July 28, 2020 – Executive search, leadership consulting and culture shaping services provider Heidrick & Struggles (NASDAQ:HSII) posted second quarter revenues of $145.6 million, an 18.3 percent decrease from revenues of $173.1 million during the same period a year ago. The reduction in net revenue was primarily due to the impact of the pandemic on it global business.
Executive search net revenue experienced a steep drop: $134.2 million compared to $158.5 million in the 2019 second quarter. In total, executive search net revenue declined $22.4 million. Net revenue decreased 15.6 percent in the Americas (decreased 15 percent on a constant currency basis), decreased 13.6 percent in Europe (decreased 11.4 percent on a constant currency basis) and decreased 17.2 percent in Asia Pacific (decreased 14.7 percent on a constant currency basis).
Heidrick Consulting also fared poorly: net revenue declined to $11.4 million compared to $14.6 million in the 2019 second quarter. Excluding the impact from exchange rate fluctuations of one percent, Heidrick Consulting net revenue decreased by $3.0 million.
The Chicago-headquartered recruiter — the fourth largest global firm as ranked by Hunt Scanlon Media — recorded a net loss of $25.7 million and diluted earnings per share of $1.33; this compares to net income of $14.3 million and diluted earnings per share was 73 cents, last year. Earnings, adjusted for asset impairment costs, came to 37 cents per share.
“I’m very pleased with the way our people have risen to the occasion and the resilience they have demonstrated in serving the needs of our clients throughout these unprecedented times,” said Krishnan Rajagopalan, Heidrick’s president and CEO. “Our second quarter results underscore continued demand for our services even in a challenging environment as the ‘new normal’ begins to emerge.” The quarterly results also underscore the challenges the remain ahead, where fewer clients are expected to demand talent services during a historic pandemic that has battered most industry sectors.
Largest search firm posts fiscal year-end revenues of $1.92 billion as it navigates pandemic and economic crisis. $300 million cost savings efforts include pay cuts and furloughs, with “more change” in the works, according to CEO Gary D. Burnison. The fiscal fourth quarter was impacted by COVID-19 with revenues falling 19 percent in Asia Pacific, 17. 2 percent in Latin America, 12.5 percent in Europe, the Middle East and Africa, and 10.1 percent in North America.
“We are encouraged by the growth in confirmations in June across all regions in executive search and Heidrick Consulting, and this trend has continued into July,” Mr. Rajagopalan said. “Additionally, we are adjusting our cost structure and improving efficiencies to address the ongoing pressure on the global economy, while further promoting our long-term ability to capitalize on our industry-leading platform, strong balance sheet, and compelling growth opportunities. While the environment is volatile and much uncertainty remains about the duration and impact of the pandemic, our focus is steadfast on creating shareholder value through serving our clients as a trusted global advisor, especially during these unprecedented times.”
How the company is adjusting its cost structure and improving efficiencies is expected to be drastic. In the coming weeks, Heidrick will implement a restructuring plan that will cut staff and result in annual cost savings in the range of $30 million to $40 million.
The primary components of the restructuring include workforce reduction, office closures, professional fees, and the elimination of certain deferred compensation programs. In connection with this restructuring plan, Heidrick expects to record pre-tax charges of approximately $30 million to $40 million in its third quarter.
New Diversity & Inclusion Practice
One bright spot for the firm during the second quarter: Heidrick launched a newly formed diversity and inclusion (D&I) practice. It is led by Lyndon Taylor, partner-in-charge of the firm’s Chicago office, along with Jennifer Flock, partner, Europe D&I practice consulting lead, and Christianne Garofalo, partner, Americas D&I practice consulting lead.
Toronto-based Caldwell posted Q3 revenues of $11.5 million (Canadian), a 42 percent decrease from a year ago. Like many companies, the firm’s performance was impacted by the global COVID-19 pandemic.
“This is a challenging business environment for the executive search industry,” said John Wallace, chief executive officer. “Our third quarter revenue is down 42 percent over last year, which we believe is in line with our industry overall. That said, we remain extremely confident about our ability to manage our business through this pandemic and economic downturn.”
“More so than at any other time, leaders today need to be agile, responsive and inclusive, seeking input from executives with different viewpoints, experiences and backgrounds,” said Mr. Rajagopalan. “During this COVID-19 pandemic, we cannot overstate how critical it is to have diverse voices and inclusive leadership across an organization. Our newly launched D&I practice brings our consultants’ expertise in recruiting and developing top diverse talent together with our in-depth experience in creating inclusive leadership teams and workplace cultures to help organizations deliver demonstrable change and accelerate performance, both in times of crisis and for the future.”
Given the continued uncertainty due to the COVID-19 pandemic, Heidrick is not providing financial guidance for the 2020 third quarter.
Heidrick & Struggles shares have fallen 38 percent since the beginning of the year. In the final minutes of trading on Monday, shares hit $20.31, a decline of 32 percent in the last 12 months.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media