Heidrick & Struggles International, Inc. (ticker: HSII, exchange: NASDAQ) News Release - 01-Aug-2001
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Heidrick & Struggles Reports 2001 Second Quarter Revenue and Earnings
Weakening Economy Affects Results in All Regions of the World Despite Solid
Demand for CEO-level Searches
CHICAGO, Aug. 1 /PRNewswire/ -- Heidrick & Struggles International, Inc. (Nasdaq: HSII), the world's premier executive search and leadership consulting firm, today announced its financial results for the 2001 second quarter. Diluted earnings per share were $0.07 on an adjusted basis -- excluding a special charge of $0.24 per share related to the company's workforce reduction announced in June 2001, and a net unrealized loss of $0.04 per share on a portion of the company's warrant portfolio. The company's second quarter 2001 diluted earnings per share of $0.07 represented a decrease of 86 percent from $0.49 per diluted share in the 2000 second quarter. Consolidated revenue was $123.2 million, a decrease of 26 percent from $166.4 million in the comparable quarter of 2000. Excluding the impact of foreign currency translation into the U.S. dollar, revenue decreased 24 percent on a local currency basis from the 2000 second quarter. Net income, also excluding the special charge and the net unrealized loss on a portion of the warrant portfolio, was $1.4 million, a decrease of 86 percent from $10.0 million in last year's second quarter. "Adjusted basis" results exclude the special charge and net unrealized gains/losses on investments.
"Demand for CEOs and other critical leadership positions remains solid among our client organizations around the world. Below the most senior level positions, however, business in the U.S. continues to be difficult and now is being compounded further by a softening of business in other regions of the world. In Europe, we're being affected both by an economic slowdown as well as unfavorable valuations of European currencies against the U.S. dollar," said Patrick S. Pittard, Chairman, President and Chief Executive Officer of Heidrick & Struggles International (HSI Group). "It's also worth mentioning that we're faced with difficult comparisons against the 2000 second quarter, which was extraordinarily robust in the dot-com sector. This year, business in that sector is practically absent."
Consolidated operating income in the 2001 second quarter was $881,000 on an adjusted basis, compared to $13.2 million in the 2000 second quarter. Consolidated salaries and employee benefits were $80.6 million, down 26 percent from $108.3 million in the 2000 second quarter. The decrease was due to lower accruals for performance-based compensation for management, support staff and consultants. The reduced level of revenue, as well as an adjustment to the anticipated target payout to consultants for the year, were factors in the lower accrual amounts. The decrease was partially offset by higher fixed compensation and other costs related to the increase in the number of search teams added during the past twelve months. Consolidated general and administrative expenses declined 7 percent to $41.7 million in the 2001 second quarter, compared to $44.9 million in the 2000 second quarter, due to the implementation of additional cost controls at LeadersOnline.
Diluted earnings per share in the 2001 second quarter include $0.01 per diluted share in realized gains from the sale of equity in connection with the warrant program, net of consultants' bonuses and administrative and other costs, and a loss of less than $0.01 per share incurred by LeadersOnline.
During the second quarter, HSI Group announced a strategic reduction of its workforce, in order to adjust better to current economic conditions, while retaining the resources necessary to capitalize on growth opportunities when the economy recovers. At the time of the announcement, the company estimated it would incur a charge of between $9 million and $10 million for severance and related costs. As a result of the workforce reduction, the company incurred a special charge of $8.2 million, or $0.24 per share, during the 2001 second quarter. The company expects to incur the additional charge of approximately $2 million in the 2001 third quarter.
On January 1, 2001, HSI Group adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its subsequent amendments. During the three months ended June 30, 2001, the company recorded a net unrealized loss of $1.2 million, net of consultants' bonuses and administrative and other costs, due to the implementation of SFAS 133.
On a reported basis for the 2001 second quarter -- which includes the special charge of $0.24 per share as well as the net unrealized loss of $0.04 per share on a portion of the warrant portfolio -- the loss per share was $0.21, compared to diluted earnings per share of $0.49 in the 2000 second quarter. The net loss was $4.0 million, compared to net income of $10.0 million in last year's second quarter.
Executive Search Results
Revenue for Executive Search was $117.3 million in the 2001 second quarter, down 27 percent from $160.3 million in the 2000 second quarter. Operating income was $8.9 million in the 2001 second quarter, down 64 percent from a year ago. Although fewer searches were conducted overall, CEO searches represented a greater than typical proportion of the total. While confirmed searches decreased 40 percent from the 2000 second quarter, fees per search rose 21 percent because of this change in the mix. At June 30, 2001, the company employed 492 executive search consultants, representing an increase of 15 percent over 427 consultants as of June 30, 2000, and a 10 percent decrease from 546 consultants as of March 31, 2001.
Revenue in North America was $66.8 million, a decrease of 32 percent from $98.8 million in the 2000 second quarter. Strength in the Health Care practice group was offset by declines in most of the other practices. The operating margin declined to 10.6 percent from 18.0 percent in the 2000 second quarter, due in part to a decrease in revenue coupled with increased fixed costs related to a higher headcount for consultants and their search teams compared to the 2000 second quarter.
In Latin America, revenue was $3.5 million, a decrease of 35 percent from $5.4 million in the 2000 second quarter, as the region felt the effects of a weakening U.S. economy. Excluding the impact of foreign currency translation into the U.S. dollar, revenue decreased 25 percent on a local currency basis from the comparable quarter in 2000. There was an operating loss of $378,000 in the 2001 second quarter, compared to operating income of $825,000 in the comparable quarter last year.
Revenue in Europe was $39.5 million, a decrease of 15 percent from $46.6 million in the 2000 second quarter. Excluding the impact of foreign currency translation into the U.S. dollar, revenue decreased 9 percent on a local currency basis from the comparable quarter in 2000. Gains posted by the Professional Services practice group were offset by declines reported by most of the other practices. Lower revenue significantly affected the operating margin, which decreased to 3.3 percent from 10.2 percent.
In Asia Pacific, revenue was $7.4 million, a decrease of 22 percent from $9.5 million in the 2000 second quarter. Excluding the impact of foreign currency translation into the U.S. dollar, revenue decreased 13 percent on a local currency basis from the comparable quarter in 2000. The operating margin declined to 12.2 percent from 16.2 percent.
LeadersOnline Results
Revenue for LeadersOnline was $5.8 million in the 2001 second quarter, a decrease of 4 percent from $6.1 million in the 2000 second quarter. LeadersOnline reported an operating loss of $135,000 versus an operating loss of $4.3 million in the 2000 second quarter. Losses were less than $0.01 per share compared to $0.13 per share in the 2000 second quarter and $0.05 per share in the 2001 first quarter. The company's goal remains to break even no later than the 2001 third quarter; however, the state of the economy will be the major factor in the company's ability to achieve this goal.
Share Repurchase Program
During the 2001 second quarter, the company repurchased 452,500 shares of its common stock on the open market. In March 2001, the Heidrick & Struggles Board of Directors authorized company management to repurchase up to two million shares of Heidrick & Struggles common stock from time to time on the open market over the next two years. Since the inception of this program, the company has repurchased an aggregate of 477,500 shares. As of June 30, 2001, the company had 18.9 million shares outstanding.
Six Month Results
For the six months ended June 30, 2001, diluted earnings per share on an adjusted basis were $0.34, a decrease of 50 percent from $0.68 per diluted share in the comparable period last year. Revenue was $262.4 million, a decrease of 12 percent from $298.4 million in the first six months of 2000. Excluding the impact of foreign currency translation into the U.S. dollar, revenue decreased 9 percent on a local currency basis from the same period last year. On an adjusted basis, net income was $7.0 million, a decrease of 48 percent from $13.5 million in the 2000 comparable period.
On a reported basis for the six months ended June 30, 2001, consolidated diluted earnings per share were $0.26, a decrease of 62 percent from $0.68 per diluted share in the same period last year. Net income was $5.4 million, a decrease of 60 percent from $13.5 million in the 2000 comparable period.
Consolidated Outlook for the 2001 Third Quarter
Given the unsettled nature of the economy around the world, and its impact on the decisions among Heidrick & Struggles' clients to initiate searches, revenue and earnings visibility for the 2001 third quarter continues to be limited.
For the 2001 third quarter, the company currently believes revenue could be in the range of $105 million to $120 million. At those revenue levels, the company estimates that 2001 third quarter results could range from a loss per share of $0.23 to diluted earnings per share of $0.05.
"In July, revenue was slightly below June and there is little reason to believe that August will be significant to the quarter. In Europe, much business is placed on hold due to structured vacations, and business activity typically returns in late August and September," said Pittard. "It's difficult to discern any patterns from our revenue on a week-to-week basis since some weeks are strong while others are not. Therefore, we remain conservative in our outlook."
Webcast of Investor Call Available
To review its 2001 second quarter financial results, the company will provide a real-time investor call webcast on Thursday, August 2, at 9:00 a.m. (CDT). The webcast will feature remarks by Don Kilinski, Chief Financial Officer, and Lynn McHugh, Managing Partner of Finance and Investor Relations. The live webcast will be available online at http://www.heidrick.com/ . A replay will be available for up to 30 days following the investor call.
About Heidrick & Struggles International, Inc. (HSI Group)
Heidrick & Struggles International, Inc. (HSI Group) is the world's premier provider of executive-level search and leadership 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. For nearly 50 years, our core business -- Heidrick & Struggles Executive Search -- has specialized 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, nonprofit 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-enhanced recruiting business, serves clients who seek the next generation of corporate leaders. We are capitalizing on our access and influence with the highest levels of our client organizations through Heidrick & Struggles Ventures, our unit responsible for other complementary businesses, alliances and investments. For more information about HSI Group, visit our web site at http://www.heidrick.com/ .
Safe Harbor Statement
This news 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," 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 ability to attract and retain qualified executive search consultants; a continuing economic downturn in the United States or a material economic downturn in Europe or elsewhere, or social or political instability in overseas markets; bad debt write-offs far in excess of allowances for doubtful accounts; continued increased acceptance of online recruiting; losses in our venture capital investments; an inability to control expenses; and delays in the development and/or implementation of new technology and systems. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
Three Months Ended June 30,
2001 2000 % Change
Revenue $123,171 $166,416 -26.0%
Operating expenses:
Salaries and employee benefits 80,550 108,263 -25.6%
General and administrative expenses 41,740 44,933 -7.1%
Special charge (A) 8,163 - -
Total operating expenses 130,453 153,196 -14.8%
Operating income (loss) (7,282) 13,220 -
Non-operating income (expense):
Interest income 1,419 1,833 -22.6%
Interest expense (38) (52) -26.9%
Realized gains on investments 394 3,082 -87.2%
Net unrealized loss on derivative
instruments (B) (1,194) - -
Other, net (264) 98 -
Net non-operating income 317 4,961 -93.6%
Income (loss) before income taxes (6,965) 18,181 -
Provision for (Benefit from) income
taxes (2,995) 8,183 -
Net income (loss) $(3,970) $9,998 -
Basic earnings (loss) per common
share $(0.21) $0.52 -
Basic weighted average common shares
outstanding 19,244 19,211 0.2%
Diluted earnings (loss) per common
share $(0.21) $0.49 -
Diluted weighted average common
shares outstanding 19,244 20,497 -6.1%
Proforma
Net Income excluding special charge
and unrealized loss on derivative
instruments $1,363 $9,998 -86.4%
Diluted earnings per common share
excluding special charge and
unrealized loss on derivative
instruments $0.07 $0.49 -85.7%
Proforma diluted weighted average
shares outstanding 20,347 20,497 -0.7%
(A) During the second quarter of 2001, the Company announced a strategic reduction of its workforce in order to adjust to current economic conditions, while retaining the resources necessary to capitalize on growth opportunities when the economy recovers. As a result of this workforce reduction, the Company incurred a special charge of $8.2 million ($0.24 per share on a diluted basis) for severance and related costs.
(B) On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", and its subsequent amendments. During the second quarter of 2001, the Company recorded an unrealized loss of $1.2 million, net of consultants' bonuses and administrative and other costs due to SFAS 133.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
Six Months Ended June 30,
2001 2000 % Change
Revenue $262,439 $298,352 -12.0%
Operating expenses:
Salaries and employee benefits 167,640 200,663 -16.5%
General and administrative expenses 86,069 80,743 6.6%
Special charge (A) 8,163 - -
Total operating expenses 261,872 281,406 -6.9%
Operating income 567 16,946 -96.7%
Non-operating income (expense):
Interest income 3,480 3,350 3.9%
Interest expense (79) (127) -37.8%
Realized gains on investments 648 4,604 -85.9%
Net unrealized loss on derivative
instruments (B) (2,669) - -
Other, net (426) 272 -
Net non-operating income 954 8,099 -88.2%
Income before income taxes and
cumulative effect of accounting
change 1,521 25,045 -93.9%
Provision for income taxes 654 11,532 -94.3%
Net income before cumulative effect
of accounting change 867 13,513 -93.6%
Cumulative effect of accounting
change, net of tax (B) 4,494 - -
Net income $5,361 $13,513 -60.3%
Basic earnings per common share $0.28 $0.72 -61.1%
Basic weighted average common shares
outstanding 19,309 18,643 3.6%
Diluted earnings per common share $0.26 $0.68 -61.8%
Diluted weighted average common
shares outstanding 20,458 19,906 2.8%
Proforma
Net Income excluding special charge,
unrealized loss on derivative
instruments and cumulative effect of
accounting change $7,041 $13,513 -47.9%
Diluted earnings per common share
excluding special charge and
unrealized loss on derivative
instruments $0.34 $0.68 -50.0%
Proforma diluted weighted average
shares outstanding 20,458 19,906 2.8%
(A) During the second quarter of 2001, the Company announced a strategic reduction of its workforce in order to adjust to current economic conditions, while retaining the resources necessary to capitalize on growth opportunities when the economy recovers. As a result of this workforce reduction, the Company incurred a special charge of $8.2 million ($0.23 per share on a diluted basis) for severance and related costs.
(B) On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", and its subsequent amendments. As a result the Company recorded a transition adjustment of $4.5 million, net of consultants' bonuses, administrative and other costs, and taxes. In addition, for the six months ended June 30, 2001, the Company recorded an unrealized loss of $2.7 million, net of consultants' bonuses and administrative and other costs due to SFAS 133.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31, June 30,
2001 2000 2000
(unaudited) (unaudited)
Current assets:
Cash and cash equivalents $133,369 $184,836 $144,214
Accounts receivable, net of
allowance for doubtful accounts 90,298 106,334 125,987
Other receivables 7,346 7,357 6,813
Prepaid expenses 12,636 11,783 9,742
Deferred income taxes 28,783 26,071 21,107
Total current assets 272,432 336,381 307,863
Property and equipment, net 53,645 52,660 55,708
Other assets:
Cash and investments designated for
nonqualified retirement plans 15,628 16,506 32,076
Investments and other assets 38,149 45,097 26,731
Deferred income taxes 5,878 6,792 1,371
Goodwill & other intangibles, net 64,104 66,208 64,329
Total other assets 123,759 134,603 124,507
Total assets $449,836 $523,644 $488,078
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Current liabilities:
Current maturities of long-term debt $269 $1,135 $ -
Accounts payable 18,376 10,051 10,598
Accrued expenses-
Salaries and employee benefits 96,177 160,552 141,008
Other 22,870 27,888 21,483
Income taxes payable 2,661 16,415 8,466
Total current liabilities 140,353 216,041 181,555
Long-term debt, less current
maturities 511 610 -
Liability for nonqualified retirement
plans 19,818 19,316 28,399
Other long-term liabilities - - 2,072
Stockholders' equity 289,154 287,677 276,052
Total liabilities and
stockholders' equity $449,836 $523,644 $488,078
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
SEGMENT INFORMATION
(In thousands, unaudited)
Three Months Ended June 30,
2001 2000
2001 2000 % Change Margin Margin
Revenue
Americas
North America $66,825 $98,784 -32.4%
Latin America 3,534 5,441 -35.0%
International
Europe 39,544 46,608 -15.2%
Asia Pacific 7,435 9,476 -21.5%
Total Executive Search 117,338 160,309 -26.8%
LeadersOnline 5,833 6,107 -4.5%
Total Company $123,171 $166,416 -26.0%
Operating Income (Loss)
Americas
North America $7,102 $17,777 -60.0% 10.6% 18.0%
Latin America (378) 825 - - 15.2%
International
Europe 1,296 4,751 -72.7% 3.3% 10.2%
Asia Pacific 909 1,536 -40.8% 12.2% 16.2%
Total Executive Search 8,929 24,889 -64.1% 7.6% 15.5%
LeadersOnline (135) (4,333) -96.9% - -
Corporate (7,913) (7,336) 7.9% - -
Operating income before
special charge 881 13,220 -93.3% 0.7% 7.9%
Special charge (8,163) - - - -
Total Company $(7,282) $13,220 - - 7.9%
Six Months Ended June 30,
2001 2000
2001 2000 % Change Margin Margin
Revenue
Americas
North America $136,905 $173,583 -21.1%
Latin America 7,869 9,868 -20.3%
International
Europe 91,288 87,992 3.7%
Asia Pacific 15,318 17,598 -13.0%
Total Executive Search 251,380 289,041 -13.0%
LeadersOnline 11,059 9,311 18.8%
Total Company $262,439 $298,352 -12.0%
Operating Income (Loss)
Americas
North America $14,390 $30,863 -53.4% 10.5% 17.8%
Latin America (595) 940 - - 9.5%
International
Europe 10,732 7,713 39.1% 11.8% 8.8%
Asia Pacific 1,643 2,726 -39.7% 10.7% 15.5%
Total Executive Search 26,170 42,242 -38.0% 10.4% 14.6%
LeadersOnline (1,821) (8,519) -78.6% - -
Corporate (15,619) (16,777) -6.9% - -
Operating income before
special charge 8,730 16,946 -48.5% 3.3% 5.7%
Special charge (8,163) - - - -
Total Company $567 $16,946 -96.7% 0.2% 5.7%
SOURCE Heidrick & Struggles International, Inc.
Web site: http://www.heidrick.com/
CONTACT: Media, Eric Sodorff, +1-312-496-1613, esodorff@heidrick.com , or Analyst
Barry Hollingsworth, +1-312-496-1723, bhollingsworth@h-s.com , both of
Heidrick & Struggles International, Inc.