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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

OR

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 0-25837
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-2681268
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification Number)
233 South Wacker Drive-Suite 4900
Chicago, Illinois
60606-6303
(Address of Principal Executive Offices)

(312) 496-1200
(Registrant’s Telephone Number, Including Area Code)
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, $0.01 par valueHSIIThe NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period of time that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer 
¨
  Accelerated filer 
Non-Accelerated filer 
¨ (Do not check if a smaller reporting company)
  Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 23, 2020, there were 19,359,586 shares of the Company’s common stock outstanding.



HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
 
  PAGE
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 6.



PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30,
2020
December 31,
2019
 (Unaudited) 
Current assets
Cash and cash equivalents$170,577 $271,719 
Marketable securities67,028 61,153 
Accounts receivable, net of allowances of $6,401 and $5,140, respectively
119,102 109,163 
Prepaid expenses21,513 20,185 
Other current assets23,817 27,848 
Income taxes recoverable13,014 4,414 
Total current assets415,051 494,482 
Non-current assets
Property and equipment, net26,740 28,650 
Operating lease right-of-use assets80,091 99,391 
Assets designated for retirement and pension plans14,608 13,978 
Investments27,836 25,409 
Other non-current assets23,682 20,434 
Goodwill91,264 126,831 
Other intangible assets, net1,218 1,935 
Deferred income taxes32,819 33,063 
Total non-current assets298,258 349,691 
Total assets$713,309 $844,173 
Current liabilities
Accounts payable$11,050 $8,633 
Accrued salaries and benefits161,002 234,306 
Deferred revenue37,268 41,267 
Operating lease liabilities30,569 30,955 
Other current liabilities26,691 26,253 
Income taxes payable1,086 3,928 
Total current liabilities267,666 345,342 
Non-current liabilities
Accrued salaries and benefits56,998 59,662 
Retirement and pension plans49,389 46,032 
Operating lease liabilities73,565 79,388 
Other non-current liabilities4,625 4,634 
Total non-current liabilities184,577 189,716 
Total liabilities452,243 535,058 
Commitments and contingencies (Note 17)
Stockholders’ equity
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at September 30, 2020 and December 31, 2019
  
Common stock, $0.01 par value, 100,000,000 shares authorized, 19,585,777 shares issued, 19,359,586 and 19,165,954 shares outstanding at September 30, 2020 and December 31, 2019, respectively
196 196 
Treasury stock at cost, 226,191 and 419,823 shares at September 30, 2020 and December 31, 2019, respectively
(8,041)(14,795)
Additional paid in capital227,995 228,807 
Retained earnings38,487 91,083 
Accumulated other comprehensive income2,429 3,824 
Total stockholders’ equity261,066 309,115 
Total liabilities and stockholders’ equity$713,309 $844,173 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
1



HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)
 
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Revenue
Revenue before reimbursements (net revenue)$143,544 $182,174 $460,628 $526,890 
Reimbursements957 4,344 6,555 14,075 
Total revenue144,501 186,518 467,183 540,965 
Operating expenses
Salaries and benefits103,893 130,479 329,640 371,898 
General and administrative expenses29,769 33,093 93,970 101,646 
Impairment charges  32,970  
Restructuring charges48,115 4,130 48,115 4,130 
Reimbursed expenses957 4,344 6,555 14,075 
Total operating expenses182,734 172,046 511,250 491,749 
Operating income (loss)(38,233)14,472 (44,067)49,216 
Non-operating income (expense)
Interest, net(180)819 160 2,039 
Other, net1,819 (464)460 1,887 
Net non-operating income1,639 355 620 3,926 
Income (loss) before income taxes(36,594)14,827 (43,447)53,142 
Provision for (benefit from) income taxes(10,416)4,880 (202)16,828 
Net income (loss)(26,178)9,947 (43,245)36,314 
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment849 (1,337)(1,381)(1,024)
Net unrealized gain (loss) on available-for-sale investments1  (14)12 
Other comprehensive income (loss), net of tax850 (1,337)(1,395)(1,012)
Comprehensive income (loss)$(25,328)$8,610 $(44,640)$35,302 
Weighted-average common shares outstanding
Basic19,351 19,127 19,281 19,084 
Diluted19,351 19,428 19,281 19,518 
Earnings (loss) per common share
Basic$(1.35)$0.52 $(2.24)$1.90 
Diluted$(1.35)$0.51 $(2.24)$1.86 
Cash dividends paid per share$0.15 $0.15 $0.45 $0.45 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
2



HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
   Additional
Paid in
Capital
Retained EarningsAccumulated
Other
Comprehensive
Income
Total
Common StockTreasury Stock
SharesAmountSharesAmount
Balance at December 31, 201919,586 $196 420 $(14,795)$228,807 $91,083 $3,824 $309,115 
Net income— — — — — 8,666 — 8,666 
Adoption of accounting standards— — — — — (332)— (332)
Other comprehensive loss, net of tax— — — — — — (3,746)(3,746)
Common and treasury stock transactions:
Stock-based compensation— — — — 2,614 — — 2,614 
Vesting of equity, net of tax withholdings— — (109)3,838 (5,388)— — (1,550)
Cash dividends declared ($0.15 per share)
— — — — — (2,876)— (2,876)
Dividend equivalents on restricted stock units— — — — — (126)— (126)
Balance at March 31, 202019,586 $196 311 $(10,957)$226,033 $96,415 $78 $311,765 
Net loss(25,733)— (25,733)
Other comprehensive income, net of tax— — — — — — 1,501 1,501 
Common and treasury stock transactions:
Stock-based compensation— — — — 1,320 — — 1,320 
Vesting of equity— — (48)1,685 (1,685)— —  
Re-issuance of treasury stock— — (15)529 (183)— — 346 
Cash dividends declared ($0.15 per share)
— — — — — (2,891)— (2,891)
Dividend equivalents on restricted stock units— — — — — (105)— (105)
Balance at June 30, 202019,586 $196 248 $(8,743)$225,485 $67,686 $1,579 $286,203 
Net loss— — — — — (26,178)— (26,178)
Other comprehensive income, net of tax— — — — — — 850 850 
Common and treasury stock transactions:
Stock-based compensation— — — — 3,212 — — 3,212 
Vesting of equity, net of tax withholdings— — (22)702 (702)— —  
Re-issuance of treasury stock— —    — —  
Cash dividends declared ($0.15 per share)
— — — — — (2,905)— (2,905)
Dividend equivalents on restricted stock units— — — — — (116)— (116)
Balance at September 30, 202019,586 $196 226 $(8,041)$227,995 $38,487 $2,429 $261,066 












3



HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
   Additional
Paid in
Capital
Retained EarningsAccumulated
Other
Comprehensive
Income
Total
Common StockTreasury Stock
SharesAmountSharesAmount
Balance at December 31, 201819,586 $196 632 $(20,298)$227,147 $56,049 $4,062 $267,156 
Net income— — — — — 12,087 — 12,087 
Other comprehensive income, net of tax— — — — — — 320 320 
Common and treasury stock transactions:
Stock-based compensation— — — — 1,343 — — 1,343 
Vesting of equity, net of tax withholdings— — (160)5,155 (9,707)— — (4,552)
Cash dividends declared ($0.15 per share)
— — — — — (2,848)— (2,848)
Dividend equivalents on restricted stock units— — — — — (87)— (87)
Balance at March 31, 201919,586 $196 472 $(15,143)$218,783 $65,201 $4,382 $273,419 
Net income— — — — — 14,280 — 14,280 
Other comprehensive income, net of tax— — — — — — 5 5 
Common and treasury stock transactions:
Stock-based compensation— — — — 3,368 — — 3,368 
Vesting of equity, net of tax withholdings— — (3)  — —  
Re-issuance of treasury stock— — (11)348 (3)— — 345 
Cash dividends declared ($0.15 per share)
— — — — — (2,867)— (2,867)
Dividend equivalents on restricted stock units— — — — — (101)— (101)
Balance at June 30, 201919,586 196 458 $(14,795)$222,148 $76,513 $4,387 $288,449 
Net income— — — — — 9,947 — $9,947 
Other comprehensive loss, net of tax— — — — — — (1,337)(1,337)
Common and treasury stock transactions:
Stock-based compensation— — — — 2,539 — — 2,539 
Cash dividends declared ($0.15 per share)
— — — — — (2,870)— (2,870)
Dividend equivalents on restricted stock units— — — — — (93)— (93)
Balance at September 30, 201919,586 $196 458 $(14,795)$224,687 $83,497 $3,050 $296,635 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
4



HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 Nine Months Ended
September 30,
 20202019
Cash flows - operating activities
Net income (loss)$(43,245)$36,314 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization20,638 7,983 
Deferred income taxes700 (24)
Stock-based compensation expense7,146 7,250 
Accretion expense related to earnout payments 495 
Gain on marketable securities(144)(353)
Loss on disposal of property and equipment289  
Impairment charges32,970  
Changes in assets and liabilities:
Accounts receivable(9,616)(36,961)
Accounts payable2,809 (144)
Accrued expenses(77,776)(52,680)
Restructuring accrual6,289 2,762 
Deferred revenue(3,892)113 
Income taxes recoverable and payable, net(11,460)(3,952)
Retirement and pension plan assets and liabilities1,304 1,824 
Prepaid expenses(1,229)(920)
Other assets and liabilities, net2,312 2,874 
Net cash used in operating activities(72,905)(35,419)
Cash flows - investing activities
Acquisition of business (3,520)
Capital expenditures(7,121)(2,641)
Purchases of available-for-sale investments(118,668)(83,146)
Proceeds from sales of available-for-sale investments111,633 39,162 
Net cash used in investing activities(14,156)(50,145)
Cash flows - financing activities
Proceeds from line of credit100,000  
Payments on line of credit(100,000) 
Cash dividends paid(9,019)(8,866)
Payment of employee tax withholdings on equity transactions(1,550)(4,552)
Acquisition earnout payments(2,789)(1,853)
Net cash used in financing activities(13,358)(15,271)
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash(723)(3,055)
Net decrease in cash, cash equivalents and restricted cash(101,142)(103,890)
Cash, cash equivalents and restricted cash at beginning of period271,719 280,262 
Cash, cash equivalents and restricted cash at end of period$170,577 $176,372 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

5



HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except per share figures)
(Unaudited) 

1.    Basis of Presentation of Interim Financial Information

The accompanying unaudited Condensed Consolidated Financial Statements of Heidrick & Struggles International, Inc. and subsidiaries (the “Company”) have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Significant items subject to estimates and assumptions include revenue recognition, income taxes, interim effective tax rate and the assessment of goodwill, other intangible assets and long lived assets for impairment. Estimates are subject to a degree of uncertainty and actual results could differ from these estimates. In the opinion of management, all adjustments necessary to fairly present the financial position of the Company at September 30, 2020 and December 31, 2019, the results of operations for the three and nine months ended September 30, 2020 and 2019 and its cash flows for the nine months ended September 30, 2020 and 2019 have been included and are of a normal, recurring nature except as otherwise disclosed. These financial statements and notes are to be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 24, 2020.

2.    Summary of Significant Accounting Policies

A complete listing of the Company’s significant accounting policies is discussed in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Revenue Recognition

See Note 3, Revenue.

Marketable Securities

The Company’s marketable securities consist of available-for-sale debt securities with original maturities exceeding three months.

Restricted Cash

The following table provides a reconciliation of the cash and cash equivalents between the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statement of Cash Flows as of September 30, 2020 and 2019, and December 31, 2019 and 2018:
September 30,December 31,
2020201920192018
Cash and cash equivalents$170,577 $176,372 $271,719 $279,906 
Restricted cash included within other current assets   108 
Restricted cash included within other non-current assets   248 
Total cash, cash equivalents and restricted cash$170,577 $176,372 $271,719 $280,262 

Earnings (loss) per Common Share

Basic earnings (loss) per common share is computed by dividing net income (loss) by weighted average common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Common equivalent shares are excluded from the determination of diluted earnings (loss) per share in periods in which they have an anti-dilutive effect.

6



The following table sets forth the computation of basic and diluted earnings (loss) per share:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Net income (loss)$(26,178)$9,947 $(43,245)$36,314 
Weighted average shares outstanding:
Basic19,351 19,127 19,281 19,084 
Effect of dilutive securities:
Restricted stock units 195  283 
Performance stock units 106  151 
Diluted19,351 19,428 19,281 19,518 
Basic earnings per share$(1.35)$0.52 $(2.24)$1.90 
Diluted earnings per share$(1.35)$0.51 $(2.24)$1.86 

Weighted average restricted stock units and performance stock units outstanding that could be converted into approximately 315,000 and 63,000 common s