Heidrick & Struggles Reports Fourth Quarter and 2011 Financial Results
Heidrick & Struggles Reports Fourth Quarter and 2011 Financial Results
CHICAGO, Feb. 28, 2012 (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, 2011.
2011 Year-over-Year Highlights
2011 net revenue of $527.8 million increased 7.0% with Americas up 12.1%, Europe up 4.3%, and Asia Pacific down 1.4%
Operating income, excluding impairment and restructuring charges, (1) improved to $31.8 million and operating margin improved to 6.0%
General and administrative expenses declined $7.0 million or 5.4%
Net revenue from Leadership Consulting Services increased 14.4% to $45.3 million, representing 8.6% of total net revenue
Net revenue grew 20% in the Consumer practice, 17% in the Education & Social Enterprise practice, 16% in the Industrial practice and 15% in the Life Sciences practice, further improving the company's industry diversification, and more than offsetting a difficult year for the Financial Services practice
"We are pleased with our 2011 performance. Our net revenue was up 7 percent in a volatile economic environment and in line with our original 2011 guidance," said Chief Executive Officer L. Kevin Kelly. "We made some significant strides in lowering expenses and, excluding impairment and restructuring charges, the operating margin improved to 6 percent, also within the range we originally forecasted. We believe that the changes we made in the fourth quarter to strengthen our regional operating structure and align our cost structure will further our ability to deliver improving results to shareholders."
(1) These represent non-GAAP financial measures because the impairment charges in the 2011 third quarter and the restructuring charges in the 2011 fourth quarter have been excluded. Including the impairment and restructuring charges, the operating loss was $10.9 million in 2011.
2011 Fourth Quarter Results
Consolidated net revenue was $127.2 million in the quarter, the same as in the 2010 fourth quarter. Exchange rate fluctuations had less than a 1 percent impact on net revenue. Year over year, net revenue increased 4.3 percent in the Americas, but declined 5.8 percent in Europe (a decline of approximately 6 percent on a constant currency basis), and 3.6 percent in Asia Pacific (a decline of approximately 4 percent on a constant currency basis). Revenue growth in the Consumer, Life Sciences, Education & Social Enterprise and Industrial practices was mostly offset by a decline in the Financial Services practice. Net revenue from Leadership Consulting Services was $11.7 million, a decline of 16.7 percent from the prior year quarter which mostly reflects the comparison to an unusually strong 2010 fourth quarter.
The number of executive search and leadership consulting consultants at December 31, 2011 was 347, the same as at December 31, 2010, and down from 386 consultants at September 30, 2011 as a result of the workforce reduction in the fourth quarter. The number of executive search confirmations in the quarter declined 10.4 percent compared to the 2010 fourth quarter, and, consistent with historical seasonality, declined 18.1 percent compared to the 2011 third quarter. Productivity, as measured by annualized net revenue per consultant, was $1.4 million, compared to $1.5 million in the 2010 fourth quarter and 2011 third quarter. Average revenue per executive search increased to $128,300 compared to $112,600 in the 2010 fourth quarter and $117,600 in the 2011 third quarter.
Salaries and employee benefits increased 2.9 percent to $85.1 million, from $82.7 million in the comparable quarter of 2010. Salaries and employee benefits were 66.9 percent of net revenue for the quarter, compared to 65.0 percent in the 2010 fourth quarter.
General and administrative expenses declined 14.1 percent to $30.2 million, from $35.2 million in the 2010 fourth quarter, as a result of a number of expense reductions, but primarily related to fees for professional services. As a percentage of net revenue, consolidated general and administrative expenses were 23.8 percent, compared to 27.6 percent in the 2010 fourth quarter.
Restructuring charges of $16.3 million were recorded in the fourth quarter related to initiatives the company took to reduce overall costs and improve operational efficiencies. The charges consist of employee-related costs, including severance, associated with a global workforce reduction of approximately 10 percent, and expenses associated with consolidating and closing 11 smaller offices in the Americas and Europe regions.
The company reported an operating loss of $4.5 million, driven by the restructuring charges. Excluding the impact of restructuring charges, which management believes more appropriately reflects core operations, operating income would have been $11.8 million and operating margin would have been 9.3 percent. In the 2010 fourth quarter, the company reported operating income of $9.3 million and operating margin of 7.3 percent.
The net loss was $4.1 million and the loss per share was $0.23, reflecting a tax benefit rate of 28.7 percent. The tax rate in the quarter was primarily a result of an inability to recognize current tax benefits on losses in certain jurisdictions. In the 2010 fourth quarter, net income was $5.2 million and diluted earnings per share were $0.29 which reflected an effective tax rate of 47.3 percent.
Net cash provided by operating activities in the quarter was $55.4 million, compared to $61.1 million in the 2010 fourth quarter. Cash and cash equivalents at December 31, 2011 were $185.4 million compared to $181.1 million at December 31, 2010, and $135.5 million at September 30, 2011.
For the year ended December 31, 2011 consolidated net revenue of $527.8 million increased 7.0 percent (approximately 4 percent on a constant currency basis) from $493.1 million in 2010. Exchange rate fluctuations positively impacted net revenue by $15.8 million. Net revenue increased 12.1 percent in the Americas region and 4.3 percent in Europe (a decline of approximately 1 percent on a constant currency basis), but declined 1.4 percent in Asia Pacific (approximately 8 percent on a constant currency basis). Each industry practice, with the exception of Financial Services, achieved revenue growth, including the Consumer practice which was up 20 percent and the Industrial practice which was up 16 percent. The Financial Services practice was down 10 percent compared to 2010. Net revenue from Leadership Consulting Services increased 14.4 percent to $45.3 million, representing 8.6 percent of total net revenue in 2011.
The company confirmed 4,274 executive searches in 2011, a 2.2 percent increase compared to 2010. The average number of consultants in 2011 was 376 compared to an average of 353 in 2010, and productivity, as measured by 2011 net revenue per consultant, remained $1.4 million, the same as in 2010. The average revenue per executive search was $112,900 compared to $108,500 in 2010.
The operating loss for 2011 was $10.9 million, reflecting impairment charges of $26.4 million in the 2011 third quarter and restructuring charges of $16.3 million in the 2011 fourth quarter. Operating income excluding the impairment and restructuring charges, which management believes more appropriately reflects core operations, would have been $31.8 million and operating margin would have been 6.0 percent. In 2010, the company reported operating income of $17.5 million and operating margin of 3.6 percent.
The reported net loss for 2011 was $33.7 million and the loss per share was $1.90, reflecting a tax rate of negative 128.2 percent. The tax rate for 2011 was primarily a result of income that was reduced by the goodwill impairment charge without any tax benefit, establishment of valuation allowances that increased tax expense, and an inability to recognize current tax benefits on losses in certain jurisdictions. The reported net income for 2010 was $7.5 million and diluted earnings per share were $0.42, reflecting an effective tax rate of 55.8 percent.
For segment purposes, reimbursements of out-of-pocket expenses classified as revenue, restructuring charges, impairment charges, and other operating income are reported separately and, therefore, are not included in the results of each geographic region. The company believes that analyzing trends in net revenue (before reimbursements) and operating income (loss) excluding restructuring charges, impairment charges, and other operating income more appropriately reflects the company's core operations.
$ in millions 4Q 11 4Q 10 Change 2011 2010 Change
Net revenue $ 69.4 $ 66.5 $ 2.9 $ 286.5 $255.7 $ 30.8
Operating income $ 16.4 $ 10.2 $ 6.1 $ 60.6 $ 40.3 $ 20.3
Consultants 160 157 3
Net revenue $ 32.9 $ 34.9 $ (2.0) $ 132.7 $ 127.3 $ 5.5
Operating income (loss) $ 3.3 $ 4.3 $ (1.1) $ 1.3 $ (0.6) $ 1.9
Consultants 104 116 (12)
Net revenue $ 24.9 $ 25.8 $ (0.9) $ 108.6 $110.1 $ (1.6)
Operating income $ 2.8 $ 6.3 $ (3.5) $ 13.0 $ 24.5 $ (11.5)
Consultants 83 74 9
Global Operations Support $ (10.6) $ (11.5) $ 1.0 $ (43.1) $ (46.1) $ 3.1
Restructuring charges $ (16.3) $ -- $(16.3) $ (16.3) $ (1.6) $ (14.7)
Impairment charges $ -- $ -- $ -- $ (26.4) $ -- $ (26.4)
Other operating income $ -- $ -- $ -- $ -- $ 1.1 $ (1.1)
Total operating income (loss) $ (4.5) $ 9.3 $ (13.8) $ (10.9) $ 17.5 $(28.4)
Totals and subtotals may not equal the sum of individual line items due to rounding.
Net revenue in the Americas increased 4.3 percent year over year in the fourth quarter and increased 12.1 percent in 2011 compared to 2010. In the fourth quarter, the Consumer and Life Sciences practices contributed the most to revenue growth. For the year, every practice and Leadership Consulting contributed to revenue growth, but the Consumer practice was the largest driver. The fourth quarter operating margin improved to 23.6 percent from 15.4 percent and for the year improved to 21.2 percent from 15.8 percent.
Net revenue in Europe declined 5.8 percent in the fourth quarter, but increased 4.3 percent for the year (a decline of approximately 1 percent on a constant currency basis). Exchange rate fluctuations positively impacted year-over-year 2011 net revenue by $7.2 million. Fourth quarter revenue declines in the Consumer practice and in Leadership Consulting, and to a much lesser extent in the Financial Services practice, offset the revenue growth in the other practices. For the year, revenue declines in the Consumer and Financial Services practices mostly offset the revenue growth achieved in the other practices and in Leadership Consulting. The operating margin in the fourth quarter was 9.9 percent compared to 12.5 percent in last year's fourth quarter, and for the year improved to 0.9 percent compared to a loss in 2010.
The Asia Pacific region reported a 3.6 percent year-over-year decline in fourth quarter net revenue (approximately 4 percent on a constant currency basis) and a 1.4 percent decline for the year (approximately 8 percent on a constant currency basis). Exchange rate fluctuations positively impacted year-over-year net revenue by $7.3 million. For the year, the Consumer practice achieved revenue growth of 25 percent, the Life Sciences practice 31 percent, the Education & Social Enterprise practice 12 percent, the Industrial practice 7 percent, and Leadership Consulting grew 4 percent. This growth was offset by a 28 percent decline in revenue from the Financial Services practice as compared to 2010 when revenue grew 57 percent, attributable to several significant clients. The region's operating margin in the fourth quarter declined to 11.2 percent compared to 24.5 percent in last year's fourth quarter, and for the year was 12.0 percent compared to 22.3 percent in 2010. These declines reflect the combination of a decline in net revenue, a 6 percent increase in headcount during the year, and increases in several compensation and infrastructure related expenses.
Expenses related to Global Operations Support declined 8.5 percent, or $1.0 million, compared to the 2010 fourth quarter and declined 6.7 percent or $3.1 million for the year. A decline in general and administrative expenses, primarily related to professional fees, was the largest driver of the decline.
Kelly said, "Considerable opportunities exist to further develop and build both our search and leadership consulting businesses, while integrating these services to become our clients' strategic leadership advisor. With this distinguishing platform, the best people in the business, and the most prestigious brand in the world, we will increase mind and market share in the C-Suite. We do not expect robust growth in 2012 unless we begin to see material movements in economic growth rates and investment patterns. However, we believe that we can improve productivity and increase our profitability. The initiatives we took in late 2011 have started us on the right course and we look forward to the year ahead."
The company is currently forecasting 2012 first quarter net revenue of between $105 million and $115 million and full-year 2012 net revenue of between $510 million and $540 million. The company is targeting a full-year 2012 operating margin of between 7 percent and 9 percent.