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Heidrick & Struggles Reports First Quarter 2011 Financial Results

CHICAGO, Apr 26, 2011 (GlobeNewswire via COMTEX) --

Heidrick & Struggles International, Inc. (Nasdaq:HSII), the leadership advisory firm providing executive search and leadership consulting services worldwide, today announced financial results for its first quarter ended March 31, 2011.

Consolidated net revenue of $115.6 million increased 1.7 percent from $113.7 million in the 2010 first quarter. Year over year, net revenue increased 10.4 percent in the Americas, declined 16.0 percent in Europe (approximately 17 percent on a constant currency basis), and increased 5.3 percent in Asia Pacific (declined approximately 2 percent on a constant currency basis). Net revenue from Leadership Consulting Services increased 12.4 percent to $8.4 million and represented 7.3 percent of consolidated net revenue in the quarter.

The number of executive search and leadership consulting consultants at March 31, 2011 was 372, compared to 367 at March 31, 2010, and 347 at December 31, 2010. Productivity, as measured by annualized net revenue per consultant, was $1.3 million, compared to $1.2 million in the 2010 first quarter and $1.5 million in the 2010 fourth quarter. The number of executive search confirmations in the quarter decreased 1.6 percent compared to the 2010 first quarter, but increased 5.4 percent compared to the 2010 fourth quarter. The average revenue per executive search was $101,200 compared to $98,400 in the 2010 first quarter and $112,600 in the 2010 fourth quarter.

Consolidated salaries and employee benefits increased 6.3 percent to $88.4 million, from $83.1 million in the comparable quarter of 2010. The increase reflects higher fixed compensation expense including higher base compensation and payroll taxes associated with an 8.7 percent increase in employee headcount and merit salary increases, an increase in deferred cash compensation, the amortization of special recognition awards issued in the 2010 second quarter, and severance expense, partially offset by a decline in stock-based compensation expense. Salaries and employee benefits were 76.4 percent of net revenue for the quarter, compared to 73.1 percent in the 2010 first quarter.

Consolidated general and administrative expenses increased 4.1 percent to $31.3 million from $30.1 million in the 2010 first quarter. The largest components of the increase relate to the continued investment in developing the company's proprietary search system and the outsourcing of a portion of its information technology function. As a percentage of net revenue, consolidated general and administrative expenses were 27.1 percent, compared to 26.5 percent in the 2010 first quarter.

The operating loss in the quarter was $4.1 million compared to an operating loss of $3.8 million in the 2010 first quarter.

The net loss was $2.5 million and the net loss per share was $0.14, based upon an effective tax benefit rate in the quarter of 26.3 percent. In the 2010 first quarter, the net loss was $1.5 million and the net loss per share was $0.09, which reflected an effective tax benefit rate of 55.8 percent.

Net cash used in operating activities in the quarter was $80.2 million, compared to $32.2 million in the 2010 first quarter. Cash and cash equivalents at March 31, 2011 were $92.6 million compared to $81.2 million at March 31, 2010, and $181.1 million at December 31, 2010.

Chief Executive Officer L. Kevin Kelly said, "March confirmations were not as strong as we had projected, especially in the Financial Services practice, and this resulted in lower than anticipated revenue and operating margin in the first quarter. However, we are encouraged by April confirmations, which will be better than March, and do not believe that our first quarter results are indicative of what we believe is achievable in 2011. We expect confirmations to continue to improve as our new hires become more productive and market conditions improve. We remain committed to our goals for reducing general & administrative expenses and are encouraged by the first quarter decline of $3.8 million compared to the 2010 fourth quarter."

Regional Review


    $ in millions      1Q 11     1Q 10     Change     4Q 10     Change
                     ---------  --------  --------  ---------  ---------
  Americas
    Net revenue         $ 63.5    $ 57.5     $ 6.0     $ 66.5    $ (3.0)
    Operating
     income              $ 7.6     $ 4.4     $ 3.2     $ 10.2    $ (2.6)
    Consultants            170       165         5        157         13
  Europe
    Net revenue         $ 27.6    $ 32.8   $ (5.2)     $ 34.9    $ (7.3)
    Operating
     income (loss)     $ (2.1)   $ (4.0)     $ 1.9      $ 4.3    $ (6.4)
    Consultants            125       123         2        116          9
  Asia Pacific
    Net revenue         $ 24.6    $ 23.4     $ 1.2     $ 25.8    $ (1.3)
    Operating
     income              $ 2.5     $ 3.3   $ (0.8)      $ 6.3    $ (3.8)
    Consultants             77        79       (2)         74          3

  Global Operations
   Support            $ (12.2)   $ (7.5)     $ 4.7   $ (11.5)      $ 0.7


                     ---------  --------  --------  ---------  ---------
  Total operating
   income (loss)       $ (4.1)   $ (3.8)   $ (0.3)      $ 9.3   $ (13.4)
                     ---------  --------  --------  ---------  ---------

  Totals and subtotals may not equal the sum of individual line items
   due to rounding.

The Americas reported a 10.4 percent year-over-year increase in first quarter net revenue driven by strong growth in the Industrial and Global Technology & Services practices. First quarter operating income increased 73.8 percent year-over-year, and the operating margin was 12.0 percent.

Europe's first quarter year-over-year net revenue decline of 16.0 percent (approximately 17 percent on a constant currency basis) reflected weakness in the Financial Services Practice as well as the turnover of consultants in the second and third quarters of 2010 and new hires who are not yet fully productive. The operating loss was $2.1 million compared to an operating loss of $4.0 million in the 2010 first quarter. The 2010 first quarter operating loss of $4.0 million included $4.2 million of special charges.

The Asia Pacific region reported a 5.3 percent year-over-year increase in first quarter net revenue (approximately 2 percent decline on a constant currency basis). Revenue increases in the Industrial, Consumer Markets, Life Sciences, Education & Social Enterprise and Global Technology & Services practices, as well as Leadership Consulting, were all but offset by a decline in the Financial Services practice. Operating income declined 23.5 percent and the operating margin was 10.3 percent.

Expenses related to Global Operations Support of $12.2 million increased from $7.5 million in the 2010 first quarter. The increase reflects professional services fees, severance, and search and corporate support previously provided primarily through the regions.

2011 Outlook

The company expects that 2011 second quarter net revenue will be between $126 million and $136 million and that the operating margin will be between 4 and 8 percent. The company is forecasting that 2011 net revenue and operating margin will be within its previously disclosed ranges of $515 million to $545 million for net revenue and 6 percent to 10 percent for operating margin. 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 and tax planning initiatives.

Quarterly Conference Call

Executives of Heidrick & Struggles will host a conference call to review the first quarter 2011 results today, April 26, 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 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; our ability to develop and maintain strong, long-term relationships with our clients; 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 or improved technology and systems; and the ability to align our cost structure and headcount with net revenue. 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)
                                  (Unaudited)

                                      Three Months Ended

                                           March 31,
                                    ----------------------

                                                                         %
                                       2011        2010     $ Change   Change
                                    ----------  ----------  --------  -------

  Revenue:
   Revenue before reimbursements
    (net revenue)                    $ 115,622   $ 113,668   $ 1,954     1.7%

   Reimbursements                        5,257       4,686       571
                                    ----------  ----------  --------    12.2%
     Total revenue                     120,879     118,354     2,525     2.1%

  Operating expenses:
   Salaries and employee benefits       88,381      83,130     5,251     6.3%
   General and administrative
    expenses                            31,329      30,096     1,233     4.1%
   Other charges                            --       4,218   (4,218)  -100.0%

   Reimbursed expenses                   5,257       4,686       571
                                    ----------  ----------  --------    12.2%

     Total operating expenses          124,967     122,130     2,837
                                    ----------  ----------  --------     2.3%
     Operating loss                    (4,088)     (3,776)     (312)    -8.3%

  Non-operating income:
   Interest income, net                    295         228

   Other, net                              460          54
                                    ----------  ----------
     Net non-operating income              755         282

  Loss before income taxes             (3,333)     (3,494)


  Benefit from income taxes              (875)     (1,948)
                                    ----------  ----------


  Net loss                           $ (2,458)   $ (1,546)
                                    ==========  ==========


  Basic weighted average common
   shares outstanding                   17,627      17,186
  Diluted weighted average common
   shares outstanding                   17,627      17,186
  Basic loss per common share         $ (0.14)    $ (0.09)
  Diluted loss per common share       $ (0.14)    $ (0.09)
  Salaries and employee benefits
   as a percentage of net revenue        76.4%       73.1%
  General and administrative
   expense as a percentage of net
   revenue                               27.1%       26.5%
  Operating loss as a percentage
   of net revenue                        -3.5%       -3.3%
  Effective tax benefit rate             26.3%       55.8%



                     Heidrick & Struggles International, Inc.
                               Segment Information
                                 (In thousands)
                                   (Unaudited)


                                     Three Months Ended March 31,
                       --------------------------------------------------------
                                                                  2011    2010

                                                            %    Margin  Margin
                          2011        2010     $ Change  Change     *       *
                       ----------  ----------  --------  ------  ------  ------
  Revenue:
   Americas              $ 63,477    $ 57,514   $ 5,963   10.4%
   Europe                  27,566      32,803   (5,237)  -16.0%

   Asia Pacific            24,579      23,351     1,228
                       ----------  ----------  --------    5.3%
     Revenue before
      reimbursements
      (net revenue)       115,622     113,668     1,954    1.7%

   Reimbursements           5,257       4,686       571
                       ----------  ----------  --------   12.2%

     Total revenue      $ 120,879   $ 118,354   $ 2,525
                       ==========  ==========  ========    2.1%


  Operating income
   (loss):
   Americas               $ 7,648     $ 4,400   $ 3,248   73.8%   12.0%    7.7%
   Europe                 (2,057)     (3,990)     1,933   48.4%

   Asia Pacific             2,542       3,321     (779)
                       ----------  ----------  --------  -23.5%   10.3%   14.2%
     Total regions          8,133       3,731     4,402  118.0%    7.0%    3.3%
   Global Operations
    Support              (12,221)     (7,507)   (4,714)
                       ----------  ----------  --------  -62.8%

       Operating loss   $ (4,088)   $ (3,776)   $ (312)
                       ==========  ==========  ========   -8.3%
                       `
   * Margin based on revenue before reimbursements (net revenue).



        Heidrick & Struggles International, Inc.
         Condensed Consolidated Balance Sheets
                     (In thousands)

                                             December
                                March 31,      31,

                                  2011         2010
                               -----------  ----------
                               (Unaudited)
  Current assets:
   Cash and cash equivalents      $ 92,602   $ 181,124
   Restricted cash                     397         393
   Accounts receivable, net         94,520      83,360
   Other receivables                 7,434       7,724
   Prepaid expenses                 18,429      15,323
   Other current assets              1,572       1,871
   Income taxes recoverable         15,561      11,912

   Deferred income taxes            10,765      10,759
                               -----------  ----------

     Total current assets          241,280     312,466
                               -----------  ----------

  Non-current assets:
   Property and equipment,
    net                             37,884      34,406
   Restricted cash                   2,545       1,609
   Assets designated for
    retirement and pension
    plans                           25,069      23,647
   Investments                      11,495      11,021
   Other non-current assets          9,602       8,593
   Goodwill                        112,591     109,888
   Other intangible assets,
    net                              6,310       6,480

   Deferred income taxes            35,954      36,917
                               -----------  ----------

     Total non-current assets      241,450     232,561
                               -----------  ----------


  Total assets                   $ 482,730   $ 545,027
                               -----------  ----------

  Current liabilities:
   Accounts payable               $ 11,601     $ 8,408
   Accrued salaries and
    employee benefits               68,860     124,969
   Other current liabilities        34,682      34,064
   Income taxes payable              2,794       3,208

   Deferred income taxes             1,807       1,807
                               -----------  ----------
     Total current
      liabilities                  119,744     172,456
                               -----------  ----------

  Non-current liabilities:
   Retirement and pension
    plans                           33,218      30,907
   Other non-current
    liabilities                     38,791      47,015

   Deferred income taxes                99         107
                               -----------  ----------
     Total non-current
      liabilities                   72,108      78,029
                               -----------  ----------


  Stockholders' equity             290,878     294,542
                               -----------  ----------

  Total liabilities and
   stockholders' equity          $ 482,730   $ 545,027
                               -----------  ----------



              Heidrick & Struggles International, Inc.
               Consolidated Statements of Cash Flows
                           (In thousands)
                             (Unaudited)

                                              Three Months Ended

                                                   March 31,
                                            ----------------------

                                               2011        2010
                                            ----------  ----------

  Cash flows from operating activities:
   Net loss                                  $ (2,458)   $ (1,546)
   Adjustments to reconcile net loss to
    net cash used in operating activities:
     Depreciation and amortization               2,105       4,293
     Deferred income taxes                         657         611
     Net realized losses on investments            490         420
     Stock-based compensation expense            1,738       3,414
     Cash paid for restructuring charges         (481)     (1,255)
     Changes in assets and liabilities:
      Trade and other receivables              (9,500)    (19,836)
      Accounts payable                           2,696       (206)
      Accrued expenses                        (66,869)    (12,973)
      Income taxes payable, net                (3,980)     (3,504)
      Prepayments                              (2,688)     (1,325)

      Other assets and liabilities, net        (1,950)       (317)
                                            ----------  ----------
       Net cash used in operating
        activities                            (80,240)    (32,224)
                                            ----------  ----------

  Cash flows from investing activities:
   Restricted cash                               (872)         140
   Acquisition of businesses, net of cash
    acquired                                        --       (554)

   Capital expenditures                        (4,427)     (2,867)
                                            ----------  ----------
       Net cash used in investing
        activities                             (5,299)     (3,281)
                                            ----------  ----------

  Cash flows from financing activities:
   Cash dividends paid                         (2,572)     (2,706)
   Payment of employee tax withholdings on
    equity transactions                        (2,218)     (4,128)
                                            ----------  ----------
       Net cash used in financing
        activities                             (4,790)     (6,834)
                                            ----------  ----------

  Effect of exchange rate fluctuations on
   cash and cash equivalents                     1,807         480
                                            ----------  ----------

  Net decrease in cash and cash
   equivalents                                (88,522)    (41,859)
  Cash and cash equivalents at beginning
   of period                                   181,124     123,030
                                            ----------  ----------
  Cash and cash equivalents at end of
   period                                     $ 92,602    $ 81,171
                                            ==========  ==========

This news release was distributed by GlobeNewswire, www.globenewswire.com

SOURCE: Heidrick & Struggles International, Inc.

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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