Heidrick Posts 10 Percent Revenue Increase; Stock Jumps 21 Percent

October 28, 2015 – Chicago-based Heidrick & Struggles International / (NASDAQ:HSII) posted consolidated net revenue of $138.4 million in the third quarter, up 10 percent from $125.8 million a year ago. The stock jumped 21 percent on the news.

The increase was driven by a 20.4 percent year-over-year increase in the Americas (22.4 percent on a constant currency basis) and a 7.4 percent increase in Asia Pacific (18.5 percent on a constant currency basis). Revenue in Europe declined 4.6 percent compared to last year’s third quarter, but increased 7.5 percent on a constant currency basis. This was a stark improvement over the firm’s second quarter European results, which showed a 23 percent decline.

From a global practices perspective, the firm’s global technology & services, healthcare & life sciences, and financial services practices were the primary drivers of year-over-year growth.

Executive search and leadership consulting net revenue increased 11.9 percent year over year, or $13.7 million, to $129.2 million.

Net revenue from culture shaping services declined 11.2 percent, or $1.1 million, to $9.2 million from $10.3 million in the 2014 third quarter.

Heidrick reported third-quarter earnings of $7.5 million, or 40 cents per share,compared to net income of $3 million, or 17 cents per share, last year. The results surpassed Wall Street expectations. The average estimate of three analysts surveyed by Zacks Investment Research was for earnings of 29 cents per share.

Specific to executive search, the company’s largest business, the number of confirmed assignments during the quarter increased 12.8 percent compared to the 2014 third quarter. The average revenue per executive search was $121,200, or $127,800 on a constant currency basis, compared to $122,200 in the 2014 third quarter.

“Solid revenue growth in the third quarter, up 15.8 percent in constant currency, drove good improvements in adjusted EBITDA, operating income and net income,” said Tracy R. Wolstencroft, Heidrick president and chief executive officer. “We will continue to focus our initiatives and gauge our progress on our four priorities–talent, clients, diversified solutions and operations—in order to drive long-term shareholder value.”

For the current quarter ending in December, Heidrick & Struggles said it expects revenue in the range of $128 million to $138 million.

Three months ago, Heidrick increased its bank credit facilities to give the company additional investment options. “The increase and extension of our credit facility, combined with our balance sheet and capital structure, provide Heidrick with total financial flexibility as we continue to invest in our business and pursue our growth strategy,” said Heidrick CFO Richard W. Pehlke at the time.

Earlier this month, Heidrick acquired Co Company, a London-based advisory boutique specializing in leadership services that accelerate organizational performance. The firm was merged into Heidrick’s leadership consulting business. The all-cash deal terms include an initial payment of $10.6 million at closing and an earn-out structure designed to provide aggregate consideration totaling $15 million to $18 million if Co Company achieves certain revenue and EBITDA margin milestones.

Heidrick recently appointed Ron Lumbra as region leader for its Americas region. He leads a team of more than 350 partners, principals and associates serving clients across all service sectors. Mr. Lumbra joined the firm from Russell Reynolds Associates, where he served as managing director and co-leader, Americas CEO and board services.

“We began the fourth quarter with the acquisition of Co Company, a London-based advisory boutique specializing in leadership and organizational development services,” said Mr. Wolstencroft.  “With this acquisition we added consultant expertise, new service offerings, and scalable tools and methodologies.” Recently, Colin Price was appointed to lead Heidrick’s leadership consulting practice globally, with a clear directive to grow and scale the business.

Heidrick & Struggles’ shares have declined roughly five percent since the beginning of the year. The stock has risen one percent in the last 12 months. Its market cap has now risen to just under $500 million.

Contributed by Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media

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