Heidrick & Struggles International, Inc. (HSII)

Q2 2010 Earnings Conference Call

July 27, 2010 10:00 AM ET


Julie Creed – VP, IR

Kevin Kelly – CEO

Scott Krenz – CFO


Tim McHugh – William Blair & Company

Kelly Flynn – Credit Suisse

Mark Marcon – Robert W. Baird & Co.

Tobey Summer – SunTrust Robinson



Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Heidrick & Struggles’ Second Quarter 2010 Conference Call. (Operator Instructions) I would now like to turn the conference over to Julie Creed. Ma’am you may begin.

Julie Creed

Good morning, everyone, and thank you for participating in our second quarter 2010 conference call. Participating with me on the call today are Kevin Kelly, our Chief Executive Officer; and, Scott Krenz, our Chief Financial Officer. As a reminder, we’ll be referring to supporting slides that are available on our website at www.heidrick.com, 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 will be making forward-looking statements on today’s call and ask that you please refer to the Safe Harbor language contained in our news release and on Slide 1 of our presentation.

And now I’ll turn it over to you, Kevin.

Kevin Kelly

Thanks, Julie. Good morning and thank you for joining today’s call. We’re pleased to report very strong results for our second quarter with net revenue and operating income both exceeding in our forecast. Net revenue in the quarter of 126.1 million was up 35.4%, compared to last year’s second quarter and up 10.9% sequentially.

The Americas and Asia Pacific had great quarters. The Financial Services practice increased 85% year-over-year and the Industrial practice grew 20%. As you saw on our release, net revenue from leadership consulting services increased 32% to 8.2 million or 6.5% of total net revenue in the quarter. These results continue to validate our strategy to become a leadership advisory firm.

Slide 3 is a view of our monthly confirmations, or signed contracts, for the executive search and leadership consulting projects. Monthly confirmations in 2010 continue to track well ahead of 2009 levels and have been ahead of our forecast this year.

Slide 4 is a look at quarterly confirmation trends specific to executive search. Second quarter search confirmations were 28.2% higher than last year’s second quarter and 0.6% higher than the first quarter. Every practice contributed to the year-over-year growth but the Financial Services practice was the key driver.

Turning to Slide 5. We ended the quarter with 343 consultants down, 37 compared to the end of last year’s second quarter, and a decline of 24 compared to March 31. During the second quarter, 35 consultants left the firm, 31 voluntarily, this proportionate number of consultants who left in the quarter, about half where from the EMEA region. All the more consultants left and we didn’t expected, we are incredibly impressed with the way our consultants, in many cases less experienced consultants, have responded and stepped up to ensure seamless client service. This validates what we have always believed that Heidrick & Struggles has the strongest has the strongest bench and the best brand in the industry. We place a heavy emphasis in our firm on hiring and developing our people.

We have ramped up our consulting hiring initiatives as well. 11 consultants joined our firm in the second quarter, and 13 others have signed contracts to join. As you know, we don’t often hire consultants form other top tier global firms. We have, but not often. Generally, we like to hire consultants who have deep industry or functional experience or consultants who have demonstrated great success in smaller who we believe will exceed in the Heidrick & Struggles platform.

Our research in past experience is showing that the return on investment is not as attractive for hiring big producers from one of the other top global firms as most require large upfront payments and guarantees. The other firms who are making a lot of noise about their hiring of our consultants but these hires are in effect, they’re different than many acquisitions with high valuations. We prefer to maintain our strategy which we firmly believe we yield a much higher return for our employees, clients and shareholders.

Looking at Slide 6. Productivity, which we define as annualized net revenue divided by the average number of consultants during the quarter, improved by 500,000 to 1.4 million in the second quarter, compared to 900,000 during last year’s second quarter and compared to 1.2 million in the first quarter. We are extremely pleased with the continued productivity gains and continue to believe there is room for us to improve this number.

On Slide 7. The average revenue per search is calculated by a revenue in the quarter, divided by confirmations in the quarter and can therefore be a little confusing as revenue lags confirmations by a quarter. Last quarter, we started providing you with the average revenue per search on a trailing 12-month basis. For the second quarter, average revenue per search for the last 12 months was 102,300, an improvement compared to the first quarter when it was 100,800.

Turning to Slide 8. Operating income in the quarter was 7.6 million and the operating margin was 6%, well ahead of our guidance of 2% to 4%.

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