Heidrick & Struggles International, Inc. (HSII) Earnings Call Transcript & Summary

Welcome to the 2020 Annual Meeting for Heidrick & Struggles International, Inc. Our host for today's call is Adam Warby, Chairman of the Board. [Operator Instructions] I will now turn the call over to your host, Mr. Warby. You may begin, sir.

Thank you, and good morning, and will the meeting come to order. As you've heard, my name is Adam Warby, and I'm Chairman of the Board of Heidrick & Struggles and also a candidate for election as Director today. Welcome to the 2020 Annual Meeting of the Stockholders of Heidrick & Struggles International, Inc. This meeting is being webcast live, and the webcast will be posted on our website for a period of time after the meeting. I'd like to begin the meeting by welcoming everybody who has joined in today's virtual stockholder meeting, including our stockholders and the current members of the company's Board of Directors, who are all present with us at today's meeting. We also have a number of company officers here with us today, including Kamau Coar, our General Counsel, who will act as secretary for today's meeting. Tod Shafer, a representative of Broadridge Financial Solutions, Inc., has been appointed to act as inspector for elections for today's meeting. The inspector has the stockholder list of the company as of the close of business of March 31, 2020, the record date for this meeting, which shows the stockholders and their respective number of shares entitled to vote at this meeting. The list is available if any stockholders wish to examine it, and it will be filed with the minutes of this meeting. Guy Gross, a representative from RSM US LLP, our independent registered public accounting firm, is also present at the meeting and will be available to answer questions concerning the company's financial statements. Now in light of public health and safety concerns arising from the COVID-19 situation, we decided to conduct our 2020 Annual Meeting in a virtual meeting format only via the Internet and with no physical in-person meeting. We believe that hosting the meeting in a virtual form helps ensure the health and safety of our stockholders, management and the Board. Stockholders attending the virtual meeting today will be afforded the same rights and opportunities to participate as they would at an in-person meeting. Stockholders of record will be able to vote and ask questions online during the meeting. An agenda that outlines the order of business of the meeting has been made available, along with other relevant company materials in the virtual stockholder meeting website. And if you would like to follow along with today's meeting presentation, please refer to the document titled 2020 HSII Virtual Stockholder Meeting Presentation, which is located in the Meeting Materials section of the home page. The matters on which the stockholders are voting on are fourfold: firstly, to elect 8 directors to our Board of Directors; number two, to ratify the appointment of RSM US LLP as the company's independent registered public accounting firm for 2020; three, to approve the compensation of the company's named executive officers; and fourth, approve the third amended and restated Heidrick & Struggles 2012 GlobalShare Program, along with any other business that may properly come before the meeting. Mr. Coar, our General Counsel and secretary has delivered an affidavit of mailing, establishing that notice of this meeting was duly given. A copy of the notes of the meeting and the affidavit of mailing will be incorporated into the minutes of this meeting. All stockholders of record at the close of business of March 31, 2020, are entitled to vote at today's annual meeting. This affidavit is available if any stockholders wish to examine it and will be filed with the minutes of the meeting. Mr. Coar will now discuss the procedures for transacting the business of the meeting.

Good morning. The meeting will take place as described in the agenda. When an item of business on the agenda is before the meeting for consideration, questions and comments should be limited to that item. If a stockholder has a question or comment not related to a business item on the agenda, an opportunity to raise other questions and comments will be provided after voting on the proposals described in the proxy statement. The rules of conduct have been made available in the Meeting Materials section of the virtual stockholder meeting website. Stockholders will have the opportunity to make a statement about any resolution pending on the floor after the introduction of each of the proposals by Mr. Warby. If you wish to make a statement or ask a question, and you are a stockholder of record or a proxy holder, please type it into the question box at the bottom of your screen during the meeting. Please include your name and whether you are a stockholder or a proxy holder. If you are a proxy holder, please state the name of the stockholder that gave you the proxy. Please keep your statement brief and limited to the specific question -- item up for discussion. Each stockholder can ask up to 3 questions. When the report of the inspector of elections is complete, we will announce the results.

Mr. Coar has reported that we have a quorum, either in person or by proxy, of all shares entitled to vote at this meeting. Accordingly, I declare this meeting to be duly convened for the purpose of transacting such business as may properly come before it. Now I'd like to refer to the presentation titled 2020 HSII Virtual Stockholder Meeting Presentation, which is located in the Meeting Materials section of the virtual stockholder meeting home page. And before we conduct the business of today's meeting, I'll give a brief update on the company's highlights for 2019. I won't read Slide 3 aloud to you, but as a reminder, as a publicly traded company, this is our safe harbor statement. Turning to Slide 4, you can see that since our foundation in 1953, we've had a long-term track record of offering high-quality services to the leading companies around the world. Overall, 2019 was a strong year all around for our company, delivering over $700 million in top line revenue, continuing the strength from a record year that we achieved in 2018. We're a leader in financial services, a very strong global technology services and the industrial sectors. And from a geographical perspective, North America, in particular, saw market share gains over the 2019 period. Before I turn to some of our metrics, I want to point out that while the COVID-19 pandemic has certainly presented some macro uncertainty and significant disruption to our clients' businesses, it also presents an opportunity for our business in the medium term. We're certain that, as conditions improve, our clients' needs for talent solutions will be more important than ever. We also believe that the power of our people and our culture, coupled with our intellectual property and the strong digital platform we've built, positions us well to deliver results. Now looking at Slide 5 in terms of our key performance indicators for 2019. We saw continued high-performance levels, resulting in strong operating income. The leadership team also did an excellent job in managing expenses, with our cost -- fixed cost structure declining to 58% in 2019 versus where it was in -- at 86% in 2009. The work the management team has done to improve efficiency, overall, move us through a digital delivery platform, not only delivered good results financially but also positioned us very strongly to deal with the impact of the COVID crisis. Moving to Slide 6. You can see how the company has translated its operating performance into great returns for our shareholders. Earnings continue to improve, and our dividend yield improved at nearly 3%. Here, you can also see the cash-generative nature of our business, and we ended 2019 with a $333 million of net cash. And we continue to generate strong total shareholders' return. Lastly, on Slide 7. We also have a strong strategic plan in place that will drive us forward, include growing and scaling our search and consulting businesses, continued collaboration across the enterprise and, of course, an ongoing focus on delivering a premium experience to our clients while continuing to invest in innovation to drive future growth and shareholder value. So with that, I'll now turn to the proposals for today's meeting. Proposal #1 is the election of directors. The first item of business is to elect the 8 directors of the company. The proxy statement that was sent to you earlier listed the company's nominees for director. The candidates have been nominated to serve as directors by the company's Nominating and Board Governance Committee, and I'll just read out those Board of Directors. They are Elizabeth L. Axelrod, Laszlo Bock, Clare M. Chapman, Lyle Logan, T. Willem Mesdag, Krishnan Rajagopalan, Stacey Rauch and myself, Adam Warby. In accordance with the bylaws of the company, stockholders are required to provide advanced notice of their intent to nominate candidates for director. No such notice was received. Therefore, I declare the nominations for directors closed. A motion to elect 8 directors, as described in the proxy statement, is now in order. [Voting]

Proposal #2 is advisory vote on executive compensation. The second item here is a proposal on a nonbinding stockholder advisory vote. The company's executive compensation is discussed again in the proxy statement that was sent to you earlier. A motion to vote on the compensation of the named executive officers, as described in the proxy statement, is now in order. [Voting]

The third item of business before the stockholders this morning is the ratification of the appointment of RSM US LLP as the company's independent registered public accounting firm for 2020. [Voting]

The last item of business is to authorize and approve the third amended and restated Heidrick & Struggles 2012 GlobalShare Program to increase the number of shares of common stock reserved for issuance under the GlobalShare Plan by 500,000 shares, recognizing that the importance of equity is a component of our compensation program. A motion to take such action is now in order. [Voting]

I'll just pause for any questions on these proposals.

[Operator Instructions]

The inspector of election will count the votes. So I understand the votes have been counted, and the inspector of election is to report on the preliminary results. Kamau, will you please announce where we got to?

We've been informed by the inspector of elections that the ballots have been counted, and that the 8 nominees for election to the Board of Directors have been duly elected; that a majority of the stockholders have been ratified -- have ratified the company's selection of RSM US LLP as the company's independent registered public accounting firm for 2020; that the compensation of the company's named executive officers, as disclosed in the proxy statement, was approved by a majority of the stockholders; and that a majority of the stockholders have approved the third amended and restated 2012 Heidrick & Struggles GlobalShare Program.

Thank you, Kamau. If there are any other questions to the Board, management or RSM, we'll take them now. At this time, I'd like to open the meeting to any questions that stockholders may have. As a reminder, only matters that may concern all stockholders should be raised at this time. Any matter of individual concern of the stockholder should be raised after the meeting when representatives of the company will respond to your questions. I'll pause for your questions. There being no questions, on behalf of my fellow Board members and management, I thank you for your support on the 4 proposals submitted for your consideration today. I also thank you for your continued support of our company. Thank you for attending today's 2020 Annual Meeting. The meeting is now adjourned.