Heidrick & Struggles Achieves Over $1 Billion in Annual Net Revenue, Attains Record Profitability

CHICAGO, Feb. 28, 2022 /PRNewswire/ -- Heidrick & Struggles International, Inc. (Nasdaq: HSII) ("Heidrick & Struggles" or the "Company"), today announced financial results for its fourth quarter and fiscal year ended December 31, 2021.

Fourth Quarter Highlights:

• Net revenue reached a quarterly record of $285.5 million with growth of 77% over the 4^th quarter of 2020.
• Operating income grew to $16.6 million, while adjusted operating income achieved $28.0 million (an increase of 119%) at a margin of 9.8%.
• Net income climbed to $12.5 million and adjusted net income and adjusted diluted earnings per share were $20.8 million (an increase of 78%) and $1.02 (an increase of 73%), respectively.
• Adjusted EBITDA was $36.8 million (an increase of 69%) and adjusted EBITDA margin was 12.9%.

"We are very pleased with our outstanding fourth quarter and year-end performance, which continues to build the foundation for ongoing shareholder value creation," stated Heidrick & Struggles' President and Chief Executive Officer, Krishnan Rajagopalan.  "2021 was an exciting year of geographic expansion and industry-leading productivity in Executive Search, increased demand for our broad array of leadership, organizational effectiveness and culture shaping offerings from Heidrick Consulting, the addition of our high-growth On-Demand Talent business segment, and the initiation of a partnership for future digital innovation.  Our record results demonstrate that our differentiated strategy is working."

Mr. Rajagopalan continued, "Companies across all industries and regions know that top talent and quality work environments are business imperatives now more than ever, contributing to our momentum in to 2022.  Heidrick is on its front foot moving forward."

2021 Fourth Quarter Results

Record consolidated net revenue of $285.5 million grew by $124.6 million, or 77.4%, compared to $161.0 million in the 2020 fourth quarter. Excluding the impact of exchange rate fluctuations, which negatively impacted year over year results by $1.0 million, or 60 basis points, consolidated net revenue increased $125.5 million, or 78.0%.  Net revenue growth was driven by all regions in Executive Search, Heidrick Consulting, and by the addition of On-Demand Talent.

Consolidated salaries and benefits were $204.1 million compared to $120.8 million in the 2020 fourth quarter.   Year over year, fixed compensation expense increased $9.7 million due to increases in base salaries and payroll taxes, and retirement and benefits, partially offset by decreases in the deferred compensation plan, and stock compensation. Variable compensation increased $73.6 million year over year due to an increase in production. Salaries and benefits expense was 71.5% of net revenue for the quarter, compared to 75.0% in the 2020 fourth quarter.

General and administrative expenses were $46.9 million compared to $25.9 million in the 2020 fourth quarter due to a one-time adjustment to the earnout payment obligation in connection with the acquisition of the Company's On-Demand Talent business, professional fees, corporate development and internal travel, office occupancy, information technology, and intangible amortization. As a percentage of net revenue, general and administrative expenses were 16.4% compared to 16.1% in the 2020 fourth quarter.

The Company's cost of services was $18.0 million, compared to $1.5 million in the 2020 fourth quarter, primarily due to the acquisition of On-Demand Talent and an increase in the volume of consulting engagements. Cost of services consists of third-party contractor costs related to the delivery of various services in the Company's On-Demand Talent and Heidrick Consulting operating segments.

The Company recorded a one-time earnout charge of $11.4 million in the 2021 fourth quarter associated with its On-Demand Talent business.  In the 2020 fourth quarter the Company recorded a restructuring charge of $4.3 million primarily related to a reduction in the Company's real estate footprint. Including these charges, operating income was $16.6 million, compared to $8.5 million in the 2020 fourth quarter. Operating margin was 5.8%, compared to 5.3% in the 2020 fourth quarter.  Excluding these charges, adjusted operating income was $28.0 million, compared to $12.8 million in the 2020 fourth quarter.  Adjusted operating margin was 9.8%, compared to 7.9% in the 2020 fourth quarter.

Net income was $12.5 million and diluted earnings per share was $0.61 with an effective tax rate of 30.3%. This compares to net income of $5.5 million and diluted earnings per share of $0.28, with an effective tax rate of 54.0%, in the 2020 fourth quarter.  Excluding the previously mentioned non-recurring charges, adjusted net income was $20.8 million, compared to $11.6 million in the 2020 fourth quarter.  Adjusted diluted earnings per share was $1.02, compared to $0.59 for the 2020 fourth quarter.

Adjusted EBITDA increased 69.6% to $36.8 million compared to adjusted EBITDA of $21.7 million in the 2020 fourth quarter.  Adjusted EBITDA margin was 12.9%, compared to 13.5% in the 2020 fourth quarter. 

Net cash provided by operating activities was $206.6 million, compared to $96.3 million in the 2020 fourth quarter.  Cash, cash equivalents and marketable securities at December 31, 2021 was $545.2 million, compared to $336.5 million at December 31, 2020, and $348.3 million at September 30, 2021.  The Company's cash position typically builds throughout the year as employee bonuses are accrued, mostly to be paid out in the first quarter. 

Executive Search net revenue increased 66.3%, or $97.0 million, to $243.4 million compared to net revenue of $146.3 million in the 2020 fourth quarter.  Excluding the impact of exchange rate fluctuations, which negatively impacted year over year results by $1.0 million, or 70 basis points, net revenue increased $98.0 million, or 67.0%.  Net revenue increased 75.1% in the Americas (75.1% on a constant currency basis), 40.3% in Europe (42.4% on a constant currency basis), and 65.6% in Asia Pacific (67.6% on a constant currency basis). All industry practices exhibited growth over the prior year. 

The Company had 365 Executive Search consultants at December 31, 2021, compared to 361 at December 31, 2020.  Productivity, as measured by annualized Executive Search net revenue per consultant, was $2.7 million compared to $1.6 million in the 2020 fourth quarter.  Average revenue per executive search was approximately $144,000 compared to $125,000 a year earlier.  The number of confirmed searches reached a quarterly record, increasing 44.9% compared to the year-ago period.

On-Demand Talent, a new business segment which the Company acquired on April 1, 2021, generated net revenue of $23.6 million and exceeded the Company's expectations. This increase in performance required a one-time adjustment to the earnout obligation of $11.4 million, resulting in an operating loss of $10.3 million for the quarter.

Heidrick Consulting net revenue of $18.5 million increased by $3.9 million, or 26.4%, compared to net revenue of $14.7 million in the 2020 fourth quarter. Operating loss improved to $5.3 million, or 21.1%, compared to the prior year. Heidrick Consulting continues to build momentum from collaboration within the Company and is a a critical component of the growth strategy driving Executive Search and On-Demand Talent. There was no impact from exchange rate fluctuations in the quarter for Heidrick Consulting.  The Company had 69 Heidrick Consulting consultants at December 31, 2021, compared to 65 at December 31, 2020. 

Fiscal 2021 Results

Consolidated net revenue was a record $1,003.0 million compared to $621.6 million in 2020, an increase of 61.4%. Excluding the impact of exchange rate fluctuations, which positively impacted results by 210 basis points, or $13.3 million, consolidated net revenue increased 59.2% or $368.1 million.

Including restructuring charges of $3.8 million and $52.4 million in 2021 and 2020, respectively, and the one-time On-Demand Talent earnout charge of $11.4 million recorded in 2021, and the non-cash impairment charge of $33.0 million recorded in 2020, operating income for 2021 was $98.3 million compared to an operating loss of $35.5 million in 2020. Operating margin was 9.8% in 2021 compared to (5.7)% in 2020. Excluding charges in both years, adjusted operating income for 2021 more than doubled to $113.4 million compared to $49.8 million in the prior year, and the adjusted operating margin was 11.3% compared to 8.0% in the prior year.

Net income was $72.6 million and diluted earnings per share was $3.58, with an effective tax rate of 31.6%. This compares to a net loss of $37.7 million and diluted loss per share of $1.95 in 2020, with an effective tax rate of (20.1)%. Excluding the previously mentioned non-recurring charges, adjusted net income was $83.5 million with adjusted diluted earnings per share of $4.11, compared to $35.2 million and $1.77, respectively, in the prior year.  The adjusted effective tax rate was 31.1% in 2021 compared to 34.7% in 2020.

Adjusted EBITDA for 2021 increased 89.0% to $141.3 million compared to adjusted EBITDA of $74.8 million in 2020.  Adjusted EBITDA margin increased 210 basis points to14.1% compared to 12.0% in 2020.

Executive Search net revenue increased 53.7% to $868.8 million compared to $565.2 million in 2020. Excluding the impact of exchange rate fluctuations, which positively impacted results by 210 basis points, or $11.9 million, net revenue increased $291.7 million, or 51.6%. Net revenue increased 60.9% in the Americas (60.7% on a constant currency basis), 37.1% in Europe (30.8% on a constant currency basis), and 47.2% in Asia Pacific (42.9% on a constant currency basis). All practice groups exhibited growth over the prior year period.  Productivity was $2.4 million compared to $1.5 million in 2020. The average revenue per executive search was $131,000 compared to $123,000 in 2020, while confirmations increased 44.6%. 

On-Demand Talent, acquired on April 1, 2021, recorded year-to-date net revenue of $66.6 million and exceeded the Company's expectations due to increases in large account penetration, project wins, and higher than anticipated average project size when compared to the prior year.

Heidrick Consulting net revenue increased 19.8% to $67.6 million compared to $56.4 million in 2020. Excluding the impact of exchange rate fluctuations, which positively impacted results by 240 basis points, or $1.4 million, Heidrick Consulting revenue increased 17.4%, or $9.8 million. Heidrick Consulting's results reflect continued increases in confirmation values, average client value, Executive Search referred work, and the value of confirmations due to Executive Search collaborations.

Dividend

The Board of Directors declared a 2021 fourth quarter cash dividend of $0.15 per share payable on March 18, 2022, to shareholders of record at the close of business on March 4, 2022. 

2022 First Quarter Outlook

The Company expects 2022 first quarter consolidated net revenue of between $270 million and $280 million, while acknowledging the continued fluidity of the COVID-19 pandemic and instability in Ukraine and Russia that may impact quarterly results.  In addition, this outlook is based on the average currency rates in December 2021 and reflects, among other factors, management's assumptions for the anticipated volume of new Executive Search confirmations, Heidrick Consulting assignments, On-Demand Talent projects and the current backlog, consultant productivity, consultant retention, and the seasonality of the business.

Quarterly Webcast and Conference Call

Heidrick & Struggles will host a conference call to review its fourth quarter and 2021 results today, February 28, at 5:00 pm Eastern Time. Participants may access the Company's call and supporting slides through its website at www.heidrick.com or by dialing (866) 211-4120 or (647) 689-6618, conference ID# 1554329.  For those unable to participate on the live call, a webcast and copy of the slides will be archived at www.heidrick.com and available for up to 30 days following the investor call.

About Heidrick & Struggles International, Inc.

Heidrick & Struggles (Nasdaq: HSII) is a premier provider of global leadership advisory and on-demand talent solutions, serving the senior-level talent and consulting needs of the world's top organizations. In our role as trusted leadership advisors, we partner with our clients to develop future-ready leaders and organizations, bringing together our services and offerings in executive search, diversity and inclusion, leadership assessment and development, organization and team acceleration, culture shaping and on-demand, independent talent solutions. Heidrick & Struggles pioneered the profession of executive search more than 65 years ago. Today, the firm provides integrated talent and human capital solutions to help our clients change the world, one leadership team at a time. ® www.heidrick.com

Non-GAAP Financial Measures

To supplement the financial results presented in accordance with generally accepted accounting principles in the United States ("GAAP"), Heidrick & Struggles presents certain non-GAAP financial measures. A "non-GAAP financial measure" is defined as a numerical measure of a company's financial performance that excludes or includes amounts different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of comprehensive income, balance sheets or statements of cash flow of the Company. Pursuant to the requirements of Regulation G, this earnings release contains the most directly comparable GAAP financial measure to the non-GAAP financial measure.

The non-GAAP financial measures used within this earnings release are adjusted operating income, adjusted operating income margin, adjusted net income, adjusted basic and diluted earnings per share, adjusted effective tax rate, adjusted EBITDA, adjusted EBITDA margin, and impacts of foreign currency on current period results using prior period translation rates.  These measures are presented because management uses this information to monitor and evaluate financial results and trends. Management believes this information is also useful for investors. Reconciliations of these non-GAAP financial measures with the most directly comparable measures calculated and presented in accordance with GAAP are provided as schedules attached to this release.

Adjusted operating income reflects the exclusion of one-time earnout obligation adjustments, goodwill impairment, and restructuring charges.

Adjusted operating income margin refers to adjusted operating income as a percentage of net revenue in the same period.

Adjusted net income and adjusted diluted earnings per share reflect the exclusion of one-time earnout obligation adjustments, goodwill impairment, and restructuring charges, net of tax.

Adjusted effective tax rate reflects the exclusion of one-time earnout obligation adjustments, goodwill impairment, and restructuring charges, net of tax.

Adjusted EBITDA refers to earnings before interest, taxes, depreciation, intangible amortization, equity-settled stock compensation expense, earnout accretion, one-time earnout obligation adjustments, contingent compensation related to acquisitions, restructuring charges, goodwill impairment, deferred compensation plan expenses and other non-operating income (expense). 

Adjusted EBITDA margin refers to adjusted EBITDA as a percentage of net revenue in the same period.   

The Company evaluates its results of operations on both an as reported and a constant currency basis.  The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. The Company believes providing constant currency information provides valuable supplemental information regarding its results of operations, consistent with how it evaluates its performance.  The Company calculates constant currency percentages by converting its financial results in a local currency for a period using the average exchange rate for the prior period to which it is comparing.  This calculation may differ from similarly titled measures used by other companies.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of the federal securities laws. The forward-looking statements are based on current expectations, estimates, forecasts, and projections about the industry in which we operate and management's beliefs and assumptions. Forward-looking statements may be identified by the use of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "outlook," "projects," "forecasts," and similar expressions. Forward-looking statements are not guarantees of future performance, rely on a number of assumptions, and involve certain known and unknown risks and uncertainties that are difficult to predict, many of which are beyond our control.  Factors that may cause actual outcomes and results to differ materially from what is expressed, forecasted, or implied in the forward-looking statements include, among other things, the impacts, direct and indirect, of the COVID-19 pandemic (including the emergence of variant strains) on our business, our consultants and employees, and the overall economy; leadership changes, our ability to attract, integrate, develop, manage and retain qualified consultants and senior leaders; our ability to prevent our consultants from taking our clients with them to another firm; our ability to maintain our professional reputation and brand name; the fact that our net revenue may be affected by adverse economic conditions; our clients' ability to restrict us from recruiting their employees; the aggressive competition we face; our heavy reliance on information management systems; the fact that we face the risk of liability in the services we perform; the fact that data security, data privacy and data protection laws and other evolving regulations and cross-border data transfer restrictions may limit the use of our services and adversely affect our business; social, political, regulatory and legal risks in markets where we operate; any challenges to the classification of our on-demand talent as independent contractors; the impact of foreign currency exchange rate fluctuations; the fact that we may not be able to align our cost structure with net revenue; unfavorable tax law changes and tax authority rulings; our ability to realize our tax losses; the timing of the establishment or reversal of valuation allowance on deferred tax assets; any impairment of our goodwill, other intangible assets and other long-lived assets; our ability to execute and integrate future acquisitions; the fact that we have anti-takeover provisions that make an acquisition of us difficult and expensive; our ability to access additional credit; and the increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks that could pose a risk to our systems, networks, solutions, services and data.  We caution the reader that the list of factors may not be exhaustive.  For more information on the factors that could affect the outcome of forward-looking statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2021, under the heading "Risk Factors" in Item 1A. We caution the reader that the list of factors may not be exhaustive.  The forward-looking statements contained in this press release speak only as of the date of this press release.  We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Contacts:

Investors & Analysts:
Wendy Webb, Investor Relations
wwebb@heidrick.com

Media:
Nina Chang, Vice President, Corporate Communications
nchang@heidrick.com

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SOURCE Heidrick & Struggles International, Inc.