Heidrick & Struggles : Reports Fourth Quarter and 2020 Results

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CHICAGO, Feb. 22, 2021 /PRNewswire/ — Heidrick & Struggles International, Inc. (Nasdaq: HSII) (“Heidrick & Struggles” or the “Company”), today announced financial results for its fourth quarter and fiscal year ended December 31, 2020.

Fourth Quarter Highlights:

  • Net revenue of $161.0 million increased 12.2% from 2020 third quarter trough
  • Restructuring charge of $4.3 million included in operating income of $8.5 million and operating margin of 5.3%
  • Adjusted operating income of $12.8 million up sequentially from $9.9 million and adjusted operating margin of 7.9% up 100 basis points sequentially
  • Adjusted EBITDA of $18.4 million up from $15.9 million in the 2020 third quarter and adjusted EBITDA margin up 40 basis points
  • General and administrative expenses of $27.4 million, or 17.0% of revenue, improved by $2.4 million sequentially from 20.7% of revenue and prior year quarter’s 19.9% of revenue
  • Net income of $5.5 million includes restructuring charge; adjusted net income of $11.6 million and adjusted diluted earnings per share of $0.59
  • Strong cash flow from operations of $96.3 million creating total liquidity of $506.1 million at year end

“Our fourth quarter results capped an unprecedented year throughout which our team demonstrated tremendous resilience while adapting our business for rapidly shifting market conditions,” stated Heidrick & Struggles’ President and Chief Executive Officer, Krishnan Rajagopalan. “Business trends improved from the third quarter trough, and we are encouraged by the current momentum.”

Mr. Rajagopalan concluded, “While near-term visibility remains more limited than normal, I am optimistic that 2021 will ultimately be a year of accomplishments for our firm as we emerge even stronger, generating enhanced revenue growth, profitability and cash flow. Consistent with our strategic plan, we are committed to capturing market share by going to market as one firm with an integrated value proposition. At the same time, we are actively moving forward with strategic long-term initiatives that will broaden our capabilities and services with new technology and data-driven offerings that leverage our core brand, while maintaining a strong balance sheet, paying our dividend and continuing to create long-term shareholder value.” 

2020 Fourth Quarter Results

Consolidated net revenue (revenue before reimbursements) was $161.0 million in the quarter compared to $180.0 million in the 2019 fourth quarter. Excluding the impact of exchange rate fluctuations which positively impacted results by $1.7 million, or 1.0%, consolidated net revenue declined $20.7 million.  The reduction  in net revenue was primarily due to the impact of the pandemic on a global basis.

On a sequential basis, net revenue increased 12.2% from the 2020 third quarter, as the Company experienced growth in both Executive Search and Heidrick Consulting driven by the Americas and Europe markets. 2020 fourth quarter adjusted operating income increased 29.5% and adjusted operating margin increased 100 basis points from the 2020 third quarter, driven by revenue growth and focused cost initiatives.  2020 fourth quarter adjusted net income was $11.6 million compared to $7.7 million in the 2020 third quarter, an increase of 51.3%. This generated adjusted diluted earnings per share in the 2020 fourth quarter of $0.59 compared to $0.39 in the 2020 third quarter.  

Executive Search net revenue was $146.3 million compared to $163.0 million in the 2019 fourth quarter. Excluding the impact of exchange rate fluctuations which positively impacted results by $1.4 million, or 1.0%, Executive Search net revenue declined $18.1 million.  Net revenue decreased 9.8% in the Americas (decreased 9.1% on a constant currency basis), increased 1.0% in Europe (decreased 3.9% on a constant currency basis) and decreased 26.9% in Asia Pacific (decreased 29.4% on a constant currency basis).  Growth in the Healthcare & Life Sciences and Global Technology Services practices was offset by reductions in the other industry practices.

There were 361 Executive Search consultants at December 31, 2020 compared to 380 at December 31, 2019 and 362 at September 30, 2020.  Productivity, as measured by annualized Executive Search net revenue per consultant, was $1.6 million compared to $1.7 million in the 2019 fourth quarter. The average revenue per executive search was $125,100 compared to $149,300 in the 2019 fourth quarter, while the number of confirmed searches increased 7.1% compared to the year-ago period. 

Heidrick Consulting net revenue was $14.7 million compared to $17.0 million in the 2019 fourth quarter. Excluding the impact from exchange rate fluctuations which positively impacted revenue by $0.2 million, or 1.5%, Heidrick Consulting net revenue decreased $2.6 million. On a sequential basis, net revenue increased 2.6% from the 2020 third quarter. There were 65 Heidrick Consulting consultants at December 31, 2020 compared to 71 at December 31, 2019 and 63 at September 30, 2020. 

Consolidated salaries and benefits expense decreased by 7.0%, or $9.1 million, to $120.8 million from $129.9 million in the 2019 fourth quarter. Fixed compensation expense decreased by $8.8 million primarily due to retirement and benefits, base salaries and payroll taxes and lower talent acquisition and retention costs, partially offset by increases in the deferred compensation plan. Variable compensation decreased $0.3 million due to lower revenue in the quarter. Salaries and benefits expense was 75.0% of net revenue for the quarter compared to 72.1% in the 2019 fourth quarter and 72.4% in the 2020 third quarter.

General and administrative expenses decreased by 23.5%, or $8.4 million, to $27.4 million from $35.8 million in the 2019 fourth quarter, primarily due to office occupancy, travel and entertainment and bad debt partially offset by an increase in other operating expense. As a percentage of net revenue, general and administrative expenses were 17.0% compared to 19.9% in the 2019 fourth quarter and 20.7% in the 2020 third quarter.

The Company recorded a restructuring charge of $4.3 million in the 2020 fourth quarter primarily related to a reduction in the firm’s real estate expenses. Including this charge, operating income was $8.5 million compared to $14.3 million in the 2019 fourth quarter. Operating margin was 5.3% in the 2020 fourth quarter compared to 7.9% in the 2019 fourth quarter.  Excluding the restructuring charge, adjusted operating income was $12.8 million and adjusted operating margin was 7.9%. 

Net income in the 2020 fourth quarter was $5.5 million and diluted earnings per share was $0.28 with an effective tax rate of 54.0%. This compares to net income of $10.6 million and diluted earnings per share of $0.54 with an effective tax rate of 34.6% in last year’s fourth quarter. Excluding the previously mentioned restructuring charge, adjusted net income was $11.6 million and adjusted diluted earnings per share was $0.59.

Net cash provided by operating activities was $96.3 million in the 2020 fourth quarter compared to $114.1 million in the 2019 fourth quarter.  Cash, cash equivalents and marketable securities at December 31, 2020 were $336.5 million, compared to $332.9 million at December 31, 2019, and $237.6 million at September 30, 2020.  The Company’s cash position typically builds throughout the year as bonuses are accrued, mostly to be paid out in the first quarter. 

Fiscal 2020 Results

Consolidated net revenue was $621.6 million compared to $706.9 million in 2019.  Excluding the impact of exchange rate fluctuations, which negatively impacted results by $0.9 million, 0.1%, consolidated net revenue decreased 11.9% or $84.5 million. The reduction in net revenue was primarily due to the impact of the pandemic on a global basis.

Executive Search net revenue was $565.2 million compared to $646.4 million in 2019. Excluding the impact of exchange rate fluctuations which negatively impacted results by 0.2%, net revenue decreased $80.1 million.  Net revenue decreased 13.0% in the Americas (or 12.5% on a constant currency basis), decreased 8.0% in Europe (decreased 9.1% on a constant currency basis), and was down 17.0% in Asia Pacific (decreased 16.6% on a constant currency basis).  Growth in the Healthcare & Life Sciences practice was offset by declines in the other industry practices.  Productivity was $1.5 million compared to $1.7 million in 2019.  The average revenue per executive search was $123,200 compared to $132,000 in 2019, while the number of executive searches confirmed declined 6.3%.

Heidrick Consulting net revenue was $56.4 million compared to $60.6 million in 2019.  Excluding the impact of exchange rate fluctuations which positively impacted results by $0.2 million, or 0.4%, Heidrick Consulting revenue declined 7.2%, or $4.4 million.

Consolidated salaries and benefits expense improved $51.4 million, or 10.2%, to $450.4 million in 2020 from $501.8 million in 2019. Fixed compensation expense improved $13.5 million due to retirement and benefits, and talent acquisition and retention costs, partially offset by an increase in base salaries and payroll taxes. Variable compensation improved $37.9 million, primarily due to the lower revenue for the year.  Salaries and benefits expense was 72.5% of net revenue in 2020 compared to 71.0% in 2019.

General and administrative expenses in 2020 declined 11.7%, or $16.1 million, to $121.4 million from $137.5 million in 2019. Savings were primarily due to a reduction in travel and entertainment, office occupancy and hiring fees partially offset by an increase in professional fees, information technology and bad debt. As a percentage of net revenue, general and administrative expenses were 19.5% compared to 19.4% in 2019.

In 2020 the Company recorded a restructuring charge of $52.4 million and a non-cash impairment charge of $33.0 million. In the 2019 third quarter, the Company recorded a restructuring charge of $4.1 million.

Including the charges recorded in both 2020 and 2019, operating loss was $35.5 million compared to operating income of $63.5 million in 2019. The operating margin was (5.7)% compared to 9.0% in 2019.  Excluding the charges in both periods, adjusted operating income in 2020 was $49.8 million and adjusted operating margin was 8.0%.  Adjusted EBITDA in 2020 was $70.3 million and adjusted EBITDA margin was 11.3%, compared to adjusted EBITDA of $89.1 million and adjusted EBITDA margin of 12.6% in 2019.

Net loss was $37.7 million and diluted loss per share was $1.95, with an effective tax rate of (20.1)%.  This compares to net income of $46.9 million and diluted earnings per share of $2.40 in 2019, with an effective tax rate of 32.4%.  Excluding the impairment charge and restructuring charges recorded in 2020, adjusted net income was $35.2 million and adjusted diluted earnings per share was $1.77 based on an adjusted effective tax rate of 34.7%.

Net cash provided by operating activities was $23.4 million compared to $78.6 million in 2019.

Dividend

The Board of Directors has declared a 2021 first quarter cash dividend of $0.15 per share payable on March 19, 2021 to shareholders of record at the close of business on March 5, 2021.  

2021 First Quarter Outlook

The Company expects 2021 first quarter consolidated net revenue of between $160 million and $170 million, while acknowledging the continued fluidity of the COVID-19 pandemic that will continue to impact quarterly results. In addition, this outlook is based on the average currency rates in December 2020 and reflects, among other factors, management’s assumptions for the anticipated volume of new Executive Search confirmations, Heidrick Consulting assignments, the current backlog, consultant productivity, consultant retention, and the seasonality of its business.

Quarterly Conference Call

Heidrick & Struggles will host a conference call to review its fourth quarter and 2020 results today, February 22 at 5:00 pm Eastern Time. Participants may access the Company’s call and supporting slides through its website at www.heidrick.com or by dialing (866) 211-4120, conference ID# 3173733.  For those unable to participate on the live call, a webcast and copy of the slides will be archived at www.heidrick.com and available for up to 30 days following the investor call.

About Heidrick & Struggles International, Inc.

Heidrick & Struggles (Nasdaq: HSII) serves the senior-level talent and leadership needs of the world’s top organizations as a trusted advisor across executive search, leadership assessment and development, organization and team effectiveness, and culture shaping services. Heidrick & Struggles pioneered the profession of executive search more than 65 years ago. Today, the firm provides integrated leadership solutions to help our clients change the world, one leadership team at a time.® www.heidrick.com

Non-GAAP Financial Measures

To supplement the financial results presented in accordance with generally accepted accounting principles in the United States (“GAAP”), Heidrick & Struggles presents certain non-GAAP financial measures. A “non-GAAP financial measure” is defined as a numerical measure of a company’s financial performance that excludes or includes amounts different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of comprehensive income, balance sheets or statements of cash flow of the Company. Pursuant to the requirements of Regulation G, this earnings release contains the most directly comparable GAAP financial measure to the non-GAAP financial measure.

The non-GAAP financial measures used within this earnings release are adjusted operating income, adjusted operating income margin, adjusted net income, adjusted basic and diluted earnings per share, adjusted effective tax rate, adjusted EBITDA, adjusted EBITDA margin and impacts of foreign currency on current period results using prior period translation rates.  These measures are presented because management uses this information to monitor and evaluate financial results and trends. Management believes this information is also useful for investors. Reconciliations of these non-GAAP financial measures with the most directly comparable measures calculated and presented in accordance with GAAP are provided as schedules attached to this release.

Adjusted operating income reflects the exclusion of restructuring charges for the three month period ended December 31, 2020, and impairment and restructuring charges for the twelve month periods ended December 31, 2020 and 2019.

Adjusted operating income margin refers to adjusted operating income as a percentage of net revenue in the same period.

Adjusted net income and adjusted diluted earnings per share reflect the exclusion of restructuring charges for the three month period ended December 31, 2020, and impairment and restructuring charges for the twelve month periods ended December 31, 2020 and 2019.

Adjusted effective tax rate reflects the exclusion of restructuring charges for the three month period ended December 31, 2020, and impairment and restructuring charges for the twelve month periods ended December 31, 2020 and 2019.

Adjusted EBITDA refers to earnings before interest, taxes, depreciation, intangible amortization, equity-settled stock compensation expense, earnout accretion expense related to acquisitions, contingent compensation related to acquisitions, impairment charges, restructuring charges and other non-operating income (expense). 

Adjusted EBITDA margin refers to adjusted EBITDA as a percentage of net revenue in the same period. 

The Company evaluates its results of operations on both an as reported and a constant currency basis.  The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. The Company believes providing constant currency information provides valuable supplemental information regarding its results of operations, consistent with how it evaluates its performance.  The Company calculates constant currency percentages by converting its financial results in a local currency for a period using the average exchange rate for the prior period to which it is comparing.  This calculation may differ from similarly-titled measures used by other companies.

Safe Harbor Statement

This press 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,” “projects,” “forecasts,” 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, the impacts, direct and indirect, of the COVID–19 pandemic on our business, our consultants and employees, and the overall economy; leadership changes, our ability to attract, integrate, develop, manage and retain qualified consultants and senior leaders; our ability to prevent our consultants from taking our clients with them to another firm; our ability to maintain our professional reputation and brand name; the fact that our net revenue may be affected by adverse economic conditions; our clients’ ability to restrict us from recruiting their employees; the aggressive competition we face; our heavy reliance on information management systems; the fact that we face the risk of liability in the services we perform; the fact that data security, data privacy and data protection laws and other evolving regulations and cross-border data transfer restrictions may limit the use of our services and adversely affect our business; social, political, regulatory and legal risks in markets where we operate; the impact of foreign currency exchange rate fluctuations; the fact that we may not be able to align our cost structure with net revenue; unfavorable tax law changes and tax authority rulings; our ability to realize our tax losses; the timing of the establishment or reversal of valuation allowance on deferred tax assets; any impairment of our goodwill, other intangible assets and other long-lived assets; our ability to execute and integrate future acquisitions; the fact that we have anti-takeover provisions that make an acquisition of us difficult and expensive; our ability to access additional credit; and the increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks that could pose a risk to our systems, networks, solutions, services and data. For more information on the factors that could affect the outcome of forward-looking statements, refer to our most recent Annual Report on Form 10-K under “Risk Factors” in Item 1A and as indicated in our other filings with the SEC. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Contacts:

Investors & Analysts:
Suzanne Rosenberg – Vice President, Investor Relations
+1 212 551 0554, [email protected]

Media:
Nina Chang – Vice President, Corporate Communications

 

Heidrick & Struggles

Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended
December 31,

2020

2019

$ Change

% Change

Revenue

Revenue before reimbursements (net revenue)

$

160,987

$

180,034

$

(19,047)

(10.6)

%

Reimbursements

1,200

4,615

(3,415)

(74.0)

%

   Total revenue

162,187

184,649

(22,462)

(12.2)

%

Operating expenses

Salaries and benefits

120,784

129,893

(9,109)

(7.0)

%

General and administrative expenses

27,408

35,846

(8,438)

(23.5)

%

Restructuring charges

4,257

4,257

NM

Reimbursed expenses

1,200

4,615

(3,415)

(74.0)

%

   Total operating expenses

153,649

170,354

(16,705)

(9.8)

%

Operating income

8,538

14,295

(5,757)

(40.3)

%

Non-operating income

Interest, net

44

841

Other, net

3,467

1,011

   Net non-operating income

3,511

1,852

Income before income taxes

12,049

16,147

Provision for income taxes

6,511

5,592

Net income

5,538

10,555

Other comprehensive income, net of tax

988

774

Comprehensive income

$

6,526

$

11,329

Weighted-average common shares outstanding

Basic

19,360

19,138

Diluted

19,865

19,507

Earnings per common share

Basic

$

0.29

$

0.55

Diluted

$

0.28

$

0.54

Salaries and benefits as a % of net revenue

75.0

%

72.1

%

General and administrative expenses as a % of net revenue

17.0

%

19.9

%

Operating margin

5.3

%

7.9

%

 

Heidrick & Struggles International Inc.

Segment Information

(In thousands)

(Unaudited)

Three Months Ended December 31,

2020

2019

$ Change

% Change

2020
Margin1

2019
Margin1

Revenue

Executive Search

Americas

$

96,328

$

106,755

$

(10,427)

(9.8)

%

Europe

32,135

31,826

309

1.0

%

Asia Pacific

17,857

24,433

(6,576)

(26.9)

%

Total Executive Search

146,320

163,014

(16,694)

(10.2)

%

Heidrick Consulting

14,667

17,020

(2,353)

(13.8)

%

Revenue before reimbursements (net revenue)

160,987

180,034

(19,047)

(10.6)

%

Reimbursements

1,200

4,615

(3,415)

(74.0)

%

Total revenue

$

162,187

$

184,649

$

(22,462)

(12.2)

%

Operating income (loss)

Executive Search

Americas²

$

21,906

$

26,622

$

(4,716)

(17.7)

%

22.7

%

24.9

%

Europe³

4,047

(762)

4,809

NM

12.6

%

(2.4)

%

Asia Pacific4

(171)

2,948

(3,119)

(105.8)

%

(1.0)

%

12.1

%

Total Executive Search

25,782

28,808

(3,026)

(10.5)

%

17.6

%

17.7

%

Heidrick Consulting5

(6,670)

(5,729)

(941)

(16.4)

%

(45.5)

%

(33.7)

%

Total segments

19,112

23,079

(3,967)

(17.2)

%

11.9

%

12.8

%

Global Operations Support6

(10,574)

(8,784)

(1,790)

(20.4)

%

(6.6)

%

(4.9)

%

Total operating income

$

8,538

$

14,295

$

(5,757)

(40.3)

%

5.3

%

7.9

%

1

Margin based on revenue before reimbursements (net revenue)

2

Includes restructuring charges of $2.9 million for the three months ended December 31, 2020.

3

Includes restructuring reversals of $1.0 million for the three months ended December 31, 2020.

4

Includes restructuring charges of $0.1 million for the three months ended December 31, 2020.

5

Includes restructuring charges of $0.2 million for the three months ended December 31, 2020.

6

Includes restructuring charges of $2.1 million for the three months ended December 31, 2020.

 

Heidrick & Struggles

Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share amounts)

(Unaudited)

Year Ended
December 31,

2020

2019

$ Change

% Change

Revenue

Revenue before reimbursements (net revenue)

$

621,615

$

706,924

$

(85,309)

(12.1)

%

Reimbursements

7,755

18,690

(10,935)

(58.5)

%

   Total revenue

629,370

725,614

(96,244)

(13.3)

%

Operating expenses

Salaries and benefits

450,424

501,791

(51,367)

(10.2)

%

General and administrative expenses

121,378

137,492

(16,114)

(11.7)

%

Impairment charges

32,970

32,970

NM

Restructuring charges

52,372

4,130

48,242

NM

Reimbursed expenses

7,755

18,690

(10,935)

(58.5)

%

   Total operating expenses

664,899

662,103

2,796

0.4

%

Operating income (loss)

(35,529)

63,511

(99,040)

(155.9)

%

Non-operating income

Interest, net

204

2,880

Other, net

3,927

2,898

   Net non-operating income

4,131

5,778

Income (loss) before income taxes

(31,398)

69,289

Provision for income taxes

6,309

22,420

Net income (loss)

(37,707)

46,869

Other comprehensive loss, net of tax

(407)

(238)

Comprehensive income (loss)

$

(38,114)

$

46,631

Weighted-average common shares outstanding

Basic

19,301

19,103

Diluted

19,301

19,551

Earnings (loss) per common share

Basic

$

(1.95)

$

2.45

Diluted

$

(1.95)

$

2.40

Salaries and benefits as a % of net revenue

72.5

%

71.0

%

General and administrative expenses as a % of net revenue

19.5

%

19.4

%

Operating margin

(5.7)

%

9.0

%

 

Heidrick & Struggles International Inc.

Segment Information

(In thousands)

(Unaudited)

Year Ended December 31,

2020

2019

$ Change

% Change

2020
Margin1

2019
Margin1

Revenue

Executive Search

Americas

$

361,416

$

415,455

$

(54,039)

(13.0)

%

Europe

124,243

135,070

(10,827)

(8.0)

%

Asia Pacific

79,511

95,827

(16,316)

(17.0)

%

Total Executive Search

565,170

646,352

(81,182)

(12.6)

%

Heidrick Consulting

56,445

60,572

(4,127)

(6.8)

%

Revenue before reimbursements (net revenue)

621,615

706,924

(85,309)

(12.1)

%

Reimbursements

7,755

18,690

(10,935)

(58.5)

%

Total revenue

$

629,370

$

725,614

$

(96,244)

(13.3)

%

Operating income (loss)

Executive Search

Americas2

$

62,806

$

100,833

$

(38,027)

(37.7)

%

17.4

%

24.3

%

Europe3

(22,827)

3,026

(25,853)

(854.4)

%

(18.4)

%

2.2

%

Asia Pacific4

(6,724)

13,590

(20,314)

(149.5)

%

(8.5)

%

14.2

%

Total Executive Search

33,255

117,449

(84,194)

(71.7)

%

5.9

%

18.2

%

Heidrick Consulting5

(28,369)

(18,499)

(9,870)

(53.4)

%

(50.3)

%

(30.5)

%

Total segments

4,886

98,950

(94,064)

(95.1)

%

0.8

%

14.0

%

Global Operations Support6

(40,415)

(35,439)

(4,976)

(14.0)

%

(6.5)

%

(5.0)

%

Total operating income (loss)

$

(35,529)

$

63,511

$

(99,040)

(155.9)

%

(5.7)

%

9.0

%

1

Margin based on revenue before reimbursements (net revenue).

2

Includes restructuring charges of $30.5 million and $4.1 million for the years ended December 31, 2020 and 2019, respectively.

3

Includes restructuring charges of $8.6 million and goodwill impairment charges of $24.5 million for the year ended December 31, 2020.

4

Includes restructuring charges of $4.6 million and goodwill impairment charges of $8.5 million for the year ended December 31, 2020.

5

Includes restructuring charges of $4.7 million for the year ended December 31, 2020.

6

Includes restructuring charges of $4.0 million and less than $0.1 million for the years ended December 31, 2020 and 2019, respectively.

 

Heidrick & Struggles International Inc.

Reconciliation of Operating Income (Loss) and Adjusted Operating Income (Non-GAAP)

(In thousands)

(Unaudited)

Three Months Ended
December 31,

Year Ended
December 31,

2020

2019

2020

2019

Revenue before reimbursements (net revenue)

$

160,987

$

180,034

$

621,615

$

706,924

Operating income (loss)

8,538

14,295

(35,529)

63,511

Adjustments

Impairment charges1

32,970

Restructuring charges2

4,257

52,372

4,130

   Total adjustments

4,257

85,342

4,130

Adjusted operating income

$

12,795

$

14,295

$

49,813

$

67,641

Operating margin

5.3

%

7.9

%

(5.7)

%

9.0

%

Adjusted operating margin

7.9

%

7.9

%

8.0

%

9.6

%

1

The Company incurred goodwill impairment charges of approximately $33.0 million related to its Europe and Asia Pacific reporting units for the year ended December 31, 2020.

2

The Company incurred restructuring charges of approximately $4.3 million across all operating segments for the three months ended December 31, 2020. The Company incurred restructuring charges of approximately $52.4 million and $4.1 million across all operating segments for the years ended December 31, 2020 and 2019, respectively.

 

Heidrick & Struggles International Inc.

Reconciliation of Net Income (Loss) and Adjusted Net Income (Non-GAAP)

(In thousands)

(Unaudited)

Three Months Ended
December 31,

Year Ended
December 31,

2020

2019

2020

2019

Net income (loss)

$

5,538

$

10,555

$

(37,707)

$

46,869

Adjustments

Impairment charges, net of tax1

32,970

Restructuring charges, net of tax2

6,093

39,956

3,768

   Total adjustments

6,093

72,926

3,768

Adjusted net income

$

11,631

$

10,555

$

35,219

$

50,637

Weighted-average common shares outstanding

Basic

19,360

19,138

19,301

19,103

Diluted

19,865

19,507

19,893

19,551

Earnings (loss) per common share

Basic

$

0.29

$

0.55

$

(1.95)

$

2.45

Diluted

$

0.28

$

0.54

$

(1.95)

$

2.40

Adjusted earnings per common share

Basic

$

0.60

$

0.55

$

1.82

$

2.65

Diluted

$

0.59

$

0.54

$

1.77

$

2.59

1

The Company incurred goodwill impairment charges of approximately $33.0 million related to its Europe and Asia Pacific reporting units for the year ended December 31, 2020.

2

The Company incurred restructuring charges of approximately $4.3 million across all operating segments for the three months ended December 31, 2020. The Company incurred restructuring charges of approximately $52.4 million and $4.1 million across all operating segments for the years ended December 31, 2020 and 2019, respectively.

 

Heidrick & Struggles International Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

December 31,
2020

December 31,
2019

Current assets

Cash and cash equivalents

$

316,473

$

271,719

Marketable securities

19,999

61,153

Accounts receivable

88,123

109,163

Prepaid expenses

18,956

20,185

Other current assets

23,279

27,848

Income taxes recoverable

5,856

4,414

   Total current assets

472,686

494,482

Non-current assets

Property and equipment, net

23,492

28,650

Operating lease right-of-use assets

92,671

99,391

Assets designated for retirement and pension plans

14,425

13,978

Investments

31,369

25,409

Other non-current assets

24,439

20,434

Goodwill

91,643

126,831

Other intangible assets, net

1,129

1,935

Deferred income taxes

35,958

33,063

   Total non-current assets

315,126

349,691

Total assets

$

787,812

$

844,173

Current liabilities

Accounts payable

$

8,799

$

8,633

Accrued salaries and benefits

217,908

234,306

Deferred revenue

38,050

41,267

Operating lease liabilities

28,984

30,955

Other current liabilities

23,311

26,253

Income taxes payable

1,186

3,928

   Total current liabilities

318,238

345,342

Non-current liabilities

Accrued salaries and benefits

56,925

59,662

Retirement and pension plans

53,496

46,032

Operating lease liabilities

86,816

79,388

Other non-current liabilities

4,735

4,634

   Total non-current liabilities

201,972

189,716

Total liabilities

520,210

535,058

Stockholders’ equity

267,602

309,115

Total liabilities and stockholders’ equity

$

787,812

$

844,173

 

Heidrick & Struggles International Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended
December 31,

2020

2019

Cash flows – operating activities

Net income

$

5,538

$

10,555

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization

6,018

2,388

Deferred income taxes

(2,380)

1,668

Stock-based compensation expense

3,053

3,048

Accretion expense related to earnout payments

173

Gain on marketable securities

(10)

(242)

Loss on disposal of property and equipment

(2)

Changes in assets and liabilities:

Accounts receivable

32,260

43,860

Accounts payable

(2,358)

(850)

Accrued expenses

51,263

55,121

Restructuring accrual

(3,810)

(803)

Deferred revenue

204

62

Income taxes payable, net

7,444

(1,498)

Retirement and pension plan assets and liabilities

490

1,434

Prepaid expenses

2,871

465

Other assets and liabilities, net

(4,323)

(1,317)

Net cash provided by operating activities

96,258

114,064

Cash flows – investing activities

Capital expenditures

(201)

(711)

Purchases of available-for-sale investments

(236)

(47,265)

Proceeds from sales of available-for-sale investments

47,219

28,806

Net cash provided by (used in) investing activities

46,782

(19,170)

Cash flows – financing activities

Cash dividends paid

(3,044)

(2,969)

Net cash used in financing activities

(3,044)

(2,969)

Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash

5,916

3,422

Net increase in cash, cash equivalents and restricted cash

145,912

95,347

Cash, cash equivalents and restricted cash at beginning of period

170,577

176,372

Cash, cash equivalents and restricted cash at end of period

$

316,489

$

271,719

 

Heidrick & Struggles International Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Year Ended
December 31,

2020

2019

Cash flows – operating activities

Net income (loss)

$

(37,707)

$

46,869

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization

26,656

10,371

Deferred income taxes

(1,680)

1,644

Stock-based compensation expense

10,199

10,298

Accretion expense related to earnout payments

668

Gain on marketable securities

(154)

(595)

Loss on disposal of property and equipment

287

Impairment charges

32,970

Changes in assets and liabilities:

Accounts receivable

22,644

6,899

Accounts payable

451

(994)

Accrued expenses

(26,513)

2,441

Restructuring accrual

2,479

1,959

Deferred revenue

(3,688)

175

Income taxes recoverable and payable, net

(4,016)

(5,450)

Retirement and pension plan assets and liabilities

1,794

3,258

Prepaid expenses

1,642

(455)

Other assets and liabilities, net

(2,011)

1,557

Net cash provided by operating activities

23,353

78,645

Cash flows – investing activities

Acquisition of business, net of cash acquired

(3,520)

Capital expenditures

(7,322)

(3,352)

Purchases of available-for-sale investments

(118,904)

(130,411)

Proceeds from sales of available-for-sale investments

158,852

67,968

Net cash provided by (used in) investing activities

32,626

(69,315)

Cash flows – financing activities

Proceeds from line of credit

100,000

Payments on line of credit

(100,000)

Cash dividends paid

(12,063)

(11,835)

Payment of employee tax withholdings on equity transactions

(1,550)

(4,552)

Acquisition earnout payments

(2,789)

(1,853)

Net cash used in financing activities

(16,402)

(18,240)

Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash

5,193

367

Net increase (decrease) in cash, cash equivalents and restricted cash

44,770

(8,543)

Cash, cash equivalents and restricted cash at beginning of period

271,719

280,262

Cash, cash equivalents and restricted cash at end of period

$

316,489

$

271,719

 

Heidrick & Struggles International Inc.

Reconciliation of Net Income (Loss) and Operating Income (Loss) to Adjusted EBITDA (Non-GAAP)

(In thousands)

(Unaudited)

Three Months Ended
December 31,

Year Ended
December 31,

2020

2019

2020

2019

Revenue before reimbursements (net revenue)

$

160,987

$

180,034

$

621,615

$

706,924

Net income (loss)

5,538

10,555

(37,707)

46,869

Interest, net

(44)

(841)

(204)

(2,880)

Other, net

(3,467)

(1,011)

(3,927)

(2,898)

Provision for income taxes

6,511

5,592

6,309

22,420

Operating income (loss)

8,538

14,295

(35,529)

63,511

Adjustments

Stock-based compensation expense

3,038

3,028

9,679

9,818

Depreciation

1,906

2,146

8,100

9,462

Intangible amortization

153

242

738

909

Earnout accretion

173

668

Acquisition contingent consideration

460

604

1,942

604

Restructuring charges

4,257

52,372

4,130

Impairment charges

32,970

Total adjustments

9,814

6,193

105,801

25,591

Adjusted EBITDA

$

18,352

$

20,488

$

70,272

$

89,102

Adjusted EBITDA margin

11.4

%

11.4

%

11.3

%

12.6

%

 

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