Heidrick & Struggles International, Inc. (ticker: HSII, exchange: NASDAQ) News Release - 1-May-2000
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Heidrick & Struggles International Reports Record 2000 First Quarter Earnings
CHICAGO--(BUSINESS WIRE)--May 1, 2000-- World's Largest Executive Search Firm Reports 64 Percent Increase in EPS
First Quarter Revenue Rises 39 Percent
Heidrick & Struggles International, Inc. (Nasdaq: HSII), the world's largest and premier executive search firm, today announced record revenue and earnings for the 2000 first quarter. On an adjusted basis, diluted earnings per share were $0.18, an increase of 64 percent from $0.11 in the 1999 first quarter. Revenue in the 2000 first quarter grew 39 percent to $131.9 million, up from $94.6 million in the comparable quarter of 1999. Net income was $3.5 million, an increase of 105 percent from $1.7 million in last year's first quarter. (For an explanation of "adjusted basis," see the Special Notes section at the end of the release.) Results reflect the pooling of interests merger in the 1999 third quarter with Sullivan & Company, a leading financial services executive search firm.
"We've consistently delivered solid growth in revenue and earnings, and we are confident in our ability to sustain long-term growth while providing quality service to our clients. Our success is based on knowing and believing in the value of people," said Patrick S. Pittard, President and Chief Executive Officer. "We have built a remarkable global team and a best-in-class reputation that draws clients from around the world to our firm. Good people recognize good people."
"Among our many distinctions during the quarter, we were ranked as the best executive search firm for candidate quality, company reputation and value of services in a recent Wall Street Journal survey of corporate America's senior-level decision makers," added Pittard.
On an adjusted basis, diluted earnings per share for the core executive search business were $0.28 in the 2000 first quarter, excluding $0.04 in income from Heidrick & Struggles' warrant program and $0.14 in losses generated by LeadersOnline, the company's complementary Internet-based recruiting solution for mid-level executives and professionals. In the 1999 first quarter, diluted earnings per share for the core executive search business were $0.15.
On an adjusted basis, operating income for the executive search business was $7.9 million in the 2000 first quarter, an increase of 67 percent from $4.7 million a year ago. Confirmed searches increased 20 percent from the 1999 first quarter.
On a reported basis, consolidated revenue increased 77 percent for the 2000 first quarter over 1999's same period. Net income was $3.5 million, up from a loss of $10.1 million in last year's first quarter. Diluted earnings per share were $0.18 compared to a loss of $1.60 in the 1999 first quarter.
All Geographic Segments Report Strong Revenue Growth
In order to reflect a recent change in its management structure, Heidrick & Struggles has adjusted its segment reporting. Beginning in the 2000 first quarter, the company will break out revenue and operating income in its executive search business into two broad geographic segments: Americas and International. The Americas segment comprises the United States and Other (Canada, Mexico and Latin America). The International segment comprises Europe (which includes Africa and the Middle East) and Asia Pacific. Both geographic segments reported strong revenue growth and increased margins for the 2000 first quarter.
Revenue in the U.S. rose 34 percent over last year's comparable quarter, with the Financial Services and Technology practice groups leading the way. Growth in e-commerce searches was also a key contributor to U.S. performance. In Americas-Other, revenue grew 55% in the quarter over last year.
Revenue in Europe for the 2000 first quarter was up 29 percent, due in part to strong performance from the Technology practice group. Excluding the negative effects of foreign currency translation into the U.S. dollar, revenue would have been 42 percent higher than the comparable quarter in 1999. In Asia Pacific, revenue grew by 113 percent, led by outstanding results in Tokyo and Singapore.
Warrant Program Gains Momentum
As of March 31, 2000, Heidrick & Struggles had confirmation letters for more than 400 searches--up from 250 at the end of 1999--in which warrants for equity in the client company were included as a portion of the fee in addition to the normal cash fee. The sale of equity obtained as partial payment in these assignments resulted in a pre-tax gain in the first quarter of $1.5 million, net of administrative costs of the warrant program and consultant bonuses; this amount is included in Other Non-Operating Income on the income statement.
In recent years, Heidrick & Struggles has taken warrants for equity in addition to--not in lieu of--cash fees for searches conducted for a number of pre-public and public firms, and is beginning to expand the program around the world. The company has a policy to make warrants for equity a required part of certain searches for pre-public technology companies in the U.S., and is considering extending this policy to its other global industry practices.
LeadersOnline Revenue Increases 73 Percent over Last Quarter
With searches in progress for approximately 80 clients as of March 31, 2000, LeadersOnline reported revenue of $3.2 million in the 2000 first quarter, representing substantial growth of 73 percent over the $1.9 million of revenue reported in the 1999 fourth quarter. LeadersOnline did not begin to generate revenue until the 1999 second quarter and reported $2.6 million in revenue for the 1999 full year. In the 2000 first quarter, LeadersOnline reported an operating loss of $4.2 million compared to an operating loss of $1.3 million in the first quarter of 1999. On an after-tax loss per share basis, the 2000 first quarter results were $0.14 versus last year's $0.04 in the same quarter. On April 10, 2000, LeadersOnline filed a registration statement with the Securities and Exchange Commission relating to a proposed initial public offering of its Class A common stock.
About Heidrick & Struggles International, Inc.
Heidrick & Struggles International is the world's largest and premier executive search firm, specializing in chief executive, board of directors and senior level management assignments. Today, nearly 900 Heidrick & Struggles professionals serve a broad range of organizations including Fortune 500 companies, financial institutions, major health care organizations, universities and not-for-profit organizations, leading mid-cap companies, and emerging growth companies from offices in more than 70 locations throughout North and South America, Europe, the Middle East, Africa and Asia Pacific. For more information about Heidrick & Struggles, visit our web site at www.heidrick.com.
Special Notes
References to "adjusted basis" information above apply to figures that exclude current and prior period non-recurring items. Further, "adjusted basis" assumes the merger of Heidrick & Struggles, Inc. ("H&S Inc.") and Heidrick & Struggles International, Inc. ("HSI") occurred on January 1, 1999. The merger, completed on February 26, 1999, combined the operations of H&S Inc., which operated in all regions of the world except Europe, with Europe-based HSI, which previously had been approximately 35 percent owned by H&S Inc.
Safe Harbor Statement
Certain matters discussed in this news release are forward-looking statements that are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise, and include known and unknown risks, uncertainties and other important factors that could cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Some of the risks, uncertainties, assumptions and factors that could affect the company's financial results are included in the company's recent SEC filings. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. All forward-looking statements in this news release are expressly qualified by these cautionary statements, and the company expressly disclaims any duty to update such forward-looking statements. -0-
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Actual As Adjusted
Three Months Ended Three Months Ended
March 31, March 31,
--------------------- ---------------------
% %
2000 1999(1) Change 2000 1999(1)(2) Change
----- ------- ------- ------ ---------- --------
Revenue $ 131,936 $ 74,601 76.9% $ 131,936 $ 94,586 39.5%
------ ------ ------- -------
Operating expenses:
Salaries and
employee
benefits 92,400 49,147 88.0% 92,400 64,063(3) 44.2%
General and
administrative
expenses 35,810 20,590 73.9% 35,810 27,031(4) 32.5%
Nonrecurring
charge - 12,420 - - - (3) -
------ ------ ------ ------
Total
operating
expenses 128,210 82,157 56.1% 128,210 91,094 40.7%
------ ------ ------ ------
Operating
income
(loss) 3,726 (7,556) - 3,726 3,492 6.7%
------ ------ ------ ------
Non-operating
income
(expense):
Interest
income 1,517 170 792.4% 1,517 170 792.4%
Interest
expense (75) (477) -84.3% (75) (533) -85.9%
Other, net 1,696 13 - 1,696 13 -
------ ------ ------ ------
Net
non-operating
income
(expense) 3,138 (294) - 3,138 (350) -
----- ----- ------ ------
Equity in net
loss of
affiliate - (630) - - - (5) -
------ ------ ------ ------
Income (loss)
before income
taxes 6,864 (8,480) - 6,864 3,142 118.5%
Provision for
income taxes 3,349 1,668 100.8% 3,349 1,431 134.0%
------ ------ ------ ------
Net income
(loss) $ 3,515 $(10,148) - $ 3,515 $ 1,711 105.4%
====== ====== ======= =======
Basic earnings
(loss) per
common share $0.19 $ (1.60) - $ 0.19 $ 0.11 72.7%
====== ====== ======= =======
Basic weighted
average common
shares
outstanding 18,075 6,341 185.0% 18,075 15,965(6) 13.2%
======= ====== ======= =======
Diluted earnings
(loss) per
common share $ 0.18 $ (1.60) - $ 0.18 $ 0.11 63.6%
======= ====== ======= =======
Diluted weighted
average
common shares
outstanding 19,315 6,341 204.6% 19,315 16,045(7) 20.4%
======= ====== ======= =======
(1) Statements have been restated to give retroactive effect to the merger of HSI and Sullivan & Company on September 1, 1999, which has been accounted for using the pooling of interests method and, as a result, the results of operations are presented as if the combining companies had been consolidated for all periods presented and as if the shares of additional common stock issued in connection with the merger had been issued for all periods presented.
(2) Amounts assume that the merger of H&S and HSI had occurred on January 1, 1999.
(3) Amount excludes the $12.4 million nonrecurring Mulder charge ($0.77 per share on a diluted basis) for the three months ended March 31, 1999. This charge is the result of the modification of the terms of the Mulder acquisition agreement, including the termination of all employment contingencies. It represents the write-off of $2.9 million of deferred compensation assets, the settlement of the remaining cash due of $4.3 million and the issuance of 428,452 common shares (worth $5.2 million) to the previous owners of Mulder. In addition, $0.9 million of deferred compensation expense relating to the acquisition has been excluded for the three months ended March 31, 1999.
(4) Amount has been adjusted to include amortization related to acquired intangibles and goodwill arising from the merger of H&S and HSI of $0.2 million for the three months ended March 31, 1999.
(5) Equity in net loss of affiliate has been eliminated for the three months ended March 31, 1999 to reflect 100% ownership of HSI after the merger.
(6) Amount has been adjusted to give effect to the initial public offering of 3.7 million shares and issuance of 0.7 million shares under the Company's GlobalShare plan as of January 1, 1999.
(7) Amount has been adjusted to give effect to the initial public offering of 3.7 million shares and issuance of 0.7 million shares under the Company's GlobalShare plan as of January 1, 1999. In addition, amount has been adjusted to give effect to the issuance of options pursuant to the Company's GlobalShare plan equivalent to 0.1 million shares for the three months ended March 31, 1999 under the treasury stock method.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31, March 31,
2000 1999 1999 (1)
---------------- ---------------- ----------------
Current assets:
Cash and cash
equivalents $ 133,079 $ 76,848 $ 21,271
Accounts receivable,
net of allowance for
doubtful accounts 94,208 83,162 70,152
Other receivables 4,745 4,241 2,976
Prepaid expenses 9,295 7,583 3,750
Prepaid income taxes - - 267
Deferred income taxes 21,107 19,881 16,698
-------- -------- -------
Total current assets 262,434 191,715 115,114
-------- -------- -------
Property and equipment,
net 55,282 52,352 44,459
------- ------- ------
Other assets:
Cash and investments
designated for
nonqualified retirement
plans 33,532 32,702 30,472
Investments and other
assets 25,808 11,772 11,036
Deferred income taxes - 376 6,695
Goodwill and other
intangibles, net 47,606 45,832 45,755
-------- -------- -------
Total other assets 106,946 90,682 93,958
-------- -------- -------
Total assets $ 424,662 $ 334,749 $ 253,531
========== ========== ==========
(1) Amounts have been restated to give retroactive effect to the merger with Sullivan & Company as of January 1, 1999.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31, March 31,
2000 1999 1999 (1)
---------------- ---------------- ----------------
Current liabilities:
Short-term debt $ - $ - $ 29,349
Current maturities of
long-term debt 3,039 3,039 3,025
Accounts payable 8,321 8,052 6,119
Accrued expenses-
Salaries and employee
benefits 91,637 100,762 72,155
Other 17,450 14,964 19,458
Income taxes payable 10,325 10,891 -
-------- -------- -------
Total current liabilities 130,772 137,708 130,106
-------- -------- -------
Long-term debt, less
current maturities - - 6,284
-------- -------- -------
Liability for nonqualified
retirement plans 28,500 29,161 29,013
-------- -------- -------
Other long-term liabilities 2,205 - 2,511
-------- -------- -------
Mandatorily redeemable
common stock - - 85,617
-------- -------- -------
Stockholders' equity 263,185 167,880 -
-------- -------- -------
Total liabilities,
mandatorily redeemable
common stock and
stockholders' equity $ 424,662 $ 334,749 $ 253,531
========== ========== ==========
========== ========== =========
(1) Amounts have been restated to give retroactive effect to the merger with Sullivan & Company as of January 1, 1999.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
SEGMENT INFORMATION
(In thousands)
Actual
Three Months Ended
March 31,
-------------------------------
2000 1999 (1)
------------- -------------
Revenue
Americas
United States $ 74,326 $55,592
Other 4,900 3,164
International
Europe 41,384 12,032
Asia Pacific 8,122 3,813
LeadersOnline 3,204 -
----------- -------------
Total $ 131,936 $ 74,601
============ =============
Operating Income (Loss)
Americas
United States 10,772 7,773
Other 369 214
International
Europe 3,435 (10,808)
Asia Pacific 1,309 (13)
LeadersOnline (4,186) (1,255)
Corporate (7,973) (3,467)
----------- -------------
Total $ 3,726 $ (7,556)
=========== =============
(1) Statements have been restated to give retroactive effect to the merger of HSI and Sullivan & Company as of January 1, 1999.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
SEGMENT INFORMATION
(In thousands)
As Adjusted
Three Months Ended March 31,
--------------------------------------------------
2000 1999
2000 1999 (1)(2) % Change Margin Margin
---------- ---------- -------- ------- -------
Revenue
Americas
United States $ 74,326 $ 55,592 33.7%
Other 4,900 3,164 54.9%
International
Europe 41,384 32,017 29.3%
Asia Pacific 8,122 3,813 113.0%
LeadersOnline 3,204 - -
---------- ----------
Total $ 131,936 $ 94,586 39.5%
========== ==========
Operating Income (Loss)
Americas
United States $ 10,772 $ 7,773 38.6% 14.5% 14.0%
Other 369 214 72.4% 7.5% 6.8%
International
Europe 3,435 472 627.8% 8.3% 1.5%
Asia Pacific 1,309 (13) - 16.1% -
LeadersOnline (4,186) (1,255) 233.5% - -
Corporate (7,973) (3,699) 115.5% - -
--------- ----------
Total $ 3,726 $ 3,492 6.7% 2.8% 3.7%
========== ==========
*T
(1) Statements have been restated to give retroactive effect to the merger of HSI and Sullivan & Company as of January 1, 1999. (2) Excludes all one-time adjustments and assumes the merger of H&S and HSI had occurred on January 1, 1999.
CONTACT: Heidrick & Struggles International, Inc.
Media
Jennifer Silver, 404/572-0019
jsilver@heidrick.com
or
Analysts
Lynn McHugh, 312/496-1593
lmchugh@heidrick.com