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Heidrick & Struggles Reports Fourth Quarter and 2010 Financial Results

Heidrick & Struggles Reports Fourth Quarter and 2010 Financial Results

Heidrick & Struggles International, Inc. the leadership advisory firm providing executive search and leadership consulting services worldwide, has announced its 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% from $109.9 million in the 2009 fourth quarter, or approximately 16% on a constant currency basis. Net revenue increased 19.1% in the Americas, 7.8% in Europe (approximately 14% on a constant currency basis), and 19.3% in the Asia Pacific region (approximately 13% on a constant currency basis). Net revenue from Leadership Consulting Services increased 93.6% to $14.0 million and represented 11.0% 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%, compared to operating income of $10.5 million and operating margin of 9.6% 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% compared to the 2009 fourth quarter, but declined 1.3% 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% 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% 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% of net revenue for the quarter, compared to 63.2% in the 2009 fourth quarter.

Consolidated general and administrative expenses increased 16.0% 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% 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%. 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%.

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.

The Americas reported a 19.1% 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% year-over-year and the operating margin was 15.4%. 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% year-over-year (approximately 14% on a constant currency basis) driven by especially strong performance in Leadership Consulting Services. Operating income increased 134.1% and the operating margin improved to 12.5%. Compared to the 2010 third quarter, net revenue increased 25.2%.

The Asia Pacific region reported a 19.3% year-over-year increase in fourth quarter net revenue (approximately 13% 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% and the operating margin improved to 24.5%. Compared to the 2010 third quarter, net revenue decreased 18.4%.

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

There were 4,181 confirmed executive searches in 2010, a 14.5% 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%. 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%. 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%.

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% and a full year 2011 operating margin of between 6 and 10%. Net income and earnings per share in 2011 are expected to reflect a full-year effective tax rate of between 42% and 50%, 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."

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