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Heidrick & Struggles Reports First Quarter 2013 Financial Results

Heidrick & Struggles Reports First Quarter 2013 Financial Results

Heidrick & Struggles International, Inc. has announced financial results for its first quarter ended March 31, 2013.

Consolidated net revenue was $103.0 million in the first quarter, down 3.3 percent from $106.5 million in the 2012 first quarter. The revenue decline was primarily driven by an $8.1 million decline in Europe, partially offset by $5.6 million of revenue from Senn Delaney, the global leader in corporate culture shaping. The company acquired Senn Delaney on December 31, 2012. Year over year, net revenue increased 9.0 percent in the Americas, declined 29.8 percent in Europe and declined 3.9 percent in Asia Pacific. In addition to Senn Delaney, which included $5.0 million in the Americas and $0.6 million in Europe, consolidated net revenue reflected $92.8 million from Executive Search and $4.6 million from Leadership Consulting. Growth in the Financial Services, Life Sciences, and Education and Social Enterprise practices, was offset by declines in the Consumer Markets, Industrial, and Global Technology & Services Search practices, and in Leadership Consulting.

L. Kevin Kelly, Chief Executive Officer, said, "Despite continuing challenges in Europe, where first quarter results were negatively impacted by a long, slow economic recovery and higher than expected consultant turnover, we have seen encouraging results from a number of offices and industry practices in our Americas and Asia Pacific regions. In addition, we are also pleased with the early integration of Senn Delaney into Heidrick & Struggles. Expanding our service offerings to include culture shaping has strengthened our integrated leadership services platform and is a key differentiating feature for Heidrick & Struggles that has already been instrumental in several significant business wins."

Excluding Senn Delaney, the company ended the first quarter with 322 Executive Search and Leadership Consulting consultants compared to 343 at March 31, 2012. The number of executive search confirmations in the quarter declined 6.4 percent compared to the 2012 first quarter and the average revenue per executive search increased to $103,100 compared to $100,300 in the 2012 first quarter. Excluding Senn Delaney, productivity, as measured by annualized net revenue per consultant, was $1.2 million, the same as in the 2012 first quarter.

Salaries and employee benefits decreased 6.8 percent, or $5.2 million, to $71.5 million from $76.7 million in the 2012 first quarter. Variable compensation expense decreased $3.6 million, primarily reflecting lower bonus accruals in the quarter due to lower net revenue. Fixed compensation expense decreased $1.6 million reflecting lower consultant headcount and a decline in guarantee and sign-on bonus expense, partially offset by the addition of Senn Delaney employees. Salaries and employee benefits were 69.4 percent of net revenue for the quarter, compared to 72.0 percent in the 2012 first quarter.

General and administrative expenses increased 18.0 percent, or $4.7 million, to $31.1 million from $26.4 million in the 2012 first quarter. The addition of Senn Delaney represented $3.3 million of the increase, including $1.4 million related to the amortization of the acquired intangible assets and $0.5 million associated with the accretion of an earnout payment. Significant drivers of the remaining $1.4 million increase included expenses related to the company's proprietary database, a regional consultants' meeting in Asia Pacific, and professional fees associated with the integration of Senn Delaney. As a percentage of net revenue, reported general and administrative expenses were 30.2 percent, compared to 24.7 percent in the 2012 first quarter.

As a result of the acquisition of Senn Delaney on December 31, 2012, the company began to recognize a material increase in certain non-cash expenses, including the amortization of intangible assets, accretion of future earnout payments, and compensation expense associated with retention bonuses. Therefore, the company is providing Adjusted EBITDA and Adjusted EBITDA margin comparisons, non-GAAP financial measures which management believes more appropriately reflects core operations. Adjusted EBITDA refers to earnings before interest, taxes, depreciation, intangible amortization, stock-based compensation amortization, compensation expense associated with Senn Delaney retention awards, Senn Delaney earnout accretion, restructuring charges, and other non-operating income (expense). Adjusted EBITDA in the 2013 first quarter was $6.6 million and Adjusted EBITDA margin was 6.5 percent, compared to Adjusted EBITDA of $7.6 million and Adjusted EBITDA margin of 7.2 percent in the 2012 first quarter. The declines largely reflect the year-over-year decline in net revenue.


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