Heidrick & Struggles International, Inc. (ticker: HSII, exchange: NASDAQ) News Release - 15-Feb-2000
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Heidrick & Struggles International, Inc. Ends First Year as a Public Company With Record Revenue and Earnings
CHICAGO--(BUSINESS WIRE)--Feb. 15, 2000---Core Executive Search Business Continues To Grow at an Above-Average Rate; LeadersOnline(TM) Revenue Triples from Last Quarter.
Heidrick & Struggles International, Inc. (Nasdaq: HSII), the world's leading executive search firm, today announced record revenue and earnings for the fourth quarter and twelve months ended December 31, 1999. On an adjusted basis, revenue in the 1999 fourth quarter grew 43.1% to $113.3 million, up from $79.2 million in the comparable quarter for 1998. Net income was $5.7 million, an increase of $14.9 million from a net loss of $9.2 million in last year's fourth quarter. (For an explanation of "adjusted basis," see the Special Notes section at the end of the release.) Results for all periods reflect the pooling of interests merger in the 1999 third quarter with Sullivan & Company, a leading financial services executive search firm.
Diluted earnings per share on an adjusted basis were $0.33, an increase of $0.95 over the loss of $0.62 in the 1998 fourth quarter, and $0.02 above the analysts' consensus estimate. Excluding $0.01 in income from the Company's warrant program and $0.04 in losses generated by LeadersOnline, the Company's Internet-based recruiting solution, diluted earnings per share in the quarter for the core executive search business were $0.36. Revenue for LeadersOnline in the 1999 fourth quarter was $1.9 million, representing substantial growth from the $0.6 million of revenue reported in the 1999 third quarter.
"These results are particularly gratifying in a year of great change for Heidrick & Struggles. From the merger with our European partners in early 1999, to the IPO, and from the development of growth initiatives like LeadersOnline, the warrant program and H&S Capital, to important acquisitions that expanded our client service specialties, we have witnessed an extraordinary twelve months," said Patrick S. Pittard, President and Chief Executive Officer. "Our strategic growth initiatives are paying off as we focus on execution, and the dramatic rise in our stock price during 1999 indicates that investors recognized this success."
On a reported basis for the 1999 fourth quarter, revenue increased 136.4% over 1998's same period. Net income was $5.7 million, compared with a net loss of $20.8 million in last year's fourth quarter. Diluted earnings per share were $0.33 versus a loss per share of $7.18 in the 1998 fourth quarter.
At December 31, 1999, Heidrick & Struggles had confirmation letters for 250 searches 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 fourth quarter of $0.4 million, net of administrative costs of the warrant program; this amount is included in Other Non-operating Income on the income statement.
On a geographic basis, all segments experienced their strongest revenue growth of the year in the 1999 fourth quarter. Revenue in the United States rose 46.5% over last year's comparable quarter. All of the major industry practices reported increases, with particular strength in Technology and Financial Services. The growth in e-commerce searches was also a key contributor to U.S. performance. European revenue was up 19.9% during the quarter, exceeding expectations because of strong performance in the technology sector; excluding the negative effects of foreign currency translation into the U.S. dollar, revenue would have been 31% higher. Revenue in Other International increased 122.1%, with significant growth coming from Canada as well as from the Latin America and Asia Pacific regions, where economic recoveries continue.
Also in the 1999 fourth quarter, operating income on an adjusted basis was $8.5 million, an increase of $20.9 million from a loss of $12.4 million last year. Confirmed searches increased 39% from 1998's fourth quarter.
Twelve-Month Results
On an adjusted basis for the twelve months ended December 31, 1999, revenue grew 27.5% to $435.8 million, up from $341.8 million during 1998. Net income was $19.6 million, an increase of $23.1 million from a net loss of $3.5 million. On a reported basis, revenue rose 91.8% and net income was $5.8 million. Diluted earnings per share for the year were $0.42, compared with a loss per share of $5.85 in 1998.
On an adjusted basis, diluted earnings per share in 1999 were $1.18, a $1.41 increase from a loss per share of $0.23 in 1998. Excluding $0.03 of income in 1999 from the warrant program and $0.17 in losses generated by the investment in LeadersOnline, diluted earnings per share in the core executive search business were $1.32 for the year.
On an adjusted basis, revenue for 1999 in the United States was 34.3% higher than last year. Europe's revenue grew 11.1%; excluding the negative effects of foreign currency translation into the U.S. dollar, revenue would have grown nearly 16% over 1998. Other International revenue rose 46.1%. Growth in searches within the Technology practice continued to be a key driver in all three geographic segments. Operating margins in all three geographic segments also improved significantly over 1998.
About Heidrick & Struggles International, Inc.
Heidrick & Struggles International (Nasdaq: HSII) is the world's leading executive search firm, specializing in chief executive, board of directors and senior level management assignments. Today, over 800 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 69 locations throughout North and South America, Europe, the Middle East, Africa and Asia Pacific. For more information about Heidrick & Struggles, please visit our web site at www.heidrick.com.
Special Notes
References to "adjusted basis" information above applies 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, 1998. 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% owned by H&S Inc.
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-
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HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (1)
(In thousands, except per share data)
Three Months Ended December 31,
1999 1998 % Change
--------- --------- --------
Revenue $ 113,264 $ 47,922 136.4%
--------- ---------
Operating expenses:
Salaries and employee benefits 75,733 53,033 42.8%
General and administrative expenses 29,023 14,366 102.0%
Nonrecurring charge and merger
costs (2)(3) - - -
--------- ---------
Total operating expenses 104,756 67,399 55.4%
--------- ---------
Operating income (loss) 8,508 (19,477) -
--------- ---------
Non-operating income (expense):
Interest income 1,574 644 144.4%
Interest expense (206) (151) 36.4%
Other, net 273 (2,355) -
--------- ---------
Net non-operating income (expense) 1,641 (1,862) -
--------- ---------
Equity in net loss of affiliate - (2,645) -
--------- ---------
Income (loss) before income taxes 10,149 (23,984) -
Provision for (benefit from) income
taxes (3) 4,485 (3,231) -
--------- ---------
Net income (loss) $ 5,664 $ (20,753) -
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Basic earnings (loss) per common share $ 0.34 $ (7.18) -
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Basic weighted average
common shares outstanding 16,663 2,889
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Diluted earnings (loss) per common
share $ 0.33 $ (7.18) -
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Diluted weighted average
common shares outstanding 17,368 2,889
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Twelve Months Ended December 31,
1999 1998 % Change
--------- --------- --------
Revenue $ 415,847 $ 216,836 91.8%
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Operating expenses:
Salaries and employee benefits 277,580 174,618 59.0%
General and administrative expenses 104,144 53,557 94.5%
Nonrecurring charge and merger
costs (2) (3) 15,220 - -
--------- ---------
Total operating expenses 396,944 228,175 74.0%
--------- ---------
Operating income (loss) 18,903 (11,339) -
--------- ---------
Non-operating income (expense):
Interest income 3,513 1,585 121.6%
Interest expense (1,504) (505) 197.8%
Other, net 630 (2,212) -
--------- ---------
Net non-operating income (expense) 2,639 (1,132) -
--------- ---------
Equity in net loss of affiliate (630) (3,417) -81.6%
--------- ---------
Income (loss) before income taxes 20,912 (15,888) -
Provision for income taxes (3) 15,120 1,302 1061.3%
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Net income (loss) $ 5,792 $ (17,190) -
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Basic earnings (loss) per common share $ 0.42 $ (5.85) -
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Basic weighted average
common shares outstanding 13,642 2,940
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Diluted earnings (loss) per common
share $ 0.42 $ (5.85) -
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Diluted weighted average
common shares outstanding 13,889 2,940
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(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) The Company incurred a $12.4 million nonrecurring charge during the first quarter of 1999 as a result of the modification of the terms of the Mulder acquisition agreement, including the termination of all employment contingencies. This nonrecurring charge 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.
(3) The Company incurred merger costs of $2.8 million ($1.9 million after tax) during the third quarter of 1999 as a result of the merger with Sullivan & Company as discussed in footnote 1 above. The merger costs consist of (1) a $2.0 million non-cash charge for accelerated vesting of an employee equity ownership program in place at Sullivan and (2) $0.8 million of transaction- related costs, including legal, accounting and advisory fees.
CONSOLIDATED STATEMENTS OF INCOME, AS ADJUSTED
(Excluding one-time adjustments and assuming completion of
the merger of H&S and HSI and public company status at
January 1, 1998)
(In thousands, except per share data)
(unaudited)
Three Months Ended December 31,
(Adjusted)
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1999 (1) 1998 (1) % Change
--------- --------- --------
Revenue $ 113,264 $ 79,161 43.1%
--------- ---------
Operating expenses:
Salaries and employee
benefits (2) (3) (4) 75,733 64,710 17.0%
General and administrative
expenses (5) 29,023 26,853 8.1%
--------- ---------
Total operating expenses 104,756 91,563 14.4%
--------- ---------
Operating income (loss) 8,508 (12,402) -
--------- ---------
Non-operating income (expense):
Interest income 1,574 644 144.4%
Interest expense (206) (451) -54.3%
Other, net (6) (7) 273 (758) -
--------- ---------
Net non-operating income
(expense) 1,641 (565) -
--------- ---------
Minority interest in income of
consolidated subsidiaries - (81) -
--------- ---------
Income (loss) before
income taxes (8) 10,149 (13,048) -
Provision for (benefit from) income
taxes 4,485 (3,846) -
--------- ---------
Net income (loss) $ 5,664 $ (9,202) -
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Basic earnings (loss) per common
share $ 0.34 $ (0.62) -
========= =========
Basic weighted average common shares
outstanding (9) 16,663 14,858 12.1%
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Diluted earnings (loss) per common
share $ 0.33 $ (0.62) -
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Diluted weighted average common
shares outstanding (9)(10) 17,368 14,858 16.9%
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(1) Amounts assume that the merger of H&S Inc. and HSI had occurred on January 1, 1998. In addition, 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) Amount has been adjusted by $0.7 million for the three months ended December 31, 1998, to eliminate compensation expense representing the difference between the amount actually paid to management for bonuses over the amount that would have been paid under the Company's GlobalShare plan. The GlobalShare plan will issue options to managing partners and corporate officers in lieu of a portion of their annual cash performance bonus. In addition, amortization of deferred compensation expense of $1.2 million relating to the acquisition of Mulder has been eliminated from the three months ended December 31, 1998.
(3) Amount includes $9.0 million of expense for the three months ended December 31, 1998, arising from costs to build corporate infrastructure, the Company's global network of consultants at an accelerated rate and miscellaneous one-time balance sheet adjustments.
(4) Amount has been adjusted by $23.3 million to reflect the following charges recorded during the fourth quarter of 1998: (i) $14.8 million arising from the difference between the issuance price of shares issued by the Company in the period beginning twelve months before the initial filing date of the registration statement relating to the Offering and the fair market value of the shares at the date of grant, (ii) $2.8 million arising from the early settlement of profit sharing arrangements relating to the acquisition of certain Latin American offices and (iii) $5.7 million arising from the termination agreement with HSI's former President and Chief Executive Officer, and the termination agreement of a non-executive HSI employee. The $5.7 million charge is comprised of $3.0 million for compensation and other amounts to be paid in accordance with the termination agreements and a $2.7 million non-cash charge representing the difference between the current book value and appraised fair market value of shares retained subsequent to termination.
(5) Amount has been adjusted to include amortization related to acquired intangibles and goodwill arising from the merger of H&S and HSI of $0.3 million for the three months ended December 31, 1998. Amount also includes merger-related costs and costs to expand the Company's corporate infrastructure of $2.0 million for the three months ended December 31, 1998.
(6) Offering expenses of $3.8 million have been eliminated from non-operating income for the three months ended December 31, 1998. As required by Staff Accounting Bulletin No. 1, Topic 5A, H&S Inc. and HSI expensed all charges incurred in connection with the postponement of the Company's planned initial public offering in September 1998.
(7) Amount includes a $1.2 million charge for the three months ended December 31, 1998, arising from the write-off of leasehold improvements and accruals for non-cancelable lease commitments due to the decision to relocate the Company's London office.
(8) Equity in net loss of affiliate has been eliminated for the three months ended December 31, 1998 to reflect 100% ownership of HSI after the merger.
(9) 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 and 1998, respectively.
(10) Amount has been adjusted to give effect to the issuance of options pursuant to the Company's GlobalShare plan equivalent to 0.7 million shares for the three months ended December 31, 1999, under the treasury stock method.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
1999 1998 (1)
------------ ------------
Current assets:
Cash and cash equivalents $ 76,848 $ 11,521
Accounts receivable, net of
allowance for doubtful accounts 83,162 42,292
Other receivables 4,241 2,862
Note receivable from affiliate - 1,900
Prepaid expenses 7,583 1,837
Prepaid income taxes - 3,063
Deferred income taxes 19,881 8,871
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Total current assets 191,715 72,346
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Property and equipment, net 52,352 27,054
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Other assets:
Cash and investments designated for
nonqualified retirement plans 32,702 13,552
Investment in Heidrick & Struggles
International, Inc. - 4,766
Investments and other assets 11,772 353
Deferred income taxes 376 2,649
Goodwill & other intangibles, net 45,832 8,055
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Total other assets 90,682 29,375
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Total assets $ 334,749 $ 128,775
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(1) Amounts have been restated to give retroactive effect to the merger of HSI and Sullivan & Company as of January 1, 1998.
December 31, December 31,
1999 1998 (1)
------------ ------------
Current liabilities:
Short-term debt $ - $ 22,000
Current maturities of long-term debt 3,039 2,847
Accounts payable 8,052 3,487
Accrued expenses-
Salaries and employee benefits 100,762 27,893
Other 14,964 8,165
Income taxes payable 10,891 -
------------ ------------
Total current liabilities 137,708 64,392
------------ ------------
Long-term debt, less current maturities - 6,350
------------ ------------
Liability for nonqualified retirement
plans 29,161 11,358
------------ ------------
Other long-term liabilities - 2,253
------------ ------------
Mandatorily redeemable common stock - 44,422
------------ ------------
Stockholders' equity 167,880 -
------------ ------------
Total liabilities, mandatorily
redeemable common stock and
stockholders' equity $ 334,749 $ 128,775
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(1) Amounts have been restated to give retroactive effect to the merger of HSI and Sullivan & Company as of January 1, 1998.
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CONTACT: Heidrick & Struggles
Jennifer Silver (media), 404/572-0019
or Lynn McHugh (analysts), 312/496-1593