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

Good morning, and welcome to the Heidrick & Struggles International, Inc. Annual Meeting of Stockholders. I would now like to introduce our first presenter, Adam Warby.

Good morning. Will the meeting come to order? My name is Adam Warby, and I'm the Chairman of the Board of Heidrick & Struggles and also a cabinet for election as Director. Welcome to the 2021 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. Welcome to our stockholders participating by webcast. I'd like to begin the meeting by welcoming everyone who's 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 at today's meeting. We also have a number of the company's officers here with us today, including Kamau Coar, our Chief Legal Officer and Chief Inclusion Officer, who will act as Secretary for today's meeting. Tod Shafer, a representative from 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, 2021, the record date of the meeting, which shows the stockholders and their respective number of shares entitled to vote at this meeting. The list is available if any stockholder wishes to examine it, and it will be filed with the minutes of this meeting. 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. In light of the public health and safety concerns arising from the COVID-19 situation, we've decided to conduct our 2021 Annual Meeting in a virtual meeting format only via the Internet with no physical in-person meeting. We believe hosting a virtual meeting helps ensure the health and safety of our stockholders, management and Board. Stockholders attending the virtual meeting today will be afforded exactly 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 the business of the meeting has been made available along with other relevant company materials on the virtual stockholder meeting website. If you'd like to follow along with today's meeting presentation, please refer to the document titled 2021 HSII Virtual Stockholder Meeting Presentation, which is located in the Meeting Materials section of the home page. The matters on which stockholders are voting on are to: one, elect 7 Directors to our Board of Directors; two, ratify the appointment of RSM US LLP as the company's independent registered public accounting firm for 2021; and three, approve the compensation of the company's named executive officers. At this point, I'd like to particularly thank Clare M. Chapman for her extraordinary service as a member of our Board of Directors. Ms. Chapman will not stand for reelection this year. Since joining our Board in 2016, Clare has played a critical role as the Human Resources and Compensation Committee Chair in addition to serving on the Nominating and Board Governance Committee. I'd like to thank Clare for the strong leadership and counsel she provided to our Board and to the firm's leadership and employees and for many important contributions in helping us continue to build and develop an engaging and thriving culture and organization. We wish Ms. Chapman much success with regard to her other professional commitments. Mr. Coar, our Chief Legal Officer, has delivered an affidavit of mailing establishing that the notice of this meeting was duly given. A copy of the notice 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 as of March 31, 2021, are entitled to vote at today's Annual Meeting. This affidavit is available if any stockholder wishes to examine it and will be filed with the minutes of this 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 statements brief and limited to the specific item up for discussion. Each stockholder can ask up to 3 questions. When the report of the Inspector of Election 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. And accordingly, I declare this meeting to be duly convened for the purposes of transacting such business as may properly come before it. Turning to Slide 2 and before we conduct the business of today's meeting, I'll give a brief update on the company's business highlights for 2020. Moving to Slide 3. I won't read this aloud to you. But as a reminder and as a publicly traded company, here is our safe harbor statement. Turning to Slide 4. Heidrick & Struggles is a company with a long-term perspective. And since 1953, we've been the premier provider of global leadership advisory and on-demand talent solutions, serving the very most senior level talent and consulting needs of the world's top organizations. As we look at our industry practices, we're a leader in both financial services and global technology and services and have a very strong position in the industrial sectors. Diversity and inclusion or D&I and sustainability have increasingly become a critical focus area for all industry practices and for us globally. Before I turn to the specific content of our presentation, I'd like to provide you some additional context for the business in 2020. By old accounts, 2020 was an unprecedented year throughout which our team demonstrated tremendous resilience while adapting our business with a rapidly shifting market conditions. Importantly, the transformation journey we embarked on several years ago positions us very well as we entered the pandemic in early 2020. In addition to our quick actions and pivot, we were also able to reduce our costs while remaining committed to driving our strategic investments in diversification, innovation, data and tech enablement. Together, these factors enabled us to outperform the market and to perform better than we have historically in other recessionary periods. We believe the power of our people and our culture, coupled with our intellectual property and strong digital platform, position us to emerge from the challenges of 2020 even stronger as a firm. In terms of key performance indicators for 2020, our results were obviously impacted by the pandemic on a global basis. But despite this, the leadership team did a great job managing expenses with our fixed cost structure at 68% in 2020 versus 86% in 2009. In addition, during the third quarter of 2020, the company initiated a plan related to strategic actions to optimize future growth and profitability that will generate $30 million to $40 million of annual cost savings. The plan is aimed at adjusting our cost structure, improving efficiencies while further promoting our long-term ability to capitalize on our industry-leading platform, strong balance sheet and compelling growth opportunities. We remain on track with this plan. And already in 2021, our recently reported first quarter results reflect a strong rebound from the global downturn driven by the broad-based strength across all the businesses and geographies. Now moving to Slide 6. Despite the extremely difficult market conditions we faced in 2020, our performance allowed us to end the year on solid ground with a strong balance sheet reflecting over $500 million of liquidity, no debt and continued excellent net cash inflows with nearly $100 million increase in cash in Q4 alone. Here, you can also see the cash-generative nature of our business. And we ended 2020 with $337 million of net cash, and we continue to generate strong total shareholder returns. This sets the foundation for us to execute our strategy in 2021 and beyond and as we continue to build new product capabilities to address client imperatives and expand and enhance the way we serve the executive space. Lastly, on Slide 7. We believe that 2021 will ultimately be a year of accomplishments for our firm as we emerge even stronger, generating enhanced revenue growth, profitability and cash flow. Consistent with our strategic plan, we're committed to capturing market share by going to market as one firm with an integrated value proposition. We also remain committed to driving strategic investments in diversification, innovation, data and tech enablement to capitalize on even more growth opportunities in the future. One important example of this journey is our recent acquisition of BTG, the pioneer of high-end, on-demand independent talent marketplace. With this acquisition, Heidrick & Struggles becomes the first global leadership advisory firm to offer the full spectrum of executive and high-end talent solutions from on-demand, independent professionals to interim executives to permanent placements together with, of course, our consulting services. The addition of BTG complements Heidrick & Struggles' strategic growth initiatives to expand its suite of executive talent solutions to address new and ongoing client demands and builds on successful 2-year exclusive collaboration with BTG that began in 2019. At the same time, we're actively moving forward with strategic long-term initiatives that will further broaden our capabilities and services with new technology and data-driven offerings that leverage our core brand while maintaining a strong balance sheet, paying our dividend and continuing to create long-term shareholder value. With that, I'll now turn to the proposals for today's meeting. The first item of business is the election of 7 Directors of the company. The proxy statement sent to you earlier listed the company's nominees for Director. The candidates for Director who have been nominated to serve as Directors by the company's Nominating and Board Governance Committee and Board of Directors are: Elizabeth L. Axelrod, Laszlo Bock, 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 advance notice of their intent to nominate candidates to Director. No such proceeds, and therefore, I declare the nominations for Directors closed. A motion to elect 7 Directors as described in the proxy statement is now in order. [Voting]

The second item of business is to approve the compensation of the company's named executive officers. The proposal is a nonbinding stockholder advisory vote. The company's executive compensation is discussed 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]

And 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 2021. [Voting]

Are there any questions on any of the proposals? So hearing none, that concludes the period for questions, and I'll now declare the polls closed on the 3 proposals for the stockholders. And the Inspector of Election will count the votes. The Inspector of Election will report on the preliminary results of the vote once the tabulation has been completed. I understand that votes have been counted and the preliminary report of the Inspector of Election has been delivered to the company. Kamau, will you please announce the preliminary results of the stockholders' vote?

We have been informed by the Inspector of Election that the ballots have been counted and that the 7 nominees for election to the Board of Directors have been duly elected, 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 ratified the company's selection of RSM US LLP as the company's independent registered public accounting firm for 2021.

Thank you, Kamau. If there are any questions for 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. Only matters that may concern all stockholders should be raised at this time, and any matters of individual concern to a stockholder should be raised after the meeting when representatives of the company will respond to your questions. So opening up the -- for questions now. So we're hearing no questions. And on behalf of my fellow Board members and management, I thank you for your support for the full proposals submitted for your consideration today. I also thank you for your continued support of our company. Thank you for attending today's 2021 Annual Meeting. The meeting is adjourned.

Thank you. The Heidrick & Struggles International, Inc. Annual Meeting of Stockholders has now come to an end. Thank you for attending. You may now disconnect.