PR Newswire | Jul 27, 2020 04:01PM EDT

07/27 15:01 CDT

Heidrick & Struggles Announces Second Quarter 2020 Results- Maintains $0.15 Per Share Cash Dividend -- Implementing Initiatives to Generate $30 Million to $40 Million of Annual Cost Savings - CHICAGO, July 27, 2020

CHICAGO, July 27, 2020 /PRNewswire/ -- Heidrick & Struggles International, Inc. (Nasdaq: HSII), today announced financial results for its second quarter ended June 30, 2020.

Highlights:

* Net revenue of $145.6 million * Operating loss of $24.0 million and operating margin of (16.5%) reflect a non-cash impairment charge of $33.0 million * Adjusted operating income of $9.0 million and adjusted operating margin of 6.2% * Adjusted EBITDA of $12.4 million and adjusted EBITDA margin of 8.5% * Liquidity of $360.3 million at quarter-end * Implementing restructuring plan in 2020 third quarter to optimize future growth and profitability * Expect annual cost savings of $30 million to $40 million

"I'm very pleased with the way our people have risen to the occasion and the resilience they have demonstrated in serving the needs of our clients throughout these unprecedented times. Our second quarter results underscore continued demand for our services even in a challenging environment as the 'new normal' begins to emerge," stated Heidrick & Struggles' President and Chief Executive Officer, Krishnan Rajagopalan. "We are encouraged by the growth in confirmations in June across all regions in Executive Search and Heidrick Consulting, and this trend has continued into July. Additionally, we are adjusting our cost structure and improving efficiencies to address the ongoing pressure on the global economy, while further promoting our long-term ability to capitalize on our industry-leading platform, strong balance sheet, and compelling growth opportunities. While the environment is volatile and much uncertainty remains about the duration and impact of the pandemic, our focus is steadfast on creating shareholder value through serving our clients as a trusted global advisor, especially during these unprecedented times."

2020 Second Quarter Results

Consolidated net revenue (revenue before reimbursements) was $145.6 million in the quarter compared to $173.1 million in the 2019 second quarter. Excluding the impact of exchange rate fluctuations which impacted results by 1.4%, consolidated net revenue declined $25.5 million. The reduction in net revenue was primarily due to the impact of the pandemic on a global basis.

Executive Search net revenue was $134.2 million compared to $158.5 million in the 2019 second quarter. Excluding the impact of exchange rate fluctuations of $2.0 million, or 1.4%, Executive Search net revenue declined $22.4 million. Net revenue decreased 15.6% in the Americas (decreased 15.0% on a constant currency basis), decreased 13.6% in Europe (decreased 11.4% on a constant currency basis) and decreased 17.2% in Asia Pacific (decreased 14.7% on a constant currency basis). Growth in the Healthcare & Life Sciences and Social Impact industry practices was offset by reductions in the other industry practices.

There were 394 Executive Search consultants at June 30, 2020 compared to 371 at June 30, 2019 and 396 at March 31, 2020. Productivity, as measured by annualized Executive Search net revenue per consultant, was $1.4 million compared to $1.7 million in the 2019 second quarter. The average revenue per executive search increased 13.9% to $141,500 compared to $124,200 in the 2019 second quarter, while the number of confirmed searches decreased 25.7% compared the year-ago period.

Heidrick Consulting net revenue was $11.4 million compared to $14.6 million in the 2019 second quarter. Excluding the impact from exchange rate fluctuations of 1.0%, Heidrick Consulting net revenue decreased $3.0 million. There were 68 Heidrick Consulting consultants at June 30, 2020 compared to 68 at June 30, 2019 and 70 at March 31, 2020.

Consolidated salaries and benefits expense decreased by 13.2%, or $15.9 million, to $104.7 million from $120.6 million in the 2019 second quarter. Fixed compensation expense decreased by $2.2 million primarily due to lower talent acquisition and retention costs, stock compensation and other benefit expenses, such as retirement, partially offset by increases in the deferred compensation plan and base salaries and payroll taxes. Variable compensation decreased $13.8 million due to lower revenue in the quarter. Salaries and benefits expense was 71.9% of net revenue for the quarter compared to 69.7% in the 2019 second quarter.

General and administrative expenses decreased by 6.5%, or $2.2 million, to $32.0 million from $34.2 million in the 2019 second quarter, primarily due to travel and entertainment, office occupancy and the use of external third-party consultants partially offset by an increase in bad debt. As a percentage of net revenue, general and administrative expenses were 22.0% compared to 19.7% in the 2019 second quarter.

In the second quarter, the company recorded a non-cash impairment charge of $33.0 million to adjust the carrying value of goodwill to fair value for its Asia Pacific and Europe operations. This non-cash impairment charge does not impact the company's normal business operations, cash flow from operating activities, free cash flow, liquidity, or availability under its credit facilities.

Including the non-cash impairment charge, operating loss was $24.0 million compared to operating income of $18.4 million in the 2019 second quarter, and operating margin was (16.5)% compared to 10.6%. Excluding the non-cash impairment charge, adjusted operating income in the 2020 second quarter was $9.0 million and the adjusted operating margin was 6.2%. Adjusted EBITDA in the 2020 second quarter was $12.4 million compared to $24.0 million in the 2019 second quarter. Adjusted EBITDA margin was 8.5% compared to 13.9% in the 2019 second quarter.

Net loss was $25.7 million and diluted loss per share was $1.33 with an effective tax rate of (21.1)% in the quarter. This compares to net income of $14.3 million and diluted earnings per share of $0.73 with an effective tax rate of 26.7% in last year's second quarter. Excluding the impairment charge, adjusted net income was $7.2 million and adjusted diluted earnings per share was $0.37 based on an adjusted effective tax rate of 38.3%.

Net cash provided by operating activities increased 22% to $40.8 million in the 2020 second quarter compared to $33.4 million in the 2019 second quarter. Cash, cash equivalents and marketable securities at June 30, 2020 were $287.8 million, compared to $332.9 million at December 31, 2019, and $144.0 million at June 30, 2019. The company's cash position typically builds throughout the year as bonuses are accrued, mostly to be paid out in the first quarter.

2020 Six Months Results

For the six months ended June 30, 2020 consolidated net revenue was $317.1 million compared to $344.7 million in the first six months of 2019. Excluding the impact of exchange rate fluctuations, which negatively impacted results by 1.2%, or $4.0 million, consolidated net revenue decreased 6.9% or $23.7 million.

Executive Search net revenue in the first six months of 2020 was $289.6 million from $316.9 million in the first six months of 2019. Excluding the impact of exchange rate fluctuations which negatively impacted results by 1.3%, or $3.8 million, net revenue decreased $23.5 million. Net revenue decreased 7.3% in the Americas (or 6.8% on a constant currency basis), decreased 7.6% in Europe (decreased 5.4% on a constant currency basis), and was down 15.1% in Asia Pacific (decreased 12.5% 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 for the first six months of 2020 compared to $1.7 million in the first six months of 2019. The average revenue per executive search increased to $128,400 in the first six months of 2020 from $123,900 the same period in 2019, while the number of executive searches confirmed declined 11.7%.

Heidrick Consulting net revenue in the first six months of 2020 declined 1.4%, or $0.4 million, to $27.5 million from $27.9 million in the first six months of 2019. Excluding the impact of exchange rate fluctuations, Heidrick Consulting revenue declined 0.7%, or $0.2 million.

Operating loss for the first six months of 2020 was $5.8 million compared to operating income of $34.7 million in the same period of 2019. The operating margin was (1.8)% compared to 10.1% in the first six months of 2019. Excluding the non-cash impairment charge recorded in the 2020 second quarter, adjusted operating income for the first six months of 2020 was $27.1 million and the adjusted operating margin was 8.6%. Adjusted EBITDA for the first six months of 2020 was $36.1 million and adjusted EBITDA margin was 11.4%, compared to adjusted EBITDA of $44.7 million and adjusted EBITDA margin of 13.0% for the same period in 2019.

Net loss for the first six months of 2020 was $17.1 million and diluted loss per share was $0.89, with an effective tax rate of (149.0)%. This compares to net income of $26.4 million and diluted earnings per share of $1.35 in the first six months of 2019, with an effective tax rate of 31.2%. Excluding the impairment charge, adjusted net income was $15.9 million and adjusted diluted earnings per share was $0.81 based on an adjusted effective tax rate of 39.1%.

2020 Third Quarter Outlook

Given the continued uncertainty due to the COVID-19 pandemic, the Company is not providing financial guidance for the 2020 third quarter.

Restructuring

In the third quarter, the Company is implementing a restructuring plan to optimize future growth and profitability. The expected annual cost savings from the restructuring ranges from $30 million to $40 million. The primary components of the restructuring include a workforce reduction; a reduction of the firm's real estate expenses, professional fees and the future elimination of certain deferred compensation programs. In connection with this restructuring plan, the Company expects to record pre-tax charges of approximately $30 million to $40 million in the 2020 third quarter.

Dividend

The Board of Directors has declared a 2020 third quarter cash dividend of $0.15 per share payable on August 21, 2020 to shareholders of record at the close of business on August 7, 2020.

Quarterly Conference Call

Heidrick & Struggles will host a conference call to review its 2020 second quarter results today, July 27 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# 4242978. 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.(r) 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 impairment charges for the three and six months ended June 30, 2020.

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 impairment charges for the three and six month periods ended June 30, 2020.

Adjusted effective tax rate reflects the exclusion of impairment charges for the three and six months ended June 30, 2020

A reconciliation of adjusted operating income, adjusted operating margin, adjusted net income, adjusted basic and diluted earnings per share and adjusted effective tax rate with the most directly comparable measure calculated and presented in accordance with GAAP is provided in this release.

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, 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. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. For more information on the factors that could affect the outcome of forward-looking statements, refer to our Annual Report on Form 10-K under "Risk Factors" in Item 1A and our quarterly filings with the SEC. We caution the reader that the list of factors may not be exhaustive. 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, srosenberg@heidrick.com

Media:Nina Chang - Vice President, Corporate Communications+1 212 551 1634, nchang@heidrick.com

Heidrick & Struggles

Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share amounts)

(Unaudited)



Three Months Ended June 30,

2020 2019 $ Change % Change

Revenue

Revenue before reimbursements (net revenue) $145,603 $173,122 $(27,519)(15.9)%

Reimbursements 2,232 5,051 (2,819) (55.8)%

Total revenue 147,835 178,173 (30,338) (17.0)%



Operating expenses

Salaries and benefits 104,658 120,601 (15,943) (13.2)%

General and administrative expenses 31,961 34,168 (2,207) (6.5) %

Impairment charges 32,970 - 32,970 NM

Reimbursed expenses 2,232 5,051 (2,819) (55.8)%

Total operating expenses 171,821 159,820 12,001 7.5 %



Operating income (loss) (23,986) 18,353 (42,339) NM



Non-operating income (expense)

Interest, net (339) 412

Other, net 3,076 708

Net non-operating income (expense) 2,737 1,120



Income (loss) before income taxes (21,249) 19,473



Provision for income taxes 4,484 5,193



Net income (loss) (25,733) 14,280



Other comprehensive income (loss), net of tax 1,501 5



Comprehensive income (loss) $(24,232) $14,285



Weighted-average common shares outstanding

Basic 19,298 19,120

Diluted 19,298 19,431



Earnings (loss) per common share

Basic $(1.33) $0.75

Diluted $(1.33) $0.73



Salaries and benefits as a % of net revenue 71.9 %69.7 %

General and administrative expenses as a % of net revenue22.0 %19.7 %

Operating margin (16.5) %10.6 %

Heidrick & Struggles International Inc.

Segment Information

(In thousands)

(Unaudited)



Three Months Ended June 30,

2020 2019 2020 2019 $ Change % Change Margin^1 Margin^1

Revenue

Executive Search

Americas $84,840 $100,517$(15,677)(15.6) %

Europe 30,124 34,864 (4,740) (13.6) %

Asia Pacific 19,190 23,163 (3,973) (17.2) %

Total Executive Search 134,154 158,544 (24,390) (15.4) %

Heidrick Consulting 11,449 14,578 (3,129) (21.5) %

Revenue before reimbursements (net revenue)145,603 173,122 (27,519) (15.9) %

Reimbursements 2,232 5,051 (2,819) (55.8) %

Total revenue $147,835 $178,173$(30,338)(17.0) %





Operating income (loss)

Executive Search

Americas $23,102 $28,551 $(5,449) (19.1) %27.2 %28.4 %

Europe^2 (23,067) 1,157 (24,224) (2093.7)%(76.6)%3.3 %

Asia Pacific^3 (7,329) 3,315 (10,644) (321.1) %(38.2)%14.3 %

Total Executive Search (7,294) 33,023 (40,317) (122.1) %(5.4) %20.8 %

Heidrick Consulting (8,321) (4,793) (3,528) (73.6) %(72.7)%(32.9)%

Total segments (15,615) 28,230 (43,845) (155.3) %(10.7)%16.3 %

Global Operations Support (8,371) (9,877) 1,506 15.2 %(5.7) %(5.7) %

Total operating income (loss) $(23,986)$18,353 $(42,339)(230.7) %(16.5)%10.6 %



^1 Margin based on revenue before reimbursements (net revenue)

^2 Europe includes impairment charges of $24.5 million for the three months ended June 30, 2020.

^3 Asia Pacific includes impairment charges of $8.5 million for the three months ended June 30, 2020.

Heidrick & Struggles

Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share amounts)

(Unaudited)



Six Months Ended June 30,

2020 2019 $ Change % Change

Revenue

Revenue before reimbursements (net revenue) $317,084 $344,716 $(27,632)(8.0) %

Reimbursements 5,598 9,731 (4,133) (42.5)%

Total revenue 322,682 354,447 (31,765) (9.0) %



Operating expenses

Salaries and benefits 225,747 241,419 (15,672) (6.5) %

General and administrative expenses 64,201 68,553 (4,352) (6.3) %

Impairment charges 32,970 - 32,970 NM

Reimbursed expenses 5,598 9,731 (4,133) (42.5)%

Total operating expenses 328,516 319,703 8,813 2.8 %



Operating income (loss) (5,834) 34,744 (40,578) NM



Non-operating income (expense)

Interest, net 340 1,220

Other, net (1,359) 2,351

Net non-operating income (expense) (1,019) 3,571



Income (loss) before income taxes (6,853) 38,315



Provision for income taxes 10,214 11,948



Net income (loss) (17,067) 26,367



Other comprehensive income (loss), net of tax (2,245) 325



Comprehensive income (loss) $(19,312) $26,692



Weighted-average common shares outstanding

Basic 19,245 19,062

Diluted 19,245 19,531



Earnings (loss) per common share

Basic $(0.89) $1.38

Diluted $(0.89) $1.35



Salaries and benefits as a % of net revenue 71.2 %70.0 %

General and administrative expenses as a % of net revenue20.2 %19.9 %

Operating margin (1.8) %10.1 %

Heidrick & Struggles International Inc.

Segment Information

(In thousands)

(Unaudited)



Six Months Ended June 30,

2020 2019 $ Change % Change 2020 2019 Margin^1Margin^1

Revenue

Executive Search

Americas $185,141$199,822$(14,681)(7.3) %

Europe 63,206 68,417 (5,211) (7.6) %

Asia Pacific 41,260 48,610 (7,350) (15.1) %

Total Executive Search 289,607 316,849 (27,242) (8.6) %

Heidrick Consulting 27,477 27,867 (390) (1.4) %

Revenue before reimbursements (net revenue)317,084 344,716 (27,632) (8.0) %

Reimbursements 5,598 9,731 (4,133) (42.5) %

Total revenue $322,682$354,447$(31,765)(9.0) %





Operating income (loss)

Executive Search

Americas $48,834 $51,000 $(2,166) (4.2) %26.4 %25.5 %

Europe^2 (20,018) 3,322 (23,340) (702.6)%(31.7)%4.9 %

Asia Pacific^3 (4,827) 8,221 (13,048) (158.7)%(11.7)%16.9 %

Total Executive Search 23,989 62,543 (38,554) (61.6) %8.3 %19.7 %

Heidrick Consulting (12,413) (9,620) (2,793) (29.0) %(45.2)%(34.5)%

Total segments 11,576 52,923 (41,347) (78.1) %3.7 %15.4 %

Global Operations Support (17,410) (18,179) 769 4.2 %(5.5) %(5.3) %

Total operating income (loss) $(5,834)$34,744 $(40,578)(116.8)%(1.8) %10.1 %



^1 Margin based on revenue before reimbursements (net revenue).

^2 Europe includes impairment charges of $24.5 million for the six months ended June 30, 2020.

^3 Asia Pacific includes impairment charges of $8.5 million for the six months ended June 30, 2020.

Heidrick & Struggles International Inc.

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

(In thousands)

(Unaudited)



Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

Revenue before reimbursements (net revenue)$145,603 $173,122 $317,084 $344,716



Operating income (loss) (23,986) 18,353 (5,834) 34,744



Adjustments

Impairment charges^1 32,970 - 32,970 -

Total adjustments 32,970 - 32,970 -



Adjusted operating income $8,984 $18,353 $27,136 $34,744



Operating margin (16.5) % 10.6 %(1.8) %10.1 %

Adjusted operating margin 6.2 % 10.6 %8.6 %10.1 %



^1 For the three and six months ended June 30, 2020, the Company incurred approximately $33.0 million in impairment charges related to the Europe and Asia Pacific Search operating segments.

Heidrick & Struggles International Inc.

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

(In thousands)

(Unaudited)



Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

Net income (loss) $(25,733)$14,280$(17,067)$26,367



Adjustments

Impairment charges, net of tax^1 32,970 - 32,970 -

Total adjustments 32,970 - 32,970 -



Adjusted net income $7,237 $14,280$15,903 $26,367



Weighted-average common shares outstanding

Basic 19,298 19,120 19,245 19,062

Diluted 19,558 19,431 19,722 19,531



Earnings (loss) per common share

Basic $(1.33) $0.75 $(0.89) $1.38

Diluted $(1.33) $0.73 $(0.89) $1.35



Adjusted earnings per common share

Basic $0.38 $0.75 $0.83 $1.38

Diluted $0.37 $0.73 $0.81 $1.35



^1 For the three and six months ended June 30, 2020, the Company incurred approximately $33.0 million in impairment charges related to the Europe and Asia Pacific Search segments.

Heidrick & Struggles International Inc.

Consolidated Balance Sheets

(In thousands)



June 30, December 31, 2020 2019

(Unaudited)

Current assets

Cash and cash equivalents $ 218,760$271,719

Marketable securities 69,055 61,153

Accounts receivable 124,845 109,163

Prepaid expenses 24,605 20,185

Other current assets 27,811 27,848

Income taxes recoverable 4,918 4,414

Total current assets 469,994 494,482



Non-current assets

Property and equipment, net 28,577 28,650

Operating lease right-of-use assets 100,061 99,391

Assets designated for retirement and pension plans14,001 13,978

Investments 26,085 25,409

Other non-current assets 24,700 20,434

Goodwill 91,271 126,831

Other intangible assets, net 1,361 1,935

Deferred income taxes 32,308 33,063

Total non-current assets 318,364 349,691



Total assets $ 788,358$844,173



Current liabilities

Accounts payable $ 10,852 $8,633

Accrued salaries and benefits 113,351 234,306

Deferred revenue 38,122 41,267

Operating lease liabilities 30,117 30,955

Other current liabilities 18,144 26,253

Income taxes payable 11,448 3,928

Total current liabilities 222,034 345,342



Non-current liabilities

Non-current debt 100,000 -

Accrued salaries and benefits 49,829 59,662

Retirement and pension plans 46,847 46,032

Operating lease liabilities 78,872 79,388

Other non-current liabilities 4,573 4,634

Total non-current liabilities 280,121 189,716



Total liabilities 502,155 535,058



Stockholders' equity 286,203 309,115



Total liabilities and stockholders' equity $ 788,358$844,173

Heidrick & Struggles International Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



Three Months Ended June 30,

2020 2019

Cash flows - operating activities

Net income (loss) $(25,733)$14,280

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

Depreciation and amortization 2,130 2,614

Deferred income taxes 270 176

Stock-based compensation expense 1,320 3,368

Accretion expense related to earnout payments - 167

Gain on marketable securities (11) (116)

Loss on disposal of property and equipment 274 -

Impairment charges 32,970 -

Changes in assets and liabilities:

Accounts receivable 7,643 (11,926)

Accounts payable 248 (1,077)

Accrued expenses 17,423 30,722

Restructuring accrual (1,342) (508)

Deferred revenue (3,510) (1,654)

Income taxes payable, net 2,673 (6,531)

Retirement and pension plan assets and liabilities (758) 136

Prepaid expenses 2,025 2,992

Other assets and liabilities, net 5,213 747

Net cash used in operating activities 40,835 33,390



Cash flows - investing activities

Capital expenditures (2,803) (895)

Purchases of available-for-sale investments (69,294) (38,799)

Proceeds from sales of available-for-sale investments 1,072 119

Net cash provided by (used in) investing activities (71,025) (39,575)



Cash flows - financing activities

Cash dividends paid (2,995) (2,968)

Acquisition earnout payments - -

Net cash provided by (used in) financing activities (2,995) (2,968)



Effect of exchange rate fluctuations on cash, cash equivalents and restricted 945 (295) cash



Net decrease in cash, cash equivalents and restricted cash (32,240) (9,448)

Cash, cash equivalents and restricted cash at beginning of period 251,000 114,762

Cash, cash equivalents and restricted cash at end of period $218,760 $105,314

Heidrick & Struggles International Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



Six Months Ended June 30,

2020 2019

Cash flows - operating activities

Net income (loss) $(17,067)$26,367

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

Depreciation and amortization 4,467 5,348

Deferred income taxes 380 512

Stock-based compensation expense 3,934 4,711

Accretion expense related to earnout payments - 327

Gain on marketable securities (122) (116)

Loss on disposal of property and equipment 275 -

Impairment charges 32,970 -

Changes in assets and liabilities:

Accounts receivable (17,013) (32,093)

Accounts payable 2,145 (978)

Accrued expenses (129,842) (115,500)

Restructuring accrual (1,480) (1,189)

Deferred revenue (2,673) (3,240)

Income taxes payable, net 6,755 (4,035)

Retirement and pension plan assets and liabilities 1,275 1,686

Prepaid expenses (4,541) (3,507)

Other assets and liabilities, net (4,228) (176)

Net cash used in operating activities (124,765) (121,883)



Cash flows - investing activities

Capital expenditures (4,556) (1,793)

Purchases of available-for-sale investments (71,419) (40,477)

Proceeds from sales of available-for-sale investments 62,467 232

Net cash provided by (used in) investing activities (13,508) (42,038)



Cash flows - financing activities

Proceeds from line of credit 100,000 -

Cash dividends paid (5,997) (5,903)

Payment of employee tax withholdings on equity transactions (1,550) (4,552)

Acquisition earnout payments (2,789) (407)

Net cash provided by (used in) financing activities 89,664 (10,862)



Effect of exchange rate fluctuations on cash, cash equivalents and restricted (4,350) (165) cash



Net decrease in cash, cash equivalents and restricted cash (52,959) (174,948)

Cash, cash equivalents and restricted cash at beginning of period 271,719 280,262

Cash, cash equivalents and restricted cash at end of period $218,760 $105,314

Heidrick & Struggles International Inc.

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

(In thousands)

(Unaudited)



Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

Revenue before reimbursements (net revenue)$145,603 $173,122 $317,084 $344,716



Net income (25,733) 14,280 (17,067) 26,367

Interest, net 339 (412) (340) (1,220)

Other, net (3,076) (708) 1,359 (2,351)

Provision for income taxes 4,484 5,193 10,214 11,948

Operating income (loss) (23,986) 18,353 (5,834) 34,744



Adjustments

Salaries and benefits

Stock-based compensation expense 844 2,908 3,446 4,251

General and administrative expenses

Depreciation 1,936 2,378 4,065 4,872

Intangible amortization 194 235 402 475

Earnout accretion - 167 - 327

Acquisition contingent consideration 462 - 1,020 -

Impairment charges 32,970 - 32,970 -

Total adjustments 36,406 5,688 41,903 9,925



Adjusted EBITDA $12,420 $24,041 $36,069 $44,669

Adjusted EBITDA margin 8.5 %13.9 %11.4 %13.0 %

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SOURCE Heidrick & Struggles