Heidrick & Struggles International, Inc. (ticker: HSII, exchange: NASDAQ) News Release - 30-Oct-2000
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Heidrick & Struggles Reports Record 2000 Third Quarter Revenue and Earnings Consolidated Revenue Up 29 Percent; EPS Up 16 Percent, Excluding Nonrecurring Items
CHICAGO, Oct. 30 /PRNewswire/ -- Heidrick & Struggles International, Inc. (Nasdaq: HSII), the world's largest and premier executive search firm, today announced record revenue and earnings for the 2000 third quarter, excluding one-time items. On an adjusted basis, diluted earnings per share were $0.51, an increase of 16 percent from $0.44 in the 1999 third quarter. Revenue in the 2000 third quarter grew 29 percent to $148.1 million, up from $114.9 million in the comparable quarter of 1999. Net income was $10.8 million, an increase of 46 percent from $7.4 million in last year's third quarter.
Adjusted basis results exclude a $14.0 million nonrecurring charge to the 2000 third quarter income statement related to the decision to retain proprietary control -- and therefore withdraw the planned IPO -- of LeadersOnline, the company's complementary Internet-based recruiting subsidiary for mid-level executives and professionals. (For further 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.
"It's been another fabulous quarter for us," said Patrick S. Pittard, Chairman, President and Chief Executive Officer of Heidrick & Struggles International (HSI Group). "We continue to excel in a very competitive executive search environment and I believe it is because we have the most highly respected consultants in the industry, which makes us the premier search firm of choice for executive talent. In the e-cruiting marketplace, our LeadersOnline business continues on its growth trajectory while reducing its losses from prior quarters this year."
On an adjusted basis, diluted earnings per share for the core business, Heidrick & Struggles Executive Search, were $0.53 in the 2000 third quarter. This excludes $0.07 in income from the warrant program and $0.09 in losses generated by LeadersOnline. In the 1999 third quarter, diluted earnings per share for the core executive search business were $0.47.
Revenue for Executive Search grew 25 percent to $142.3 million in the 2000 third quarter, up from $114.3 in the 1999 third quarter. On an adjusted basis, net income was $11.1 million in the 2000 third quarter, an increase of 41 percent from $7.9 million a year ago. Confirmed searches increased 13 percent from the 1999 third quarter and fees per search grew 11 percent.
Performance by Geographic Segment
Revenue from Executive Search in the U.S. rose 28 percent to $87.5 million, compared to $68.5 million in the 1999 third quarter, led by the Financial Services, Consumer, and Professional Services practice groups. In the Americas-Other segment (Canada and Latin America), revenue grew six percent to $5.2 million, compared to $4.9 million in the 1999 third quarter.
Revenue in the Europe segment (which includes Africa and the Middle East) for the 2000 third quarter increased 17 percent to $41.1 million, due to particularly strong performance from the Financial Services and Professional Services practice groups. Excluding the negative effects of foreign currency translation into the U.S. dollar, revenue increased 34 percent on a local currency basis over the comparable quarter in 1999. In Asia Pacific, revenue grew 48 percent to $8.5 million, compared to $5.8 million in the 1999 third quarter.
LeadersOnline Revenue Grows to $5.7 million
On an adjusted basis, LeadersOnline reported revenue of $5.7 million in the 2000 third quarter, compared to $613,000 in the 1999 third quarter. LeadersOnline reported a pre-tax loss of $2.7 million compared to a pre-tax loss of $1.2 million in the 1999 third quarter. Losses were $0.09 per diluted share compared to $0.04 per diluted share in the 1999 third quarter. The company continues to focus on becoming profitable: the third quarter loss was significantly lower than the $4.2 million pre-tax loss in the 2000 second quarter. For the 2000 fourth quarter, LeadersOnline expects to generate at least $5 million in revenue and report a pre-tax loss of no more than $2 million.
As a result of Heidrick & Struggles' decision to retain proprietary control of LeadersOnline's innovations in online recruiting, in September 2000, LeadersOnline withdrew its registration statement with the Securities and Exchange Commission relating to a proposed initial public offering of Class A common stock. In connection with the IPO withdrawal, Heidrick & Struggles incurred nonrecurring charges in the 2000 third quarter. These included a non-cash compensation charge of $12.2 million, which represents the remainder of the non-cash compensation charge related to the issuance of options by LeadersOnline at a price below the deemed fair market value for accounting purposes at the time of issuance, and a $1.8 million charge due to the write-off of expenses related to planning the IPO. These nonrecurring charges are included in the results on a reported basis and are excluded from the results on an adjusted basis.
In addition, there were two types of cash payments charged to the equity section of the consolidated balance sheet: $10.0 million to compensate management and employees for the value of their LeadersOnline options and $3.1 million to repurchase LeadersOnline stock from Heidrick & Struggles employees and VerticalNet, Inc.
Warrant Program
The sale of equity obtained as partial payment in search assignments resulted in a pre-tax gain in the third quarter of $2.7 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 addition to its normal cash fees, Heidrick & Struggles receives warrants for equity in connection with searches conducted for pre-public as well as some public firms, and is expanding the program around the world. As of September 30, 2000, the company had been engaged to conduct a cumulative 760 searches in which warrants for equity were included as a portion of the fee in addition to the normal cash fee.
Results on a Reported Basis
On a reported basis for consolidated results for the 2000 third quarter, the loss per share was $0.13 versus diluted earnings per share of $0.32 in the 1999 third quarter. Revenue grew 29 percent to $148.1 million from $114.9 million in the comparable quarter last year. The net loss was $2.4 million versus net income of $5.4 million in the 1999 third quarter.
Year-to-Date Results
On an adjusted basis, diluted earnings per share for the nine months ended September 30, 2000, were $1.20, an increase of 41 percent from $0.85 in the comparable period last year. Year-to-date revenue grew 38 percent to $446.4 million. Net income for the nine months ended September 30, 2000, was $24.3 million, an increase of 75 percent from $13.9 million in the comparable period last year.
For the nine months ended September 30, 2000, diluted earnings per share for Executive Search were $1.36. This excludes $0.21 in income from the warrant program and $0.36 in losses generated by LeadersOnline. In the comparable period for 1999, diluted earnings per share for Executive Search were $0.97, on an adjusted basis.
LeadersOnline reported revenue of $15.1 million for the nine months ended September 30, 2000, compared to $763,000 during the first nine months of 1999. LeadersOnline reported a pre-tax loss of $11.1 million during the first nine months of 2000 compared to a pre-tax loss of $3.9 million during the first nine months of 1999. Losses were $0.36 per share compared to $0.13 per share during the comparable period of 1999.
On a reported basis for consolidated results for the nine months ended September 30, 2000, diluted earnings per share were $0.55 versus $0.01 in the comparable period last year. Revenue grew 48 percent to $446.4 million from $302.6 million in the comparable period last year. Net income was $11.1 million versus $128,000 in the comparable period last year.
Consolidated Outlook
The company presently expects its fourth quarter 2000 diluted earnings per share to be in the range of current analyst estimates as stated on First Call. The range is $0.35 to $0.39, with the consensus estimate at $0.37 per diluted share on a consolidated basis. The company expects consolidated revenue in the 2000 fourth quarter to grow approximately 20 percent over the 1999 fourth quarter.
Webcast of Investor Call Available
To review its third quarter and year-to-date earnings results, the company will provide a real-time investor call webcast on Tuesday, October 31, at 9:00 a.m. (CST). The webcast will feature remarks by Don Kilinski, Chief Financial Officer of HSI Group, and Jim Quandt, President and Chief Executive Officer of LeadersOnline. The live webcast will be available online at www.heidrick.com . A replay will be available for 30 days following the investor call.
Special Notes
References to "adjusted basis" information above apply to figures that exclude current and prior period nonrecurring 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.
About Heidrick & Struggles International, Inc. (HSI Group)
Heidrick & Struggles International, Inc. (HSI Group) is the world's largest and premier provider of executive-level search and consulting services. More than 1,000 Heidrick & Struggles professionals operate from offices in over 75 locations throughout North and South America, Europe, the Middle East, Africa and Asia Pacific. Our core business -- Heidrick & Struggles Executive Search -- has been an industry leader for nearly 50 years, specializing in chief executive, board member and senior level management assignments for a broad spectrum of clients: multi-national corporations, mid-cap and start-up companies, not-for-profit entities, educational institutions, foundations, associations and governmental units. We are expanding our range of complementary services to offer solutions to senior management teams for their human capital needs. LeadersOnline, our Internet-based recruiting business, serves clients who seek the next generation of corporate leaders. We are capitalizing on our access to the highest level of our clients' organizations through Heidrick & Struggles Ventures, our unit responsible for alliances and investments. For more information about HSI Group, visit our web site at www.heidrick.com .
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.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
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, 1999)
(In thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000(A) 1999(C) % Change 2000(A) 1999(B)(C) % Change
Revenue $148,081 $114,936 28.8% $446,433 $322,568 38.4%
Operating expenses:
Salaries and
employee
benefits
(D)(E) 98,471 76,303 29.1% 299,134 216,763 38.0%
General and
administrative
expenses (F) 34,983 26,686 31.1% 115,726 81,562 41.9%
Total
operating
expenses 133,454 102,989 29.6% 414,860 298,325 39.1%
Operating
income 14,627 11,947 22.4% 31,573 24,243 30.2%
Non-operating
income (expense):
Interest income 2,372 1,343 76.6% 5,722 1,939 195.1%
Interest expense (40) (361) -88.9% (167) (1,354) -87.7%
Minority interest 51 - - 208 - -
Other, net 2,467 281 777.9% 7,186 357 1912.9%
Net
non-operating
income 4,850 1,263 284.0% 12,949 942 1274.6%
Income before
income taxes(G) 19,477 13,210 47.4% 44,522 25,185 76.8%
Provision for
income taxes 8,683 5,841 48.7% 20,215 11,256 79.6%
Net income $10,794 $7,369 46.5% $24,307 $13,929 74.5%
Basic earnings
per common
share $0.56 $0.45 24.4% $1.29 $0.86 50.0%
Basic weighted
average common
shares
outstanding(H) 19,277 16,533 16.6% 18,856 16,212 16.3%
Diluted earnings
per common
share $0.51 $0.44 15.9% $1.20 $0.85 41.2%
Diluted weighted
average common
shares
outstanding
(H)(I) 20,980 16,782 25.0% 20,267 16,335 24.1%
(A) Amounts exclude the $14.0 million nonrecurring charge ($13.2 million after tax) the Company incurred during the third quarter of 2000 as a result of the withdrawal of LeadersOnline's IPO. This included a non-cash compensation charge of $12.2 million which represents the remainder of the non-cash compensation charge related to the issuance of options by LeadersOnline, at a price below the deemed fair market value for accounting purposes, at the time of issuance. The remaining $1.8 million is due to the write-off of expenses related to the planning of the IPO.
(B) Amounts assume that the merger of H&S and HSI had occurred on January 1, 1999.
(C) Amounts exclude merger costs of $2.8 million ($1.9 million after tax) for the three months and nine months ended September 30, 1999, arising from the merger of HSI and Sullivan & Company on September 1, 1999. 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. This transaction was accounted for using the pooling of interests method.
(D) Amount excludes the $12.4 million nonrecurring Mulder charge ($0.76 per share on a diluted basis) for the nine months ended September 30, 1999. This charge is the result of the modification of the terms of the Mulder and Partner 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 nine months ended September 30, 1999.
(E) Amount includes a non-cash compensation charge of $0.8 million and $2.7 million ($0.04 per share and $0.13 per share on a diluted basis) for the three months and nine months ended September 30, 2000, respectively. This charge is due to the issuance of options by LeadersOnline, at a price below the deemed fair market value for accounting purposes, at the time of issuance.
(F) 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 nine months ended September 30, 1999.
(G) Equity in net loss of affiliate has been eliminated for the nine months ended September 30, 1999 to reflect 100% ownership of HSI after the merger.
(H) 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, the three months and nine months ended September 30, 1999 have been adjusted for the issuance of 0.5 million shares on June 1, 1999 which arose from the exercise of a portion of the over-allotment option granted to certain underwriters of the initial public offering.
(I) Amount has been adjusted to give effect to the issuance of options pursuant to the Company's GlobalShare plan equivalent to 0.2 million shares and 0.1 million shares for the three months and nine months ended September 30, 1999, respectively under the treasury stock method.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
SEGMENT INFORMATION, AS ADJUSTED (A)
(In thousands, unaudited)
Three Months Ended September 30,
2000 1999
2000 1999 % Change Margin Margin
Revenue
Americas
United States $ 87,514 $ 68,500 27.8%
Other 5,221 4,928 5.9%
International
Europe 41,068 35,113 17.0%
Asia Pacific 8,536 5,782 47.6%
Total Executive Search 142,339 114,323 24.5%
LeadersOnline 5,742 613 836.7%
Total Company $ 148,081 $ 114,936 28.8%
Operating Income (Loss)
Americas
United States $ 17,909 $ 12,104 48.0% 20.5% 17.7%
Other 784 745 5.2% 15.0% 15.1%
International
Europe 4,123 3,402 21.2% 10.0% 9.7%
Asia Pacific 1,313 1,144 14.8% 15.4% 19.8%
Total Executive Search 24,129 17,395 38.7% 17.0% 15.2%
LeadersOnline (2,811) (1,242) 126.3% - -
Corporate (6,691) (4,206) 59.1% - -
Total Company $ 14,627 $ 11,947 22.4% 9.9% 10.4%
(A) Excludes all one-time adjustments and assumes the merger of H&S and HSI had occurred on January 1, 1999.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 % Change 2000 1999 % Change
Revenue $148,081 $114,936 28.8% $446,433 $302,583 47.5%
Operating
expenses:
Salaries and
employee
benefits:
Other salaries
and employee
benefits(A) 98,471 76,303 29.1% 299,134 201,847 48.2%
Nonrecurring
compensation
charges
(B)(C)(D) 12,222 2,028 502.7% 12,222 14,448 -15.4%
General and
administrative
expenses:
Other general
and
administrative
expenses 34,983 26,686 31.1% 115,726 75,121 54.1%
Nonrecurring
general and
administrative
charges
(B)(C) 1,753 772 127.1% 1,753 772 127.1%
Total
operating
expenses 147,429 105,789 39.4% 428,835 292,188 46.8%
Operating
income 652 9,147 -92.9% 17,598 10,395 69.3%
Non-operating
income (expense):
Interest income 2,372 1,343 76.6% 5,722 1,939 195.1%
Interest expense (40) (361) -88.9% (167) (1,298) -87.1%
Minority interest 51 - - 208 - -
Other, net 2,467 281 777.9% 7,186 357 1912.9%
Net
non-operating
income 4,850 1,263 284.0% 12,949 998 1197.5%
Equity in net
loss of affiliate - - - - (630) -
Income before
income taxes 5,502 10,410 -47.1% 30,547 10,763 183.8%
Provision for
income taxes 7,930 4,983 59.1% 19,462 10,635 83.0%
Net income
(loss) $(2,428) $5,427 - $11,085 $128 8560.2%
Basic earnings
(loss) per
common
share $(0.13) $ 0.33 - $ 0.59 $ 0.01 5800.0%
Basic weighted
average common
shares
outstanding 19,277 16,533 16.6% 18,856 12,624 49.4%
Diluted earnings
(loss) per
common
share $(0.13) $ 0.32 - $ 0.55 $ 0.01 5400.0%
Diluted weighted
average common
shares
outstanding 19,277 16,782 14.9% 20,267 12,717 59.4%
(A) Amount includes a non-cash compensation charge of $0.8 million and $2.7 million ($0.04 per share and $0.13 per share on a diluted basis) for the three months and nine months ended September 30, 2000, respectively. This charge is due to the issuance of options by LeadersOnline, at a price below the deemed fair market value for accounting purposes, at the time of issuance.
(B) The Company incurred a $14.0 million nonrecurring charge ($13.2 million after tax) during the third quarter of 2000 as a result of the withdrawal of LeadersOnline's IPO. This included a non-cash compensation charge of $12.2 million which represents the remainder of the non-cash compensation charge related to the issuance of options by LeadersOnline, at a price below the deemed fair market value for accounting purposes, at the time of issuance. The remaining $1.8 million is due to the write-off of expenses related to the planning of the IPO and is included in nonrecurring general and administrative charges.
(C) 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 on September 1, 1999. The merger costs consist of (1) a $2.0 million non-cash compensation 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 which are included in nonrecurring general and administrative charges.
(D) The Company incurred a $12.4 million nonrecurring compensation charge during the first quarter of 1999 as a result of the modification of the terms of the Mulder and Partner 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.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Sept 30, Dec 31, Sept 30,
2000 1999 1999
(unaudited) (unaudited)
Current assets:
Cash and cash equivalents $ 200,016 $ 76,848 $ 109,529
Accounts receivable, net of
allowance for doubtful accounts 126,801 83,162 86,207
Other receivables 7,837 4,241 3,349
Prepaid expenses 9,534 7,583 4,518
Deferred income taxes 22,771 19,881 15,228
Total current assets 366,959 191,715 218,831
Property and equipment, net 52,605 52,352 50,949
Other assets:
Cash and investments designated
for nonqualified retirement plans 15,129 32,702 31,521
Investments and other assets 21,658 11,772 5,896
Deferred income taxes 2,057 376 7,058
Goodwill & other intangibles, net 63,536 45,832 44,982
Total other assets 102,380 90,682 89,457
Total assets $ 521,944 $ 334,749 $ 359,237
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Sept 30, Dec 31, Sept 30,
2000 1999 1999
(unaudited) (unaudited)
Current liabilities:
Current maturities of long-term debt $ - $ 3,039 $ 3,893
Accounts payable 9,091 8,052 8,456
Accrued expenses-
Salaries and employee benefits 190,967 100,762 132,899
Other 26,186 14,964 17,990
Income taxes payable 9,337 10,891 5,997
Total current liabilities 235,581 137,708 169,235
Long-term debt, less current maturities - - 1,591
Liability for nonqualified
retirement plans 17,456 29,161 29,341
Stockholders' equity 268,907 167,880 159,070
Total liabilities and stockholders'
equity $ 521,944 $ 334,749 $ 359,237
CONSOLIDATED INCOME STATEMENT, AS ADJUSTED
HSII EXECUTIVE SEARCH, LEADERSONLINE AND EQUITY GAIN BREAKOUT
Three months ended September 30, 2000
(in thousands, except per share data)
(unaudited)
Executive
Consolidated LeadersOnline Search
Revenue $ 148,081 $ 5,742 $ 142,339
Operating expenses
Salaries and employee benefits 98,471 4,275(A) 94,196
General and administrative
expenses 34,983 4,278 30,705
Total operating expenses 133,454 8,553 124,901
Operating income (loss) 14,627 (2,811) 17,438
Non-operating income (expense):
Interest income 2,372 43 2,329
Interest expense (40) - (40)
Minority interest 51 51 -
Equity gains 2,709 - -
Other, net (242) (1) (241)
Net non-operating income 4,850 93 2,048
Income (loss) before income taxes 19,477 (2,718) 19,486
Provision for (benefit from)
income taxes 8,683 (864) 8,382
Net income (loss) $ 10,794 $ (1,854) $ 11,104
Diluted EPS $ 0.51 $ (0.09) $ 0.53
Diluted Shares Outstanding 20,980 20,980 20,980
EPS Reconciliation (unaudited)
Executive Search $ 0.53
LeadersOnline, excluding
non-cash compensation charge (0.04)
LeadersOnline non-cash
compensation charge (0.05)
Equity Gains 0.07
Consolidated - Total Company $ 0.51
(A) Includes a non-cash compensation charge of $0.8 million related to the issuance of optionsby LeadersOnline, at a price below the deemed fair market value for accounting purposes, at the time of issuance.
SOURCE Heidrick & Struggles International, Inc.
CONTACT: Barry Hollingsworth of Heidrick & Struggles, 312-496-1723 or bhollingsworth@heidrick.com