SEC Filing | Heidrick & Struggles International, Inc.

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hsii-20200930

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 SEPTEMBER 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 October 23, 2020, there were 19,359,586 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 September 30, 2020 (Unaudited) and December 31, 2019	1

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

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

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 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	38

Item 4.	Controls and Procedures	38

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 6.	Exhibits	40

	SIGNATURE	41

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


	September 30, 2020		December 31, 2019
	(Unaudited)
Current assets
Cash and cash equivalents	$	170,577	$	271,719
Marketable securities	67,028		61,153
Accounts receivable, net of allowances of $6,401 and $5,140, respectively	119,102		109,163
Prepaid expenses	21,513		20,185
Other current assets	23,817		27,848
Income taxes recoverable	13,014		4,414
Total current assets	415,051		494,482

Non-current assets
Property and equipment, net	26,740		28,650
Operating lease right-of-use assets	80,091		99,391
Assets designated for retirement and pension plans	14,608		13,978
Investments	27,836		25,409
Other non-current assets	23,682		20,434
Goodwill	91,264		126,831
Other intangible assets, net	1,218		1,935
Deferred income taxes	32,819		33,063
Total non-current assets	298,258		349,691

Total assets	$	713,309	$	844,173

Current liabilities

Accounts payable	$	11,050	$	8,633
Accrued salaries and benefits	161,002		234,306
Deferred revenue	37,268		41,267
Operating lease liabilities	30,569		30,955
Other current liabilities	26,691		26,253
Income taxes payable	1,086		3,928
Total current liabilities	267,666		345,342

Non-current liabilities

Accrued salaries and benefits	56,998		59,662
Retirement and pension plans	49,389		46,032
Operating lease liabilities	73,565		79,388
Other non-current liabilities	4,625		4,634
Total non-current liabilities	184,577		189,716

Total liabilities	452,243		535,058

Commitments and contingencies (Note 17)

Stockholders’ equity
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at September 30, 2020 and December 31, 2019	—		—
Common stock, $0.01 par value, 100,000,000 shares authorized, 19,585,777 shares issued, 19,359,586 and 19,165,954 shares outstanding at September 30, 2020 and December 31, 2019, respectively	196		196
Treasury stock at cost, 226,191 and 419,823 shares at September 30, 2020 and December 31, 2019, respectively	(8,041)		(14,795)
Additional paid in capital	227,995		228,807
Retained earnings	38,487		91,083
Accumulated other comprehensive income	2,429		3,824
Total stockholders’ equity	261,066		309,115

Total liabilities and stockholders’ equity	$	713,309	$	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 September 30,						Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue
Revenue before reimbursements (net revenue)	$	143,544	$	182,174	$	460,628	$	526,890
Reimbursements	957		4,344		6,555		14,075
Total revenue	144,501		186,518		467,183		540,965

Operating expenses
Salaries and benefits	103,893		130,479		329,640		371,898
General and administrative expenses	29,769		33,093		93,970		101,646
Impairment charges	—		—		32,970		—
Restructuring charges	48,115		4,130		48,115		4,130
Reimbursed expenses	957		4,344		6,555		14,075
Total operating expenses	182,734		172,046		511,250		491,749

Operating income (loss)	(38,233)		14,472		(44,067)		49,216

Non-operating income (expense)
Interest, net	(180)		819		160		2,039
Other, net	1,819		(464)		460		1,887
Net non-operating income	1,639		355		620		3,926

Income (loss) before income taxes	(36,594)		14,827		(43,447)		53,142

Provision for (benefit from) income taxes	(10,416)		4,880		(202)		16,828

Net income (loss)	(26,178)		9,947		(43,245)		36,314

Other comprehensive income (loss), net of tax
Foreign currency translation adjustment	849		(1,337)		(1,381)		(1,024)
Net unrealized gain (loss) on available-for-sale investments	1		—		(14)		12

Other comprehensive income (loss), net of tax	850		(1,337)		(1,395)		(1,012)

Comprehensive income (loss)	$	(25,328)	$	8,610	$	(44,640)	$	35,302

Weighted-average common shares outstanding
Basic	19,351		19,127		19,281		19,084

Diluted	19,351		19,428		19,281		19,518

Earnings (loss) per common share
Basic	$	(1.35)	$	0.52	$	(2.24)	$	1.90
Diluted	$	(1.35)	$	0.51	$	(2.24)	$	1.86

Cash dividends paid per share	$	0.15	$	0.15	$	0.45	$	0.45

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
Net loss	—	—		—	—		—		(26,178)		—		(26,178)

Other comprehensive income, net of tax	—	—		—	—		—		—		850		850
Common and treasury stock transactions:
Stock-based compensation	—	—		—	—		3,212		—		—		3,212
Vesting of equity, net of tax withholdings	—	—		(22)	702		(702)		—		—		—
Re-issuance of treasury stock	—	—		—	—		—		—		—		—
Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,905)		—		(2,905)
Dividend equivalents on restricted stock units	—	—		—	—		—		(116)		—		(116)

Balance at September 30, 2020	19,586	$	196	226	$	(8,041)	$	227,995	$	38,487	$	2,429	$	261,066

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
Net income	—	—		—	—		—		9,947		—		$	9,947

Other comprehensive loss, net of tax	—	—		—	—		—		—		(1,337)		(1,337)
Common and treasury stock transactions:
Stock-based compensation	—	—		—	—		2,539		—		—		2,539


Cash dividends declared ($0.15 per share)	—	—		—	—		—		(2,870)		—		(2,870)
Dividend equivalents on restricted stock units	—	—		—	—		—		(93)		—		(93)

Balance at September 30, 2019	19,586	$	196	458	$	(14,795)	$	224,687	$	83,497	$	3,050	$	296,635

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)


	Nine Months Ended September 30,
	2020		2019
Cash flows - operating activities
Net income (loss)	$	(43,245)	$	36,314
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	20,638		7,983
Deferred income taxes	700		(24)
Stock-based compensation expense	7,146		7,250
Accretion expense related to earnout payments	—		495
Gain on marketable securities	(144)		(353)
Loss on disposal of property and equipment	289		—
Impairment charges	32,970		—
Changes in assets and liabilities:
Accounts receivable	(9,616)		(36,961)
Accounts payable	2,809		(144)
Accrued expenses	(77,776)		(52,680)
Restructuring accrual	6,289		2,762
Deferred revenue	(3,892)		113
Income taxes recoverable and payable, net	(11,460)		(3,952)
Retirement and pension plan assets and liabilities	1,304		1,824
Prepaid expenses	(1,229)		(920)
Other assets and liabilities, net	2,312		2,874
Net cash used in operating activities	(72,905)		(35,419)

Cash flows - investing activities
Acquisition of business	—		(3,520)
Capital expenditures	(7,121)		(2,641)
Purchases of available-for-sale investments	(118,668)		(83,146)
Proceeds from sales of available-for-sale investments	111,633		39,162
Net cash used in investing activities	(14,156)		(50,145)

Cash flows - financing activities
Proceeds from line of credit	100,000		—
Payments on line of credit	(100,000)		—

Cash dividends paid	(9,019)		(8,866)
Payment of employee tax withholdings on equity transactions	(1,550)		(4,552)
Acquisition earnout payments	(2,789)		(1,853)
Net cash used in financing activities	(13,358)		(15,271)

Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash	(723)		(3,055)

Net decrease in cash, cash equivalents and restricted cash	(101,142)		(103,890)
Cash, cash equivalents and restricted cash at beginning of period	271,719		280,262
Cash, cash equivalents and restricted cash at end of period	$	170,577	$	176,372

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 September 30, 2020 and December 31, 2019, the results of operations for the three and nine months ended September 30, 2020 and 2019 and its cash flows for the nine months ended September 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 September 30, 2020 and 2019, and December 31, 2019 and 2018:


	September 30,						December 31,
	2020		2019		2019		2018
Cash and cash equivalents	$	170,577	$	176,372	$	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	$	170,577	$	176,372	$	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 September 30,						Nine Months Ended September 30,
	2020		2019		2020		2019
Net income (loss)	$	(26,178)	$	9,947	$	(43,245)	$	36,314
Weighted average shares outstanding:
Basic	19,351		19,127