SEC Filing | Heidrick & Struggles International, Inc.

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hsii-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 0-25837

HEIDRICK & STRUGGLES INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware						36-2681268
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification Number)

233 South Wacker Drive-Suite 4900

Chicago, Illinois

60606-6303

(Address of Principal Executive Offices)

(312) 496-1200

(Registrant’s Telephone Number, Including Area Code)


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	HSII	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period of time that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☒

Non-Accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of July 24, 2020, there were 19,342,148 shares of the Company’s common stock outstanding.

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX


		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets as of June 30 , 2020 (Unaudited) and December 31, 2019	1

	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30 , 2020 and 2019	2

	Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity for the three and six months ended June 30 , 2020 and 2019	3

	Unaudited Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30 , 2020 and 2019	5

	Unaudited Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36

Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 5.	Other Information	38

Item 6.	Exhibits	39

	SIGNATURE	40

PART I. FINANCIAL INFORMATION

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


	June 30, 2020		December 31, 2019
	(Unaudited)
Current assets
Cash and cash equivalents	$	218,760	$	271,719
Marketable securities	69,055		61,153
Accounts receivable, net of allowances of $7,067 and $5,140, respectively	124,845		109,163
Prepaid expenses	24,605		20,185
Other current assets	27,811		27,848
Income taxes recoverable	4,918		4,414
Total current assets	469,994		494,482

Non-current assets
Property and equipment, net	28,577		28,650
Operating lease right-of-use assets	100,061		99,391
Assets designated for retirement and pension plans	14,001		13,978
Investments	26,085		25,409
Other non-current assets	24,700		20,434
Goodwill	91,271		126,831
Other intangible assets, net	1,361		1,935
Deferred income taxes	32,308		33,063
Total non-current assets	318,364		349,691

Total assets	$	788,358	$	844,173

Current liabilities

Accounts payable	$	10,852	$	8,633
Accrued salaries and benefits	113,351		234,306
Deferred revenue	38,122		41,267
Operating lease liabilities	30,117		30,955
Other current liabilities	18,144		26,253
Income taxes payable	11,448		3,928
Total current liabilities	222,034		345,342

Non-current liabilities
Non-current debt	100,000		—
Accrued salaries and benefits	49,829		59,662
Retirement and pension plans	46,847		46,032
Operating lease liabilities	78,872		79,388
Other non-current liabilities	4,573		4,634
Total non-current liabilities	280,121		189,716

Total liabilities	502,155		535,058

Commitments and contingencies (Note 17)

Stockholders’ equity
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at June 30, 2020 and December 31, 2019	—		—
Common stock, $0.01 par value, 100,000,000 shares authorized, 19,585,777 shares issued, 19,337,750 and 19,165,954 shares outstanding at June 30, 2020 and December 31, 2019, respectively	196		196
Treasury stock at cost, 248,027 and 419,823 shares at June 30, 2020 and December 31, 2019, respectively	(8,743)		(14,795)
Additional paid in capital	225,485		228,807
Retained earnings	67,686		91,083
Accumulated other comprehensive income	1,579		3,824
Total stockholders’ equity	286,203		309,115

Total liabilities and stockholders’ equity	$	788,358	$	844,173

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenue
Revenue before reimbursements (net revenue)	$	145,603	$	173,122	$	317,084	$	344,716
Reimbursements	2,232		5,051		5,598		9,731
Total revenue	147,835		178,173		322,682		354,447

Operating expenses
Salaries and benefits	104,658		120,601		225,747		241,419
General and administrative expenses	31,961		34,168		64,201		68,553
Impairment charges	32,970		—		32,970		—
Reimbursed expenses	2,232		5,051		5,598		9,731
Total operating expenses	171,821		159,820		328,516		319,703

Operating income (loss)	(23,986)		18,353		(5,834)		34,744

Non-operating income (expense)
Interest, net	(339)		412		340		1,220
Other, net	3,076		708		(1,359)		2,351
Net non-operating income (expense)	2,737		1,120		(1,019)		3,571

Income (loss) before income taxes	(21,249)		19,473		(6,853)		38,315

Provision for income taxes	4,484		5,193		10,214		11,948

Net income (loss)	(25,733)		14,280		(17,067)		26,367

Other comprehensive income (loss), net of tax
Foreign currency translation adjustment	1,486		(7)		(2,230)		313
Net unrealized gain (loss) on available-for-sale investments	15		12		(15)		12

Other comprehensive income (loss), net of tax	1,501		5		(2,245)		325

Comprehensive income (loss)	$	(24,232)	$	14,285	$	(19,312)	$	26,692

Weighted-average common shares outstanding
Basic	19,298		19,120		19,245		19,062

Diluted	19,298		19,431		19,245		19,531

Earnings (loss) per common share
Basic	$	(1.33)	$	0.75	$	(0.89)	$	1.38
Diluted	$	(1.33)	$	0.73	$	(0.89)	$	1.35

Cash dividends paid per share	$	0.15	$	0.15	$	0.30	$	0.30

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


											Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income	Total
	Common Stock				Treasury Stock
	Shares	Amount		Shares	Amount
Balance at December 31, 2019	19,586	$	196	420	$	(14,795)	$	228,807	$	91,083	$	3,824	$	309,115
Net income	—	—		—	—		—		8,666		—		8,666
Adoption of accounting standards	—	—		—	—		—		(332)		—		(332)
Other comprehensive loss, net of tax	—	—		—	—		—		—		(3,746)		(3,746)
Common and treasury stock transactions:
Stock-based compensation	—	—		—	—		2,614		—		—		2,614
Vesting of equity, net of tax withholdings	—	—		(109)	3,838		(5,388)		—		—		(1,550)

Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,876)		—		(2,876)
Dividend equivalents on restricted stock units	—	—		—	—		—		(126)		—		(126)

Balance at March 31, 2020	19,586	$	196	311	$	(10,957)	$	226,033	$	96,415	$	78	$	311,765
Net loss									(25,733)		—		(25,733)

Other comprehensive income, net of tax	—	—		—	—		—		—		1,501		1,501
Common and treasury stock transactions:
Stock-based compensation	—	—		—	—		1,320		—		—		1,320
Vesting of equity	—	—		(48)	1,685		(1,685)		—		—		—
Re-issuance of treasury stock	—	—		(15)	529		(183)		—		—		346
Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,891)		—		(2,891)
Dividend equivalents on restricted stock units	—	—		—	—		—		(105)		—		(105)

Balance at June 30, 2020	19,586	$	196	248	$	(8,743)	$	225,485	$	67,686	$	1,579	$	286,203

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


											Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income	Total
	Common Stock				Treasury Stock
	Shares	Amount		Shares	Amount
Balance at December 31, 2018	19,586	$	196	632	$	(20,298)	$	227,147	$	56,049	$	4,062	$	267,156
Net income	—	—		—	—		—		12,087		—		12,087

Other comprehensive income, net of tax	—	—		—	—		—		—		320		320
Common and treasury stock transactions:
Stock-based compensation	—	—		—	—		1,343		—		—		1,343
Vesting of equity, net of tax withholdings	—	—		(160)	5,155		(9,707)		—		—		(4,552)

Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,848)		—		(2,848)
Dividend equivalents on restricted stock units	—	—		—	—		—		(87)		—		(87)

Balance at March 31, 2019	19,586	$	196	472	$	(15,143)	$	218,783	$	65,201	$	4,382	$	273,419
Net income	—	—		—	—		—		14,280		—		14,280

Other comprehensive income, net of tax	—	—		—	—		—		—		5		5
Common and treasury stock transactions:
Stock-based compensation	—	—		—	—		3,368		—		—		3,368
Vesting of equity, net of tax withholdings	—	—		(3)	—		—		—		—		—
Re-issuance of treasury stock	—	—		(11)	348		(3)		—		—		345
Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,867)		—		(2,867)
Dividend equivalents on restricted stock units	—	—		—	—		—		(101)		—		(101)

Balance at June 30, 2019	19,586	196		458	$	(14,795)	$	222,148	$	76,513	$	4,387	$	288,449

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2020		2019
Cash flows - operating activities
Net income (loss)	$	(17,067)	$	26,367
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	4,467		5,348
Deferred income taxes	380		512
Stock-based compensation expense	3,934		4,711
Accretion expense related to earnout payments	—		327
Gain on marketable securities	(122)		(116)
Loss on disposal of property and equipment	275		—
Impairment charges	32,970		—
Changes in assets and liabilities:
Accounts receivable	(17,013)		(32,093)
Accounts payable	2,145		(978)
Accrued expenses	(129,842)		(115,500)
Restructuring accrual	(1,480)		(1,189)
Deferred revenue	(2,673)		(3,240)
Income taxes recoverable and payable, net	6,755		(4,035)
Retirement and pension plan assets and liabilities	1,275		1,686
Prepaid expenses	(4,541)		(3,507)
Other assets and liabilities, net	(4,228)		(176)
Net cash used in operating activities	(124,765)		(121,883)

Cash flows - investing activities

Capital expenditures	(4,556)		(1,793)
Purchases of available-for-sale investments	(71,419)		(40,477)
Proceeds from sales of available-for-sale investments	62,467		232
Net cash used in investing activities	(13,508)		(42,038)

Cash flows - financing activities
Proceeds from line of credit	100,000		—


Cash dividends paid	(5,997)		(5,903)
Payment of employee tax withholdings on equity transactions	(1,550)		(4,552)
Acquisition earnout payments	(2,789)		(407)
Net cash provided by (used in) financing activities	89,664		(10,862)

Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash	(4,350)		(165)

Net decrease in cash, cash equivalents and restricted cash	(52,959)		(174,948)
Cash, cash equivalents and restricted cash at beginning of period	271,719		280,262
Cash, cash equivalents and restricted cash at end of period	$	218,760	$	105,314

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except per share figures)

(Unaudited)

1. Basis of Presentation of Interim Financial Information

The accompanying unaudited Condensed Consolidated Financial Statements of Heidrick & Struggles International, Inc. and subsidiaries (the “Company”) have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Significant items subject to estimates and assumptions include revenue recognition, income taxes, interim effective tax rate and the assessment of goodwill, other intangible assets and long lived assets for impairment. Estimates are subject to a degree of uncertainty and actual results could differ from these estimates. In the opinion of management, all adjustments necessary to fairly present the financial position of the Company at June 30, 2020 and December 31, 2019, the results of operations for the three and six months ended June 30, 2020 and 2019 and its cash flows for the six months ended June 30, 2020 and 2019 have been included and are of a normal, recurring nature except as otherwise disclosed. These financial statements and notes are to be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 24, 2020.

2. Summary of Significant Accounting Policies

A complete listing of the Company’s significant accounting policies is discussed in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Revenue Recognition

See Note 3, Revenue.

Marketable Securities

The Company’s marketable securities consist of available-for-sale debt securities with original maturities exceeding three months.

Restricted Cash

The following table provides a reconciliation of the cash and cash equivalents between the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statement of Cash Flows as of June 30, 2020 and 2019, and December 31, 2019 and 2018:


	June 30,						December 31,
	2020		2019		2019		2018
Cash and cash equivalents	$	218,760	$	105,314	$	271,719	$	279,906
Restricted cash included within other current assets	—		—		—		108
Restricted cash included within other non-current assets	—		—		—		248
Total cash, cash equivalents and restricted cash	$	218,760	$	105,314	$	271,719	$	280,262

Earnings (loss) per Common Share

Basic earnings (loss) per common share is computed by dividing net income (loss) by weighted average common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Common equivalent shares are excluded from the determination of diluted earnings (loss) per share in periods in which they have an anti-dilutive effect.

The following table sets forth the computation of basic and diluted earnings (loss) per share:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net income (loss)	$	(25,733)	$	14,280	$	(17,067)	$	26,367
Weighted average shares outstanding:
Basic	19,298		19,120		19,245		19,062
Effect of dilutive securities:
Restricted stock units	—		202		—		300
Performance stock units	—		109		—		169
Diluted	19,298		19,431		19,245		19,531
Basic earnings per share	$	(1.33)	$	0.75	$	(0.89)	$	1.38