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Original Source: FD (FAIR DISCLOSURE) WIRE
. Eric Sodorff, Heidrick & Struggles International, Inc., IR . Tom Friel, Heidrick & Struggles International, Inc., Chairman & CEO
. Eileen Kamerick, Heidrick & Struggles International, Inc., CFO
. Todd Welu, Heidrick & Struggles International, Inc., Worldwide
Revenue, earnings, and cash generation all exceeded the guidance provided in 1Q04. HSII experienced the third sequential qtr. with solid revenue growth and delivered significant margin expansion. Net revenue of $97.9m grew 12% sequentially from 1Q04, and operating margin reached 8.8%. Q&A Focus: Fees, headcount, cash flow, & operations.
A. Key Data From Call 1. 3Q04 expected net revenue = $87-92m. 2. Expected full-year 2004 D&A = $13-14m. 3. Expected full-year 2004 CapEx = $6-7m. 4. 2Q04 net revenue = $97.9m. 5. 2Q04 operating income = $8.6. 6. 2Q04 net income = $6.9m. 7. 2Q04 salaries and benefits expense = $66.3m. 8. 2Q04 total bonus accruals = $23m. 9. 2Q04 G&A = $23m. 10. 2Q04 net nonoperating income = $1m. 11. Cash balance as of 06/30/04 = $118.7m. 12. 2Q04 depreciation = $3.2m.
13. 2Q04 CapEx = $1.5m.
S1. Opening Comments (T.F.) 1. 2Q04 Highlights: 1. Eileen Kamerick is HSII's new CFO. 2. During 2Q04 HSII added two new Board Members and completed the build out of the global leadership team.
1. Jill Kanin-Lovers, former SVP, Human Resources, Avon Products, Inc. 2. Paul Unruh, former Vice Chairman, Bechtel Group, Inc. 1. Both these new members will serve on the Audit Committee bringing that committee to a total of four people. 2. At present, the Board of Directors is comprised of nine individuals including seven outside Directors. 3. Last week, HSII announced the appointment of Vince Perro as Managing Partner of Leadership Services. 1. Mr. Perro will lead HSII's business expansion activity outside the search arena, an area of focus very important to Co.'s strategy. 4. With the hiring of Ms. Kamerick and Mr. Perro, HSII has now completed the designed construction of the global leadership team. 2. 2Q04 Financial Results Overview: 1. HSII is very pleased with 2Q04 performance. 2. The economic environment has remained stable, and Co. experienced typical 2Q04 revenue growth. 3. Revenue, earnings, and cash generation all exceeded the guidance provided in 1Q04. 4. Net revenue of $97.9m grew 12% sequentially from 1Q04, and operating margin reached 8.8%. 1. This margin is above the 6-8% goal for the year due to higher-than-expected revenue in 2Q04 and the resulting fixed cost leverage. 5. Compared to the prior revenue, 2Q04 net revenue benefited from FX fluctuations in the amount of approx. $2.8m. 1. Excluding the impact of FX, revenue increased approx. 16% vs. 2Q03. 6. 2Q04 operating income was $8.6, a $2.2m improvement over 2Q03, excluding last year's $8m of severance cost. 7. 2Q04 net income was $6.9m or $0.34 per diluted share vs. a net loss of $2.6m or $0.14 per share in 2Q03. 1. Excluding 2Q03 severance, a more comparable net income for last year was $3.8m and diluted EPS at $0.20. 8. 2Q04 operating income and net income improvement were due to: 1. Higher revenue.
2. Continuing cost discipline. 3. Lower effective tax rate.
9. 2Q04 confirmed searches increased 11% over 2Q03, but were down
7% sequentially. 10. The avg. fee per search was $95,000 up approx. 9% in 2Q04 vs. 2Q03. 11. Assignments, especially in financial services, technology, and healthcare practices accelerated in 2Q04. 12. The overall 2Q04 performance in all major categories was very encouraging. 3. Google Warrant: 1. HSII holds warrant to purchase slightly fewer than 1.2m of Google common stock at $0.30 per share. 2. Historically, it has been HSII's policy to monetize warrants within a limited time period after Co. is able to do so. 3. Given the number of warrants involved, this particular monetization planning could be more heavily influenced by many factors, including potential contractual limitations. 4. Unfortunately at this time, HSII cannot provide any further specifics regarding the expected monetization timing.
5. Once the warrants are exercised and monetized, and Co. knows
the amount involved, the proceeds will be invested considering
all alternatives that increase shareholder value. 6. In accordance with the standard policy, 55% of the gain will go to the team of HSII consultants who conducted the 2001 Google CEO search for which these warrants were issued. 7. While typically Co. will not disclose specific consultants who work on search assignments, HSII has chosen to do so in this case because one of the consultants on the 2001 Google CEO search team was Mr. Friel. 1. Mr. Friel will share 25% of the consultant team's share of a little less than 14% of the overall gain. 2. Mr. Friel's share of the gain is 100% related to his work as a consultant and search partner in Silicon Valley during 2001, and is not in any way related to or influenced by Mr. Friel's current position as CEO of HSII. 8. Over 500 consultants worldwide, including the Mr. Friel, on prior occasions have participated in over 1,000 transactions
since this program began. 1. It has been a very successful program with over $50m monetized since inception and the plan continues.
4. Operations: 1. While this potential warrant gain is good news for HSII, for the shareholders, and for the Google team, the better news in 2Q04 is the Co.'s operating strength in 2004 thus far. 2. HSII believes that the market is in a recovery …