Heidrick & Struggles Posts Record 2021 First Quarter Results

Net Revenue Up Double Digits Sequentially and Year over Year

Operating Margins Return to Double-Digit Levels

Recent Business Talent Group (BTG) Acquisition Expands and Diversifies Offerings to Full Spectrum of Executive and High-End On-Demand Talent Solutions

Company Guides to Record Organic Q2 Net Revenue

Apr 26, 2021

CHICAGO, April 26, 2021 /PRNewswire/ -- Heidrick & Struggles International, Inc. (Nasdaq: HSII) ("Heidrick & Struggles" or the "Company"), today announced financial results for its first quarter ended March 31, 2021.

Highlights:

  • Record net revenue (revenue before reimbursements) of $193.7 million increased $22.2 million, or 12.9%, from $171.5 million in the 2020 first quarter and increased $32.7 million, or 20.3%, from $161.0 in the 2020 fourth quarter.
  • Operating income, before adjustments, of $19.6 million and operating margin of 10.1% include a restructuring charge of $3.9 million, as anticipated. In the 2020 first quarter, operating income was $18.2 million and operating margin was 10.6%.
  • Adjusted operating income, before restructuring, of $23.5 million increased $5.3 million, or 29.3%, from $18.2 million in last year's first quarter and adjusted operating margin of 12.1% increased 150 basis points.
  • Net income of $14.8 million and diluted earnings per share of $0.74 includes restructuring charge. In the 2020 first quarter, net income was $8.7 million and diluted earnings per share was $0.44.
  • Adjusted net income of $17.4 million more than doubled from the 2020 first quarter and adjusted diluted earnings per share of $0.86 increased 95.5% from last year's first quarter. Adjusted net income increased 49.7% from $11.6 million in the 2020 fourth quarter and adjusted diluted earnings per share increased 45.8% sequentially.
  • General and administrative expenses improved $3.4 million, or 10.6%, from last year's first quarter and improved 390 basis points to 14.9% of revenue.
  • Adjusted EBITDA of $28.9 million increased $5.3 million from $23.6 million in the 2020 first quarter and adjusted EBITDA margin increased 110 basis points to 14.9% from 13.8%.

"Our results reflect a strong rebound from the global downturn. Record net revenue in the first quarter marked a double-digit improvement both sequentially and year over year, driven by broad based strength across all businesses and geographies," stated Heidrick & Struggles' President and Chief Executive Officer, Krishnan Rajagopalan. "This strong growth coupled with savings in general and administrative expenses resulted in significant improvements in overall profitability with adjusted operating margin of 12.1%, the highest since 2008."

Mr. Rajagopalan continued, "We are also very excited to welcome BTG to Heidrick & Struggles and to offer our clients a full spectrum of executive and high-end on-demand talent solutions – a key strategy we set out to achieve – as we make the future of work a reality today. We look to build on our momentum as we execute our 2021 initiatives to grow our scale and impact with clients, expand our suite of leadership solutions and capabilities, and invest in new innovative, tech-driven offerings to drive future growth and shareholder value."

2021 First Quarter Results

Consolidated net revenue was a record $193.7 million in the quarter compared to $171.5 million in the 2020 first quarter, an increase of $22.2 million. Excluding the impact of exchange rate fluctuations which positively impacted results by $4.7 million, or 2.5%, consolidated net revenue increased $17.5 million or 10.2%. Net revenue was driven by growth across all regions in Executive Search, partially offset by Heidrick Consulting.

Executive Search net revenue increased 15.5%, or $24.2 million, to $179.6 million compared to $155.5 million in the 2020 first quarter. Excluding the impact of exchange rate fluctuations which positively impacted results by $4.3 million, or 2.4%, Executive Search net revenue increased $19.9 million. Net revenue increased 16.2% in the Americas (increased 16.5% on a constant currency basis), increased 13.8% in Europe (increased 4.8% on a constant currency basis) and increased 15.4% in Asia Pacific (increased 8.2% on a constant currency basis).  Growth in the Healthcare & Life Sciences, Industrial, Financial Services and Global Technology Services practices was offset by reductions in the other industry practices.

There were 373 Executive Search consultants at March 31, 2021 compared to 396 at March 31, 2020 and 361 at December 31, 2020.  Productivity, as measured by annualized Executive Search net revenue per consultant, was $1.9 million compared to $1.6 million in the 2020 first quarter. The average revenue per executive search was $112,900 compared to $118,600 in the 2020 first quarter, while the number of confirmed searches reached a new record for the Company and increased 21.4% compared to the year-ago period. 

Heidrick Consulting net revenue was $14.0 million compared to $16.0 million in the 2020 first quarter, a decrease of $2.0 million. Excluding the impact from exchange rate fluctuations which positively impacted revenue by $0.4 million, or 3.0%, Heidrick Consulting net revenue decreased $2.4 million. There were 64 Heidrick Consulting consultants at March 31, 2021 compared to 70 at March 31, 2020 and 65 at December 31, 2020. 

Consolidated salaries and benefits expense increased by 16.7%, or $20.3 million, to $141.4 million from $121.1 million in the 2020 first quarter. Fixed compensation expense increased by $0.2 million primarily due to increases in the deferred compensation plan partially offset by decreases in base salaries and payroll taxes and lower talent acquisition and retention costs. Variable compensation increased $20.1 million, primarily due to the record revenue performance in the quarter. Salaries and benefits expense was 73.0% of net revenue for the quarter compared to 70.6% in the 2020 first quarter and 75.0% in the 2020 fourth quarter.

General and administrative expenses decreased by 10.6%, or $3.4 million, to $28.8 million from $32.2 million in the 2020 first quarter, primarily due to office occupancy and travel and entertainment partially offset by increases in professional services, bad debt and the use of external third-party consultants. As a percentage of net revenue, general and administrative expenses were 14.9% compared to 18.8% in the 2020 first quarter and 17.0% in the 2020 fourth quarter.

The Company recorded a restructuring charge of $3.9 million in the 2021 first quarter primarily related to the timing of office closures associated with the Company's real estate strategy. Including this charge, operating income was $19.6 million compared to $18.2 million in the 2020 first quarter. Operating margin was 10.1% in the 2021 first quarter compared to 10.6% in the 2020 first quarter.  Excluding the restructuring charge, adjusted operating income was $23.5 million and adjusted operating margin was 12.1%. 

Other non-operating income, net, was $3.1 million compared to $4.4 million of expense in the 2020 first quarter. The additional income is due to a $1.7 million gain on warrants received in exchange for executive search services performed in prior periods and a $1.0 million gain on the Company's deferred compensation plan. Investments, including those held in the Company's deferred compensation plan, are recorded at fair value, which improved significantly during the three months ended March 31, 2021.

Net income in the 2021 first quarter was $14.8 million and diluted earnings per share was $0.74 with an effective tax rate of 34.9%. This compares to net income of $8.7 million and diluted earnings per share of $0.44 with an effective tax rate of 39.8% in last year's first quarter. Excluding the previously mentioned restructuring charge, adjusted net income was $17.4 million and adjusted diluted earnings per share was $0.86.

Net cash used by operating activities was $142.6 million in the 2021 first quarter compared to $165.6 million in the 2020 first quarter. Cash, cash equivalents and marketable securities, net of debt, at March 31, 2021 were $184.1 million, compared to $336.5 million at December 31, 2020, and $151.0 million at March 31, 2020.  The Company's cash position typically builds throughout the year as employee bonuses are accrued, mostly to be paid out in the first quarter. 

Acquisition of Business Talent Group

On April 1, 2021, the Company acquired BTG a leading marketplace for high-end independent talent on demand. The acquisition builds on a successful two-year exclusive collaboration with BTG that began in 2019. BTG, which generated revenue of approximately $50 million in 2020, was acquired for an initial consideration of $32.6 million paid in the 2021 second quarter with an anticipated future payment in 2023, subject to the achievement of certain agreed upon financial performance targets. With this acquisition, Heidrick & Struggles is the first global leadership advisory firm to offer the full spectrum of executive and high-end talent solutions – from on-demand, independent professionals to interim executives to permanent placements – together with its consulting services.

Dividend

The Board of Directors has declared a 2021 second quarter cash dividend of $0.15 per share payable on May 21, 2021 to shareholders of record at the close of business on May 7, 2021.   

2021 Second Quarter Outlook

The Company expects 2021 second quarter consolidated net revenue of between $215 million and $225 million, while acknowledging the continued fluidity of the COVID-19 pandemic that may impact quarterly results.  In addition, this outlook is based on the average currency rates in March 2021 and reflects, among other factors, management's assumptions for the anticipated volume of new Executive Search confirmations, Heidrick Consulting assignments, BTG projects and the current backlog, consultant productivity, consultant retention, and the seasonality of its business.

Quarterly Conference Call

Heidrick & Struggles will host a conference call to review its 2021 first quarter results today, April 26 at 5:00 pm Eastern Time. Participants may access the Company's call and supporting slides through its website at www.heidrick.com or by dialing (866) 211-4120, conference ID# 5127357.  For those unable to participate on the live call, a webcast and copy of the slides will be archived at www.heidrick.com and available for up to 30 days following the investor call.

About Heidrick & Struggles International, Inc.

Heidrick & Struggles (Nasdaq: HSII) is a premier provider of global leadership advisory and on-demand talent solutions, serving the senior-level talent and consulting needs of the world's top organizations. In our role as trusted leadership advisors, we partner with our clients to develop future-ready leaders and organizations, bringing together our services and offerings in executive search, diversity and inclusion, leadership assessment and development, organization and team acceleration, culture shaping and on-demand, independent talent solutions. Heidrick & Struggles pioneered the profession of executive search more than 65 years ago. Today, the firm provides integrated talent and human capital solutions to help our clients change the world, one leadership team at a time.® www.heidrick.com

Non-GAAP Financial Measures

To supplement the financial results presented in accordance with generally accepted accounting principles in the United States ("GAAP"), Heidrick & Struggles presents certain non-GAAP financial measures. A "non-GAAP financial measure" is defined as a numerical measure of a company's financial performance that excludes or includes amounts different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of comprehensive income, balance sheets or statements of cash flow of the Company. Pursuant to the requirements of Regulation G, this earnings release contains the most directly comparable GAAP financial measure to the non-GAAP financial measure.

The non-GAAP financial measures used within this earnings release are adjusted operating income, adjusted operating income margin, adjusted net income, adjusted basic and diluted earnings per share, adjusted effective tax rate, adjusted EBITDA, adjusted EBITDA margin and impacts of foreign currency on current period results using prior period translation rates.  These measures are presented because management uses this information to monitor and evaluate financial results and trends. Management believes this information is also useful for investors. Reconciliations of these non-GAAP financial measures with the most directly comparable measures calculated and presented in accordance with GAAP are provided as schedules attached to this release.

Adjusted operating income reflects the exclusion of restructuring charges.

Adjusted operating income margin refers to adjusted operating income as a percentage of net revenue in the same period.

Adjusted net income and adjusted diluted earnings per share reflect the exclusion of restructuring charges, net of tax.

Adjusted effective tax rate reflects the exclusion of restructuring charges, net of tax.

Adjusted EBITDA refers to earnings before interest, taxes, depreciation, intangible amortization, equity-settled stock compensation expense, contingent compensation related to acquisitions, restructuring charges and other non-operating income (expense). 

Adjusted EBITDA margin refers to adjusted EBITDA as a percentage of net revenue in the same period. 

The Company evaluates its results of operations on both an as reported and a constant currency basis.  The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. The Company believes providing constant currency information provides valuable supplemental information regarding its results of operations, consistent with how it evaluates its performance.  The Company calculates constant currency percentages by converting its financial results in a local currency for a period using the average exchange rate for the prior period to which it is comparing.  This calculation may differ from similarly-titled measures used by other companies.

Safe Harbor Statement

This press release contains forward-looking statements. The forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate and management's beliefs and assumptions. Forward-looking statements may be identified by the use of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," and similar expressions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied in the forward-looking statements. Factors that may affect the outcome of the forward-looking statements include, among other things, the impacts, direct and indirect, of the COVID–19 pandemic on our business, our consultants and employees, and the overall economy; leadership changes, our ability to attract, integrate, develop, manage and retain qualified consultants and senior leaders; our ability to prevent our consultants from taking our clients with them to another firm; our ability to maintain our professional reputation and brand name; the fact that our net revenue may be affected by adverse economic conditions; our clients' ability to restrict us from recruiting their employees; the aggressive competition we face; our heavy reliance on information management systems; the fact that we face the risk of liability in the services we perform; the fact that data security, data privacy and data protection laws and other evolving regulations and cross-border data transfer restrictions may limit the use of our services and adversely affect our business; social, political, regulatory and legal risks in markets where we operate; the impact of foreign currency exchange rate fluctuations; the fact that we may not be able to align our cost structure with net revenue; unfavorable tax law changes and tax authority rulings; our ability to realize our tax losses; the timing of the establishment or reversal of valuation allowance on deferred tax assets; any impairment of our goodwill, other intangible assets and other long-lived assets; our ability to execute and integrate future acquisitions; the fact that we have anti-takeover provisions that make an acquisition of us difficult and expensive; our ability to access additional credit; and the increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks that could pose a risk to our systems, networks, solutions, services and data. For more information on the factors that could affect the outcome of forward-looking statements, refer to our most recent Annual Report on Form 10-K under "Risk Factors" in Item 1A and as indicated in our other filings with the SEC. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Contacts:

Investors & Analysts:
Suzanne Rosenberg - Vice President, Investor Relations
+1 212 551 0554, srosenberg@heidrick.com

Media:
Nina Chang – Vice President, Corporate Communications

 

Heidrick & Struggles

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)






Three Months Ended

March 31,




2021


2020


$ Change


% Change

Revenue








Revenue before reimbursements (net revenue)

$

193,656



$

171,481



$

22,175



12.9

%

Reimbursements

1,075



3,366



(2,291)



(68.1)

%

Total revenue

194,731



174,847



19,884



11.4

%









Operating expenses








Salaries and benefits

141,363



121,089



20,274



16.7

%

General and administrative expenses

28,824



32,240



(3,416)



(10.6)

%

Restructuring charges

3,861





3,861



NM

Reimbursed expenses

1,075



3,366



(2,291)



(68.1)

%

Total operating expenses

175,123



156,695



18,428



11.8

%









Operating income

19,608



18,152



1,456



8.0

%









Non-operating income (expense)








Interest, net

82



679






Other, net

3,082



(4,435)






Net non-operating income (expense)

3,164



(3,756)














Income before income taxes

22,772



14,396














Provision for income taxes

7,940



5,730














Net income

14,832



8,666














Other comprehensive loss, net of tax

(693)



(3,746)














Comprehensive income

$

14,139



$

4,920














Weighted-average common shares outstanding








Basic

19,387



19,192






Diluted

20,171



19,776














Earnings per common share








Basic

$

0.77



$

0.45






Diluted

$

0.74



$

0.44














Salaries and benefits as a % of net revenue

73.0

%


70.6

%





General and administrative expenses as a % of net revenue

14.9

%


18.8

%





Operating margin

10.1

%


10.6

%







 

Heidrick & Struggles International Inc.

Segment Information

(In thousands)

(Unaudited)



Three months ended March 31,


2021


2020


$ Change


% Change


2021
Margin1


2020
Margin1

Revenue












Executive Search












Americas

$

116,506



$

100,301



$

16,205



16.2

%





Europe

37,643



33,082



4,561



13.8

%





Asia Pacific

25,469



22,070



3,399



15.4

%





Total Executive Search

179,618



155,453



24,165



15.5

%





Heidrick Consulting

14,038



16,028



(1,990)



(12.4)

%





Revenue before reimbursements (net revenue)

193,656



171,481



22,175



12.9

%





Reimbursements

1,075



3,366



(2,291)



(68.1)

%





Total revenue

$

194,731



$

174,847



$

19,884



11.4

%





























Operating income (loss)












Executive Search












Americas2

$

26,256



$

25,732



$

524



2.0

%


22.5

%


25.7

%

Europe

4,540



3,049



1,491



48.9

%


12.1

%


9.2

%

Asia Pacific

4,144



2,502



1,642



65.6

%


16.3

%


11.3

%

Total Executive Search

34,940



31,283



3,657



11.7

%


19.5

%


20.1

%

Heidrick Consulting3

(4,710)



(4,092)



(618)



(15.1)

%


(33.6)

%


(25.5)

%

Total segments

30,230



27,191



3,039



11.2

%


15.6

%


15.9

%

Global Operations Support

(10,622)



(9,039)



(1,583)



(17.5)

%


(5.5)

%


(5.3)

%

Total operating income

$

19,608



$

18,152



$

1,456



8.0

%


10.1

%


10.6

%


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

2 Includes restructuring charges of $3.7 million for the three months ended March 31, 2021.

3 Includes restructuring charges of $0.3 million for the three months ended March 31, 2021.

 

Heidrick & Struggles International Inc.

Reconciliation of Operating Income and Adjusted Operating Income (Non-GAAP)

(In thousands)

(Unaudited)



Three Months Ended

March 31,


2021


2020

Revenue before reimbursements (net revenue)

$

193,656



$

171,481






Operating income

19,608



18,152






Adjustments




Restructuring charges1

3,861




Total adjustments

3,861








Adjusted operating income

$

23,469



$

18,152






Operating margin

10.1

%


10.6

%

Adjusted operating margin

12.1

%


10.6

%


1 The Company incurred restructuring charges of approximately $3.9 million across all operating segments for the three months ended March 31, 2021.

 

Heidrick & Struggles International Inc.

Reconciliation of Net Income and Adjusted Net Income (Non-GAAP)

(In thousands)

(Unaudited)



Three Months Ended

March 31,


2021


2020

Net income

$

14,832



$

8,666






Adjustments




Restructuring charges, net of tax1

2,574




Total adjustments

2,574








Adjusted net income

$

17,406



$

8,666






Weighted-average common shares outstanding




Basic

19,387



19,192


Diluted

20,171



19,776






Earnings per common share




Basic

$

0.77



$

0.45


Diluted

$

0.74



$

0.44






Adjusted earnings per common share




Basic

$

0.90



$

0.45


Diluted

$

0.86



$

0.44



1 The Company incurred restructuring charges of approximately $3.9 million across all operating segments for the three months ended March 31, 2021.

 

Heidrick & Struggles International Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)



March 31,
2021


December 31,
2020





Current assets




Cash and cash equivalents

$

184,055



$

316,473


Marketable securities



19,999


Accounts receivable, net

128,419



88,123


Prepaid expenses

26,600



18,956


Other current assets

25,496



23,279


Income taxes recoverable

5,205



5,856


Total current assets

369,775



472,686






Non-current assets




Property and equipment, net

22,373



23,492


Operating lease right-of-use assets

85,318



92,671


Assets designated for retirement and pension plans

13,853



14,425


Investments

33,545



31,369


Other non-current assets

27,617



24,439


Goodwill

91,452



91,643


Other intangible assets, net

961



1,129


Deferred income taxes

35,712



35,958


Total non-current assets

310,831



315,126






Total assets

$

680,606



$

787,812






Current liabilities




Accounts payable

$

10,149



$

8,799


Accrued salaries and benefits

112,830



217,908


Deferred revenue

38,847



38,050


Operating lease liabilities

27,947



28,984


Other current liabilities

20,114



23,311


Income taxes payable

7,383



1,186


Total current liabilities

217,270



318,238






Non-current liabilities




Accrued salaries and benefits

44,301



56,925


Retirement and pension plans

54,826



53,496


Operating lease liabilities

81,536



86,816


Other non-current liabilities

4,103



4,735


Total non-current liabilities

184,766



201,972






Total liabilities

402,036



520,210






Stockholders' equity

278,570



267,602






Total liabilities and stockholders' equity

$

680,606



$

787,812


 

Heidrick & Struggles International Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)




Three Months Ended

March 31,



2021


2020

Cash flows - operating activities





Net income


$

14,832



$

8,666


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





Depreciation and amortization


6,068



2,337


Deferred income taxes


(495)



110


Stock-based compensation expense


2,991



2,614


Gain on marketable securities


(1)



(111)


Loss on disposal of property and equipment


21



1


Changes in assets and liabilities:





Accounts receivable


(41,209)



(24,656)


Accounts payable


1,365



1,897


Accrued expenses


(116,327)



(147,265)


Restructuring accrual


(2,902)



(138)


Deferred revenue


963



837


Income taxes recoverable and payable, net


6,819



4,082


Retirement and pension plan assets and liabilities


1,235



2,033


Prepaid expenses


(7,894)



(6,566)


Other assets and liabilities, net


(8,037)



(9,441)


Net cash used in operating activities


(142,571)



(165,600)







Cash flows - investing activities





Capital expenditures


(945)



(1,753)


Purchases of marketable securities and investments


(1,354)



(2,125)


Proceeds from sales of marketable securities and investments


20,153



61,395


Net cash provided by investing activities


17,854



57,517







Cash flows - financing activities





Proceeds from line of credit




100,000


Cash dividends paid


(3,072)



(3,002)


Payment of employee tax withholdings on equity transactions


(3,090)



(1,550)


Acquisition earnout payments




(2,788)


Net cash (used in) provided by financing activities


(6,162)



92,660







Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash


(1,539)



(5,296)







Net decrease in cash, cash equivalents and restricted cash


(132,418)



(20,719)


Cash, cash equivalents and restricted cash at beginning of period


316,489



271,719


Cash, cash equivalents and restricted cash at end of period


$

184,071



$

251,000


 

Heidrick & Struggles International Inc.

Reconciliation of Net Income and Operating Income to Adjusted EBITDA (Non-GAAP)

(In thousands)

(Unaudited)



Three Months Ended

March 31,


2021


2020

Revenue before reimbursements (net revenue)

$

193,656



$

171,481






Net income

14,832



8,666


Interest, net

(82)



(679)


Other, net

(3,082)



4,435


Provision for income taxes

7,940



5,730


Operating income

19,608



18,152






Adjustments




Stock-based compensation expense

2,973



2,602


Depreciation

1,793



2,129


Intangible amortization

235



208


Acquisition contingent consideration

454



558


Restructuring charges

3,861




Total adjustments

9,316



5,497






Adjusted EBITDA

$

28,924



$

23,649


Adjusted EBITDA margin

14.9

%


13.8

%

 

SOURCE Heidrick & Struggles