Consolidated net revenue up over 13% YoY for Heidrick & Struggles
Heidrick & Struggles International, Inc. has announced financial results for its first quarter ended 31st March 2016.
Consolidated net revenue (revenue before reimbursements) increased 13.1%, or $15.0m, to $130.2m from $115.2m in the 2015 first quarter. Excluding the impact of exchange rate fluctuations which negatively impacted results by $3.3m, or 2.9%, consolidated net revenue increased $18.3m or 15.9%.
Executive search and leadership consulting net revenue increased 13.8% year-over-year (YoY), or $14.8m, to $121.8m from $107.0m in the 2015 first quarter. Excluding the impact of exchange rate fluctuations which negatively impacted results by $3.2m, or 3.0%, net revenue in this business increased $18.0m or 16.8%. The Americas and Europe regions drove first quarter revenue growth with Americas up 16.6% (19.0% on a constant currency basis) and Europe up 36.1% (40.8% on a constant currency basis). Asia Pacific revenue declined 13.2% (9.9% on a constant currency basis). From a global practices perspective, the global technology & services, healthcare & life sciences, and financial services practices were the drivers of 2016 first quarter YoY growth.
Net revenue from culture shaping services increased 2.8%, or $0.2m, to $8.3m from $8.1m in the 2015 first quarter. The impact of exchange rate fluctuations adversely impacted results by $0.1m or 1.4%.
Tracy Wolstencroft, Heidrick & Struggles' president and chief executive officer, said, "Our first quarter results reflect continued strengthening of our executive search business, with especially strong results in the Americas and Europe driving revenue growth.
"The results also reflect our investments in non-search businesses to improve our ability to serve clients as well as to deliver growth and profitability going forward. The February acquisition of DSI and subsequent realignment within leadership consulting were important steps in building our service offering. We also made planned investments in our culture shaping business, in leadership and new client service talent, to sustain the growth of this business and develop the next generation of culture practitioners."
Salaries and employee benefits expense in the 2016 first quarter increased 16.1%, or $12.6m to $91.1m from $78.5m in the 2015 first quarter.
Wolstencroft added, "To grow and strengthen our business around the world, and provide greater return to our shareholders, we must continue to invest in attracting, developing and retaining the very best professionals. The increase in salaries and employee benefits expense reflects our ongoing commitment to that strategy, as well as to growing our non-search businesses. Investments in new executive search talent in 2015 contributed to revenue growth in the Americas and Europe in the first quarter. I am confident that these investments will have a positive impact on the growth and profitability of our business in the future."
General and administrative expenses increased 17.3%, or $5.2m to $35.2m from $30.0m in the 2015 first quarter.
Adjusted EBITDA in the 2016 first quarter decreased 12.1%, or $1.5m, to $10.8m compared to $12.3m in the 2015 first quarter. The Adjusted EBITDA margin (Adjusted EBITDA as a percentage of net revenue) in the 2016 first quarter was 8.3% compared to 10.7% in the 2015 first quarter.
Operating income in the 2016 first quarter declined $2.8m to $3.9m, and operating margin (operating income as a percentage of net revenue) was 3.0%. This compares to operating income of $6.7m and operating margin of 5.8% in the 2015 first quarter. The YoY declines in Adjusted EBITDA and operating income reflect increases in salaries and employee benefits and general and administrative expenses partially offset by the increase in net revenue.
Net income in the 2016 first quarter declined to $1.3m and diluted earnings per share were $0.07, based on an effective tax rate of 66.8% in the quarter and a full-year projected tax rate of approximately 45%. In the 2015 first quarter, the company reported net income of $3.4m and diluted earnings per share of $0.18 based on an effective tax rate of 47.5% in the quarter.
Net cash used by operating activities in the 2016 first quarter, which includes annual bonus payments, was $119.2m, compared to $87.8m in the 2015 first quarter. Following the payment of bonuses, and the acquisition of DSI, cash and cash equivalents at 31st March 2016 were $62.0m compared to $190.5m at 31st December 2015 and $107.6m at 31st March 2015 ($79.6m net of debt).
The company is forecasting second quarter 2016 consolidated net revenue of between $145m and $155m. It says this forecast is based on the average currency rates in March 2016 and reflects, among other factors, management's assumptions for the anticipated volume of new executive search confirmations, leadership consulting assignments and culture shaping services, the current backlog, consultant productivity, consultant retention, and the seasonality of its business.
Wolstencroft added, "Our first quarter revenue growth and our second quarter revenue guidance are very encouraging. The strength of our business is a testament to our consultant teams and the progress we are making in the marketplace with our clients. We are winning higher quality engagements and receiving tangible feedback from global leaders that Heidrick & Struggles is making a difference to leaders, leadership teams and organizations. I believe that our clients will continue to demand more from our firm, and as such, our people and our service capabilities will continue to be a positive differentiation in the marketplace. We made important investments in the first quarter that we believe will drive an increase in client service, operating performance and shareholder value going forward."