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Heidrick & Struggles Q1 2010 Earnings Call Transcript

Heidrick & Struggles Q1 2010 Earnings Call Transcript

Heidrick & Struggles (HSII)

Q1 2010 Earnings Conference Call

April 27, 2010 10:00 AM ET


Julie Creed – VP, IR

Kevin Kelly – CEO

Scott Krenz – CFO


Kevin Mcveigh – Macquarie

Tim McHugh – William Blair & Company

Tobey Summer – SunTrust Robinson

Josh Vogel – Sidoti & Company

Mark Marcon - Robert W. Baird & Co.

Ty Govatos – CL King

Kelly Flynn from Credit Suisse


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Good day ladies and gentlemen and welcome to the Heidrick & Struggles First Quarter 2010 Conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. If anyone should require operator assistance during the conference call, please press star then zero on your touchtone telephone. As a reminder this conference call is being recorded.

I would now like to hand the conference over to Ms. Julie Creed, Vice President of Investor Relations. Ma’am, you may begin.

Julie Creed

Good morning everyone and thank you for participating in Heidrick & Struggles first quarter 2010 conference call. Participating with me on the call today are Kevin Kelly, Chief Executive Officer and Scott Krenz, the Chief Financial Officer. As a reminder we’ll be referring to supporting slides that are available on our website at

and we encourage you to follow along or print them.

As always we advise you that this call may not be reproduced or retransmitted without our consent. Also, we’ll be making forward-looking statements on today’s call and ask that you please refer to our Safe Harbor language contained in our news release and on slide one of our presentation.

Now I’ll turn it over to you, Kevin.

Kevin Kelly

Thanks Julie. Good morning and thank you for joining today’s call. For long time, I’ve been looking forward to reporting year-over-year growth and today I’m pleased to be reporting our first quarter of year-over-year revenue growth since the second quarter of 2008. It’s been a long road to recovery and we are not out of the woods. Our improvement in revenue growth is tempered by the fact that we did not meet our operating income objective for the quarter, but the economy in our business are making steady progress.

First I’ll start with a quick overview of some of our key financial and operational metrics in the quarter starting with slide two. Net revenue in the quarter was $113 million up 27.5% compared to last year’s first quarter and up 3.5% sequentially. Every region contributed to the year-over-year sequential growth, but Asia Pacific was especially strong and as we’ve noted in the past calls Europe has been a bit slower to recover from the recession.

Slide three is a view of our monthly confirmations or signed contracts for Executive Search and Leadership Consulting projects. January, February and March confirmations showed slow but steady improvement over the fourth quarter, unlike the fourth quarter were higher than 2009 levels. In fact March confirmations were very closer number to those we record in March of 2008, which is obviously quite encouraging. April is also attracting that come in higher than 2009. Slide four is a look at quarterly confirmation trends specific to Executive Search.

First quarter search confirmations were 26.9% higher than last year’s first quarter and 10.4% higher than the fourth quarter. Every practice except life sciences contributed to year-over-year growth and every practice expect consumer markets achieved sequential growth. So our financial services with the largest contributor to growth every practice is showing improvement.

Starting the slide five, we ended the quarter with 367 consultants. The increase compared to December 31, mostly reflects our annual promotions in January as well as some targeted hiring in the quarter. We will continue to hire throughout 2010, but on a very selective basis. Hiring where we have industry functional or geographic gaps or when opportunities arise. As you know we are focused on investing in and growing our leadership consulting services and we are placing our emphasis on hiring for this business.

Looking at slide six, productivity which we define as annualized net revenue divided by the average number of consultants during the quarter, improved to $1.2 million, compared to 900,000 last year’s first quarter and $1 million for all of 2009. Given this level relative to our people believe there is still capacity in the system to grow net revenue without corresponding increase and headcount growth.

On slide seven, as you all know the average revenue per search is a simple calculation of revenue in the quarter divided by confirmations in the quarter. And therefore it can be a little confusing as revenue lags confirmations each quarter. As such we’ve decided to provide you with the average revenue per search on a trailing 12 month basis. For Q1, average revenue per search was $100,800 which is essentially flat compared to last quarter.

We do believe that pricing and terms have improved over recent months and we expect the trend to continue but the improvement will likely take a few quarters to be reflected in the averages. Turning to slide eight, the reported operating loss in the quarter was $4.3 million. This loss includes a $4.7 million related to two specific items which are explained in the release and which Julie will go into it in more detail.

Excluding these two items, operating income was still not as high as we had forecasted due to several unanticipated and accelerated expenses. But now I’m going to turn the call over to Julie for an update on some of the key line items and then Scott and I will go into more detail on our outlook.

Julie Creed

Thanks Kevin. Our press release and our slides posted on our website this morning provide you with all the key financial and operational results of our first quarter. But as usual I’ll give you some additional color on the other line items and the income statement. Starting with slide 10 and 11, salaries and employee benefits expense increased by $3.8 million or 4.8% year-over-year, mostly reflecting the year-over-year increase in net revenue.

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