.7 million, excluding post-combination compensation expense.
Cash from Investing Activities.
In 2013, cash used in investing activities was
$9.7 million
compared to
$3.8 million
million in 2012. For the year ended December 31, 2013, the cash used in investing activity was principally comprised of
$1.0 million
cash payment related to the acquisition of Augmentum and Taylor Consultancy,
$7.2 million
of notes receivable issued connection with new partner acquisitions, and
$1.7 million
in capital expenditures. During the year ended December 31, 2012, cash used in the investing activity was comprised primarily of $3.6 million of cash payment related to our Latin America and Cheverny CEO Search, S.A. acquisitions, and $0.3 million used to purchase leasehold improvements and equipment.
Financing Activities.
In
2013
, cash used for financing activities of
$3.7 million
was due to payments on long term debt, of which $3.4 million were related to acquisitions. During 2012, cash used for financing activities was
$1.2 million
, comprised primarily of common stock repurchases.
Under our credit facility agreement, which we have amended to extend on existing terms through April 30, 2015 and increase the borrowing capacity to $14.0 million, we may borrow U.S. dollars at LIBOR plus 3.25%. We had no borrowings outstanding under our credit facility at December 31,
2013
, and
2012
. As of December 31,
2013
, we had
$14.0 million
available to borrow. As of December 31, 2012, we had $10.0 million available to borrow. The Company is required to comply with certain covenants. During 2013 and 2012, the Company was in compliance with the covenants under the existing line of credit and no events of default existed.
We believe that our cash flows from operating activities, coupled with the borrowing capacity of our credit facility, will allow us to continue to operate and grow our firm.
Off-Balance Sheet Arrangements.
We do not have off-balance sheet arrangements, special purpose entities, trading activities or non-exchange traded contracts.
Application of Critical Accounting Policies and Estimates
General.
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared using accounting principles generally accepted in the United States of America (GAAP). Our significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies, in the notes to our consolidated financial statements. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions or conditions. If actual amounts are ultimately different from previous estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes the following critical accounting policies reflect the Company’s more significant estimates and assumptions used in the preparation of our consolidated financial statements:
Revenue Recognition.
Substantially all of our revenue is derived from fees for professional services related to executive search services. Revenue before reimbursements of direct expenses (“net revenue”) consists of: retainer fees; indirect expenses billed to clients; and supplemental fees (fees contractually due to the Company if the actual compensation of the placed candidate exceeds the estimated compensation on which the retainer fee was based or the client hires other candidates presented by the Company for positions not related to the original search assignment). Since retainer fees and indirect expenses are generally not contingent upon placement of a candidate, our assumptions primarily relate to establishing the period over which our services are performed. The period over which we recognize revenue may not directly correspond to the length of a search because revenue recognition is aligned with our assumptions regarding the provision of services during the engagement. These assumptions determine the timing of revenue recognition and profitability for the reported period. If these assumptions do not accurately reflect the period over which revenue is earned, revenue and profit could differ. We annually review our assumptions with regard to the establishment of the period over which our services are performed to ensure that our revenue recognition policy is in accordance with generally accepted accounting principles. Retainer fees and indirect expenses from executive search engagements are recognized over the expected period of performance in proportion to the estimated personnel time incurred to fulfill our obligations under the engagements. Any supplemental fees are recognized upon the occurrence of the event triggering the payment of a supplemental fee.
Accounts Receivable and Allowances for Doubtful Accounts.
Accounts receivable from our clients are recorded at the invoiced amounts and do not bear interest. An allowance for doubtful accounts is established based upon several factors, including the age of the Company’s accounts receivable, historic loss experience, specific account analysis, as well as expectations of future collections based upon trends, financial viability of the client, and historic collection experience. Actual collections of accounts receivable could differ from our estimates due to macro-economic conditions, changes in the executive search industry or a specific client’s financial condition.
Income Taxes.
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred liabilities are recognized for tax temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Business
Combinations.
Upon acquisition of a business, the reporting entity must recognize and measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired entity, and recognize and measure goodwill or gain on bargain purchase. Contingent consideration is recognized as an asset or liability and recorded at fair value. Assets acquired and liabilities assumed are recorded at fair values, and the excess of purchase price over the recognized assets and liabilities is recorded as goodwill. If the fair value of assets acquired and liabilities assumed exceeds the purchase price, gain on bargain purchase is recognized.
Recently Adopted Financial Accounting Standards
On January 1, 2013, we adopted the Financial Accounting Standards Board Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, new guidance on the presentation of reclassifications from accumulated other comprehensive loss to net income. This standard requires an entity to present reclassifications from accumulated other comprehensive loss to net income either on the face of the statements or in the notes to the consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
CTPartners Executive Search Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of CTPartners Executive Search Inc. and Subsidiaries (the Company) as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CTPartners Executive Search Inc. and Subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/McGladrey LLP
Cleveland, Ohio
March 12, 2014
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
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December 31, 2013
|
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December 31, 2012
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Assets
|
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Current Assets
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Cash
|
$
|
5,654
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|
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$
|
15,947
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|
Accounts receivable, net
|
26,381
|
|
|
23,100
|
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|
Other receivables
|
433
|
|
|
91
|
|
|
Prepaid expenses
|
3,974
|
|
|
2,949
|
|
|
Deferred income taxes
|
3,184
|
|
|
1,932
|
|
|
Other
|
4,411
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|
|
3,684
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Total current assets
|
44,037
|
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|
47,703
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Non-current assets
|
|
|
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Leasehold Improvements and Equipment, net
|
4,149
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|
3,473
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Goodwill
|
5,811
|
|
|
215
|
|
|
Intangibles, net
|
3,746
|
|
|
3,195
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Other Assets
|
5,517
|
|
|
1,868
|
|
|
Deferred Income Taxes
|
5,482
|
|
|
4,021
|
|
|
|
$
|
68,742
|
|
|
$
|
60,475
|
|
|
Liabilities and Stockholders’ Equity
|
|
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|
Current Liabilities
|
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Current portion of long-term debt
|
$
|
4,762
|
|
|
$
|
3,186
|
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|
Accounts payable
|
3,813
|
|
|
1,762
|
|
|
Accrued compensation
|
25,201
|
|
|
24,401
|
|
|
Accrued business taxes
|
2,079
|
|
|
1,465
|
|
|
Income taxes payable
|
710
|
|
|
233
|
|
|
Accrued expenses
|
5,571
|
|
|
3,762
|
|
|
Total current liabilities
|
42,136
|
|
|
34,809
|
|
|
Long-Term Liabilities
|
|
|
|
|
Long-term debt, less current maturities
|
1,295
|
|
|
3,488
|
|
|
Deferred rent, less current maturities
|
1,050
|
|
|
1,367
|
|
|
Total long-term liabilities
|
2,345
|
|
|
4,855
|
|
|
Noncontrolling redeemable interest
|
4,088
|
|
|
—
|
|
|
Stockholders’ Equity
|
|
|
|
|
Preferred stock: 1,000,000 shares authorized, no shares issued and outstanding
|
—
|
|
|
—
|
|
|
Common stock: $0.001 par value, 15,000,000 shares authorized, 7,540,821 and 7,409,247 shares issued at December 31, 2013 and 2012 respectively. 7,110,292 and 6,983,561 outstanding at December 31, 2013 and 2012, respectively
|
8
|
|
|
7
|
|
|
Additional paid-in capital
|
37,778
|
|
|
36,846
|
|
|
Accumulated deficit
|
(14,242
|
)
|
|
(12,610
|
)
|
|
Accumulated other comprehensive (loss), net of tax
|
(1,275
|
)
|
|
(1,357
|
)
|
|
Treasury stock at cost 430,529 and 425,686 shares at December 31, 2013 and 2012 respectively.
|
(2,096
|
)
|
|
(2,075
|
)
|
|
|
20,173
|
|
|
20,811
|
|
|
|
$
|
68,742
|
|
|
$
|
60,475
|
|
See Notes to Consolidated Financial Statements.
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
December 31,
2013
|
|
Year
Ended
December 31,
2012
|
|
Revenue
|
|
|
|
|
Net revenue
|
$
|
130,278
|
|
|
$
|
128,382
|
|
|
Reimbursable expenses
|
4,002
|
|
|
4,534
|
|
|
Total revenue
|
134,280
|
|
|
132,916
|
|
|
Operating expenses
|
|
|
|
|
Compensation and benefits
|
100,553
|
|
|
105,732
|
|
|
General and administrative
|
31,985
|
|
|
27,503
|
|
|
Reimbursable expenses
|
4,448
|
|
|
4,785
|
|
|
Total Operating Expenses
|
136,986
|
|
|
138,020
|
|
|
Operating loss
|
(2,706
|
)
|
|
(5,104
|
)
|
|
Interest expense, net
|
(179
|
)
|
|
(160
|
)
|
|
Loss before income taxes
|
(2,885
|
)
|
|
(5,264
|
)
|
|
Income tax benefit
|
1,115
|
|
|
1,680
|
|
|
Net loss
|
(1,770
|
)
|
|
(3,584
|
)
|
|
Net loss attributable to redeemable noncontrolling interest
|
138
|
|
|
—
|
|
|
Net loss attributable to the Company
|
$
|
(1,632
|
)
|
|
$
|
(3,584
|
)
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
$
|
(0.23
|
)
|
|
$
|
(0.51
|
)
|
|
Basic and diluted weighted average common shares
|
7,055,734
|
|
|
7,087,769
|
|
See Notes to Consolidated Financial Statements.
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
December 31,
2013
|
|
Year
Ended
December 31,
2012
|
|
Net loss
|
$
|
(1,770
|
)
|
|
$
|
(3,584
|
)
|
|
Other Comprehensive Income (Loss), net of tax
|
|
|
|
|
Foreign currency translation adjustments
|
82
|
|
|
(374
|
)
|
|
Other
|
—
|
|
|
(101
|
)
|
|
Comprehensive Loss
|
$
|
(1,688
|
)
|
|
$
|
(4,059
|
)
|
|
Comprehensive loss attributable to redeemable noncontrolling interest
|
138
|
|
|
—
|
|
|
Comprehensive loss attributable to the Company
|
$
|
(1,550
|
)
|
|
$
|
(4,059
|
)
|
See Notes to Consolidated Financial Statements.
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-in
|
|
Accumulated
|
|
Accumulated
Other
Comprehensive
|
|
Treasury
|
|
Total
Stockholders’
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Income (Loss)
|
|
Stock
|
|
Equity
|
|
Balance, December 31, 2011
|
7,110,360
|
|
|
$
|
7
|
|
|
$
|
35,738
|
|
|
$
|
(9,026
|
)
|
|
$
|
(882
|
)
|
|
$
|
(999
|
)
|
|
$
|
24,838
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,584
|
)
|
|
—
|
|
|
|
|
(3,584
|
)
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(374
|
)
|
|
—
|
|
|
(374
|
)
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(101
|
)
|
|
—
|
|
|
(101
|
)
|
|
Share-based compensation
|
122,616
|
|
|
—
|
|
|
733
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
733
|
|
|
Employee stock purchase program
|
—
|
|
|
—
|
|
|
375
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
375
|
|
|
Treasury Stock
|
(249,415
|
)
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
(1,076
|
)
|
|
(1,076
|
)
|
|
Balance, December 31, 2012
|
6,983,561
|
|
|
7
|
|
|
36,846
|
|
|
(12,610
|
)
|
|
(1,357
|
)
|
|
(2,075
|
)
|
|
20,811
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,770
|
)
|
|
—
|
|
|
—
|
|
|
(1,770
|
)
|
|
Net loss attributable to noncontroling interest
|
—
|
|
|
—
|
|
|
(138
|
)
|
|
138
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
82
|
|
|
—
|
|
|
82
|
|
|
Share-based compensation
|
107,107
|
|
|
1
|
|
|
795
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
796
|
|
|
Employee stock purchase program
|
24,467
|
|
|
—
|
|
|
275
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
275
|
|
|
Treasury Stock
|
(4,843
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21
|
)
|
|
(21
|
)
|
|
Balance, December 31, 2013
|
7,110,292
|
|
|
$
|
8
|
|
|
$
|
37,778
|
|
|
$
|
(14,242
|
)
|
|
$
|
(1,275
|
)
|
|
$
|
(2,096
|
)
|
|
$
|
20,173
|
|
See Notes to Consolidated Financial Statements.
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
|
Cash Flows From Operating Activities
|
|
|
|
|
Net loss
|
$
|
(1,770
|
)
|
|
$
|
(3,584
|
)
|
|
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities
|
|
|
|
|
Depreciation and amortization
|
1,982
|
|
|
1,313
|
|
|
Reorganization charges
|
48
|
|
|
882
|
|
|
Share-based compensation
|
796
|
|
|
734
|
|
|
Amortization of discount on seller notes
|
116
|
|
|
183
|
|
|
Amortization of post-combination compensation
|
1,878
|
|
|
6,347
|
|
|
Impairment charges
|
594
|
|
|
—
|
|
|
Deferred income taxes
|
(2,736
|
)
|
|
(3,504
|
)
|
|
Changes in operating assets and liabilities, net of effect of acquired businesses:
|
|
|
|
|
Accounts receivable, net
|
(1,104
|
)
|
|
(3,264
|
)
|
|
Prepaid expenses
|
423
|
|
|
(596
|
)
|
|
Income taxes receivable
|
—
|
|
|
1,593
|
|
|
Other assets and receivables
|
(1,027
|
)
|
|
(3,307
|
)
|
|
Accounts payable
|
1,792
|
|
|
745
|
|
|
Accrued compensation
|
908
|
|
|
907
|
|
|
Accrued business taxes
|
(22
|
)
|
|
692
|
|
|
Income taxes payable
|
323
|
|
|
233
|
|
|
Accrued expenses
|
983
|
|
|
281
|
|
|
Deferred rent
|
(266
|
)
|
|
(169
|
)
|
|
Net cash provided by (used in) operating activities
|
2,918
|
|
|
(514
|
)
|
|
Cash Flows From Investing Activities
|
|
|
|
|
Acquisition of businesses
|
(1,033
|
)
|
|
(3,564
|
)
|
|
Purchase of leasehold improvements and equipment
|
(1,665
|
)
|
|
(270
|
)
|
|
Notes receivable issued
|
(7,210
|
)
|
|
—
|
|
|
Repayment of notes receivable
|
173
|
|
|
—
|
|
|
Net cash used in investing activities
|
(9,735
|
)
|
|
(3,834
|
)
|
|
Cash Flows From Financing Activities
|
|
|
|
|
Principal payments on long-term debt
|
(3,745
|
)
|
|
(155
|
)
|
|
Repurchase of common stock
|
—
|
|
|
(1,024
|
)
|
|
Net cash used in financing activities
|
(3,745
|
)
|
|
(1,179
|
)
|
|
Net decrease in cash
|
(10,562
|
)
|
|
(5,527
|
)
|
|
Effect of foreign currency on cash
|
269
|
|
|
(356
|
)
|
|
Cash:
|
|
|
|
|
Beginning
|
15,947
|
|
|
21,830
|
|
|
Ending
|
$
|
5,654
|
|
|
$
|
15,947
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Supplemental Disclosures of Cash Flow Information
|
2013
|
|
2012
|
|
Cash paid (refunded) during the year for
|
|
|
|
|
Interest
|
$
|
273
|
|
|
$
|
21
|
|
|
Income taxes
|
$
|
461
|
|
|
$
|
(445
|
)
|
|
|
|
|
|
|
Supplemental Disclosures of Non-Cash Financing Information
|
|
|
|
|
Seller financing of fixed asset additions
|
$
|
409
|
|
|
$
|
—
|
|
|
Employee discount stock purchase award in lieu of cash compensation
|
$
|
275
|
|
|
$
|
375
|
|
|
Treasury stock acquired in lieu of shareholder receivable
|
$
|
(21
|
)
|
|
$
|
(53
|
)
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Investing Activities
|
|
|
|
|
Acquisition of businesses
|
|
|
|
|
Total identifiable assets acquired
|
$
|
2,852
|
|
|
$
|
3,607
|
|
|
Goodwill
|
5,289
|
|
|
215
|
|
|
Deferred post-combination compensation
|
—
|
|
|
8,225
|
|
|
Gain on bargain purchase
|
—
|
|
|
(258
|
)
|
|
Aggregate purchase price per purchase agreement
|
$
|
8,141
|
|
|
$
|
11,789
|
|
|
Cash paid for post-combination compensation arrangement
|
—
|
|
|
(2,203
|
)
|
|
Seller note
|
(2,592
|
)
|
|
(6,022
|
)
|
|
Redeemable noncontrolling interest
|
$
|
(3,849
|
)
|
|
$
|
—
|
|
|
Cash paid for acquisition of a business
|
$
|
1,700
|
|
|
$
|
3,564
|
|
|
Less cash acquired
|
$
|
(667
|
)
|
|
$
|
—
|
|
|
Cash paid for acquisition of a business net of cash acquired
|
1,033
|
|
|
3,564
|
|
|
|
|
|
|
|
Forgiveness of notes receivable
|
$
|
120
|
|
|
$
|
—
|
|
See Notes to Consolidated Financial Statements.
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
Note 1. Basis of Presentation and Significant Accounting Policies
Description of Business
— CTPartners Executive Search Inc. along with its subsidiaries (collectively, CTPartners or the Company), is a retained executive search firm with global executive search capabilities. The Company operates in North America, Europe and the Middle East (EMEA), Asia Pacific and Latin America.The Company is subject to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"), and the relevant provisions of the Securities Acts of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The Company's common stock trades on the NYSE MKT exchange under the symbol "CTP".
Principles of Consolidation
— The accompanying consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The consolidated financial statements include the accounts of CTPartners Executive Search Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration of Risk
— The Company maintains balances at financial institutions which may, at times, exceed amounts federally insured in the U.S. and foreign countries. No losses have been incurred on such deposits.
Revenue Recognition
— Substantially all revenue is derived from fees for professional services related to executive search services. Revenue before reimbursements of direct expenses (“net revenue”) consists of: retainer fees; indirect expenses billed to clients; supplemental fees (fees contractually due to the Company if the actual compensation of the placed candidate exceeds the estimated compensation on which the retainer fee was based or the client hires other candidates presented by the Company for positions not related to the original search assignment). Retainer fees and indirect expenses from executive search engagements are recognized when earned and realizable, typically over the expected average period of performance in proportion to the estimated effort incurred to fulfill our obligations under the engagements. Any supplemental fees, resulting from actual compensation of the placed candidate exceeding the estimated compensation, are recognized upon the occurrence of the event triggering the payment of a supplemental fee.
Reimbursements
— The Company incurs out-of-pocket expenses that are generally reimbursed by its clients, which are accounted for as revenue in its consolidated statements of operations.
Accounts Receivable
— The Company extends credit to customers under normal trade agreements. An allowance for doubtful accounts is established based upon several factors, including the age of the Company’s accounts receivable, historic loss experience, specific account analysis, as well as expectations of future collections based upon trends, financial viability of the client, and historic collection experience. The Company also provides a reserve for billing adjustments based upon historical experience.
Leasehold Improvements and Equipment
— Depreciation is provided using the straight-line method over the useful life of equipment, or in the case of leasehold improvements, the shorter of the life of the improvement or the length of the lease as follows:
|
|
|
|
|
|
Leasehold improvements
|
3-10 years
|
|
Office furniture, fixtures and equipment
|
5-7 years
|
|
Computer equipment and software
|
3-5 years
|
Leasehold improvements and equipment are carried at cost less allowances for depreciation and amortization. Ordinary maintenance and repairs are charged against earnings when incurred. Additions and major repairs are capitalized if they extend the useful life of the related asset.
Deferred Rent
— The Company recognizes rent expense on a straight-line basis over the term of the lease. Deferred rent is recognized for the excess of rental expense over rental payments. The portion of deferred rent which will not be recognized into the consolidated statement of operations within one year is included as a long-term liability on the consolidated balance sheets at December 31, 2013, and 2012.
Share-Based Compensation
— The Company has an equity incentive plan under which the Board of Directors may grant restricted stock or stock options to employees and consultants. Share based compensation cost is measured on the grant date fair value of the award, and recognized in the financial statements over the requisite service period.
Income Taxes
— The Company’s subsidiaries are subject to entity-level income taxes in their respective foreign jurisdictions. For U.S. tax purposes, the Company has made an election to include the income or loss of its global subsidiaries in the consolidated US tax return. CTPartners pays US tax on its worldwide income, reduced by income tax credits for foreign income taxes incurred.
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences, tax credit carryforwards and deferred liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the consolidated financial statements. With few exceptions, the Company is no longer subject to tax examinations by the U.S. federal, state or local tax authorities for years prior to 2010. When and if applicable, potential interest and penalty costs are accrued as incurred, with expenses recognized in general and administrative expenses in the consolidated statement of operations. For non-US locations, the Company is no longer subject to audit examinations prior to 2010, except for the United Kingdom which extends to 2005. When and if applicable, potential interest and penalty costs are accrued as incurred, with expenses recognized in general and administrative expenses in the consolidated statements of operations.
Foreign Currency Translation
— The Company generally designates the local currency for all its foreign subsidiaries as the functional currency, except for Venezuela, as discussed below. Accordingly, assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each period. The results of operations are translated at the average monthly rate of exchange. Translation adjustments arising from the use of differing exchange rates from period to period are recorded as part of accumulated other comprehensive income (loss). Gains and losses from transactions denominated in non-functional currency are included in operating results for the period. For 2013 and 2012, net foreign currency gains (losses) included in net loss were :
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2013
|
|
Year Ended
December 31,
2012
|
|
Net foreign currency gain/(loss)
|
$
|
(1,139
|
)
|
|
$
|
468
|
|
Venezuela
As further described in Note 2, effective January 2, 2012, the Company purchased its Latin American licensee, including operations in Venezuela. The economy in Venezuela has had significant inflation in the last several years. At the time of the acquisition, the Venezuelan economy was designated as highly inflationary, and is accounted for pursuant to accounting guidance for highly inflationary economies. Therefore, the U.S. dollar is designated to be the functional currency of our Venezuelan operations, and any gain or loss resulting from foreign currency translation is reflected in the general and administrative expenses in Company's results of operations.
The Venezuelan Central Bank is the only institution through which foreign currency-denominated transactions can be brokered. Under the system known as the Foreign Currency Securities Transactions System (SITME), entities domiciled in Venezuela can buy U.S. dollar-denominated securities only through banks authorized by Venezuelan Central Bank to import goods, services, or capital inputs. SITME imposes volume restrictions on an entity's trading activity, limiting such activity to a maximum amount equivalent of
$50,000
per day, not exceeding
$350,000
in a calendar month. This limitation is non-cumulative. Given the limited availability of alternative exchange mechanisms in Venezuela, the Company used the published SITME rate to re-measure transactions denominated in Bolivars. In February of 2013, the Venezuelan government eliminated the SITME rate and devalued its currency. As of December 31, 2013, the exchange rate was
6.30
Bolivares per U.S. dollar. During the twelve months ending December 31, 2013, the Company's Venezuelan operations generated
1.96%
of consolidated net revenue.
Accumulated Other Comprehensive Loss
— The Company’s accumulated other comprehensive (loss), net of tax, is comprised of, and related to, the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2013
|
|
December 31,
2012
|
|
Foreign currency translation adjustments
|
(1,088
|
)
|
|
(1,170
|
)
|
|
Other
|
(187
|
)
|
|
(187
|
)
|
|
|
$
|
(1,275
|
)
|
|
$
|
(1,357
|
)
|
Financial Instruments
— Cash is stated at cost, which approximates fair market value. The carrying value for account receivables, accounts payable, and other accrued liabilities reasonably approximates fair market value due to the nature of the financial instruments and the short term nature of the item. In 2012, the Company recorded
two
notes payable to seller in the process of acquiring our Latin America licensee and expanding our French operations by acquiring Cheverny CEO Search, S.A. In 2013, the Company recorded two additional notes payable to seller in connection with acquisition of Augmentum and Taylor Consulting. These notes were recorded at fair value at the time of acquisition.
Fair Value
— The Company measures the fair values in accordance with accounting guidance that defines fair value, provides guidance for measuring fair value and requires certain disclosures. The guidance also discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
|
|
|
|
•
|
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
|
|
•
|
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|
|
|
|
|
•
|
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
|
The inputs used in the fair value measurement should be from the highest level available. In instances where the measurement is based on inputs from different levels of the fair value hierarchy, the fair value measurement will fall within the lowest level input that is significant to the fair value measurement in its entirety.
Goodwill -
Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed, if any. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of a reporting unit's goodwill is compared to the carrying amount of that goodwill. If the carrying amount of a reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is indicated. The Company conducted its annual goodwill impairment evaluation as of December 1, 2013. For this test, the fair value of the Company's relevant reporting unit is determined using a combination of valuation techniques, including a discounted cash flow methodology. The discounted cash flow approach is dependent on a number of factors, including estimates of future market growth and trends, forecasted revenue and costs, and the appropriate discount rates. The completion of the first step of the goodwill impairment indicated that the fair value of the reporting unit exceeded its carrying amount. The Company further evaluated the period from December 1, 2013 through December 31, 2013 and concluded that there were no indicators of impairment with respect to the Company's goodwill.
Intangible Assets -
Intangible assets primarily consist of customer relationships, developed technology and trademarks, and are recorded at their estimated fair value at the date of acquisition. Customer relationships and developed technology are amortized using the straight-line method over their estimated useful lives of
10
years. Certain trademarks are considered indefinite-lived intangible assets, and must be tested for impairment annually, or more frequently if the events or changes in circumstances indicate that the asset might be impaired.During the year ended December 31, 2013, the Company recorded an impairment charge of
$0.6 million
, relating to intangible assets acquired in Cheverny CEO Search, S.A. business combination.
Redeemable Noncontrolling Interest -
On May 2, 2013, the Company acquired a
51%
controlling ownership interest in Augmentum. The Company has the right to call the remaining
49%
interest, and Augmentum shareholders have the right to put the remaining
49%
interest for a limited amount of time after the first anniversary of acquisition, at a pre-determined price, adjustable based on certain revenue targets. The "put" option expires on September 12, 2014, if not exercised, and the call option continues to exist indefinitely. The put option requires the noncontrolling interest to be classified as redeemable, recorded in the mezzanine equity on the Company's consolidated balance sheet, and measured at the greater of estimated redemption value, which approximates fair value, at the end of each reporting period or the historic cost basis. The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges or credits against retained earnings, or in the absence of retained earnings, additional paid in capital. If the put option becomes no longer exercisable, the redeemable noncontrolling interest will be reclassified to noncontrolling interest and included in the permanent equity on the Company's consolidated balance sheet.
Reclassifications
— Certain items in the 2012 consolidated financial statements have been reclassified to conform to the 2013 presentation.
Note 2. Acquisitions
Taylor Executive Consultancy Latam S. de R.L.
On November 5, 2013, the Company acquired Taylor executive Consultancy Latam S. de R.L. ("Taylor Consultancy"), a Mexico-based executive search firm. The purchase price consists of
$0.2 million
of initial cash payment, and a contingent consideration based on certain revenue targets, ranging from
zero
to
$0.7 million
. As a result, the Company recorded
$0.1 million
, representing the fair value of contingent consideration. As part of purchase price allocation, the Company recorded
$0.1 million
of identifiable intangible assets, and
$0.2 million
of goodwill. The acquisition is not considered material, and therefore, pro-forma information has not been presented.
Augmentum Consulting, Ltd.
On May 2, 2013, the Company acquired a
51%
controlling ownership interest in Augmentum Consulting, Ltd. ("Augmentum"), a London based search firm. This acquisition complements CTPartners' existing UK business in a variety of practice areas, provides increased competitive advantage and enhances growth opportunity.
The Company paid
$1.5 million
in cash on the acquisition date, recorded a seller note payable valued at
$2.5 million
, payable in
two
installments on August 31, 2014 and 2015, and a redeemable noncontrolling interest of
$3.8 million
. The aggregate maximum purchase price may be adjusted based on certain revenue targets over
3
years, not to exceed
$8.6 million
in total.
The following table summarizes the fair values of the consideration transferred, assets acquired and liabilities assumed, at acquisition date:
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
Fair value of consideration transferred:
|
|
|
Cash
|
$
|
1,500
|
|
|
Seller note payable for contingent consideration
|
2,490
|
|
|
Total
|
3,990
|
|
|
Fair value of redeemable noncontrolling interest
|
3,849
|
|
|
|
$
|
7,839
|
|
|
|
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed
|
|
|
Cash
|
$
|
667
|
|
|
Accounts receivable
|
2,044
|
|
|
Other assets
|
96
|
|
|
Trade names and trademarks
|
204
|
|
|
Database content
|
835
|
|
|
Customer relationships
|
474
|
|
|
Non-competition agreements
|
79
|
|
|
Property and equipment
|
43
|
|
|
Accounts payable and accrued expenses
|
(1,725
|
)
|
|
Total identifiable net assets
|
2,717
|
|
|
Goodwill
|
5,122
|
|
|
Total fair value of assets acquired and liabilities assumed
|
$
|
7,839
|
|
The weighted average useful life of total amortizable intangible assets acquired is
8.5 years
.
The acquisition of Augmentum includes a contingent consideration arrangement, that allows for adjustment of payments based upon achievement of certain revenue targets over the next three years. The range of undiscounted amounts that the Company could pay for the contingent part of its
51%
controlling ownership interest is between
zero
and
$2.9 million
, denominated in British pounds and translated at the rate in effect at the end of reporting period.
The Company has the right to call the remaining
49%
interest in Augmentum after
August 2, 2014
, and Augmentum shareholders have the right to put the remaining
49%
interest after
September 1, 2014
if the call option has not been exercised, at a pre-determined price, adjustable based on Augmentum's performance. The put option expires on
September 12, 2014
, if not exercised, and the call option continues to exist indefinitely. The purchase price for the non-controlling interest is determined based on the same formula as contingent consideration, with maximum amount payable of
$4.3 million
, denominated in British pounds and translated at the rate in effect at the end of the reporting period. As of December 31, 2013, the redemption value of non-controlling interest was
$4.1 million
.
Activity related to the noncontrolling redeemable interest is as follows:
|
|
|
|
|
|
|
|
Beginning balance on January 1, 2013
|
$
|
—
|
|
|
Noncontrolling redeemable interest recorded in acquisition of Augmentum
|
3,765
|
|
|
Net loss attributable to noncontrolling redeemable interest
|
(138
|
)
|
|
Redemption value adjustment
|
138
|
|
|
Foreign currency
|
323
|
|
|
Ending balance on December 31, 2013
|
$
|
4,088
|
|
The fair value of contingent consideration and the fair value of noncontrolling interest, including the value of the put and the call options, is contingent upon the acquired business revenues, and was estimated through the use of the Monte Carlo model. These fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement. These fair value measurements are based on (i) an assumed revenue forecast, (ii) an assumed discount rate of
6.5%
, and (iii) assumed market volatility rate range of
10%
-
12.5%
based on the volatility data for companies similar to Augmentum. The fair value of the note payable for contingent consideration recognized on the acquisition date was
$2.5 million
, and the fair value of the redeemable noncontrolling interest was
$3.8 million
. There have been no changes in the assumptions used in the valuing of the contingent consideration and the redeemable noncontrolling interest.
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
The fair value of identifiable intangible assets was measured based upon significant inputs that were not observable in the market, and therefore are classified as Level 3. The key assumptions include (i) management's projection of future cash flows based upon past experience and future expectations, and (ii) an assumed discount rate of
18.5%
.
The goodwill of
$5.1 million
is attributable to the workforce of the acquired business and the synergies expected to arise in connection with the acquisition. The goodwill relating to the Company's acquisition of Augmentum is fully deductible for United States federal income tax purposes.
The Company incurred acquisition related costs of
$0.7 million
for the twelve months ended December 31, 2013, which were recorded as general and administrative expenses in the consolidated statements of operations.
Total revenues and net income attributable to the acquisition, since the acquisition date, included in the consolidated statement of operations for the twelve months ended December 31, 2013, are as follows:
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2013
|
|
Total Revenues
|
$
|
3,288
|
|
|
Net Loss
|
$
|
(282
|
)
|
Pro forma unaudited total revenues and net income/(loss) of the combined entity had the acquisition occurred on January 1, 2012 are presented in the following table. This pro forma information is presented for informational purposes only and is not necessarily indicative of what our actual results of operations would have been had the acquisition occurred at such time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended December 31
|
|
|
|
2013
1
|
|
2012
2
|
|
Total Revenues
|
|
$
|
136,315
|
|
|
$
|
138,855
|
|
|
Net Loss
|
|
$
|
(1,825
|
)
|
|
$
|
(3,815
|
)
|
1
Pro forma net loss for the twelve months ended December 31, 2013 is adjusted to include
$0.1 million
of amortization expense, and to exclude
$0.7 million
of acquisition costs.
2
Pro forma net loss for the twelve months ended December 31, 2012 is adjusted to include
$0.8 million
of amortization expense, and to exclude
$0.7 million
of acquisition costs and
$0.2 million
of miscellaneous gain.
Cheverny CEO Search, S.A.
On October 10, 2012, the Company completed an acquisition of Cheverny CEO Search, S.A., a Paris, France based search firm focused on executive recruiting. The first payment of
$0.5 million
was made in cash on the acquisition date, and a non-interest bearing seller note was issued for the remainder. The note was recorded at fair value of $
1.0 million
. The note is payable in two installments of $
0.5 million
each on July 12, 2013 and July 12, 2014. A portion of the total purchase price was contingent upon the continued employment of the acquiree. Therefore, the contingent portion of the purchase price is accounted for as compensation for post-combination services, recognized over the requisite service period using the graded-vesting method. Post-combination compensation expense of
$0.2 million
is included in the results of operations for the year ended December 31, 2012. During the quarter ending March 31, 2013, the Company modified the terms of the Cheverny CEO Search, S.A. acquisition agreement, terminating all employment contingencies. As a result of the amendment, the Company recognized remaining post combination compensation and incurred a non-recurring charge of
$0.8 million
relating to Cheverny CEO Search, S.A. post-combination compensation in the first quarter of 2013. The charge is included in compensation and benefits expenses in the consolidated statement of operations for the twelve months ended December 31, 2013.
The table below summarizes fair value of the consideration paid and assets acquired at the acquisition date. The acquisition is not considered material to the Company, and, therefore, pro-forma information has not been presented.
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
Consideration:
|
|
|
Cash
|
$
|
517
|
|
|
Seller note payable
|
1,035
|
|
|
Deferred post-combination compensation
|
(1,035
|
)
|
|
|
$
|
517
|
|
|
Recognized amounts of identifiable assets acquired:
|
|
|
Trademarks
|
$
|
373
|
|
|
Intangible assets
|
403
|
|
|
Total identifiable net assets acquired
|
776
|
|
|
Gain on bargain purchase of a business
|
(258
|
)
|
|
|
$
|
518
|
|
The fair value of the identifiable intangible assets was measured based upon significant inputs that were not observable in the market, and therefore are classified as Level 3. Key assumptions included in determination of fair value are (a) management’s projections of future cash flows based upon past experience and future expectations and (b) a weighted-average discount rate of
16%
.
The fair value assigned to identifiable intangible assets and their useful lives at the acquisition date is as follows:
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Useful
Life
|
|
Customer relationships
|
$
|
403
|
|
|
10 years
|
|
Trademarks
|
373
|
|
|
Indefinite
|
|
|
$
|
776
|
|
|
|
Latin America
Effective January 2, 2012, the Company completed its acquisition of stock of the direct and indirect subsidiaries of CTPartners Latin America Inc., its independently-owned licensee that had been operating under the name of CTPartners in Latin America for the past five years. The Company’s Latin America offices are in Brazil, Chile, Colombia, Mexico, Panama, Peru, and Venezuela. The Company believes the acquisition further strengthens its brand in Latin America by making the Company a more attractive platform for our local, regional and global clients looking to invest in the region, and for attracting and retaining talented employees. The results of the Company’s Latin America offices have been included in the consolidated financial statements since that date.
The assets acquired were recorded at fair value. The aggregate purchase price in the agreement was
$10.2
million which was paid in cash and the issuance of a non-interest bearing seller note for
$5.3
million. The note has been discounted by the Company in the amount of
$0.3
million to reflect fair value of the note. This amount is due in equal installments of
$2.6
million each on January 2, 2013 and January 2, 2014 respectively. A portion of the total purchase price was contingent upon the continued employment of certain key employees. The purchase agreement provided that the selling shareholders were required to repay to the company up to the aggregate amount of
$7.2 million
if their employment terminated prior to the
36
-month anniversary of the closing of the transaction. Therefore, the contingent portion of the purchase price was accounted for as compensation for post-combination services, and recognized over three years using the graded-vesting method. After accounting for a portion of the purchase price as post-combination compensation, the fair value of the consideration allocation to the assets and liabilities acquired was
$3.0
million. Post-combination compensation expense of
$6.1 million
was included in the results of operations for the year ended December 31, 2012.
During the quarter ending March 31, 2013, the Company modified the terms of the Latin America acquisition agreement, terminating all employment contingencies. As a result of the amendment, the Company recognized the remaining post-combination compensation expense, and incurred a non-recurring charge of
$1.1 million
relating to Latin America post-combination compensation in the first quarter of 2013. The charge is included in compensation and benefits expenses in the consolidated statement of operations for the twelve months ended December 31, 2013.
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
The following table summarizes fair value of the consideration paid and assets acquired at the acquisition date:
|
|
|
|
|
|
|
|
Consideration:
|
|
|
Cash
|
$
|
5,250
|
|
|
Seller note payable
|
4,987
|
|
|
Post combination compensation
|
(7,190
|
)
|
|
|
$
|
3,047
|
|
|
Recognized amounts of identifiable assets acquired:
|
|
|
Leasehold improvements and equipment
|
$
|
132
|
|
|
Intangible assets
|
2,700
|
|
|
Total identifiable net assets acquired
|
2,832
|
|
|
Goodwill
|
215
|
|
|
|
$
|
3,047
|
|
Goodwill of
$0.2
million arising from the acquisition consists mainly of the synergies of an ongoing, retained executive search business which operates as a cooperative group in seven Latin American countries, a consistent brand message, and an experienced, assembled workforce. The goodwill relating to the Company’s Latin America reporting unit is fully deductible for United States federal income tax purposes.
The fair value of the identifiable intangible assets was measured based upon significant inputs that were not observable in the market, and therefore are classified as Level 3. The fair value was provided by an independent valuation firm; key assumptions included (a) management’s projections of future cash flows based upon past experience and future expectations and (b) a weighted-average discount rate of
18.9%
.
The fair value assigned to identifiable intangible assets and their useful lives at the acquisition date is as follows:
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Useful
Life
|
|
Customer relationships
|
$
|
2,480
|
|
|
10 years
|
|
Developed technology
|
220
|
|
|
10 years
|
|
|
$
|
2,700
|
|
|
|
The weighted-average useful life of total amortizable intangible assets acquired is
10 years
.
The total revenues and net loss attributable to the acquisition, since the acquisition date, included in the consolidated statements of operations for the twelve months ended December 31, 2012, are as follows:
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2012
|
|
Total Revenues
|
$
|
13,398
|
|
|
Net Loss
|
$
|
(2,164
|
)
|
The amounts of revenue and net income related to the acquisition that are included in the consolidated statements of operations and the pro forma financial information as if the acquisition had occurred on January 1, 2011, are presented in the following table. This pro forma information is presented for informational purposes only and is not necessarily indicative of what our actual results of operations would have been had the acquisitions occurred at such time.
Pro forma unaudited total revenues and net loss of the combined entity had the acquisition date been January 1, 2011, are as follows:
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012
|
|
Total Revenues
|
$
|
132,915
|
|
|
Net Loss
|
$
|
(82
|
)
|
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
Pro forma net loss for the year ended December 31, 2012 excludes acquisition costs of
$0.1
million, net of tax, post-combination compensation cost amortization of
$4.0 million
, net of tax, and includes post-combination compensation amortization of
$0.6 million
, net of tax.
Note 3. Accounts Receivable
The Company extends credit to customers under normal trade agreements. An allowance for doubtful accounts is established based upon several factors, including the age of the Company’s accounts receivable, historic loss experience, specific account analysis, as well as expectations of future collections based upon trends, financial viability of the client, and historic collection experience. The Company also provides a reserve for billing adjustments based upon historical experience. The allowance for doubtful accounts and billing adjustments amounted to
$1.5
million and
$1.4
million at December 31, 2013, and December 31, 2012, respectively.
Note 4. Leasehold Improvements and Equipment
The components of the leasehold improvements and equipment at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
Leasehold improvements
|
$
|
3,222
|
|
|
$
|
3,301
|
|
|
Office furniture, fixtures and equipment
|
3,050
|
|
|
2,734
|
|
|
Computer equipment and software
|
6,066
|
|
|
4,397
|
|
|
|
12,338
|
|
|
10,432
|
|
|
Accumulated depreciation and amortization
|
(8,189
|
)
|
|
(6,959
|
)
|
|
|
$
|
4,149
|
|
|
$
|
3,473
|
|
Depreciation and amortization expense relating to leasehold improvements and equipment for the year ended December 31, 2013 was
$1.4 million
, and for the year ended December 31, 2012 was
$1.3 million
.
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
Note 5. Goodwill and Intangible Assets
Goodwill
Changes in the carrying value of goodwill for the years ended December 31, 2013 and 2012 are as follows:
|
|
|
|
|
|
|
|
Balance as of December 31, 2011
|
$
|
—
|
|
|
Additions
|
215
|
|
|
Exchange rate fluctuation
|
—
|
|
|
Balance as of December 31, 2012
|
215
|
|
|
Additions
|
5,289
|
|
|
Exchange rate fluctuation
|
307
|
|
|
Balance as of December 31, 2013
|
$
|
5,811
|
|
Intangible Assets
The following is a summary of amortizable intangible assets at December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable Lives
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Amortized Intangible assets
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
10 years
|
|
$
|
275
|
|
|
$
|
144
|
|
|
$
|
131
|
|
|
Developed technology
|
|
1 year
|
|
1,095
|
|
101
|
|
994
|
|
Customer relationships
|
|
10 years
|
|
3,040
|
|
553
|
|
2,487
|
|
Non-competition agreements
|
|
3 years
|
|
84
|
|
18
|
|
66
|
|
|
|
|
|
$
|
4,494
|
|
|
$
|
816
|
|
|
$
|
3,678
|
|
|
Unamortized Intangible Assets
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
|
|
|
|
68
|
|
|
Total Intangible Assets
|
|
|
|
|
|
|
|
$
|
3,746
|
|
The following is a summary of amortizable intangible assets at December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable Lives
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Amortized Intangible assets
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
10 years
|
|
2,883
|
|
259
|
|
2,624
|
|
Developed technology
|
|
10 years
|
|
220
|
|
22
|
|
198
|
|
|
|
|
|
$
|
3,103
|
|
|
$
|
281
|
|
|
$
|
2,822
|
|
|
Unamortized Intangible Assets
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
|
|
|
|
373
|
|
|
Total Intangible Assets
|
|
|
|
|
|
|
|
$
|
3,195
|
|
Due to changes in economic outlook for the acquired business of Cheverny CEO Search, the Company performed an impairment evaluation of its acquired intangible assets. The analysis utilized discounted cash flow methodology, and resulted in an impairment charge of
$0.6 million
to its intangible assets in EMEA reporting unit. Key assumptions used in the determination of fair value include management forecasts and a discount rate of
21%
, which are Level 3 inputs.
Total amortization expense of intangible assets for the years ended December 31, 2013 and 2012 was
$0.6 million
and
$0.3
million, respectively. Estimated aggregate future amortization expense for the following five years and thereafter is as follows:
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
Years ending December 31,
|
|
Estimated Aggregate
Future Amortization
Expense
|
|
2014
|
|
$
|
516
|
|
|
2015
|
|
443
|
|
|
2016
|
|
425
|
|
|
2017
|
|
415
|
|
|
2018
|
|
415
|
|
|
Thereafter
|
|
1,464
|
|
|
|
|
$
|
3,678
|
|
Note 6. Long-Term Debt
Line of Credit
: The Company is a party to a credit and security agreement (the “Second Amended and Restated Credit and Security Agreement” or “Credit Agreement”) with a bank which includes a revolving credit facility. The Agreement, as amended, provides for the revolving credit facility to expire on April 30, 2015. Under the terms of the revolving credit facility, the Company may borrow an amount equal to the lesser of
$14
million or the “Borrowing Base” (the Company’s eligible accounts receivable as defined in the Credit Agreement), with interest calculated at
325
basis points above the LIBOR rate as defined in the revolving credit agreement (the adjusted LIBOR rate), which was
3.4140%
at December 31, 2013. The Company had
no
borrowings on the revolving credit facility at December 31, 2013 and 2012. Additionally, the Company has issued letters of credit related to office lease agreements secured by the Credit Agreement in the amounts of
$3.3
million as of December 31, 2013 and 2012. Available borrowings under the revolving credit facility were
$14.0 million
at December 31, 2013, and
$10.0 million
at December 31, 2012.
Notes Payable
Long-term debt consists of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2013
|
|
2012
|
|
Notes payable - redemption of members’ units
|
$
|
310
|
|
|
$
|
470
|
|
|
Notes payable - seller financed acquisitions
|
5,637
|
|
|
6,204
|
|
|
Note payable - other
|
110
|
|
|
—
|
|
|
|
6,057
|
|
|
6,674
|
|
|
Less current portion of long-term debt
|
4,762
|
|
|
3,186
|
|
|
|
$
|
1,295
|
|
|
$
|
3,488
|
|
The schedule for future payments to be made on long-term debt as of December 31, 2013, is as follows:
|
|
|
|
|
|
|
|
2014
|
$
|
4,762
|
|
|
2015
|
1,191
|
|
|
2016
|
104
|
|
|
|
$
|
6,057
|
|
Notes Payable
—
Redemption of Members’ Units
: Prior to the conversion from a limited liability company to a corporation, the Company periodically purchased member units from former members, with payment in the form of notes, payable over
5 years
. The total due on these notes amounted to
$0.3
million and
$0.5
million at December 31, 2013, and 2012, respectively. The interest on the notes ranges from
2.66%
to
5.00%
. The carrying value of notes payable approximates its fair value.
Notes Payable
—
Seller Financed Acquisitions
: During the year ended December 2013, the Company completed
two
acquisitions, as further described in Note 2. Purchase price was, in part, financed through seller notes. In conjunction with the acquisition of Augmentum, the Company recorded a note payable to the seller in connection with the contingent purchase price. The note was recorded at fair value at acquisition, and is re-measured every reporting period, as further described in Note 2 to the consolidated financial statements. As of December 31, 2013,
$2.4 million
is outstanding, payable in
two
equal installments on August 31, 2014 and August 31, 2015.
The Company recorded a note payable associated with Taylor Consultancy in the amount of
$0.1 million
.
The note is recorded at fair value of contingent consideration.
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
During the year ended December 2012, the Company completed
two
acquisitions. The note payable associated with the Latin America acquisition is a non-interest bearing note with a face value of
$5.3 million
. As of December 31, 2013,
$2.6 million
was outstanding.
The seller financed note payable associated with the Cheverny CEO Search, S.A. is a non-interest bearing note with a face value of $
1.1 million
. As of December 31, 2013,
$0.5 million
was outstanding. The final installment is payable on July 12, 2014.
Fair value of seller financed notes payable is estimated by discounting the associated cash flows using the interest rate available to the Company. The fair value of notes payable is classified as Level 3 in the fair value hierarchy. There have been no changes in interest rates available to the Company since the acquisitions completed during the reported period, therefore the carrying value of the notes approximates fair value at December 31, 2013.
Note 7. Commitments
The Company is obligated under lease arrangements for office space expiring in various years through 2019. Future annual required payments as of December 31, 2013, are as follows:
|
|
|
|
|
|
|
|
|
Office
Space
|
|
2014
|
$
|
8,408
|
|
|
2015
|
7,654
|
|
|
2016
|
6,108
|
|
|
2017
|
4,750
|
|
|
2018
|
2,251
|
|
|
Thereafter
|
6,749
|
|
|
|
$
|
35,920
|
|
Rent expense is included in the general and administrative expenses in the accompanying consolidated statements of operations and is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2013
|
|
Year ended December 31, 2012
|
|
Rent expense
|
$
|
8,277
|
|
|
$
|
9,899
|
|
Note 8. Share-Based Compensation
Restricted Shares -
The purpose of the 2010 equity incentive plan is to promote the interests of the Company and our stockholders by (i) attracting, retaining and motivating employees, non-employee directors and independent contractors (including prospective employees), (ii) motivating such individuals to achieve long-term Company goals and to further align their interest with those of the Company’s stockholders by providing incentive compensation opportunities tied to the performance of the common stock of the Company and (iii) promoting increased ownership of our common stock by such individuals. Subject to adjustment for changes in capitalization, the maximum aggregate number of shares of our common stock that may be delivered pursuant to awards granted under the 2010 equity incentive plan is
$1.0 million
.
A summary of the Company’s common stock subject to vesting provisions as of December 31, 2013, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Weighted-
Average
Grant-Date
|
|
Non-Vested Common Stock
|
Stock
|
|
Fair Value
|
|
Non-vested common stock at December 31, 2012
|
94,188
|
|
|
$
|
11.52
|
|
|
Granted
|
235,621
|
|
|
$
|
3.09
|
|
|
Vested
|
(100,086
|
)
|
|
$
|
9.18
|
|
|
Forfeited
|
(2,564
|
)
|
|
$
|
13.00
|
|
|
Non-vested common stock at December 31, 2013
|
227,159
|
|
|
$
|
5.11
|
|
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
Total share-based compensation expense related to vested shares was
$0.6
million for the year ending December 31, 2013, and
$0.6
million for the year ending December 31, 2012.
As of December 31, 2013, there was
$0.9
million of unrecognized compensation expense related to shares subject to vesting provisions granted under the plan. This expense is expected to be recognized over a weighted-average period of
3.07
years.
In the first quarter of 2013, the Company granted an award subject to recapture provisions. Recapture provisions allow the Company to recapture a portion of stock if certain service conditions are not met. A summary of the Company's common stock subject to recapture provisions as of December 31, 2013 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Weighted-
Average
Grant-Date
|
|
Common Stock Subject to Recapture
|
Stock
|
|
Fair Value
|
|
Non-vested common stock at December 31, 2012
|
—
|
|
|
$
|
—
|
|
|
Granted
|
7,019
|
|
|
$
|
4.70
|
|
|
Expiration of recapture provision
|
—
|
|
|
$
|
—
|
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
|
Common stock subject to recapture at December 31, 2013
|
7,019
|
|
|
$
|
4.70
|
|
Total share-based compensation expense related to common stock subject to recapture was
$11,000
for the year ending December 31, 2013 and
$0
for the year ending December 31, 2012. As of December 31, 2013, unrecognized compensation expense related to shares subject to recapture provisions granted under the plan was de minimis.
Non-qualified Stock Options
— In April 2013 and December 2011, the Company authorized and granted
94,100
and
102,500
stock options to various employees under its 2010 Equity Incentive Plan. All options have an exercise price that is equal to the fair value of the Company’s common stock on the grant date. Options are subject to ratable vesting over a
three
year period, and compensation expense is recognized on a straight-line basis over the vesting period.
A summary of the Company’s non-qualified stock option activity for the year ended December 31, 2013, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Non-
qualified
Stock
Options
|
|
Weighted
Average
Exercise
Price
Per Share
|
|
Weighted
Average
Remaining
Contractual
Term (in
years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding on December 31, 2012
|
102,500
|
|
|
$
|
5.35
|
|
|
7.9
|
|
|
$
|
26
|
|
|
Granted
|
94,100
|
|
|
3.25
|
|
|
9.3
|
|
|
221
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Expired
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
(1,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding on December 31, 2013
|
195,600
|
|
|
4.34
|
|
|
8.6
|
|
|
$
|
247
|
|
|
Exercisable on December 31, 2013
|
67,667
|
|
|
$
|
5.35
|
|
|
—
|
|
|
$
|
—
|
|
The aggregate intrinsic value is based upon the Company’s closing stock price of
$5.60
at December 31, 2013. The compensation expense related to the options was
$0.1 million
for the year ended December 31, 2013 and 2012. As of December 31, 2013, there was
$0.2
million of unrecognized compensation expense related to unvested non-qualified stock options, which is expected to be recognized over a weighted average of
1.7
years.
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2013
|
|
Weighted average grant date fair value of stock options granted
|
$
|
3.25
|
|
|
Total grant date fair value of stock options vested
|
—
|
|
|
Total intrinsic value of stock options exercised
|
—
|
|
The fair value of each option grant is estimated on the date of grant using the Black-Scholes valuation model with the following assumptions.
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
Year Ended
December 31, 2013
|
|
Expected life (in years)
|
6.00
|
|
|
Risk-free interest rate
|
0.93
|
%
|
|
Expected volatility
|
47.25
|
%
|
|
Expected dividend yield
|
—
|
|
The expected term of the option life is based on a simplified method calculated as the sum of the vesting term and original contract term divided by two. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equal to the expected option life. The expected volatility is based on the average volatility for similar publicly traded companies corresponding to the expected life of the option because the historical volatility of the Company’s common stock does not cover the period equal to the expected life of the options.
Employee Stock Purchase Program -
The stock discount purchase program allows selected employees to purchase up to
$0.1 million
of the Company's stock in lieu of cash bonuses, at a
15%
discount to the NYSE MKT trading price of those shares. Shares are subject to ratable vesting over a
three
-year period, and compensation expense relating to the discount is recognized on a straight-line basis over the vesting period. A summary of the Company's employee stock purchase program as of December 31, 2013 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Weighted-
Average
Grant-Date
|
|
Employee Stock Purchase Program
|
Stock
|
|
Fair Value
|
|
Non-vested common stock at December 31, 2012
|
73,406
|
|
|
$
|
5.11
|
|
|
Granted
|
79,490
|
|
|
$
|
3.46
|
|
|
Vested
|
(24,467
|
)
|
|
$
|
5.11
|
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
|
Non-vested common stock at December 31, 2013
|
128,429
|
|
|
$
|
4.09
|
|
Compensation expense relating to the stock purchase discount program was
$31,000
for the year ended December 31, 2013 and
$13,000
for the year ended December 31, 2012. As of December 31, 2013, there was
$70,000
of unrecognized compensation expense related to shares subject to vesting provisions granted under the stock purchase discount program. This expense is expected to be recognized over a weighted-average period of
1.97 years
.
Note 9. Share Repurchase Program
On January 19, 2012, the Company’s Board of Directors authorized a second share repurchase program (“2012 Share Repurchase Program”) to acquire up to
$1 million
of the Company’s outstanding shares of common stock in open-market, privately negotiated transactions, and block trades. The 2012 Share Repurchase Program extended the previous share repurchase program which was authorized in August 2011 (“2011 Share Repurchase Program”). The Company repurchased a cumulative amount of
$1.0
million under the 2011 Share Repurchase Program. As of December 31, 2012,
235,253
shares had been repurchased at a cost of
$1.0
million, which is the cumulative amount used to repurchase shares under the 2012 Share Repurchase Program.
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
Note 10. Basic and Diluted Earnings Per Share
A reconciliation of the amounts used in the basic and diluted earnings per share computation is shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2013
|
|
2012
|
|
Numerator
|
|
|
|
|
Net loss attributable to the Company
|
(1,632
|
)
|
|
$
|
(3,584
|
)
|
|
Denominator
|
|
|
|
|
Basic weighted-average common shares
|
7,055,734
|
|
|
7,087,769
|
|
|
Effect of stock options and restricted stock
(1)
|
—
|
|
|
—
|
|
|
Diluted weighted-average common shares
|
7,055,734
|
|
|
7,087,769
|
|
|
Basic loss per common share
|
$
|
(0.23
|
)
|
|
$
|
(0.51
|
)
|
|
Diluted loss per common share
|
$
|
(0.23
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
(1)
|
For the year ended December 31, 2013,
296,732
restricted shares and
133,923
stock options are excluded from the calculation. For the year ended December 31, 2012,
133,337
restricted shares and
102,500
stock options are excluded as they are anti-dilutive to the net loss per common share.
|
Note 11. Income Taxes
The Company is subject to income taxes in all jurisdictions where it operates. For US tax purposes, the Company has made an election to include the income or loss of its global subsidiaries in the consolidated US tax return. The Company pays US tax on its worldwide income, reduced by income tax credits for foreign income taxes incurred.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2013
|
|
December 31,
2012
|
|
Deferred tax assets:
|
|
|
|
|
Accounts payable and accrued expenses
|
$
|
4,147
|
|
|
$
|
2,476
|
|
|
Accounts receivable (net)
|
573
|
|
|
437
|
|
|
Foreign tax credits
|
932
|
|
|
747
|
|
|
Share-based compensation
|
617
|
|
|
457
|
|
|
Goodwill
|
2,604
|
|
|
2,896
|
|
|
Foreign currency
|
806
|
|
|
790
|
|
|
Intangible assets
|
844
|
|
|
44
|
|
|
Other
|
—
|
|
|
75
|
|
|
Gross deferred tax assets
|
10,523
|
|
|
7,922
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Post-combination compensation
|
—
|
|
|
(704
|
)
|
|
Other current assets
|
(1,388
|
)
|
|
(735
|
)
|
|
Depreciation
|
(469
|
)
|
|
(530
|
)
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
(1,857
|
)
|
|
(1,969
|
)
|
|
Net deferred tax asset
|
$
|
8,666
|
|
|
$
|
5,953
|
|
The deferred tax amounts have been classified in the December 31, 2013 and 2012 consolidated balance sheets as follows:
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
Current assets
|
$
|
3,184
|
|
|
$
|
1,932
|
|
|
Long-term assets
|
5,482
|
|
|
4,021
|
|
|
|
$
|
8,666
|
|
|
$
|
5,953
|
|
The benefit from income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended
December 31,
2013
|
|
Year
ended
December 31,
2012
|
|
Current
|
|
|
|
|
Federal
|
$
|
1,061
|
|
|
$
|
1,131
|
|
|
State and local
|
114
|
|
|
136
|
|
|
Deferred
|
|
|
|
|
Federal
|
(2,247
|
)
|
|
(2,887
|
)
|
|
State and local
|
(43
|
)
|
|
(60
|
)
|
|
Total benefit for income taxes
|
$
|
(1,115
|
)
|
|
$
|
(1,680
|
)
|
A reconciliation of the benefit from income taxes for 2013 and 2012 to income taxes at the statutory U.S. federal income tax rate of
34.0%
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended
December 31,
2013
|
|
Year
ended
December 31,
2012
|
|
Income tax benefit at the statutory U.S. federal rate
|
$
|
(981
|
)
|
|
$
|
(1,790
|
)
|
|
State tax provision, net of federal tax benefit
|
75
|
|
|
118
|
|
|
Tax effect of permanent tax differences
|
(51
|
)
|
|
(44
|
)
|
|
Other
|
(158
|
)
|
|
36
|
|
|
|
$
|
(1,115
|
)
|
|
$
|
(1,680
|
)
|
Note 12. Enterprise Geographic Concentrations
The Company operates in four principal geographic regions: North America, EMEA, Asia Pacific and Latin America. The revenue and capital expenditures, by region, for the year ended December 31, 2013, and 2012, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2013
|
|
Year ended
December 31,
2012
|
|
Revenue
|
|
|
|
|
North America
|
$
|
78,140
|
|
|
$
|
77,559
|
|
|
EMEA
|
32,610
|
|
|
28,439
|
|
|
Asia Pacific
|
6,982
|
|
|
8,986
|
|
|
Latin America
|
12,546
|
|
|
13,398
|
|
|
Net revenue before reimbursable expenses
|
130,278
|
|
|
128,382
|
|
|
Reimbursable expenses
|
4,002
|
|
|
4,534
|
|
|
Total
|
$
|
134,280
|
|
|
$
|
132,916
|
|
|
|
|
|
|
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
Identifiable assets by geographic concentrations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2013
|
|
December 31,
2012
|
|
Identifiable Assets
|
|
|
|
|
North America
|
$
|
34,006
|
|
|
$
|
20,344
|
|
|
EMEA
|
13,979
|
|
|
12,881
|
|
|
Asia Pacific
|
3,562
|
|
|
5,610
|
|
|
Latin America
|
6,322
|
|
|
17,417
|
|
|
Global Operations Support
|
1,316
|
|
|
813
|
|
|
Total
|
$
|
59,185
|
|
|
$
|
57,065
|
|
|
Goodwill and other intangible assets, net:
|
|
|
|
|
Latin America
|
$
|
2,553
|
|
|
$
|
2,893
|
|
|
EMEA
|
7,004
|
|
|
517
|
|
|
Total
|
$
|
9,557
|
|
|
$
|
3,410
|
|
Note 13. Reorganization
In the third quarter of 2012, the Company’s management initiated a plan to reorganize its operations resulting in certain organizational changes in its Canadian and EMEA locations. The plan consists of a workforce reorganization, and elimination of redundant or unneeded positions, which will allow the Company to combine business operations in certain geographic locations and serve our clients more efficiently. During 2013, the Company expanded its reorganization efforts globally, eliminating certain functions. The Company recognized
$0.8 million
and
$1.0
million of reorganization related charges for the years ended December 31, 2013 and 2012, respectively, which are included in compensation and benefits expense and general and administrative expenses in the condensed consolidated statements of operations.
The following table summarizes the major components of the reorganization charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
|
Year Ended December 31, 2012
|
|
Severance and other employee related costs
|
$
|
553
|
|
|
$
|
1,111
|
|
|
Foreign currency translation
|
86
|
|
|
(147
|
)
|
|
General and administrative costs
|
$
|
143
|
|
|
$
|
—
|
|
|
Total
|
$
|
782
|
|
|
$
|
964
|
|
Reorganization charges by geographic location were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
|
Year Ended December 31, 2012
|
|
North America
|
$
|
471
|
|
|
$
|
207
|
|
|
EMEA
|
281
|
|
|
757
|
|
|
Asia Pacific
|
$
|
30
|
|
|
$
|
—
|
|
|
Total
|
$
|
782
|
|
|
$
|
964
|
|
Changes in reorganization reserves related to the restructuring plan described above for the years ended December 31, 2013 and 2012, are as follows:
CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Severance and other
employee related costs
|
|
Balance at December 31, 2011
|
$
|
—
|
|
|
Reorganization charges
|
1,111
|
|
|
Cash payments
|
(451
|
)
|
|
Non-cash charges
|
(507
|
)
|
|
Balance at December 31, 2012
|
$
|
153
|
|
|
Reorganization charges
|
$
|
782
|
|
|
Cash payments
|
$
|
(728
|
)
|
|
Non-cash charges
|
$
|
(48
|
)
|
|
Balance at December 31, 2013
|
159
|
|
Note 14. Subsequent Events
On March 3, 2014, CTPartners Executive Search Inc (the”Company”) acquired J. Johnson Executive Search, a leading independent executive search and leadership advisory firm based in Sydney, Australia. Under the terms of the contract, the Company paid
$2.4 million
of initial consideration at closing. The Company expects to pay additional consideration based on the achievement of certain revenue metrics over the next
three
years. The Company is in process of determining the fair value of the assets acquired and the liabilities assumed. Pro forma information is not available at this time.