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Notable Hot Stocks: Heidrick & Struggles International, Inc. (Nasdaq: HSII)

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Heidrick & Struggles International, Inc. (Nasdaq: HSII), recently stated fiscal results for its 3rd-quarter and 9.0-months finished September 30, 2k19.

Highlights:

  • Q3 net revenue of $182.20M
  • Q3 operating margin of 7.90 percent; adjusted operating margin* of 10.20 percent
  • Q3 diluted EPS of $0.510; adjusted diluted EPS* of $0.700
  • Accomplished Latin American acquisition, expanding search consultant headcount by 13; forecasted to be EPS accretive in Q4

2k19 3rd-Quarter Results
On September 23, 2k19, the Company attained 2GET, one of the leading search firms in Brazil.  This transaction provides the Company with a strong platform for Latin America growth.  As a result, the Company recorded a restructuring charge of $4.10M in the quarter in connection with related employee, facility and legal costs associated with the transition away from its legacy Brazil operations.  The acquisition of 2GET, coupled with the transition away from the Company’s legacy operations, is expected to be accretive to earnings for each share.

Merged net revenue (revenue before reimbursements) of $182.20M declined 2.90 percent, or $5.40M, from $187.60M in the 2k18 3rd-quarter.  Apart From the impact of exchange rate fluctuations, merged net revenue declined 1.60 percent, or $2.90M.

Executive Search net revenue of $166.50M declined 3.20 percent, or $5.60M, from $172.10M in the 2k18 3rd-quarter.  Apart From the impact of exchange rate fluctuations, Executive Search net revenue declined 2.00 percent, or $3.40M.  Net revenue increased 2.20 percent in the Americas (2.30 percent incline on a constant currency basis), reduced 7.00 percent in Europe (2.60 percent decline on a constant currency basis) and reduced 18.90 percent in the Asia Pacific (17.40 percent decline on a constant currency basis).  Growth in the Consumer Markets and Global Technology & Services practices was offset by declines in the other three industry practices.

There were 380 Executive Search consultants on September 30, 2k19 contrast to 346 on September 30, 2k18 and 371 on June 30, 2k19.  Thirteen consultants were added in the 2k19 3rd-quarter following the Company’s acquisition of 2GET in Brazil.  Productivity, as measured by annualized Executive Search net revenue for each consultant, was $1.80M in contrast to $2.00M in the 2k18 3rd-quarter.  The average revenue for each executive search was $133,500.00 contrast to $133,700.00 in the 2k18 3rd-quarter, while the number of confirmed searches declined 3.10 percent contrast to the 2k18 3rd-quarter.

Heidrick Consulting’s net revenue increased 1.00 percent, or $0.10M, to $15.70M from $15.50M in the 2k18 3rd-quarter.  Apart From the impact of exchange rate fluctuations which negatively influenced results by 2.00 percent, or $0.30M, Heidrick Consulting net revenue increased 3.1 percent, or $0.50M.  There were 71 Heidrick Consulting consultants at September 30, 2k19 contrast to 66.0 on September 30, 2k18 and 68.0 on June 30, 2k19.

Merged salaries and benefits cost declined 2.60 percent, or $3.50M, to $130.50M from $133.90M in the 2k18 3rd-quarter.  Fixed compensation cost reduced $0.60M and variable compensation cost declined $2.80M, mostly related to lower revenue in the quarter.  Salaries and benefits cost were 71.60 percent of net revenue for the quarter contrast to 71.40 percent for the 2k18 3rd-quarter.

General and administrative costs were $33.10M, similar as in the 2k18 3rd-quarter.  As a percentage of net revenue, general and administrative costs were 18.20 percent in contrast to 17.60 percent in the 2k18 3rd-quarter.

Counting the formerly mentioned restructuring charges, operating income was $14.50M in contrast to $20.60M in the 2k18 3rd-quarter.  Operating margin was 7.90 percent in the 2k19 3rd-quarter contrast to 11.00 percent in the 2k18 3rd-quarter.  Apart From restructuring charges, adjusted operating income was $18.60M and the adjusted operating margin was 10.20 percent.

Net income in the 2k19 3rd-quarter was $9.90M and diluted earnings for each share was $0.510 with an effective tax rate of 32.90 percent.  This compares to net income of $16.50M and diluted earnings for each share of $0.850 with an effective tax rate of 29.00 percent in last year’s 3rd-quarter.  Apart From restructuring charges, adjusted net income was $13.70M and adjusted diluted earnings for each share was $0.700.  The full-year projected tax rate is in the low 30.00 percent range apart from any one-time items.

Adjusted EBITDA in the 2k19 3rd-quarter was $23.90M in contrast to $26.40M in the 2k18 3rd-quarter.  The adjusted EBITDA margin was 13.10 percent in contrast to 14.10 percent in the 2k18 3rd-quarter.  The declines in adjusted EBITDA and adjusted EBITDA margin were mainly driven by lower revenue in the quarter.

Net cash offered by operating activities was $86.50M in the 2k19 3rd-quarter, contrast to $84.20M in the 2k18 3rd-quarter.  Cash and marketable securities at September 30, 2k19 were $218.90M, contrast to $279.90M at December 31, 2k18, and $164.20M at September 30, 2k18.  The company’s cash position typically builds throughout the year as bonuses are accrued, and which are mostly paid out in the first quarter.

2k19 9.0-Months Results
For the 9.0-months finished September 30, 2k19, merged net revenue of $526.90M reduced 0.70 percent, or $3.80M, from $530.70M in the first 9.0-months of 2k18.  Apart From the impact of exchange rate fluctuations, merged net revenue increased 1.20 percent or $6.50M.

Operating income for the first 9.0-months of 2k19 was $49.20M contrast to $52.20M in a similar duration of 2k18.  Operating margin was 9.30 percent contrast to 9.80 percent in the first 9.0-months of 2k18.  Apart From restructuring charges of $4.10M in the 2k19 3rd-quarter, adjusted operating income was $53.30M and adjusted operating margin was 10.10 percent.

Net income for the first 9.0-months of 2k19 was $36.30M and diluted earnings for each share was $1.860, with an effective tax rate of 31.70 percent.  This compares to net income of $38.10M and diluted earnings for each share of $1.960 in the first 9.0-months of 2k18, with an effective tax rate of 30.10 percent.  Apart From restructuring charges of $4.10M in the 2k19 3rd-quarter, adjusted net income was $40.00M and adjusted diluted earnings for each share was $2.050.

Adjusted EBITDA for the first 9.0-months of 2k19 increased to $68.60M and Adjusted EBITDA margin improved to 13.00 percent, contrast to Adjusted EBITDA of $68.40M and Adjusted EBITDA margin of 12.90 percent for the similar duration in 2k18.

Dividend
The Board of Directors has declared a 2k19 fourth quarter cash dividend of $0.150 for each share payable on November 22, 2k19 to shareholders of record at the close of business on November 8, 2k19.

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