updated 2/22/2011 7:17:28 AM ET 2011-02-22T12:17:28

CHICAGO, Feb. 22, 2011 (GLOBE NEWSWIRE) -- Heidrick & Struggles International, Inc. (Nasdaq:HSII), the leadership advisory firm providing executive search and leadership consulting services worldwide, today announced financial results for its fourth quarter and year ended December 31, 2010.

2010 Fourth Quarter Results

Consolidated net revenue of $127.2 million increased 15.8 percent from $109.9 million in the 2009 fourth quarter, or approximately 16 percent on a constant currency basis. Net revenue increased 19.1 percent in the Americas, 7.8 percent in Europe (approximately 14 percent on a constant currency basis), and 19.3 percent in the Asia Pacific region (approximately 13 percent on a constant currency basis). Net revenue from Leadership Consulting Services increased 93.6 percent to $14.0 million and represented 11.0 percent of consolidated net revenue in the quarter.

Operating income in the quarter was $9.3 million and the operating margin (measured as a percentage of net revenue) was 7.3 percent, compared to operating income of $10.5 million and operating margin of 9.6 percent in the 2009 fourth quarter.

The number of executive search and leadership consulting consultants at December 31, 2010 was 347, compared to 359 at December 31, 2009, and 343 at September 30, 2010. Productivity, as measured by annualized net revenue per consultant, was $1.5 million compared to $1.2 million in the 2009 fourth quarter and $1.5 million in the 2010 third quarter. The number of executive search confirmations in the quarter increased 3.1 percent compared to the 2009 fourth quarter, but declined 1.3 percent compared to the 2010 third quarter. The average revenue per executive search was $112,600 compared to $104,900 in the 2009 fourth quarter and $114,200 in the 2010 third quarter.

Consolidated salaries and employee benefits increased 19.1 percent to $82.7 million, from $69.4 million in the comparable quarter of 2009. The increase mostly reflects higher bonus accruals associated with the increase in net revenue, but also includes an increase in base compensation and payroll taxes associated with an 8.3 percent increase in employee headcount as well as the restoration in 2010 of certain salaries and employee benefits that were eliminated in 2009 as part of cost cutting initiatives. Salaries and employee benefits were 65.0 percent of net revenue for the quarter, compared to 63.2 percent in the 2009 fourth quarter.

Consolidated general and administrative expenses increased 16.0 percent to $35.2 million from $30.3 million in the 2009 fourth quarter. The increase reflects a number of initiatives that the company believes will yield cost savings and increase productivity in the future, such as the outsourcing of a portion of its information technology, additional training and development programs, and the development of its proprietary search system. As a percentage of net revenue, consolidated general and administrative expenses remained flat at 27.6 percent relative to the 2009 fourth quarter. 

Net income was $5.2 million and diluted earnings per share were $0.29, based upon an effective tax rate in the quarter of 47.3 percent. In the 2009 fourth quarter, net income was $9.4 million and diluted earnings per share were $0.52, which reflected an effective tax rate of 11.4 percent.

Net cash generated by operating activities in the quarter was $60.6 million, compared to $47.3 million in the 2009 fourth quarter. Cash and cash equivalents at December 31, 2010 were $181.1 million, compared to $123.0 million at December 31, 2009, and $122.8 million at September 30, 2010.  

Regional Review            
             
$ in millions 4Q 10 4Q 09 Change 2010 2009 Change
Americas            
Net revenue $ 66.5 $ 55.9 $ 10.7 $ 255.7 $ 201.5 $ 54.2
Operating income $ 10.2 $ 12.3 $ (2.1) $ 40.3 $ 18.5 $ 21.8
Consultants 157 166 (9)      
             
Europe            
Net revenue $ 34.9 $ 32.4 $ 2.5 $ 127.3 $ 119.4 $ 7.8
Operating income (loss) $ 4.3 $ 1.9 $ 2.5 $ (0.6) $ 2.7 $ (3.3)
Consultants 116 116 0      
             
Asia Pacific            
Net revenue $ 25.8 $ 21.6 $ 4.2 $ 110.1 $ 74.7 $ 35.5
Operating income $ 6.3 $ 4.0 $ 2.3 $ 24.5 $ 9.5 $ 15.1
Consultants 74 77 (3)      
             
Global Operations Support $ (11.5) $ (8.0) $ (3.5) $ (46.1) $ (32.4) $ (13.8)
Restructuring charges $ -- $ (1.3) $ 1.3 $ (1.6) $ (26.7) $ 25.1
Other operating income $ -- $ 1.7 $ (1.7) $ 1.1 $ 1.7 $ (0.6)
Total operating income (loss) $ 9.3 $ 10.5 $ (1.2) $ 17.5 $ (26.7) $ 44.2
             
Totals and subtotals may not equal the sum of individual line items due to rounding.    

The Americas reported a 19.1 percent year-over-year increase in fourth quarter net revenue driven by strong growth in the Industrial and Global Technology & Services practices, as well as in Leadership Consulting Services. Fourth quarter operating income declined 16.9 percent year-over-year and the operating margin was 15.4 percent. Net revenue in the 2010 fourth quarter was essentially the same as in the 2010 third quarter.

Europe's fourth quarter net revenue increased 7.8 percent year-over-year (approximately 14 percent on a constant currency basis) driven by especially strong performance in Leadership Consulting Services. Operating income increased 134.1 percent and the operating margin improved to 12.5 percent. Compared to the 2010 third quarter, net revenue increased 25.2 percent.

The Asia Pacific region reported a 19.3 percent year-over-year increase in fourth quarter net revenue (approximately 13 percent on a constant currency basis) driven by especially strong growth in the Industrial and Education & Social Enterprise practice groups, as well as from Leadership Consulting Services. Operating income increased 57.7 percent and the operating margin improved to 24.5 percent. Compared to the 2010 third quarter, net revenue decreased 18.4 percent.

Expenses related to Global Operations Support of $11.5 million increased from $8.0 million in the 2009 fourth quarter. The increase reflects the restoration of certain salaries and employee benefits in 2010 that were eliminated in 2009 as part of cost cutting initiatives, professional services fees, severance, and search and corporate support previously provided primarily through the regions. 

2010 Results

For the year ended December 31, 2010, consolidated net revenue of $493.1 million increased 24.6 percent from $395.7 million in 2009, or approximately 23 percent on a constant currency basis. Net revenue increased 26.9 percent in the Americas region, 6.6 percent in Europe (approximately 9 percent on a constant currency basis), and 47.5 percent in Asia Pacific (approximately 39 percent on a constant currency basis). Net revenue from Leadership Consulting Services increased 52.7 percent to $39.6 million, representing 8.0 percent of total net revenue in 2010. 

There were 4,181 confirmed executive searches in 2010, a 14.5 percent increase compared to 2009. Productivity, as measured by 2010 net revenue per consultant, increased to $1.4 million, compared to $1.0 million in 2009, and the average fee per executive search increased to $108,500 compared to $101,000 in 2009. 

Operating income was $17.5 million (inclusive of $1.6 million of restructuring charges) and the operating margin was 3.6 percent. This compares to an operating loss of $26.7 million for the year ended December 31, 2009 (which included $26.7 million of restructuring and impairment charges). Net income in 2010 was $7.5 million and diluted earnings per share were $0.42, reflecting an effective tax rate of 55.8 percent. The reported net loss in 2009 was $20.9 million and the net loss per share was $1.24, reflecting an effective tax benefit rate of 29.6 percent. 

Commenting on 2010 results Chief Executive Officer L. Kevin Kelly said, "Following the historic drop in our business in 2009, we achieved a number of significant improvements in 2010. Search confirmations were up 15%, consolidated net revenue increased 25%, Leadership Consulting Services revenue increased 53%, and we achieved near-record consultant productivity levels. To improve our competitiveness and better position us for future growth, we invested heavily in hiring, development, and retention initiatives, as well as our business processes. These investments weighed on our margins, as did challenges we faced in Europe. However, our business in Europe is beginning to show improvement and we are confident that the investments we are making further position us as an integrated provider of leadership advisory services."  

2011 Outlook

The company expects that 2011 first quarter net revenue will be between $122 million and $128 million and that full year 2011 net revenue will be between $515 million and $545 million. The company is currently forecasting a 2011 first quarter operating margin of between 1 and 5 percent and a full year 2011 operating margin of between 6 and 10 percent. Net income and earnings per share in 2011 are expected to reflect a full-year effective tax rate of between 42 percent and 50 percent, but will be impacted by country-level results.   

Kelly added, "There are still mixed assessments of economic prospects around the world, but we expect growth in each of our regions, industry practice groups, and Leadership Consulting Services in 2011. Twenty-two new consultants have started to date in 2011 and we continue to recruit. We are delivering integrated solutions to our clients that address their leadership challenges. Simply put, Heidrick & Struggles is the leadership advisory firm helping the world be better led."

Quarterly Conference Call

Executives of Heidrick & Struggles will host a conference call to review the fourth quarter and 2010 results today, February 22, at 9:00 am Central time. Participants may access the company's call and supporting slides through the internet at www.heidrick.com . 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 International, Inc., (Nasdaq:HSII) is the leadership advisory firm providing senior-level executive search and leadership consulting services, including succession planning, executive assessment, talent retention management, executive development, transition consulting for newly appointed executives, and M&A human capital integration consulting. For almost 60 years, we have focused on quality service and built strong leadership teams through our relationships with clients and individuals worldwide. Today, Heidrick & Struggles leadership experts operate from principal business centers around the world. For more information about Heidrick & Struggles, please visit www.heidrick.com .

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: our ability to attract and retain qualified executive search consultants; further declines in the global economy and our ability to execute successfully through business cycles; the timing, speed or robustness of any future economic recovery; social or political instability in markets where we operate; the impact of foreign currency exchange rate fluctuations; price competition; the ability to forecast, on a quarterly basis, variable compensation accruals that ultimately are determined based on the achievement of annual results; our ability to realize our tax losses; the timing of the establishment or reversal of valuation allowance on deferred tax assets; the mix of profit and loss by country; an impairment of our goodwill and other intangible assets; delays in the development and/or implementation of new technology and systems; and the ability to meet and achieve the expected savings resulting from cost-reduction initiatives and restructuring activities. Our reports filed with the U.S. Securities and Exchange Commission also include information on factors that may affect the outcome of forward-looking statements. 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 Operations 
 (In thousands, except per share data) 
         
   Three Months Ended

December 31, 
   
  2010 2009  $ Change   % Change 
   (Unaudited)       
 Revenue:         
 Revenue before reimbursements (net revenue)   $ 127,223  $ 109,872  $ 17,351 15.8%
 Reimbursements   5,771  5,255  516 9.8%
 Total revenue   132,994  115,127  17,867 15.5%
         
 Operating expenses:         
 Salaries and employee benefits   82,729  69,435  13,294 19.1%
 General and administrative expenses   35,167  30,311  4,856 16.0%
 Reimbursed expenses   5,771  5,255  516 9.8%
 Restructuring and impairment charges   --  1,281  (1,281) -100.0%
 Other operating income  --  (1,661)  1,661  
 Total operating expenses   123,667  104,621  19,046 18.2%
 Operating income   9,327  10,506  (1,179) -11.2%
         
 Non-operating income:         
 Interest income, net   240  289    
 Other, net   272  (215)    
 Net non-operating income   512  74    
         
 Income before income taxes   9,839  10,580    
         
 Provision for income taxes   4,656  1,202    
         
 Net income   $ 5,183  $ 9,378    
         
         
 Basic weighted average common shares outstanding   17,548  17,070    
 Diluted weighted average common shares outstanding   17,893  17,958    
 Basic earnings per common share   $ 0.30  $ 0.55    
 Diluted earnings per common share   $ 0.29  $ 0.52    
 Salaries and employee benefits as a percentage of net revenue  65.0% 63.2%    
 General and administrative expense as a percentage of net revenue  27.6% 27.6%    
 Operating income as a percentage of net revenue  7.3% 9.6%    
 Effective tax rate  47.3% 11.4%    
 
Heidrick & Struggles International, Inc.
Segment Information
(In thousands)
(Unaudited)
             
  Three Months Ended December 31,
          2010 2009
  2010 2009 $ Change % Change Margin * Margin *
Revenue:            
Americas  $ 66,513  $ 55,861  $ 10,652 19.1%    
Europe  34,879  32,366  2,513 7.8%    
Asia Pacific  25,831  21,645  4,186 19.3%    
Revenue before reimbursements (net revenue)  127,223  109,872  17,351 15.8%    
Reimbursements  5,771  5,255  516 9.8%    
Total revenue  $ 132,994  $ 115,127  $ 17,867 15.5%    
             
             
Operating income (loss):            
Americas  $ 10,215  $ 12,298  $ (2,083) -16.9% 15.4% 22.0%
Europe  4,344  1,856  2,488 134.1% 12.5% 5.7%
Asia Pacific  6,316  4,004  2,312 57.7% 24.5% 18.5%
Total regions  20,875  18,158  2,717 15.0% 16.4% 16.5%
Global Operations Support  (11,548)  (8,032)  (3,516) -43.8%    
Operating income before restructuring and

impairment charges and other operating income
 9,327  10,126  (799) -7.9% 7.3% 9.2%
Restructuring and impairment charges  --   (1,281)  1,281      
Other operating income  --   1,661  (1,661)      
Operating income  $ 9,327  $ 10,506  $ (1,179) -11.2% 7.3% 9.6%
             
* Margin based on revenue before reimbursements (net revenue).
 
 Heidrick & Struggles International, Inc. 
 Consolidated Statements of Operations 
 (In thousands, except per share data) 
         
  Twelve Months Ended

December 31, 
   
  2010 2009  $ Change   % Change 
  (unaudited)      
 Revenue:         
 Revenue before reimbursements (net revenue)   $ 493,091  $ 395,651  $ 97,440 24.6%
 Reimbursements   20,145  19,067  1,078 5.7%
 Total revenue   513,236  414,718  98,518 23.8%
         
 Operating expenses (income):         
 Salaries and employee benefits   340,178  281,545  58,633 20.8%
 General and administrative expenses   130,622  115,758  14,864 12.8%
 Other charges   4,218  --  4,218  
 Reimbursed expenses   20,145  19,067  1,078 5.7%
 Restructuring and impairment charges   1,621  26,720  (25,099)  
 Other operating income   (1,072)  (1,661)  589  
 Total operating expenses   495,712  441,429  54,283 12.3%
 Operating income (loss)   17,524  (26,711)  44,235 165.6%
         
 Non-operating income (expense):         
 Interest income, net   813  1,201    
 Other, net   (1,389)  (4,189)    
 Net non-operating expense   (576)  (2,988)    
         
 Income (loss) before income taxes   16,948  (29,699)    
         
 Provision for (benefit from) income taxes   9,455  (8,791)    
         
 Net income (loss)   $ 7,493  $ (20,908)    
         
         
 Basic weighted average common shares outstanding   17,437  16,901    
 Diluted weighted average common shares outstanding   17,869  16,901    
 Basic earnings (loss) per common share   $ 0.43  $ (1.24)    
 Diluted earnings (loss) per common share   $ 0.42  $ (1.24)    
 Salaries and employee benefits as a percentage of net revenue  69.0% 71.2%    
 General and administrative expense as a percentage of net revenue  26.5% 29.3%    
 Operating income as a percentage of net revenue  3.6% n/a    
 Effective tax rate  55.8% 29.6%    
 
Heidrick & Struggles International, Inc.
Segment Information
(In thousands)
(Unaudited)
             
  Twelve Months Ended December 31,
          2010 2009
  2010 2009 $ Change % Change Margin * Margin *
Revenue:            
Americas  $ 255,690  $ 201,530  $ 54,160 26.9%    
Europe  127,267  119,441  7,826 6.6%    
Asia Pacific  110,134  74,680  35,454 47.5%    
Revenue before reimbursements (net revenue)  493,091  395,651  97,440 24.6%    
Reimbursements  20,145  19,067  1,078 5.7%    
Total revenue  $ 513,236  $ 414,718  $ 98,518 23.8%    
             
             
Operating income (loss):            
Americas  $ 40,307  $ 18,509  $ 21,798 117.8% 15.8% 9.2%
Europe  (604)  2,741  (3,345) -122.0%   2.3%
Asia Pacific  24,517  9,457  15,060 159.2% 22.3% 12.7%
Total regions  64,220  30,707  33,513 109.1% 13.0% 7.8%
Global Operations Support  (46,147)  (32,359)  (13,788) -42.6%    
Operating income (loss) before restructuring and

impairment charges and other operating income
 18,073  (1,652)  19,725 1194.0%    
Restructuring and impairment charges  (1,621)  (26,720)  25,099      
 Other operating income  1,072  1,661  (589)      
Operating income (loss)  $ 17,524  $ (26,711)  $ 44,235 165.6% 3.6%  
  `          
* Margin based on revenue before reimbursements (net revenue).
 
Heidrick & Struggles International, Inc.
Consolidated Balance Sheets
(In thousands)
     
  December 31,

2010
December 31,

2009
  (Unaudited)  
Current assets:    
Cash and cash equivalents  $ 181,124  $ 123,030
Restricted cash  393  2,402
Accounts receivable, net  83,360  64,224
Other receivables  7,724  7,964
Prepaid expenses  15,323  15,916
Other current assets  1,871  1,693
Income taxes recoverable  11,912  15,649
Deferred income taxes  10,759  10,576
Total current assets  312,466  241,454
     
Non-current assets:    
Property and equipment, net  34,406  26,092
Restricted cash  1,609  2,250
Assets designated for retirement and pension plans  23,647  25,502
Investments  11,021  10,417
Other non-current assets  8,593  6,843
Goodwill  109,888  109,010
Other intangible assets, net  6,480  8,636
Deferred income taxes  36,917  44,643
Total non-current assets  232,561  233,393
     
Total assets  $ 545,027  $ 474,847
     
Current liabilities:    
Accounts payable  $ 8,408  $ 5,948
Accrued salaries and employee benefits  124,969  65,096
Other current liabilities  34,064  37,812
Income taxes payable  3,208  3,070
Deferred income taxes   1,807  1,867
Total current liabilities  172,456  113,793
     
Non-current liabilities:    
Retirement and pension plans  30,907  31,687
Other non-current liabilities  47,015  38,476
Deferred income taxes  107  39
Total non-current liabilities  78,029  70,202
     
Stockholders' equity  294,542  290,852
     
Total liabilities and stockholders' equity  $ 545,027  $ 474,847
 
Heidrick & Struggles International, Inc.
Consolidated Statements of Cash Flows
(In thousands)
     
  Three Months Ended

December 31,
  2010 2009
  (Unaudited)  
     
     
Cash flows from operating activities:    
Net income  $ 5,183  $ 9,378
 Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization  2,260  2,905
Deferred income taxes  3,942  (3,893)
Net realized and unrealized losses on investments  492  223
Stock-based compensation expense  1,738  3,989
Other operating income  --   (1,661)
Impairment charge  --   231
Restructuring charges  --   1,050
Cash paid for restructuring charges  (621)  (1,581)
Changes in assets and liabilities, net of effects of acquisitions:    
Trade and other receivables  30,519  12,136
Accounts payable  (2,472)  (414)
Accrued expenses  14,141  15,267
Income taxes recoverable, net  2,409  3,720
Retirement and pension assets and liabilities  (1,362)  2,097
Prepayments  4,384  5,953
Other assets and liabilities, net  (14)  (2,090)
Net cash provided by operating activities  60,599  47,310
     
Cash flows from investing activities:    
Restricted cash  (142)  5,541
Capital expenditures  (1,498)  (2,221)
Other, net  --  72
Net cash provided by (used in) investing activities  (1,640)  3,392
     
Cash flows from financing activities:    
Cash dividends paid   (2,329)  (2,269)
Payment of employee tax withholdings on equity transactions  (16)  (269)
Net cash used in financing activities  (2,345)  (2,538)
     
Effect of exchange rate fluctuations on cash and cash equivalents  1,747  (428)
     
Net increase in cash and cash equivalents  58,361  47,736
Cash and cash equivalents at beginning of period  122,763  75,294
Cash and cash equivalents at end of period  $ 181,124  $ 123,030
 
Heidrick & Struggles International, Inc.
Consolidated Statements of Cash Flows
(In thousands)
     
  Twelve Months Ended

December 31,
  2010 2009
  (Unaudited)  
Cash flows from operating activities:    
Net income (loss)  $ 7,493  $ (20,908)
Adjustments to reconcile net income (loss) to net cash provided by

(used in) operating activities:
Depreciation and amortization  11,584  11,265
Write-off of investment  --  2,977
Write-off of software development project  --  1,329
Deferred income taxes  7,093  (10,107)
Net realized and unrealized losses on investments  1,509  2,054
Stock-based compensation expense  7,765  19,016
Other operating income  (1,072)  (1,661)
Impairment charge  --  4,080
Restructuring charges  1,621  22,640
Cash paid for restructuring charges  (3,439)  (25,020)
Changes in assets and liabilities, net of effects of acquisitions:    
Trade and other receivables  (17,211)  7,786
Accounts payable  2,203  (566)
Accrued expenses  65,162  (86,708)
Income taxes recoverable (payable), net  3,726  (4,848)
Retirement and pension assets and liabilities  (1,237)  2,097
Prepayments  672  4,397
Other assets and liabilities, net  (2,329)  (552)
Net cash provided by (used in) operating activities  83,540  (72,729)
     
Cash flows from investing activities:    
Restricted cash  2,620  5,058
Acquisition of businesses, net of cash acquired  (554)  (15,453)
Capital expenditures  (17,564)  (12,274)
Purchases of equity method investments  --  (1,300)
Other, net  --  90
Net cash used in investing activities  (15,498)  (23,879)
     
Cash flows from financing activities:    
Proceeds from stock options exercised  --  1,238
Cash dividends paid   (9,696)  (9,332)
Payment of employee tax withholdings on equity transactions  (4,585)  (3,386)
Net cash used in financing activities  (14,281)  (11,480)
     
Effect of exchange rate fluctuations on cash and cash equivalents  4,333  (3,413)
     
Net increase (decrease) in cash and cash equivalents  58,094  (111,501)
Cash and cash equivalents at beginning of period  123,030  234,531
Cash and cash equivalents at end of period  $ 181,124  $ 123,030
CONTACT: Investors & Analysts:
         Julie Creed, Vice President, Investor Relations
         & Real Estate:
         +1 312 496 1774 or jcreed@heidrick.com
         
         Media:
         Wendi Taylor Nations, Senior Vice President,
         Chief Marketing Officer:
         +1 312 496 1810 or wtaylornations@heidrick.com

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