HEIDRICK & STRUGGLES INTERNATIONAL, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations as well as other sections of this annual report on Form 10-K contain forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements are not historical facts, but instead represent only our beliefs, assumptions, expectations, estimates, forecasts and projections regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements include statements other than historical information or statements of current condition and may relate to our future plans and objectives and results. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed under the Section heading "Risk Factors" in Part I, Item 1A of this Form 10-K. Factors that may affect the outcome of the forward-looking statements include, among other things, the impacts, direct and indirect, of the COVID-19 pandemic on our business, our consultants and employees, and the overall economy; leadership changes, our ability to attract, integrate, develop, manage and retain qualified consultants and senior leaders; our ability to prevent our consultants from taking our clients with them to another firm; our ability to maintain our professional reputation and brand name; the fact that our net revenue may be affected by adverse economic conditions; our clients' ability to restrict us from recruiting their employees; the aggressive competition we face; our heavy reliance on information management systems; the fact that we face the risk of liability in the services we perform; the fact that data security, data privacy and data protection laws and other evolving regulations and cross-border data transfer restrictions may limit the use of our services and adversely affect our business; social, political, regulatory and legal risks in markets where we operate; the impact of foreign currency exchange rate fluctuations; the fact that we may not be able to align our cost structure with net revenue; unfavorable tax law changes and tax authority rulings; our ability to realize our tax losses; the timing of the establishment or reversal of valuation allowance on deferred tax assets; any impairment of our goodwill, other intangible assets and other long-lived assets; our ability to execute and integrate future acquisitions; the fact that we have anti-takeover provisions that make an acquisition of us difficult and expensive; our ability to access additional credit; and the increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks that could pose a risk to our systems, networks, solutions, services and data. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for years 2020 and 2019. For the discussion of changes from 2018 to 2019 and other financial information related to 2018, refer to "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedDecember 31, 2019 . This document was filed with theSEC onFebruary 24, 2020 . Executive Overview Our Business We are a leadership advisory firm providing executive search and consulting services. We help our clients build leadership teams by facilitating the recruitment, management and development of senior executives. We believe focusing on top-level services offers us several advantages that include access to and influence with key decision makers, increased potential for recurring search consulting engagements, higher fees per search, enhanced brand visibility and a leveraged global footprint, which create added barriers to entry for potential competitors. Working at the top of client organizations also allows us to attract and retain high-caliber consultants.
In addition to executive search, we provide consulting services including executive leadership assessment, leadership, team and board development, succession planning, talent strategy, people performance, inter-team collaboration, culture shaping and organizational transformation.
We provide our services to a broad range of clients through the expertise of
over 425 consultants located in major cities around the world. Our executive
search services are provided on a retained basis. Revenue before reimbursements
of out-of-pocket expenses ("net revenue") consists of retainers and indirect
expenses billed to clients. Typically, we are paid a retainer for our executive
search services equal to approximately one-third of the estimated first-year
compensation for the position to be filled. In addition, if the actual
compensation of a placed candidate exceeds the estimated compensation, we often
are
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--------------------------------------------------------------------------------authorized to bill the client for one-third of the excess. Indirect expenses are calculated as a percentage of the retainer with certain dollar limits per search.
Key Performance Indicators
We manage and assess our performance through various means, with primary financial and operational measures including net revenue, operating income, operating margin, Adjusted EBITDA (non-GAAP) and Adjusted EBITDA margin (non-GAAP).Executive Search and Heidrick Consulting performance is also measured using consultant headcount. Specific to Executive Search, confirmed search (confirmation) trends, consultant productivity and average revenue per search are used to measure performance. Productivity is as measured by annualized Executive Search net revenue per consultant. Revenue is driven by market conditions and a combination of the number of executive search engagements and consulting projects and the average revenue per search or project. With the exception of compensation expense, incremental increases in revenue do not necessarily result in proportionate increases in costs, particularly operating and administrative expenses, thus creating the potential to improve operating margins. The number of consultants, confirmation trends, number of searches or projects completed, productivity levels and the average revenue per search or project will vary from quarter to quarter, affecting net revenue and operating margin.
Our Compensation Model
At the Executive Search consultant level, there are fixed and variable components of compensation. Individuals are rewarded for their performance based on a system that directly ties a portion of their compensation to the amount of net revenue for which they are responsible. A portion of the reward may be based upon individual performance against a series of non-financial measures. Credit towards the variable portion of an executive search consultant's compensation is earned by generating net revenue for winning and executing work. Each quarter, we review and update the expected annual performance of all Executive Search consultants and accrue variable compensation accordingly. The amount of variable compensation that is accrued for each Executive Search consultant is based on a tiered payout model.Overall Company performance determines the amount available for total variable compensation. The more net revenue that is generated by the consultant, the higher the percentage credited towards the consultant's variable compensation and thus accrued by our Company as expense. At theHeidrick Consulting consultant level, there are also fixed and variable components of compensation. Overall compensation is determined based on the total economic contribution of theHeidrick Consulting segment to the business as a whole. Individual consultant compensation can vary and is derived from credits earned for delivering client work plus credits earned for contributions of intellectual and human capital, client relationship development and consulting practice development. Each quarter, we review and update the expected annual performance of allHeidrick Consulting consultants and accrue variable compensation accordingly. The mix of individual consultants who generate revenue in Executive Search and economic contributions inHeidrick Consulting can significantly affect the total amount of compensation expense recorded, which directly impacts operating margin. As a result, the variable portion of the compensation expense may fluctuate significantly from quarter to quarter. The total variable compensation is discretionary and is based on Company-wide financial targets approved by theHuman Resources and Compensation Committee of the Board of Directors. A portion of the Company's management cash bonuses are deferred and paid over a three-year vesting period. The portion of the bonus is approximately 15% depending on the employee's level or position. The compensation expense related to the amounts being deferred is recognized on a graded vesting attribution method over the requisite service period. This service period begins onJanuary 1 of the respective fiscal year and continues through the deferral date, which coincides with the Company's bonus payments in the first quarter of the following year and for an additional three-year vesting period. The deferrals are recorded in Accrued salaries and benefits within both Current liabilities and Non-current liabilities in the Consolidated Balance Sheets. Historically, the Company's consultants participated in the same cash bonus deferral program as management. In 2020, the Company terminated the cash bonus deferral for consultants and now pays 100% of the cash bonuses earned by consultants in the first quarter of the following year. Consultant cash bonuses earned prior to 2020 will continue to be paid under the terms of the cash bonus deferral program. 21
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Impact of COVID-19
OnMarch 11, 2020 , theWorld Health Organization designated COVID-19 as a global pandemic. COVID-19 has significantly impacted various markets around the world, includingthe United States . With infections reported throughout the world, certain governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of the pandemic. Additional, more restrictive proclamations and/or directives may be issued in the future. We temporarily closed our offices and shifted our workforce to remote operations to ensure the safety of our employees. Our offices are now accessible to our employees, however, we continue to encourage all employees to work remotely. During this uncertain time, our critical priorities are:
•the health and safety of our employees, clients and their families;
•providing support to our clients; and
•helping our clients accelerate their business performance and transform with agility.
In response to working remotely, our Executive Search teams employed our robust digital search platform, Heidrick Connect, to operate effectively and efficiently while engaging virtually with our clients. Additionally, we have introduced upgrades to Heidrick Connect, resulting in greater flexibility, increased productivity and the ability to deliver more insights to our clients. OurHeidrick Consulting teams have pivoted to create new digital solutions for Leadership Assessments, Team Acceleration, and Organization and Culture Acceleration that can be delivered virtually in response to required social distancing practices. Beginning in the second quarter, we experienced a decline in demand for our executive search and consulting services, a lengthening of the executive search process due to a slow-down in client decision making and an inability to execute in-person consulting engagements, which had a material adverse impact on our results of operations. The extent to which the pandemic continues to impact our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including, but not limited to:
•the duration and scope of the pandemic;
•the impact of the pandemic, and actions taken in response to the pandemic, on economic activity;
•governmental, business and individuals' actions that have been and continue to be taken in response to the pandemic;
•restrictions inhibiting our employees' ability to access our offices;
•the effect on our clients and client demand for our services and solutions;
•our ability to sell and provide our services and solutions, including as a result of travel restrictions and people working from home; and
•the ability of our clients to pay for our services and solutions.
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We expect that all of our business segments, across all of our geographies, will
continue to be impacted by the pandemic and actions taken in response to the
pandemic, but the significance of the impact of the pandemic on our business and
the duration for which it may have an impact cannot be determined at this time.
Specific factors that may impact our business include, but are not limited to:
•a decline in demand for our executive search and consulting services due to temporary and permanent workforce reductions, and general economic uncertainty;
•a lengthening of the executive search process due to a slow-down in client decision making;
•an increase in executive searches placed on hold due to delays in planned work by our clients;
•an inability to execute in-person consulting engagements; and
•disruptions in business operations for offices in areas most impacted by the pandemic, includingthe United States ,United Kingdom ,Italy ,Spain ,China andBrazil . During the year endedDecember 31, 2020 , and as a direct result of the economic impact of COVID-19, we experienced a decline in demand for our executive search services and a lengthening of the executive search process due to a slow-down in client decision making, which had a material adverse impact on our results of operations. As a result, we identified a triggering event and performed an interim goodwill impairment evaluation during the three months endedJune 30, 2020 resulting in the impairment of the goodwill in ourEurope andAsia Pacific reporting units. We also evaluated the recoverability our intangible and other long-lived assets and determined that no impairment was necessary. We continue to monitor the impact of the economic downturn for additional potential impairment of goodwill, other intangible assets and long-lived assets. We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. In the event we require additional liquidity, our 2018 Credit Agreement (as defined below) provides us with a senior unsecured revolving line of credit with an aggregate commitment of$175 million , which includes a sublimit of$25 million for letters of credit and a$10 million swingline loan sublimit. The agreement also includes a$75 million expansion feature. In the third quarter, we implemented a restructuring plan to optimize future growth and profitability. The expected annual cost savings from the restructuring ranges from$30 million to$40 million . The primary components of the restructuring include a workforce reduction, and a reduction of the firm's real estate expenses, professional fees and the future elimination of certain deferred compensation programs. As part of this restructuring plan, we implemented several real estate initiatives including downsizing and terminating certain of our existing office leases. Our success working from home, utilizing Heidrick Connect and our digital consulting solutions, allowed us to reevaluate how we utilize our offices and plan to use them in a post-pandemic environment. Upon the expiration of the leases included in the restructuring, we will have reduced our square footage under lease by approximately 20%. Moving forward, we will continue with our real estate strategy, which consists of three objectives: 1) matching our real estate footprint to the new, post-pandemic office occupancy expectations 2) creating open and collaborative environments, including unassigned work spaces that facilitate work from anywhere; and 3) increasing our focus on reducing our carbon footprint as part of our long-term sustainability goals. We believe we have opportunity to further decrease costs primarily through lease renewals and rightsizing offices where it makes business sense.
We have not experienced any material impact to our internal controls over financial reporting due to the pandemic. We are continually monitoring and assessing the pandemic situation on our internal controls to minimize the impact on their design and operating effectiveness.
2020 Overview
Consolidated net revenue was$621.6 million for the year endedDecember 31, 2020 , a decrease of$85.3 million , or 12.1%, compared to 2019. Executive Search net revenue was$565.2 million in 2020, a decrease of$81.2 million compared to 2019. The decrease in Executive Search net revenue was the result of declines inAsia Pacific , theAmericas , andEurope . The number of Executive Search consultants was 361 as ofDecember 31, 2020 , compared to 380 as ofDecember 31, 2019 . Executive Search productivity, as measured by annualized net Executive Search revenue per consultant was$1.5 million and$1.7 million 23 -------------------------------------------------------------------------------- for the years endedDecember 31, 2020 and 2019, respectively. The number of confirmed searches decreased 6.3%, compared to 2019. The average revenue per executive search decreased to$123,200 in 2020 compared to$132,000 in 2019.Heidrick Consulting net revenue decreased$4.1 million , or 6.8%, to$56.4 million in 2020 from$60.6 million in 2019. The number ofHeidrick Consulting consultants was 65 as ofDecember 31, 2020 , compared to 71 as ofDecember 31, 2019 . Operating loss as a percentage of net revenue was 5.7% in 2020, compared to operating income as a percentage of revenue of 9.0% in 2019. The change in operating income was primarily due to a decrease in net revenue of$85.3 million ,$52.4 million of restructuring charges, and$33.0 million of impairment charges in 2020, partially offset by decreases in salaries and benefits expense, and general and administrative expenses of$51.4 million and$16.1 million , respectively. Salaries and benefits expense as a percentage of net revenue was 72.5% in 2020, compared to 71.0% in 2019. General and administrative expense as a percentage of net revenue was 19.5% in 2020, compared to 19.4% in 2019. We ended the year with combined cash, cash equivalents, and marketable securities of$336.5 million , an increase of$3.6 million compared to$332.9 million atDecember 31, 2019 . We pay the majority of bonuses in the first quarter following the year in which they were earned. Employee bonuses are accrued throughout the year and are based on the Company's performance and the performance of the individual employee. We expect to pay approximately$180.4 million in bonuses related to 2020 performance in March andApril 2021 . InJanuary 2021 , we paid approximately$19.9 million in cash bonuses deferred in prior years. 2021 Outlook We are currently forecasting 2021 first quarter net revenue of between$160 million and$170 million . Our 2021 first quarter guidance is based upon, among other things, management's assumptions for the anticipated volume of new executive search confirmations and leadership consulting and culture shaping projects, the current backlog, consultant productivity, consultant retention, the seasonality of our business and average currency rates fromDecember 2020 .
Our 2021 first quarter guidance is subject to a number of risks and uncertainties, including those disclosed under "Risk Factors" and in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K. As such, actual results could vary from these projections.
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--------------------------------------------------------------------------------Results of Operations
The following table summarizes, for the periods indicated, the results of operations (in thousands, except per share data):
Year Ended December 31,
2020 2019 2018
Revenue
Revenue before reimbursements (net revenue)
$ 716,023 Reimbursements 7,755 18,690 19,632 Total revenue 629,370 725,614 735,655 Operating expenses Salaries and benefits 450,424 501,791 506,349 General and administrative expenses 121,378 137,492 140,817 Impairment charges(1) 32,970 - - Restructuring charges(2) 52,372 4,130 - Reimbursed expenses 7,755 18,690 19,632 Total operating expenses 664,899 662,103 666,798 Operating income (loss) (35,529) 63,511 68,857 Non-operating income Interest, net 204 2,880 1,141 Other, net 3,927 2,898 494 Net non-operating income 4,131 5,778 1,635 Income (loss) before taxes (31,398) 69,289 70,492 Provision for income taxes 6,309 22,420 21,197 Net income (loss)$ (37,707) $ 46,869 $ 49,295 Weighted-average common shares outstanding Basic 19,301 19,103 18,917 Diluted 19,301 19,551 19,532 Earnings (loss) per common share Basic$ (1.95) $ 2.45 $ 2.61 Diluted$ (1.95) $ 2.40 $ 2.52 Cash dividends paid per share$ 0.60 $ 0.60 $ 0.52 (1)Includes goodwill impairment charges of$33.0 million related toEurope andAsia Pacific in 2020 (See Note 8,Goodwill and Other Intangible Assets). (2)Includes restructuring charges of$30.5 million in theAmericas ,$8.6 million inEurope ,$4.6 million inAsia Pacific ,$4.7 million inHeidrick Consulting , and$4.0 million in Global Operations Support. The 2019 restructuring charges include$4.1 million in theAmericas and less than$0.1 million in Global Operations Support. (See Note 14, Restructuring). 25
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The following table summarizes, for the periods indicated, our results of operations as a percentage of revenue before reimbursements (net revenue):
Year Ended December 31,
2020 2019 2018
Revenue
Revenue before reimbursements (net revenue) 100.0 % 100.0 % 100.0 %
Reimbursements 1.2 2.6 2.7
Total revenue 101.2 102.6 102.7
Operating expenses
Salaries and benefits 72.5 71.0 70.7
General and administrative expenses 19.5 19.4 19.7
Impairment charges 5.3 - -
Restructuring charges 8.4 0.6 -
Reimbursed expenses 1.2 2.6 2.7
Total operating expenses 107.0 93.7 93.1
Operating income (loss) (5.7) 9.0 9.6
Non-operating income
Interest, net - 0.4 0.2
Other, net 0.6 0.4 0.1
Net non-operating income 0.7 0.8 0.2
Income (loss) before income taxes (5.1) 9.8 9.8
Provision for income taxes 1.0 3.2 3.0
Net income (loss) (6.1) % 6.6 % 6.9 %
Note: Totals and subtotals may not equal the sum of individual line items due to rounding.
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-------------------------------------------------------------------------------- We operate our Executive Search business in theAmericas ,Europe (which includesAfrica ) andAsia Pacific (which includes theMiddle East ), and we operate ourHeidrick Consulting business globally, (See Note 17, Segment Information).
The following table sets forth, for the periods indicated, our revenue and operating income by segment (in thousands):
Year Ended December 31,
2020 2019 2018
Revenue
Executive Search
Americas $ 361,416 $ 415,455 $ 405,267
Europe 124,243 135,070 145,348
Asia Pacific 79,511 95,827 102,276
Total Executive Search 565,170 646,352 652,891
Heidrick Consulting 56,445 60,572 63,132Revenue before reimbursements (net revenue) 621,615 706,924
716,023
Reimbursements 7,755 18,690 19,632
Total revenue $ 629,370 $ 725,614 $ 735,655
Operating income (loss)
Executive Search
Americas(1) $ 62,806 $ 100,833 $ 96,880
Europe(2) (22,827) 3,026 5,849
Asia Pacific(3) (6,724) 13,590 15,999
Total Executive Search 33,255 117,449 118,728
Heidrick Consulting(4) (28,369) (18,499) (13,619)
Total segments 4,886 98,950 105,109
Global Operations Support(5) (40,415) (35,439) (36,252)
Total operating income (loss)$ (35,529) $ 63,511
(1)Includes$30.5 million and$4.1 million of restructuring charges in 2020 and 2019, respectively. (2)Includes$24.5 million of goodwill impairment charges and$8.6 million of restructuring charges in 2020. (3)Includes$8.5 million of goodwill impairment charges and$4.6 million of restructuring charges in 2020. (4)Includes$4.7 million of restructuring charges in 2020. (5)Includes$4.0 million of restructuring charges in 2020.
Year ended
Total revenue. Consolidated total revenue decreased$96.2 million , or 13.3%, to$629.4 million in 2020 from$725.6 million in 2019. The decrease in total revenue was primarily due to the decrease in revenue before reimbursements (net revenue). Revenue before reimbursements (net revenue). Consolidated net revenue decreased$85.3 million , or 12.1%, to$621.6 million in 2020 from$706.9 million in 2019. Foreign exchange rates negatively impacted results by$0.9 million , or 0.1%. Executive Search net revenue was$565.2 million in 2020, a decrease of$81.2 million , or 12.6%, compared to 2019. The decrease in Executive Search net revenue was the result of declines in all three executive search regions.Heidrick Consulting net revenue decreased$4.1 million , or 6.8%, to$56.4 million in 2020 from$60.6 million in 2019. Both Executive Search revenue andHeidrick Consulting revenue were materially impacted by the ongoing COVID-19 pandemic. Significant factors contributing to the decline in revenue include a decline in demand for our executive search and consulting services, a lengthening of the executive search process due to a slow-down in client decision making and an inability to execute in-person consulting engagements. The number ofExecutive Search and Heidrick Consulting consultants was 361 and 65, respectively, as ofDecember 31, 2020 , compared to 380 and 71, respectively, as ofDecember 31, 2019 . Executive Search productivity, as measured by annualized net Executive Search revenue per consultant, was$1.5 million and$1.7 million for the years endedDecember 31 , 27 -------------------------------------------------------------------------------- 2020 and 2019, respectively. The number of confirmed searches decreased 6.3%, compared to 2019. The average revenue per executive search decreased to$123,200 in 2020 compared to$132,000 in 2019. Salaries and benefits. Consolidated salaries and benefits expense decreased$51.4 million , or 10.2%, to$450.4 million in 2020 from$501.8 million in 2019. The decrease was due to lower fixed compensation of$13.5 million and lower variable compensation of$37.9 million . Fixed compensation decreased due retirement and benefits, and talent acquisition and retention costs, partially offset by an increase in base salaries and payroll taxes. Variable compensation decreased due to lower production compared to the prior year. Foreign exchange rate fluctuations positively impacted salaries and benefits expenses by$1.5 million , or 0.3%.
In 2020, we had an average of 1,708 employees, compared to an average of 1,680 employees in 2019.
As a percentage of net revenue, salaries and benefits expense was 72.5% in 2020, compared to 71.0% in 2019.
General and administrative expenses. Consolidated general and administrative expenses decreased$16.1 million , or 11.7%, to$121.4 million in 2020 from$137.5 million in 2019. The decrease was primarily due to decreases in internal travel, office occupancy, hiring fees, marketing, intangible amortization, earnout accretion, and taxes and licenses, partially offset by increases in professional fees, information technology, and bad debt. Foreign exchange rate fluctuations positively impacted general and administrative expenses by$0.3 million , or 0.3%.
As a percentage of net revenue, general and administrative expenses were 19.5% in 2020, compared to 19.4% in 2019.
Impairment charges. In 2020, and as a direct result of the economic impact of COVID-19, the Company experienced a decline in demand for our executive search services and a lengthening of the executive search process due to a slow-down in client decision making, which had a material adverse impact on our results of operations. As a result, the Company identified a triggering event and performed an interim goodwill impairment evaluation. Based on the results of the of the impairment evaluation, the Company recorded an impairment charge of$24.5 million inEurope and$8.5 million inAsia Pacific to write-off all of the goodwill associated with each reporting unit. The impairment was non-cash in nature and did not affect our current liquidity, cash flows, borrowing capability or operations; nor did it impact the debt covenants under our credit agreement. The impairment charges are recorded within Impairment charges in the Consolidated Statements of Comprehensive Income (Loss). Restructuring charges. The Company incurred approximately$52.4 million in restructuring charges during the year endedDecember 31, 2020 . The primary components of the restructuring include a workforce reduction, a reduction of the Company's real estate expenses and professional fees, and the future elimination of certain deferred compensation programs. The Company incurred approximately$4.1 million in restructuring charges during the year endedDecember 31, 2019 in connection with initiatives to integrate the Company's existingBrazil operations into the 2GET business operation. The expenses were primarily employee-related including the elimination of duplicative positions in the Company's existingBrazil operations. The restructuring charges are recorded within Restructuring charges in the Consolidated Statements of Comprehensive Income (Loss). Operating income. Consolidated operating loss was$35.5 million , including impairment charges of$33.0 million and restructuring charges of$52.4 million in 2020, compared to operating income of$63.5 million , including restructuring charges of$4.1 million , in 2019. Foreign exchange rate fluctuations positively impacted operating income by$1.0 million , or 2.1%.
Net non-operating income (expense). Net non-operating income was
Interest, net was income of$0.2 million in 2020, a$2.7 million decrease from$2.9 million in 2019. The decrease was primarily the result of reduced yields on the Company's investments inU.S. Treasury bills, lower overall par value throughout the year on which interest could be earned, and interest paid on the credit facility. Other, net was income of$3.9 million in 2020, compared to$2.9 million in 2019. The increase was primarily the result of gains on the deferred compensation plan assets. Investments held in the Company's deferred compensation plan are recorded at fair value.
Income taxes. See Note 15, Income Taxes.
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--------------------------------------------------------------------------------Executive Search
TheAmericas reported net revenue of$361.4 million in 2020, a decrease of 13.0% from$415.5 million in 2019. The decrease in net revenue was due to a 2.6% decrease in the number of executive search confirmations and a decrease in average revenue per executive search. All industry practice groups contributed to the decline in revenue with the exception of the Life Sciences practice group. Foreign exchange fluctuations negatively impacted net revenue by$2.0 million , or 0.6%. There were 190 Executive Search consultants in theAmericas as ofDecember 31, 2020 , compared to 200 as ofDecember 31, 2019 . Salaries and benefits expense decreased$34.7 million , or 13.3%, compared to 2019. Fixed compensation decreased$11.4 million , primarily due to decreases in retirement and benefits, talent acquisition and retention costs, and base salaries and payroll taxes. Variable compensation decreased$23.3 million primarily due to lower bonus accruals as a result of decreased consultant productivity, partially offset by contingent compensation related to the acquisition of 2GET.
General and administrative expenses decreased
Restructuring charges were$30.5 million in 2020. The primary components of the restructuring include a workforce reduction, a reduction of the Company's real estate expenses and professional fees, and the future elimination of certain deferred compensation programs. Restructuring charges were$4.1 million in 2019. The charges were incurred in connection with initiatives to integrate the Company's existingBrazil operations into the 2GET business operation. The expenses were primarily employee-related including the elimination of duplicative positions in the Company's existingBrazil operations.
The
Europe reported net revenue of$124.2 million in 2020, a decrease of 8.0% from$135.1 million in 2019. The decrease in net revenue was due to a 10.2% decrease in the number of executive search confirmations. All industry practice groups contributed to the decline in revenue with the exception of the Social Impact and Life Sciences practice groups. Foreign exchange rate fluctuations positively impacted net revenue by$1.4 million , or 1.1%. There were 102 Executive Search consultants inEurope as ofDecember 31, 2020 , compared to 107 as ofDecember 31, 2019 . Salaries and benefits expense decreased$10.9 million , or 10.8%, compared to 2019. Fixed compensation decreased$2.7 million due to retirement and benefits, and talent acquisition and retention costs, partially offset by an increase in stock compensation. Variable compensation decreased$8.2 million due to lower bonus accruals as a result of decreased consultant productivity. General and administrative expenses decreased$7.1 million , or 23.1%, compared to 2019, due to internal travel, office occupancy, intangible amortization and earnout accretion, partially offset by increases in the use of external third-party consultants, professional fees, and bad debt.
Impairment charges in 2020 were
Restructuring charges were$8.6 million in 2020. The primary components of the restructuring include a workforce reduction, a reduction of the Company's real estate expenses and professional fees, and the future elimination of certain deferred compensation programs.Europe reported an operating loss of$22.8 million , including impairment and restructuring charges of$33.1 million , in 2020, a decrease of$25.9 million compared to operating income of$3.0 million in 2019. 29 --------------------------------------------------------------------------------
Asia Pacific reported net revenue of$79.5 million in 2020, a decrease of 17.0% compared to$95.8 million in 2019. The decrease in net revenue was due to a 9.4% decrease in the number of executive search confirmations and a decrease in average revenue per executive search. All industry practice groups contributed to the decline in revenue with the exception of the Social Impact and Life Sciences practice groups. Foreign exchange rate fluctuations negatively impacted net revenue by$0.5 million , or 0.6%. There were 69 Executive Search consultants inAsia Pacific as ofDecember 31, 2020 , compared to 73 as ofDecember 31, 2019 .
Salaries and benefits expense decreased
General and administrative expenses decreased$1.4 million , or 6.8%, compared to 2019 primarily due to internal travel, hiring fees, and communication services, partially offset by increases in bad debt and other operating expenses.
Impairment charges in 2020 were
Restructuring charges were$4.6 million in 2020. The primary components of the restructuring include a workforce reduction, a reduction of the Company's real estate expenses and professional fees, and the future elimination of certain deferred compensation programs.Asia Pacific reported an operating loss of$6.7 million , including impairment and restructuring charges of$13.1 million , in 2020, a decrease of$20.3 million compared to operating income of$13.6 million in 2019.
Heidrick Consulting reported net revenue of$56.4 million in 2020, a decrease of 6.8% compared to$60.6 million in 2019. The decrease in net revenue was due to an 8.8% decrease in the number of consulting confirmations and an inability to execute in person consulting engagements, partially offset by one large consulting project in the first quarter of 2020. Foreign exchange rate fluctuations positively impacted results by$0.2 million , or 0.4%. There were 65Heidrick Consulting consultants as ofDecember 31, 2020 , compared to 71 as ofDecember 31, 2019 . Salaries and benefits expense increased$1.5 million , or 2.6%, compared to 2019. Fixed compensation decreased$0.6 million , due to talent acquisition and retention costs, retirement and benefits, and separation, partially offset by an increase in base salaries and payroll taxes. Variable compensation increased$2.0 million due to bonus accruals on certain consulting arrangements. General and administrative expenses decreased$0.4 million , or 1.7%, compared to 2019, due to internal travel, office occupancy, and the use of external third-party consultants, partially offset by increases in professional fees and bad debt. Restructuring charges were$4.7 million in 2020. The primary components of the restructuring include a workforce reduction, a reduction of the Company's real estate expenses and professional fees, and the future elimination of certain deferred compensation programs.
Global Operations Support
Global Operations Support expenses increased
Salaries and benefits expenses increased
General and administrative expenses increased$0.5 million , or 3.2%, compared to 2019 due to professional fees and information technology, partially offset by decreases in internal travel and office occupancy. 30 -------------------------------------------------------------------------------- Restructuring charges were$4.0 million in 2020. The primary components of the restructuring include a workforce reduction, a reduction of the Company's real estate expenses and professional fees, and the future elimination of certain deferred compensation programs.
Liquidity and Capital Resources
General. We continually evaluate our liquidity requirements, capital needs and availability of capital resources based on our operating needs. We believe that our available cash balances together with the funds expected to be generated from operations and funds available under our committed revolving credit facility will be sufficient to finance our operations for the foreseeable future, as well as to finance the cash payments associated with our cash dividends and stock repurchase program. We pay the non-deferred portion of annual bonuses in the first quarter following the year in which they are earned. Employee bonuses are accrued throughout the year and are based on our performance and the performance of the individual employee. Lines of credit. OnOctober 26, 2018 , we entered into a new Credit Agreement (the "2018 Credit Agreement"). The 2018 Credit Agreement provides us with a senior unsecured revolving line of credit with an aggregate commitment of$175 million , which includes a sublimit of$25 million for letters of credit and a$10 million swingline loan sublimit. The agreement also includes a$75 million expansion feature. The 2018 Credit Agreement will mature inOctober 2023 . Borrowings under the 2018 Credit Agreement bear interest at our election of the Alternate Base Rate (as defined in the 2018 Credit Agreement) or Adjusted LIBOR (as defined in the 2018 Credit Agreement) plus a spread as determined by our leverage ratio.
Borrowings under the 2018 Credit Agreement may be used for working capital, capital expenditures, Permitted Acquisitions (as defined in the 2018 Credit Agreement) and for other general purposes. The obligations under the 2018 Credit Agreement are guaranteed by certain of our subsidiaries.
We capitalized approximately$1.0 million of loan acquisition costs related to the 2018 Credit Agreement, which will be amortized over the remaining term of the agreement. During the year endedDecember 31, 2020 , we borrowed$100.0 million under the 2018 Credit Agreement. We elected to draw down a portion of the available funds from our revolving line of credit as a precautionary measure to increase our cash position and further enhance our financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak. We believed that we had more than sufficient liquidity, even prior to taking this action, but elected to draw down available funds out of an abundance of caution in this period of uncertainty. The draw-down proceeds from the revolving line of credit were invested in short-term securities and we subsequently repaid$100.0 million during the year endedDecember 31, 2020 . As ofDecember 31, 2020 andDecember 31, 2019 , we had no outstanding borrowings. In both periods, we were in compliance with the financial and other covenants under the facility and no event of default existed. Cash, cash equivalents, and marketable securities. Cash, cash equivalents and marketable securities atDecember 31, 2020 were$336.5 million , an increase of$3.6 million compared to$332.9 million atDecember 31, 2019 . The$336.5 million of cash, cash equivalents, and marketable securities atDecember 31, 2020 includes$122.8 million held by our foreign subsidiaries. A portion of the$122.8 million is considered permanently reinvested in these foreign subsidiaries. If these funds were required to satisfy obligations inthe United States , the repatriation of these funds could cause us to incur additional foreign withholding taxes. We expect to pay approximately$180.4 million in variable compensation related to 2020 performance in March andApril 2021 . InJanuary 2021 , we paid approximately$19.9 million in variable compensation that was deferred in prior years. Cash flows provided by operating activities. For the year endedDecember 31, 2020 , cash provided by operating activities was$23.4 million , primarily reflecting net loss net of non-cash charges of$30.6 million and a decrease in accounts receivable of$22.6 million , partially offset by a decrease in accrued expenses of$26.5 million . The decrease in accrued expenses primarily reflects approximately$202.0 million of 2019 bonuses paid inMarch 2020 , offset by 2020 bonus accruals of$180.4 million . For the year endedDecember 31, 2019 , cash provided by operating activities was$78.6 million , primarily reflecting net income net of non-cash charges of$69.2 million , a decrease in accounts receivable of$6.9 million , an increase in net retirement and pension plan liabilities of$3.3 million and an increase in accrued expenses of$2.4 million . The increase in accrued expenses primarily reflects approximately$205.0 million of current year bonus accruals, partially offset by$202.0 million of bonus payments for 2018 made in early 2019. 31 -------------------------------------------------------------------------------- Cash flows used in investing activities. For the year endedDecember 31, 2020 , cash provided investing activities was$32.6 million , primarily due to proceeds from the maturity and sales of marketable securities and investments of$158.9 million , partially offset by purchases of marketable securities and investments of$118.9 million and capital expenditures of$7.3 million . The increase in capital expenditures is primarily the result of office build-outs. For the year endedDecember 31, 2019 , cash used in investing activities was$69.3 million , primarily due to purchases of marketable securities and investments of$130.4 million , the acquisition of 2GET for$3.5 million , and capital expenditures of$3.4 million , partially offset by proceeds from the maturity and sales of marketable securities and investments of$68.0 million . The decrease in capital expenditures is primarily the result of reduced office build-outs. Cash flows used in financing activities. For the year endedDecember 31, 2020 , cash used in financing activities was$16.4 million , primarily due to cash dividend payments of$12.0 million , earnout payments related to the Amrop acquisitions of$2.8 million , and payment of employee tax withholdings on equity transactions of$1.6 million . Gross borrowings and payments on the line of credit were each$100.0 million during the year endedDecember 31, 2020 . For the year endedDecember 31, 2019 , cash used in financing activities was$18.2 million , primarily due to cash dividend payments of$11.8 million , payment of employee tax withholdings on equity transactions of$4.6 million , and earnout payments related to the Scambler MacGregor and DSI acquisitions of$1.9 million . OnFebruary 11, 2008 , we announced a Repurchase Authorization of up to$50 million . We may from time to time and as business conditions warrant purchase shares of our common stock on the open market or in negotiated or block trades. No time limit has been set for completion of this program. We did not repurchase any shares of our common stock in 2020 or 2019. The most recent purchase of shares of common stock occurred during the year endedDecember 31, 2012 . As ofDecember 31, 2020 we have purchased 1,038,670 shares of our common stock pursuant to the Repurchase Authorization for a total of$28.3 million and$21.7 million remains available for future purchases under the Repurchase Authorization. COVID-19 Considerations We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. We expect that all of our business segments, across all of our geographies, will continue to be impacted to some degree by the pandemic and actions taken in response to the pandemic, but the significance of the impact of the pandemic on our business and liquidity, and the duration for which it may have an impact cannot be determined at this time. In the event we require additional liquidity, our 2018 Credit Agreement provides us with a senior unsecured revolving line of credit with an aggregate commitment of$175 million , which includes a sublimit of$25 million for letters of credit and a$10 million swingline loan sublimit. The agreement also includes a$75 million expansion feature.
Off-balance sheet arrangements. We do not have material off-balance sheet arrangements, special purpose entities, trading activities of non-exchange traded contracts or transactions with related parties.
Contractual obligations. The following table presents our known contractual
obligations as of
Payments due for the years ended
2021 2022 2023 2024 2025 Thereafter Total
Contractual obligations:
Operating lease obligations $ 28.1 $ 25.8
0.8 0.2 0.6 1.3 0.2 0.2 3.3
Total $ 28.9 $ 26.0 $ 24.4 $ 15.3 $ 6.9 $ 30.4 $ 132.0
(1) Represents the fair value of the obligation associated with the retirement
of tangible long-lived assets primarily related to our obligation at the end of
the lease term to return office space to the landlord in its original condition.
In addition to the contractual obligations included in the above table, we have
liabilities related to certain employee benefit plans. These liabilities are
recorded in our Consolidated Balance Sheet at December 31, 2020 . The obligations
related to these employee benefit plans are described in Note 11, Employee
Benefit Plans, and Note 12, Pension Plan and Life Insurance Contract, in the
Notes to Consolidated Financial Statements. As the timing of cash disbursements
related to these employee benefit plans is uncertain, we have not included these
obligations in the above table. The table excludes our liability for
32
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uncertain tax positions including accrued interest and penalties, which totaled
$0.5 million as of December 31, 2020 , since we cannot predict with reasonable
reliability the timing of cash settlements to the respective taxing authorities.
Application of Critical Accounting Policies and Estimates
General. Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared using accounting principles generally accepted inthe United States of America . Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies and Note 3, Revenue, in the Notes to Consolidated Financial Statements. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. If actual amounts are ultimately different from previous estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, there are different estimates that reasonably could have been used, or if changes in the accounting estimates are reasonably likely to occur periodically, that could materially impact the financial statements. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of the Consolidated Financial Statements. Revenue recognition. In our Executive Search segment, revenue is recognized as we satisfy our performance obligations by transferring a good or service to a client. Generally, each of our executive search contracts contain one performance obligation which is the process of identifying potentially qualified candidates for a specific client position. In most contracts, the transaction price includes both fixed and variable consideration. Fixed compensation is comprised of a retainer, equal to approximately one-third of the estimated first year compensation for the position to be filled, and indirect expenses, equal to a specified percentage of the retainer, as defined in the contract. We generally bill our clients for the retainer and indirect expenses in one-third increments over a three-month period commencing in the month of a client's acceptance of the contract. If actual compensation of a placed candidate exceeds the original compensation estimate, we are often authorized to bill the client for one-third of the excess compensation. We refer to this additional billing as uptick revenue. In most contracts, variable consideration is comprised of uptick revenue and direct expenses. We bill our clients for uptick revenue upon completion of the executive search, and direct expenses are billed as incurred. As required under Accounting Standards Update ("ASU") No. 2014-09, we now estimate uptick revenue at contract inception, based on a portfolio approach, utilizing the expected value method based on a historical analysis of uptick revenue realized in the Company's geographic regions and industry practices, and initially record a contract's uptick revenue in an amount that is probable not to result in a significant reversal of cumulative revenue recognized when the actual amount of uptick revenue for that contract is known. Differences between the estimated and actual amounts of variable consideration are recorded when known. We do not estimate revenue for direct expenses as it is not materially different than recognizing revenue as direct expenses are incurred. Revenue from our executive search engagement performance obligation is recognized over time as our clients simultaneously receive and consume the benefits provided by our performance. Revenue from executive search engagements is recognized over the expected average period of performance, in proportion to the estimated personnel time incurred to fulfill our obligations under the executive search contract. Revenue is generally recognized over a period of approximately six months. Our executive search contracts contain a replacement guarantee which provides for an additional search to be completed, free of charge except for expense reimbursements, should the candidate presented by us be hired by the client and subsequently terminated by the client for performance reasons within a specified period of time. The replacement guarantee is an assurance warranty, which is not a performance obligation under the terms of the executive search contract, as we do not provide any services under the terms of the guarantee that transfer benefits to the client in excess of assuring that the identified candidate complies with the agreed-upon specifications. We account for the replacement guarantee under the relevant warranty guidance in ASC 460 - Guarantees. In ourHeidrick Consulting segment, revenue is recognized as we satisfy our performance obligations by transferring a good or service to a client.Heidrick Consulting enters into contracts with clients that outline the general terms and conditions of 33 -------------------------------------------------------------------------------- the assignment to provide succession planning, executive assessment, top team and board effectiveness and culture shaping programs. The consideration we expect to receive under each contract is generally fixed. Most of our consulting contracts contain one performance obligation, which is the overall process of providing the consulting service requested by the client. The majority of our consulting revenue is recognized over time utilizing both input and output methods. Contracts that contain coaching sessions, training sessions or the completion of assessments are recognized using the output method as each session or assessment is delivered to the client. Contracts that contain general consulting work are recognized using the input method utilizing a measure of progress that is based on time incurred on the project. We enter into enterprise agreements with clients to provide a license for online access, via our Culture Connect platform, to training and other proprietary material related to our culture shaping programs. The consideration we expect to receive under the terms of an enterprise agreement is comprised of a single fixed fee. Our enterprise agreements contain multiple performance obligations, the delivery of materials via Culture Connect and material rights related to options to renew enterprise agreements at a significant discount. We allocate the transaction price to the performance obligations in the contract on a stand-alone selling price basis. The stand-alone selling price for the initial term of the enterprise agreement is outlined in the contract and is equal to the price paid by the client for the agreement over the initial term of the contract. The stand-alone selling price for the options to renew, or material right, are not directly observable and must be estimated. This estimate is required to reflect the discount the client would obtain when exercising the option to renew, adjusted for the likelihood that the option will be exercised. We estimate the likelihood of renewal using a historical analysis of client renewals. Access to Culture Connect represents a right to access our intellectual property that the client simultaneously receives and consumes as we perform under the agreement, and therefore we recognize revenue over time. Given the continuous nature of this commitment, we utilize straight-line ratable revenue recognition over the estimated subscription period as our clients will receive and consume the benefits from Culture Connect equally throughout the contract period. Revenue related to client renewals of enterprise agreements is recognized over the term of the renewal, which is generally twelve months. Enterprise agreements do not comprise a significant portion of our revenue. Each of our contracts has an expected duration of one year or less. Accordingly, we have elected to utilize the available practical expedient related to the disclosure of the transaction price allocated to the remaining performance obligations under its contracts. We have also elected the available practical expedients related to adjusting for the effects of a significant financing component and the capitalization of contract acquisition costs. We charge and collect from our clients, sales tax and value added taxes as required by certain jurisdictions. We have made an accounting policy election to exclude these items from the transaction price in our contracts. Income taxes. Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves judgment. As a global company, we calculate and provide for income taxes in each of the tax jurisdictions in which we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgments regarding the recoverability of deferred tax assets. Tax exposures can involve complex issues and may require an extended period to resolve. Changes in the geographic mix or estimated level of annual income before taxes can affect the overall effective tax rate. The recognition of deferred tax assets is based on management's belief that it is more likely than not that the tax benefits associated with temporary differences, net operating loss carryforwards and tax credits will be utilized. We assess the recoverability of the deferred tax assets on an ongoing basis. In making this assessment, we consider all positive and negative evidence, and all potential sources of taxable income including scheduled reversals of deferred tax liabilities, tax-planning strategies, projected future taxable income and recent financial performance. Deferred taxes have been recorded forU.S. income taxes and foreign withholding taxes related to undistributed foreign earnings that are not permanently reinvested. Annually, we assess material changes in estimates of cash, working capital and long-term investment requirements in order to determine whether these earnings should be distributed. If so, an additional provision for taxes may apply, which could materially affect our future effective tax rate.Goodwill . We perform assessments of the carrying value of goodwill at least annually and whenever events occur or circumstances indicate that a carrying amount of goodwill may not be recoverable. These circumstances may include a significant change in business climate, attrition of key personnel, changes in financial condition or results of operations, a prolonged decline in our stock price and market capitalization, competition, and other factors. We operate four reporting units: theAmericas ,Europe (which includesAfrica ),Asia Pacific (which includes theMiddle East ) andHeidrick Consulting . The goodwill impairment test is completed by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The fair value of each of our reporting units is determined using a discounted cash flow methodology. The discounted cash flow approach is dependent on a number of factors including estimates of future 34 -------------------------------------------------------------------------------- market growth and trends, forecasted revenue and costs, capital investments, appropriate discount rates, certain assumptions to allocate shared costs, assets and liabilities, historical and projected performance of our reporting units, the outlook for the executive search industry and the macroeconomic conditions affecting each of our reporting units. The assumptions used in the determination of fair value were (1) a forecast of growth in the near and long term; (2) the discount rate; (3) working capital investments; (4) macroeconomic conditions and (5) other factors. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. The fair value of our reporting units is also impacted by our overall market capitalization and may be impacted by volatility in our stock price and assumed control premium, among other factors. As a result, actual future results may differ from those estimates and may result in a future impairment charge. These assumptions are updated annually, at a minimum, to reflect information concerning our reportable segments. The Company continues to monitor potential triggering events including changes in the business climate in which it operates, the Company's market capitalization compared to its book value, and the Company's recent operating performance. Any changes in these factors could result in an impairment charge. An impairment charge is recognized for the amount by which the carrying value of a reporting unit exceeds its fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit.
We believe that the accounting estimate related to goodwill impairment is a critical accounting estimate because the assumptions used are highly susceptible to changes in the operating results and cash flows of our reportable segments.
Other intangible assets and long-lived assets. We review our other intangible assets and long-lived assets, including property and equipment and right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge, equal to the amount by which the carrying amount of the asset group exceeds the fair value of the asset group, is recognized.
We believe that the accounting estimate related to other intangible and long-lived asset impairment is a critical accounting estimate because the assumptions used are highly susceptible to changes in operating results and cash flows.
Recently Adopted Financial Accounting Standards
OnJanuary 1, 2020 , we adopted ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, and all related ASU amendments, using the modified retrospective method. The guidance amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The adoption had an immaterial impact on the Consolidated Statement of Comprehensive Income (Loss), Consolidated Balance Sheet, Consolidated Statement of Cash Flows and Consolidated Statement of Changes in Stockholders' Equity for the year endedDecember 31, 2020 .
Recent Financial Accounting Standards
InMarch 2020 , theFinancial Accounting Standards Board ("FASB") issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance is intended to provide temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effectiveMarch 12, 2020 , and the Company may elect to apply the amendments prospectively throughDecember 31, 2022 . The Company is currently evaluating the impact of this accounting guidance. The effect is not known or reasonably estimable at this time. InDecember 2019 , the FASB, issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. The guidance simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2021 . Early adoption is permitted. The Company is currently evaluating the impact of this accounting guidance. The effect is not known or reasonably estimable at this time. 35
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Quarterly Financial Information (Unaudited)
The following table sets forth certain financial information for each quarter of
2020 and 2019. The information is derived from our quarterly consolidated
financial statements which are unaudited but which, in the opinion of
management, have been prepared on the same basis as the audited annual
consolidated financial statements included in this document. The consolidated
financial data shown below should be read in conjunction with the consolidated
financial statements and notes thereto. The operating results for any quarter
are not necessarily indicative of results for any future period.
Quarter Ended
2020 2019
Mar. 31 Jun. 30 Sept. 30 Dec. 31 Mar. 31 Jun. 30 Sept. 30 Dec. 31
Revenue before reimbursements
(net revenue) $ 171,481 $ 145,603 $ 143,544 $ 160,987 $ 171,594 $ 173,122 $ 182,174 $ 180,034
Operating income (loss) (1) 18,152 (23,986) (38,233) 8,538 16,391 18,353 14,472 14,295
Income (loss) before income
taxes 14,396 (21,249) (36,594) 12,049 18,842 19,473 14,827 16,147
Provision for (benefit from)
income taxes 5,730 4,484 (10,416) 6,511 6,755 5,193 4,880 5,592
Net income (loss) $ 8,666 $ (25,733) $ (26,178) $ 5,538 $ 12,087 $ 14,280 $ 9,947 $ 10,555
Basic earnings (loss) per common
share $ 0.45 $ (1.33) $ 0.52 $ 0.55 Diluted earnings (loss) per common share$ 0.44 $ (1.33)
$ 0.51 $ 0.54 Cash dividends paid per share$ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.15 (1) Includes$33.0 million of goodwill impairment charges for the three months endedJune 30, 2020 . Includes$48.1 million of restructuring charges for the three months endedSeptember 30, 2020 . Includes$4.3 million of restructuring charges for the three months endedDecember 31, 2020 . Includes$4.1 million of restructuring charges for the three months endedSeptember 30, 2019 .
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