Heidrick & Struggles International, Inc. (ticker: HSII, exchange: NASDAQ) News Release - 05-Nov-2001
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Heidrick & Struggles Reports 2001 Third Quarter Revenue and Earnings
CHICAGO, Nov. 5 /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 third quarter. The company reported a loss per share of $0.21 on an adjusted basis -- excluding a special charge of $0.07 per share related to the company's workforce reduction announced in June 2001, a net unrealized loss of $0.09 per share on a portion of the company's warrant portfolio, and a write-down of $0.32 per share for a long-term investment. The company's 2001 third quarter loss per share of $0.21 represented a decrease of $0.72 from diluted earnings per share of $0.51, on an adjusted basis, in the 2000 third quarter. Consolidated revenue was $104.6 million, a decrease of 29 percent from $148.1 million in the comparable quarter of 2000. The net loss -- also excluding the special charge, the net unrealized loss on a portion of the warrant portfolio, and the write-down of a long-term investment -- was $3.9 million, a decrease of $14.7 million from the net income of $10.8 million, on an adjusted basis, reported in last year's third quarter.
On a reported basis for the 2001 third quarter, the loss per share was $0.69, compared to a loss per share of $0.13 in the 2000 third quarter. The net loss was $13.0 million, compared to a net loss of $2.4 million in last year's third quarter.
"The overall business environment continues to have a significant impact on executive search. However, because of our world-renown reputation for providing top quality search services at the highest levels of our client organizations, we continue to experience solid demand at that level. In addition, our balance sheet puts us in an enviable position to weather this current economic storm and to react quickly when opportunities arise. As we told our investors last week, we are in the process of reshaping the firm to operate successfully in these difficult times and to prepare for an even stronger future," said Piers Marmion, Chief Executive Officer of Heidrick & Struggles International, Inc. "We are firmly committed to creating an organization characterized by the overarching principles of unmatched service for our clients and profitability for our company."
The consolidated operating loss in the 2001 third quarter was $5.7 million, excluding the special charge, compared to consolidated operating income of $14.6 million in the 2000 third quarter, which excludes a nonrecurring charge related to the withdrawal of the LeadersOnline initial public offering.
Consolidated salaries and employee benefits expense in the 2001 third quarter was $77.5 million, down 21 percent from $98.5 million in the comparable quarter last year. The decrease was due to lower accruals for performance-based compensation for management, support staff and consultants. In addition, the expense declined because of the renegotiation of certain minimum guarantees that resulted in their extension from a one-year to a three-year amortization period. Partially offsetting the decrease was higher fixed compensation and other costs related to an increase in the number of search teams on a year-over-year basis. Also, the quarter's results did not benefit from approximately $8 million in cost savings from the June 2001 workforce reduction; as previously disclosed, those savings were applied to year-end compensation accruals for top performers.
Consolidated general and administrative expense declined 6 percent to $32.9 million in the 2001 third quarter, compared to $35.0 million in the 2000 third quarter, due primarily to the implementation of additional cost controls at LeadersOnline.
The $0.21 loss per share in the 2001 third quarter includes $0.01 per 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 earnings per share of $0.03 from LeadersOnline.
During the 2001 third quarter, Heidrick & Struggles incurred a special charge of $2.3 million related to the workforce reduction announced in June 2001. Also during the third quarter the company wrote down its investment in SVIC -- incurring a non-cash charge of $9.8 million -- due to the economy's impact on Internet infrastructure start-up companies.
On January 1, 2001, Heidrick & Struggles adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its subsequent amendments. During the 2001 third quarter, the company recorded a net unrealized loss of $2.8 million, net of consultants' bonuses and administrative and other costs, due to changes in the fair value of the warrant portfolio in accordance with SFAS 133.
Note: All discussions on Executive Search and LeadersOnline exclude the special charges noted previously.
Executive Search Results
Revenue for Executive Search was $99.0 million in the 2001 third quarter, down 30 percent from $142.3 million in the 2000 third quarter. The operating loss, which includes corporate expenses, was $6.8 million in the 2001 third quarter, compared to operating income of $17.4 million a year ago. While confirmed searches decreased 38 percent from the 2000 third quarter, fees per search rose 12 percent because searches conducted for the highest levels of management positions represented a larger proportion of the mix. At September 30, 2001, the company employed 485 executive search consultants, an increase of 2 percent over 474 consultants as of September 30, 2000. Following the workforce reduction announced October 29, 2001, the total number of executive search consultants is expected to decrease by 66.
Revenue in North America was $54.6 million, a decrease of 38 percent from $87.8 million in the 2000 third quarter. All of the practices reported lower revenue in the quarter. The operating margin declined to 7.4 percent from 21.2 percent in the 2000 third quarter, due to the lower level of revenue coupled with increased fixed costs, particularly office space, related to a higher headcount for consultants and their search teams compared to the 2000 third quarter.
In Latin America, revenue was $3.7 million, a decrease of 25 percent from $4.9 million in the 2000 third quarter, as the region felt the continued effects of weakening economies. Excluding the impact of foreign currency translation into the U.S. dollar, revenue decreased 11 percent on a local currency basis from the comparable quarter in 2000. There was an operating loss of $702,000 in the 2001 third quarter, compared to operating income of $791,000 in the 2000 third quarter.
Revenue in Europe was $33.9 million, a decrease of 17 percent from $41.1 million in the 2000 third quarter. The impact of foreign currency translation into the U.S. dollar was minimal in the quarter. Strength in the Industrial, Education/Nonprofit, and Consumer practice groups was offset by declines in the other practices. There was an operating loss of $2.3 million in the 2001 third quarter, compared to operating income of $4.1 million in the comparable quarter last year, as revenue fell below the region's cost structure in the quarter.
In Asia Pacific, revenue was $6.8 million, a decrease of 20 percent from $8.5 million in the 2000 third quarter. Excluding the impact of foreign currency translation into the U.S. dollar, revenue decreased 12 percent on a local currency basis from the comparable quarter in 2000. The operating margin declined to 9.9 percent from 13.4 percent, principally because of the lower level of revenue.
LeadersOnline Results
Revenue for LeadersOnline was $5.6 million in the 2001 third quarter, a slight decrease from $5.7 million in the 2000 third quarter. Marking the first quarter LeadersOnline has reported a profit in its three-year history, operating income was $1.1 million in the 2001 third quarter as expenses for staff and marketing were reduced to align costs with revenue. This compared to a loss of $2.8 million in the 2000 third quarter, excluding a nonrecurring charge of $14.0 million related to the withdrawal of the LeadersOnline initial public offering.
The integration of LeadersOnline into the core executive search business will be completed by January 2002. The company is repositioning LeadersOnline as a practice group focused on emerging high potential executive talent.
Share Repurchase Program
During the 2001 third quarter, the company repurchased 967,500 shares of its common stock on the open market at an aggregate cost of $15.4 million. 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 a total of 1,445,000 shares at an aggregate cost of $27.7 million. As of September 30, 2001, the company had 18.0 million shares outstanding.
Nine Month Results
For the nine months ended September 30, 2001, diluted earnings per share -- excluding the special charges, the net unrealized loss on a portion of the warrant portfolio, the write-down of a long-term investment, and the cumulative effect of accounting change -- were $0.15, a decrease of 88 percent from $1.20 per diluted share in the comparable period last year. Revenue was $367.1 million, a decrease of 18 percent from $446.4 million in the first nine months of 2000. Net income was $3.1 million, excluding the items listed above, a decrease of 87 percent from $24.3 million in the comparable period of 2000.
On a reported basis for the nine months ended September 30, 2001, the consolidated loss per share was $0.40, a decrease of $0.95 from diluted earnings per share of $0.55 in the same period last year. The net loss was $7.6 million, a decrease of $18.7 million from net income of $11.1 million in the comparable period of 2000.
Consolidated Outlook for the 2001 Fourth Quarter and Full Year 2002
For the 2001 fourth quarter, the company currently believes revenue could be in the range of $95 million to $105 million, as the period typically is affected by the holiday season. At those revenue levels, the company estimates that 2001 fourth quarter results could range from losses per share of $0.33 to $0.11.
Heidrick & Struggles is in the preliminary stages of budget planning for 2002 and is presently taking the conservative view that there will be little improvement in the worldwide economy next year. The company considers 2002 to be a transition year. It expects that 2002 revenue will continue at approximately the 2001 third quarter run rate of $105 million, with modest profitability, as the company implements programs and processes that will enable margin acceleration when the economy strengthens.
Webcast of Investor Call Available
To review its 2001 third quarter financial results, the company will provide a real-time investor call webcast on Tuesday, November 6, at 9:00 a.m. (CST). The webcast will feature remarks by Don Kilinski, Chief Financial Officer, and Lynn McHugh, Managing Partner, 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.
Heidrick & Struggles International, Inc. is the world's premier provider of executive-level search and leadership consulting services. Currently, approximately 850 Heidrick & Struggles professionals operate from offices 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. For more information about Heidrick & Struggles, 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 achieve the planned cost savings from our restructuring initiatives; 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 September 30,
2001 2000 % Change
Revenue $104,618 $148,081 -29.4%
Operating expenses:
Salaries and employee benefits:
Salaries and employee benefits 77,465 98,471 -21.3%
Nonrecurring compensation charge (a) - 12,222 -
General and administrative expenses:
General and administrative expenses 32,873 34,983 -6.0%
Nonrecurring general and
administrative charge (a) - 1,753 -
Special charge (b) 2,272 - -
Total operating expenses 112,610 147,429 -23.6%
Operating income (loss) (7,992) 652 -
Non-operating income (expense):
Interest income 1,124 2,372 -52.6%
Interest expense (34) (40) -15.0%
Realized gains on investments 219 2,709 -91.9%
Net unrealized loss on derivative
instruments (c) (2,845) - -
Write-down of long-term investment (d) (9,760) - -
Other, net (14) (191) -92.7%
Net non-operating income (expense) (11,310) 4,850 -
Income (loss) before income taxes (19,302) 5,502 -
Provision for (benefit from) income
taxes (6,295) 7,930 -
Net loss $(13,007) $(2,428) 435.7%
Basic and diluted loss per common
share $(0.69) $(0.13) 430.8%
Basic and diluted weighted average
common shares outstanding 18,735 19,277 -2.8%
Proforma
Net income (loss) excluding nonrecurring
charges, special charge, write-down
of long-term investment and net
unrealized loss on derivative instruments $(3,949) $10,794 -
Proforma basic earnings (loss) per
common share $(0.21) $0.56 -
Proforma basic weighted average
shares outstanding 18,735 19,277 -2.8%
Proforma diluted earnings (loss) per
common share $(0.21) $0.51 -
Proforma diluted weighted average
shares outstanding 18,735 20,980 -10.7%
(a) 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.
(b) 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
$2.3 million ($0.07 per share) primarily for severance and related
costs in the third quarter.
(c) 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 third quarter of 2001, the Company recorded an unrealized
loss of $2.8 million, net of consultants' bonuses and administrative
and other costs, due to SFAS 133.
(d) During the third quarter of 2001, the Company wrote down its
investment in SVIC, incurring a charge of $9.8 million.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
Nine Months Ended September 30,
2001 2000 % Change
Revenue $367,057 $446,433 -17.8%
Operating expenses:
Salaries and employee benefits:
Salaries and employee benefits 245,105 299,134 -18.1%
Nonrecurring compensation charge (a) - 12,222 -
General and administrative
expenses:
General and administrative
expenses 118,942 115,726 2.8%
Nonrecurring general and
administrative charge (a) - 1,753 -
Special charges (b) 10,435 - -
Total operating expenses 374,482 428,835 -12.7%
Operating income (expense) (7,425) 17,598 -
Non-operating income (expense):
Interest income 4,604 5,722 -19.5%
Interest expense (113) (167) -32.3%
Realized gains on investments 867 7,313 -88.1%
Net unrealized loss on derivative
instruments (c) (5,514) - -
Write-down of long-term investment (d) (9,760) - -
Other, net (440) 81 -
Net non-operating income (expense) (10,356) 12,949 -
Income (loss) before income taxes and
cumulative effect of accounting change (17,781) 30,547 -
Provision for (benefit from) income taxes (5,641) 19,462 -
Net income (loss) before cumulative
effect of accounting change (12,140) 11,085 -
Cumulative effect of accounting
change, net of tax (c) 4,494 - -
Net income (loss) $(7,646) $11,085 -
Basic earnings (loss) per common share $(0.40) 0.59 -
Basic weighted average common shares
outstanding 19,115 18,856 1.4%
Diluted earnings (loss) per common share $(0.40) $0.55 -
Diluted weighted average common
shares outstanding 19,115 20,267 -5.7%
Proforma
Net income excluding nonrecurring
charges, special charges, net
unrealized loss on derivative
instruments, write-down of long-term
investment and cumulative effect of
accounting change $3,092 $24,307 -87.3%
Proforma basic earnings per common share $0.16 $1.29 -87.6%
Proforma basic weighted average
shares outstanding 19,115 18,856 1.4%
Proforma diluted earnings per common share $0.15 $1.20 -87.5%
Proforma diluted weighted average
shares outstanding 20,166 20,267 -0.5%
(a) 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.
(b) 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 special charges totaling $10.4 million primarily for severance and related costs.
(c) 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 nine months ended September 30, 2001, the Company recorded an unrealized loss of $5.5 million, net of consultants' bonuses and administrative and other costs due to SFAS 133.
(d) During the third quarter of 2001, the Company wrote down its investment in SVIC, incurring a charge of $9.8 million.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Sept. 30, Dec. 31, Sept. 30,
2001 2000 2000
(unaudited) (unaudited)
Current assets:
Cash and cash equivalents $126,209 $184,836 $200,016
Accounts receivable, net of allowance
for doubtful accounts 82,874 106,334 126,801
Other receivables 9,652 7,357 7,837
Prepaid expenses 16,716 11,783 9,534
Prepaid income taxes 10,622 - -
Deferred income taxes 26,308 26,071 22,771
Total current assets 272,381 336,381 366,959
Property and equipment, net 57,989 52,660 52,605
Other assets:
Cash and investments designated for
nonqualified retirement plans 16,969 16,506 15,129
Investments and other assets 23,690 45,097 21,658
Deferred income taxes 7,190 6,792 2,057
Goodwill & other intangibles, net 66,870 66,208 63,536
Total other assets 114,719 134,603 102,380
Total assets $445,089 $523,644 $521,944
Current liabilities:
Current maturities of long-term debt $2,401 $1,135 $ -
Accounts payable 15,061 10,051 9,091
Accrued expenses-
Salaries and employee benefits 115,975 160,552 190,967
Other 23,446 27,888 26,186
Income taxes payable - 16,415 9,337
Total current liabilities 156,883 216,041 235,581
Long-term debt, less current maturities 2,242 610 -
Liability for nonqualified retirement
plans 21,664 19,316 17,456
Stockholders' equity 264,300 287,677 268,907
Total liabilities and stockholders'
equity $445,089 $523,644 $521,944
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
SEGMENT INFORMATION
(In thousands, unaudited)
Three Months Ended September 30,
2001 2000
2001 2000 % Change Margin Margin
Revenue
Americas
North America $54,586 $87,837 -37.9%
Latin America 3,651 4,898 -25.5%
International
Europe 33,939 41,068 -17.4%
Asia Pacific 6,794 8,536 -20.4%
Total Executive Search 98,970 142,339 -30.5%
LeadersOnline 5,648 5,742 -1.6%
Total Company $104,618 $148,081 -29.4%
Operating Income (Loss)
Americas
North America $4,027 $18,663 -78.4% 7.4% 21.2%
Latin America (702) 791 - - 16.1%
International
Europe (2,308) 4,086 - - 9.9%
Asia Pacific 675 1,140 -40.8% 9.9% 13.4%
Total Executive Search 1,692 24,680 -93.1% 1.7% 17.3%
LeadersOnline 1,062 (16,786) -106.3% 18.8% -
Corporate (8,474) (7,242) 17.0% - -
Operating income (loss)
before special charge (5,720) 652 - - 0.4%
Special charge (2,272) - - - -
Total Company $(7,992) $652 - - 0.4%
Nine Months Ended September 30,
2001 2000
2001 2000 % Change Margin Margin
Revenue
Americas
North America $191,491 $261,420 -26.7%
Latin America 11,520 14,766 -22.0%
International
Europe 125,227 129,060 -3.0%
Asia Pacific 22,112 26,134 -15.4%
Total Executive Search 350,350 431,380 -18.8%
LeadersOnline 16,707 15,053 11.0%
Total Company $367,057 $446,433 -17.8%
Operating Income (Loss)
Americas
North America $18,417 $49,526 -62.8% 9.6% 18.9%
Latin America (1,297) 1,731 - - 11.7%
International
Europe 8,424 11,799 -28.6% 6.7% 9.1%
Asia Pacific 2,318 3,866 -40.0% 10.5% 14.8%
Total Executive Search 27,862 66,922 -58.4% 8.0% 15.5%
LeadersOnline (759) (25,305) -97.0% - -
Corporate (24,093) (24,019) 0.3% - -
Operating income before
special charges 3,010 17,598 -82.9% 0.8% 3.9%
Special charges (10,435) - - - -
Total Company $(7,425) $17,598 - - 3.9%
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SOURCE Heidrick & Struggles International, Inc.
Web site: http://www.heidrick.com/
CONTACT: Media, Eric Sodorff, +1-312-496-1613, esodorff@heidrick.com , or Analysts, Barry Hollingsworth,
+1-312-496-1723, bhollingsworth@heidrick.com , both of Heidrick &
Struggles International