Heidrick & Struggles International, Inc. (Nasdaq: HSII), a premier provider of executive search, leadership assessment and development, organization and team effectiveness, and culture shaping services globally, today announced financial results for its first quarter ended March 31, 2019.
- Net revenue increased 7.2% (10.0% on constant currency basis) to $171.6 million compared to $160.1 million in the 2018 first quarter
- Executive Search net revenue grew 8.6% (11.4% on constant currency basis) to $158.3 million, with Americas growing 15.1%, Asia Pacific increasing 6.7%, and Europe down 6.0%, but all three regions up on a constant currency basis
- Produced 24.9% growth in operating income to $16.4 million and expanded operating margin to 9.6% compared to 8.2% in last year's first quarter
- Net income improved to $12.1 million and diluted EPS was $0.62, compared to 2018 first quarter net income of $10.2 million and diluted EPS of $0.53
- First quarter cash dividend increased to $0.15 per share from $0.13 per share
"We are pleased to report our 15th quarter in a row of year-over-year growth in net revenue and continued improvement in profitability," stated Heidrick & Struggles' President and Chief Executive Officer, Krishnan Rajagopalan. "Market demand for the executive search and leadership advisory services continues to be positive, despite the usual quarter-to-quarter and geographic variability. We are pleased with the progress we are making to differentiate our human capital solutions through our own digital transformation by utilizing more data-driven, tech-enabled platforms to help our clients accelerate their performance. We are off to a good start in 2019 and see continued opportunity to gain market share and increase shareholder value."
2019 First Quarter ResultsSupported by strong results in Executive Search, consolidated net revenue (revenue before reimbursements) increased 7.2%, or $11.5 million, to $171.6 million from $160.1 million in the 2018 first quarter. Excluding the impact of exchange rate fluctuations which negatively impacted results by $4.4 million, or 2.5%, consolidated net revenue increased 10.0% or $15.9 million.
Executive Search net revenue increased 8.6% year over year, or $12.5 million, to $158.3 million from $145.8 million in the 2018 first quarter. Excluding the impact of exchange rate fluctuations which impacted results by $4.1 million, or 2.5%, Search net revenue increased 11.4% or $16.6 million. Net revenue increased 15.1% in the Americas and 6.7% in the Asia Pacific (11.8% on a constant currency basis), but declined 6.0% in Europe (increased 1.3% on a constant currency basis). Every industry practice contributed to the growth, except the Financial Services practice which declined 4.0%.
There were 370 Executive Search consultants at March 31, 2019 compared to 349 at March 31, 2018 and 353 at December 31, 2018. Productivity, as measured by annualized Executive Search net revenue per consultant, was $1.7 million compared to $1.6 million in the 2018 first quarter. The number of confirmed searches increased 1.4% compared to the 2018 first quarter, and the average revenue per executive search increased to $123,700 compared to $115,600 in the 2018 first quarter.
Heidrick Consulting net revenue decreased 6.7%, or $1.0 million, to $13.3 million from $14.2 million in the 2018 first quarter. Excluding the impact of exchange rate fluctuations which negatively impacted results by $0.3 million, or 2.3%, Consulting net revenue declined 4.5% or $0.6 million. The decline in revenue is primarily related to the completion of several large projects in Europe. There were 67 Heidrick Consulting consultants at March 31, 2019 compared to 68 at March 31, 2018 and 66 at December 31, 2018.
Consolidated salaries and employee benefits expense increased 8.4%, or $9.4 million, to $120.8 million from $111.4 million in the 2018 first quarter. Fixed compensation expense increased $4.5 million, largely reflecting higher costs for talent acquisition and retention of consultants. Variable compensation expense rose $4.9 million, primarily reflecting higher bonus accruals for Executive Search consultant performance. Salaries and employee benefits expense was 70.4% of net revenue for the quarter compared to 69.6% in the 2018 first quarter.
General and administrative expenses declined 3.3%, or $1.2 million, to $34.4 million from $35.5 million in the 2018 first quarter. Savings were achieved in several expense categories, but the largest year-over-year improvement was a reduction in professional services fees. As a percentage of net revenue, general and administrative expenses were 20.0% compared to 22.2% in the 2018 first quarter.
Operating income grew 24.9%, or $3.3 million, to $16.4 million from $13.1 million in the 2018 first quarter, and the operating margin improved to 9.6% from 8.2%. Adjusted EBITDA in the 2019 first quarter increased 11.8%, or $2.2 million, to $20.6 million from $18.4 million in the 2018 first quarter. The Adjusted EBITDA margin was 12.0% compared to 11.5% in the 2018 first quarter. The improvements in operating income and Adjusted EBITDA were primarily driven revenue growth from Executive Search.
Net income increased to $12.1 million and diluted earnings per share was $0.62 with an effective tax rate of 35.9% in the quarter. This compares favorably to net income of $10.2 million and diluted earnings per share of $0.53 with an effective tax rate of 21.3% in last year's first quarter, which reflected the benefit of several one-time items. The full-year projected tax rate is in the mid- 30% range excluding any one-time items.
Primarily reflecting annual bonus payments, net cash used by operating activities was $155.3 million in the 2019 first quarter, compared to $137.5 million in the 2018 first quarter. Cash and cash equivalents at March 31, 2019 were $114.4 million, compared to $279.9 million at December 31, 2018, and $73.4 million ($61.4 million net of debt) at March 31, 2018. The company's cash position typically builds throughout the year as bonuses are accrued, mostly to be paid out in the first quarter.
2019 Second Quarter Outlook The company expects 2019 second quarter consolidated net revenue of between $172 million and $182 million. In the 2018 second quarter, the company experienced an unusually high number of upticks that resulted in net revenue of $183.1 million, $18 million higher than the midpoint of company's guidance of $165 million. The outlook is based on the average currency rates in March 2019 and reflects, among other factors, management's assumptions for the anticipated volume of new Executive Search confirmations, Heidrick Consulting assignments, the current backlog, consultant productivity, consultant retention, and the seasonality of its business.
DividendThe Board of Directors has declared a 2019 second quarter cash dividend of $0.15 per share payable on May 24, 2019 to shareholders of record at the close of business on May 10, 2019.
Quarterly Conference CallExecutives of Heidrick & Struggles will host a conference call to review its 2019 first quarter financial results today, April 29 at 4:00 pm Central Time/ 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 (470) 495-9154, booking # 7579910. 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.