Heidrick & Struggles Posts 2019 Revenue Decline; Coronavirus to Impact Next Quarter Results

February 25, 2020 – Executive search, leadership consulting and culture shaping services provider Heidrick & Struggles International / (NASDAQ:HSII) posted global revenues of $706.9 million in 2019, a 1.3 percent decrease from revenues of $716 million the year before. The Chicago-headquartered recruiter – the third largest in the Americas as ranked by Hunt Scanlon Media last year – reported net income of $46.9 million, or $2.40 per share, on the year.

Executive search net revenue was reported down at $646.4 million compared to $652.9 million in 2018. Net revenue grew 2.5 percent in the Americas (2.7 percent increase on a constant currency basis), decreased 7.1 percent in Europe (2.4 percent decrease on a constant currency basis), and decreased 6.3 percent in the Asia Pacific region (3.7 percent decrease on a constant currency basis). Heidrick consulting net revenue was $60.6 million compared to $63.1 million in 2018.

“By successfully navigating market volatility, we produced quarterly net revenue at the high end of our guidance and closed the year within one percent of last year’s record net revenue results,” said Krishnan Rajagopalan, president and CEO of Heidrick. “Our full-year adjusted earnings surpassed a very strong 2018, as our continued focus on operational efficiencies allowed us to deliver consistent adjusted operating margin on slightly lower revenue.” Cross-collaboration between executive search and Heidrick consulting, he noted, continued to generate synergies as evidenced by Heidrick consulting’s sequential net revenue growth.

“Our recent acquisition of 2Get in Brazil expands our growth platform throughout Latin America, where we see compelling opportunities for both executive search and Heidrick consulting,” he said. “We are particularly excited about innovative and transformational projects such as digital transformation, sustainability and diversity & inclusion that we are participating in with both our clients and internally.”

For the fourth quarter, the firm recorded revenues of $180.0 million, a decrease of 3.3 percent from revenues of $185.3 million a year ago.

Executive search net revenue declined 3.3 percent year over year, or $5.5 million, to $168.5 million. Net revenue decreased 2.7 percent in the Americas (a 2.5 percent decrease on a constant currency basis), decreased 8.9 percent in Europe (a 7.4 percent decrease on a constant currency basis) and increased 2.6 percent in Asia Pacific (a 3.3 percent increase on a constant currency basis). Growth in the consumer markets and global technology & services practices was offset by declines in the other industry practices.

“Through our C-suite focus, we’re playing a pivotal role in shaping our clients’ future,” Mr. Rajagopalan said. “We continue to uncover attractive opportunities emerging across the increasingly complex and fast-changing industry landscape. In 2020, we intend to leverage our market position and strong cash flow to make additional disciplined investments in our product teams and provide new innovative offerings to broaden our capabilities and support the foundational changes our clients seek to implement. We take a long-term approach to the business, and believe that investing in innovation and growth is directly correlated with the ultimate creation of shareholder value.”

New Chairman

Heidrick recently elected Adam Warby, CEO of Avanade, as chairman of its board of directors. Mr. Warby joined Heidrick’s board in 2018 to sharpen the firm’s focus on its digital transformation. As CEO of Avanade, a joint venture founded between Accenture LLP and Microsoft Corp., he has a proven track record.

“Adam’s insights and contributions to our board have been invaluable as we have expanded our data-driven, tech-enabled capabilities,” said Mr. Rajagopalan. “As chairman, his deep knowledge of both the technology and consulting space will be hugely beneficial as we continue to enhance our client experience, tailor our service offerings and accelerate our growth.”

Executive Search Firms Expect Revenue Uptick, Continued Growth in 2020
A new year brings a new set of perspectives and priorities. In 2020, search consultants are excited about the possibilities provided by technology, anxious about the economy, and (still) struggling with the talent shortage.

Expectations for 2020 are largely positive but are more modest than in years past, according to Bullhorn’s “Global Recruitment Insights and Data” report. This is likely connected to economic uncertainty with 45 percent expecting a recession in 2020, compared to just 30 percent heading into last year, said the study. Overall, 64 percent of respondents named economic uncertainty as their top macroeconomic challenge for the coming year, up from 49 percent last year.

“Clients are looking for a trusted advisor in this fast-evolving, digital world, and I’m delighted to be taking up the chairmanship of Heidrick & Struggles at this exciting time,” said Mr. Warby. “There is tremendous opportunity in the talent and human capital solutions market, and I’m looking forward to helping the team develop its strategy and execution to provide superior innovative services, outperform its competition and grow the business.”

2020 First Quarter Outlook

Heidrick & Struggles expects 2020 first quarter consolidated net revenue of between $165 million and $175 million. This outlook is based on the average currency rates in December 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.

Additionally, the firm is proactively monitoring the significant level of uncertainty associated with the Coronavirus and is keeping in close communication with its team and clients in affected regions. “While the situation is still fluid and it is too early to quantify, it is reasonable to assume that along with the reported economic pressure, the Coronavirus could have a related impact on first quarter results,” Heidrick & Struggles said.

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media

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