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Heidrick & Struggles Reports Second Quarter 2011 Financial Results

Heidrick & Struggles Reports Second Quarter 2011 Financial Results

Heidrick & Struggles International, Inc. (Nasdaq:HSII), the leadership advisory firm providing executive search and leadership consulting services worldwide, today announced financial results for its second quarter ended June 30, 2011.

Consolidated net revenue of $142.8 million increased 13.3 percent (approximately 7 percent on a constant currency basis) from $126.1 million in the 2010 second quarter. Exchange rate fluctuations positively impacted net revenue by $7.5 million. Year over year, net revenue increased 18.0 percent in the Americas, 8.8 percent in Europe (a decline of approximately 3 percent on a constant currency basis), and 7.7 percent in Asia Pacific (a decline of approximately 3 percent on a constant currency basis). Net revenue from Leadership Consulting Services increased 50.0 percent to $12.3 million and represented 8.6 percent of consolidated net revenue in the quarter.

The number of executive search and leadership consulting consultants at June 30, 2011 was 386, compared to 343 at June 30, 2010, and 372 at March 31, 2011. The number of executive search confirmations in the quarter increased 12.4 percent compared to the 2010 second quarter, and increased 14.8 percent compared to the 2011 first quarter. Productivity, as measured by annualized net revenue per consultant, was $1.5 million, compared to $1.4 million in the 2010 second quarter and $1.3 million in the 2011 first quarter. The average revenue per executive search was $107,400 compared to $108,600 in the 2010 second quarter and $101,200 in the 2011 first quarter.

Consolidated salaries and employee benefits increased 15.4 percent to $99.2 million, from $86.0 million in the comparable quarter of 2010. The increase primarily reflects an increase in the variable component of compensation associated with the increase in net revenue as well as higher base compensation and payroll taxes associated with a 12.8 percent increase in employee headcount. Salaries and employee benefits were 69.5 percent of net revenue for the quarter, compared to 68.2 percent in the 2010 second quarter.

Consolidated general and administrative expenses increased 1.3 percent to $33.3 million from $32.9 million in the 2010 second quarter. As a percentage of net revenue, consolidated general and administrative expenses were 23.3 percent, compared to 26.1 percent in the 2010 second quarter.

Operating income in the quarter improved to $10.3 million and the operating margin was 7.2 percent compared to operating income of $7.6 million and an operating margin of 6.0 percent in the 2010 second quarter.

Net income was $7.4 million and diluted earnings per share $0.41, based upon an effective tax rate in the quarter of 32.5 percent. In the 2010 second quarter, net income was $2.7 million and diluted earnings per share were $0.15, which reflected an effective tax rate of 49.9 percent.

Net cash provided by operating activities in the quarter was $17.6 million, compared to $23.8 million in the 2010 second quarter. Cash and cash equivalents at June 30, 2011 were $103.1 million compared to $92.6 million at June 30, 2010, and $92.2 million at March 31, 2011.

Regional Review

 $ in millions       2Q 11     2Q 10     Change     1Q 11     Change

                    ---------  ---------  --------  ---------  --------

  Americas

  Net revenue           $ 76.7     $ 65.1   $ 11.6     $ 63.5    $ 13.3

  Operating income     $ 18.7     $ 13.8     $ 4.9     $ 7.6   $ 11.1

  Consultants             178       160       18       170         8

 Europe

  Net revenue           $ 34.5     $ 31.7     $ 2.8     $ 27.6     $ 6.9

  Operating income

  (loss)             $ (2.4)     $ 0.5   $ (2.9)   $ (2.1)   $ (0.3)

  Consultants             128       110       18       125         3

 Asia Pacific

  Net revenue           $ 31.5     $ 29.3     $ 2.2     $ 24.6     $ 7.0

  Operating income      $ 4.9     $ 7.1   $ (2.2)     $ 2.5     $ 2.3

  Consultants               80         73         7         77         3

  Global Operations

  Support           $ (10.9)   $ (14.1)     $ 3.2   $ (12.2)     $ 1.3

                    ---------  ---------  --------  ---------  --------

  Total operating

  income (loss)       $ 10.3     $ 7.6     $ 2.7   $ (4.1)   $ 14.4

                           

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

Net revenue in the Americas increased 18.0 percent year over year and 20.9 percent compared to the 2011 first quarter. The Industrial, Consumer, and Leadership Consulting practices were the largest drivers of year-over-year growth and also key drivers of sequential growth, along with the Financial Services Practice. Second quarter operating income increased 35.5 percent year-over-year, and the operating margin was 24.4 percent.

Net revenue in Europe increased 8.8 percent year over year (declined approximately 3 percent on a constant currency basis) and increased 25.2 percent sequentially (approximately 22 percent on a constant currency basis). Exchange rate fluctuations positively impacted year-over-year net revenue by $3.8 million. The Industrial Practice was a key driver of the reported year-over-year and sequential growth in this region. The Financial Services Practice experienced a year-over-year decline but was the largest driver of growth sequentially. The operating loss was $2.4 million compared to operating income of $0.5 million in the 2010 second quarter primarily reflecting an increase in fixed compensation expense.

The Asia Pacific region reported a 7.7 percent year-over-year increase in second quarter net revenue (a decline of approximately 3 percent on a constant currency basis) and 28.3 percent growth sequentially (approximately 25 percent on a constant currency basis). Exchange rate fluctuations positively impacted year-over-year net revenue by $3.1 million. The Consumer and Industrial practices drove the reported year-over-year growth as well as sequential growth. The Financial Services Practice was also key to sequential growth. Operating income declined 31.0 percent compared to the 2010 second quarter and the operating margin was 15.4 percent primarily reflecting higher base compensation and payroll taxes associated with an 18.9 percent increase in employee headcount, including newer consultants who are not yet fully productive.

Expenses related to Global Operations Support declined 22.8 percent compared to the 2010 second quarter. The largest component of the decline related to the absence of a worldwide partners' meeting in the 2011 second quarter.

Chief Executive Officer L. Kevin Kelly said, "We were pleased with how confirmation trends improved in the second quarter and helped drive double digit sequential revenue growth in each region. The improving productivity is also encouraging given the number of new hires and promotions we've made in the last year. With consultant and employee hiring essentially complete for the year, we are focused on leveraging productivity and lowering operating costs in order to achieve and sustain higher operating margins."

Six Months Results

For the six months ended June 30, 2011 consolidated net revenue of $258.4 million increased 7.8 percent (approximately 4 percent on a constant currency basis) from $239.7 million in the first six months of 2010. Exchange rate fluctuations positively impacted net revenue by $10.1 million. Productivity, as measured by annualized net revenue per consultant, was $1.4 million compared to $1.3 million for the first six months of 2010. The number of executive searches confirmed in the first six months of 2011 increased 5.4 percent compared to the first six months of 2010. The average revenue per executive search was $104,500 compared to $103,500 for the same period in 2010. Operating income for the first six months was $6.2 million and the operating margin was 2.4 percent, compared to operating income of $3.8 million for the first six months of 2010 and an operating margin of 1.6 percent. Net income for the first six months of 2011 was $2.8 million and diluted earnings per share were $0.15, reflecting an effective tax rate of 45.7 percent. The reported net income for the first six months of 2010 was $1.1 million and diluted earnings per share were $0.06, reflecting an effective tax rate of 38.8 percent.

2011 Outlook

The company expects that third quarter 2011 net revenue will be between $134 million and $144 million and that the operating margin will be between 6 percent and 8 percent. The company is forecasting that 2011 net revenue will be within its previously disclosed range of $515 million to $545 million and that the operating margin will likely be at the lower end of the range it had provided earlier, or between 6 percent and 8 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 and tax planning initiatives.

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