Q1 2020 Earnings Call
Ladies and gentlemen, this is the operator today's conference calls scheduled to begin momentarily until that time your lines what can be placed on hold thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the he drinking struggles Q1 fiscal year 2020 results conference call.
At this time all participants are in listen only mode. After the speakers presentation. There will be a question answer session to ask a question. During the session. You want me to press Star one on your telephone if you acquire any further assistance. Please press star zero.
I would now like to hand, the conference over to your Speaker today, Suzanne Rosenberg Vice President Investor Relations. Please go ahead.
Good afternoon, everyone and thank you for participating in hydrogen struggles 2021st quarter Conference call. Joining me on today's call is our president and CEO Krishnan, Rajagopalan and Chief Financial Officer, Mark Harris will close at our first quarter slots on the IR homepage of our web site at Heidrick Dotcom and we encourage you to view them purchase.
No context, but we won't be referring to specific page numbers during our opening comments.
Materials, we refer to non-GAAP financial measures that we believe provides additional insight into our underlying results a reconciliation between GAAP and non-GAAP financial measures can be found in the last schedule of the really.
Also in our remarks, we'll be making forward looking statements an asset you. Please refer to the safe Harbor language contained in our news release Christian I'll now turn the call over to you.
Dan Thank you.
Good afternoon, everyone and thank you for taking the time to join our call.
Before we begin and on behalf of all of Us at Heidrick.
We send are well wishes to everyone. During these challenging and turbulent times and we truly hope they each and every one of you and your families are keeping safe and healthy.
We're extremely grateful for the health care professionals in other frontline workers, who bear the greatest risk in this fight against a pandemic.
We're doing our small part by connecting companies who are in dire need of workers with those that Unfortunately had to let go of were for long employees.
I'm proud of our team at Heidrick, we're stepping up during this unprecedented period continuing to serve our clients in a turbulent market.
We believe will emerge from these uncertain times well position to help our client recover and plan for the future.
On today's call I'll start by revealing our first quarter results.
Then I will frame up how our business is responding in the current environment and how we're positioned to not only navigate today's economic uncertainties, but also emerged stronger.
The principles on which we built our business have laid the foundation for Heidrick to meet head on the challenges of disruptive event and at the heart of our company and our culture is an incredibly engaged and dedicated team of professionals, who rise to the teams in each and every day server coins.
In the first quarter, our team delivered solid results. Despite the onset of the Cobot 19, pandemic, which began in late January and the closing of our China offices.
We generated revenue in the upper half of our guidance range and effectively manage expenses, while driving strong operating income growth.
Let me just highlight a few first quarter metrics relative to the prior year period.
Net revenue was in line with record year ago results, a 171.6 million.
Operating income increased by 10.7% and the operating margin expanded 100 basis points to 10.6%.
General and administrative expenses.
As a percentage of net revenue improved 120 basis points to 18.8%.
Adjusted EBITDA grew by 14.6% and adjusted EBITDA margin expanded 180 basis points.
We ended the first quarter with 396 search consultants and 70, Heidrick consulting consultants, reflecting our promotion strategic hiring and very low turnover.
We're extremely proud of our newly promoted classic consultants, who have proven their ability to deliver exceptional client service tried strong business growth and strengthen the overall culture of our firm.
They serve our clients as their trusted leadership advisors and also demonstrate strong leadership within our firm, which is key component of our winning culture and ongoing success.
Importantly, we remain focused on working at the top of organizations and we continue to drive strong collaboration between our executive search and Heidrick consulting businesses too sure, we're bringing the very best heidrick to our clients.
You know heidrick consulting we saw strong increase in first quarter net revenue, partially driven by a large consulting engagement that leverages, our corporate lab offering.
Which uniquely creates behavioral change by shifting the mindset of how people work to deliver transformational and breakthrough results.
Well, our first quarter results for Heidrick consulting were only minimally impacted by the effects of the pandemic. We do expect this business to be more strongly impacted in subsequent quarters.
Sure a team is quickly pivoting to create you thought pieces in new digital solutions that can be delivered virtually to help shift away from overreliance on physical gatherings of people.
Looking ahead. The next several quarters will be challenging the marketplace in the Americas in Europe, we will see the situation get worse before it gets better.
It's important recalled leading up to the pandemic underlying business fundamentals were strong.
On the positive side, we already see pockets of Asia, beginning to return to a more regular trend.
We know that market conditions will eventually improve.
But it's too early to predict what that curve actually looks like.
Nevertheless, we're certain that as conditions get better our client needs for talent solutions will be more important than ever.
In these uncertain times, we're squarely focused on four key objectives.
First.
During the safety and well being of our employees.
Second.
Continuing to align and emerge through this crisis as one from.
Third doing everything we can to help our clients during these difficult period.
And fourth emerging from this global pandemic, even stronger as a firm.
On our first objective, making sure employees are safe and healthy.
With offices in every major geographic area around the World. We quickly adopted our global operating model to rapidly changing needs and safety concerns for our employees across the globe.
Our global crisis team has worked continuously since mid January to safeguard our employees health and wellbeing.
Our actions have centered on maintaining employee safety and business continuity.
While concurrently supporting our clients.
Our key capabilities allowed us to rapidly shift to remote access solutions, while also maintaining cyber safety.
Early on we close some of our offices in Asia and move to work from home model and in early March we shifted tool fully remote work model across the rest of the world.
We're now back open in Beijing.
Shanghai, Hong Kong, Seoul, and Copenhagen.
And we're being very thoughtful on how we returned to work putting the safety of our employees is our top priority.
Regarding the second objective continued to align and emerge through this crisis is one firm.
Even prior to the current pandemic disruption had demonstrated itself to be the new normal and continues to radically transformed the business landscape across every sector in industry.
At Heidrick, we're not immune to disruption and are in the mix of our own transformation.
We were the pioneers of executive search winner from was founded back in 1953 and today.
What we continue to innovate and build for the future we've already established it completely digital search platform.
You have heard me speak towards digital Klein platform Heidrick connect it never has it been more of an asset than today.
Across organization, we're also finding great new ways to virtually gather and connect with one another.
Importantly, our IP infrastructure was established to support a virtual environment.
So our shift to a work from home operating model in mid March was quite seamless.
Our digital enterprise communication tools are being utilized in different ways to increase collaboration within our internal team and with their clients.
We are sharing the latest developments related to our own solutions and diving deeper into how we can better serve our clients. How we can accelerate the pace of innovation within our firm.
How we can people our future opportunities for growth.
We also continue to align and enable cross enterprise collaboration between search in consulting.
We are winning creep projects around the world, including we're building exercises and succession planning as well as collaborative work on assessments related to mergers and acquisitions.
We also continued to see activity in the private equity world in cross border engagements.
On the third objective doing everything we can to help our clients during this difficult period.
The key differentiator of Heidrick is our focus on the top of organizations.
This focus yields many positive underlying demand characteristics, particularly during times of crisis, and we're committed to supporting our clients has their trusted global advisors.
In today's operating environment of constant change and uncertainty leaders have the ability to accelerate their business performance and transform with agility.
With even more emphasis on agility clients are identifying skill gaps in senior management teams, which will bring new opportunities for both leadership consulting and executive search.
Our teams continue to leverage are proven and distinctive data driven in technology enabled talent and leadership solutions to proactively and seamlessly address our clients increasing need for data in this virtual world.
The power of our people and our culture, coupled with our IP and strong digital platform.
Position us well to deliver results.
Already we have numerous projects that we have pitched.
One.
And completed virtually giving us even greater confidence we can operate successfully in this environment.
We're also preparing to transition heidrick consulting solution to a completely virtual model.
In this environment clients are also eager to hear from other companies and other industries about a variety of issues, including best practices concerns.
Different scenarios for the future workplace among others.
Over the past several weeks, we have convened hundreds of C suite executives across the globe shared these ideas.
These sessions have generated great feedback and opportunities for deeper engagement.
And we look forward to continue to provide these types of valuable forms to our client community.
We've also publish several thought pieces on leadership and culture amid the Kobin 19 crisis.
Moving on topics, such as leading with agility.
Emergency CEO succession planning.
Keeping employees connected engaged.
Innovating with a distributed workforce.
And preparing for the future among others.
Regarding the fourth objective emerging from this even stronger as a firm.
As we continued to work closely with their clients through these unprecedent times, we remain optimistic and believe the types of transformational projects. We are working on we'll continue to be strong business imperatives for our clients.
We remain focused on retaining our talent.
Continue to invest in our digital and data capabilities inside the firm.
We continue with online training and development, including cross training between search in Heidrick consulting.
And as I mentioned, we're now digitizing, our heidrick consulting offerings.
Diversity and inclusion which has been an important topic will be even more important as we emerge from this crisis.
We've been investing heavily in the space and are launching a DNA practice across search and consulting.
We recently surveyed over 400 companies across the globe and we'll release our findings this week.
I'd also like to give a warm welcome to Laszlo block, who joined our board. This April.
But as low as a co founder and CEO who move.
And also previously served as SVP of people operations for Google for a decade, his deep experience leveraging data and technology to create people focused human capital solutions will serve us well at heidrick.
In summary.
Let me be clear.
Challenges, we're facing our unprecedented however, we are as strong and resilient company, both strategically and financially.
We will successfully navigate through the current adverse global conditions by leveraging our solid balance sheet.
Our market, leading position and our cycle tested team of professionals.
Fortunately the assets, we've been building, including our proprietary Infinity framework Heidrick connect and our suite of acceleration tools allow us to operate effectively and efficiently in an increasingly digital and virtual world.
While there is uncertainty in the marketplace. We're confident we will emerge even stronger as one heidrick team.
Thank you for joining us.
Thank you again tour teams around the world for everything that you do.
And the deepest thanks to all the heroes on the front line, who we should all applaud.
Now, let me turn the call over to Mark to elaborate on the quarter.
Thank you Christian on good afternoon, everyone on the call today, we thank you for joining us.
Let me first start off by saying that I hope all of you are in good health and their families are safe during these trying times.
I'm going to change the my cost structure, a little bit as usual I'll start with review of the first quarter results, which were clearly very strong then augment that by going through a deeper dive into what we're seeing at the beginning of the second quarter of 2020.
Quickly with you in the first quarter numbers, we saw another great achievement and net revenue of $171.5 million.
It wasn't a top half of the guidance we provided at the end of February surpassing consensus and nearly identical to a record net revenue of 171.6 million in Q1 2019, even though we saw significant disruption in our age operations due to the cobot 19th and done it.
On a constant currency basis, our net revenue increased 1% and but any reasonable measure our teams accomplishments in the first quarter was clearly an incredible and treatment.
Looking at executive search.
Revenue decreased 2.9 million or 1.8% to $155.5 million.
On a constant currency basis, net revenue decreased $1 million or 0.6%.
The Americas region grew 1% or 1.4% on a constant currency basis, while you're up decreased 1.4%, but on a constant currency basis grew 8.8%.
Asia Pacific is where we saw a much larger decline of 13.3% and on a constant currency basis declined 10.5%, which wasn't surprising given the impact of the pandemic to this region in the first quarter.
That's Christian noted.
We are already beginning to see pockets of Asia, returning to more normal levels in April which is a positive fine and potential model for how we forecast impacted markets in the Americas and Europe.
We're also pleased to report hydro Consultings net revenue growth of 20.6% or 21.2% on a constant currency basis.
The shows good traction at the beginning of the year and again the strong growth is despite disruption caused by the pandemic.
At the end of the first quarter, we saw positive confirmation trends, but do expect those to be delayed during the shelter in place orders in the Americas, Europe and to a lesser extent Asia.
Turning to salary and employee benefits, we saw fixed compensation improved $5.4 million and variable compensation increased $5.6 million due to the contingent compensation for the to get acquisition.
Salary and benefits as a percentage of revenue was 70.6% fair to 70.4% and 29 teens first quarter.
General and administrative expenses improved year over year by 6.2% or $32.2 million, primarily due to travel and entertainment taxes and licenses and office occupancy savings.
As a percentage of not revenue general and administrative expenses were 18.8% compared to 20% 2019th first quarter 120 basis points improvement.
Given our new work patterns.
With more of our team working from home traveling less.
And the continued expectations of a transformative digital strategy, we expect to see savings in DNA in the second third quarters and potentially greater savings over the longer term.
I'm pleased to report that our operating income in the first quarter of 2020 increased 10.7% $18.2 million.
Further operating margins expanded by 100 basis points to 10.6%, mainly driven by GSK reductions discussed.
This allowed our adjusted EBITDA grew 14.6% over the prior period to $23.6 million, an adjusted EBITDA margin, expanding 180 basis points to 13.8%.
You will see an unusual charge and other non operating income which is related to hydrous deferred compensation plan that allows participants to for a percentage of their compensation and to various investment vehicles.
We have to mark to market these assets and liabilities.
Given the first quarters global stock market performance. This had a noncash impact of $3.9 million related to this plan.
Turning to net income this was $8.7 million in the first quarter of 2020 and diluted earnings per share. It was 44 cents.
This compares to net income of $12.1 million and diluted earnings per share of 62 cents in last year's first quarter.
However, as I noted earlier, our income statement was impacted by the noncash $3.9 million charge related to the deferred compensation plan in the first quarter. That's without this expense we would have had a higher net income any P. S.
Given our performance in the first quarter, our board of directors approved and we announced that we will pay a 15 cents per share cash dividend in may for all shareholders of record on me Hey.
This dividend currently generates a dividend yield of nearly 3%.
Well outpacing treasuries and any stand out in the industry.
Now, let me turn to the balance sheet.
As you know in March we proactively drew down $100 million of 175 million dollar unsecured revolving credit facility.
Borrowings under the revolving credit facility are scheduled to mature on October 20 to 23 apparent annual interest rate of approximately 1.77%.
We drew down on the facility solely as precautionary measure and not because of any underlying need for liquidity as we wanted to increase our cash position to execute on opportunities. This market may present us.
You can see the drawdown proceeds are on the balance sheet, which were invested in very liquid short term investments, mainly U.S. government T bells held at custody accounts a different banks.
I've always been up the view that our facility is primarily for acquisitions, which has not changed.
We ended the first quarter with cash and cash equivalence of $251 million compared to $114.4 million at March 31st 2019.
Backing out the $100 million of credit facility draw. We finished the first quarter at $151 million, an increase of 32% over the same period last year.
I'm pleased to report that we finished the quarter with $322 million of liquidity demonstrating outstanding balance sheet strength.
We can see this there are many liquidity ratios such as the 1.84 times quick ratio 2.14 times current ratio and a 1.21 times cash ratio.
All of these show that we have very strong liquidity to meet their needs today and into the future.
We have negative net debt due to our cash being significantly higher than our debt well our credit facility has a debt covenant of not more than three times leverage allowed which equates to nearly $300 million of leverage we potentially could add to our balance sheet.
However were not contemplating this amount of debt for the pipeline, we're looking at even though our pipeline continues to be robust and aligned to our long term strategy.
We're working with many companies to explore partnerships similar to BTG.
Acquisitions, similar to get Brazil, and alliances similar to key vendors that support our initiatives.
As current market pressures persist, we expect our pipeline to expand with future opportunities to enhance our business model.
In addition to our strong liquidity profile in financial flexibility I think it's important to point out that compared to the great recession, a lot has changed in our operations.
We are now more digitally enabled to conduct the work without disruption.
We have moved our business to the cloud and are protecting our data accordingly.
We have been reducing our physical footprint and utilizing technology for sometime now to allow our teams to work remotely.
From a financial point of view, we have shifted our fixed operating expense structure to 66% of our total opex in the first quarter of 2020 from 86% in the past.
Our GNS has been reducing over the last several years and we expect that trend to continue.
Now, let me turn into Q2 and beyond.
In light of the continued uncertainty due to the pandemic, we believe it it's prudent to refrain from providing financial guidance for the second quarter currently.
Instead, let me give you some of the latest trends we're seeing in the month of April.
Regarding confirmations, we are seeing confirmations lagged by approximately 25% thus far in April compared to the same period last year, a trend that we would expect to continue anymore marginal declining rate through may.
However, we are expecting improvements in the third and fourth quarter as more countries open back up for business.
Regarding average fees, even though we've seen confirmation slow down we're seeing our average fees per search holding up well.
Our search mix continues to keep pace with our pre pandemic history and our teams are doing a great job and delivery of our services.
Turning to our on hold assignments, we are seeing our on hold rate increased significantly in April as our clients take a pause to evaluate market condition, but it's very important to note that our cancellation rate remains at normal levels through conversations with our clients. They believe these holds will be delays in the search and not cancellation.
And as they still need talent to execute on their strategy, especially during these trying times.
Based on these client conversations we believe this supports our view that volume will likely pick back up later on year.
Looking at our completion rate, we have not seen any meaningful impacts as of now.
Meaning our clients are still hiring in the current environment and this is very important as this is the main driver for our upticks in fact in the first quarter of 2020 upticks were 19% higher than they were anticipated and continued through the quarter.
However, as confirmation slowed down and our backlog from Q1 2020 processes either to confirmations or holds we would expect confirmations to gradually decline as well.
Turning to hydro consulting, which has some offerings that required in person gatherings to deliver the service. We have started to see some assignments put on hold as well, but again not been canceled.
Our clients very much want to continue with the projects, especially given the changes they're seeing in today's work environment.
In some cases, we're able to conduct these virtually continue to educate the market on the effectiveness of digital delivery.
Please do understand our backlog coming into the second quarter is very strong in both search and hydro consulting. Thus this will partially offset our expected Q2 revenue decline, but we would anticipate our revenue decline maybe more impacted in Q3 due to the revenue recognition rules.
I Hope this helps you understand what we know today.
In summary, our strong balance sheet liquidity position gives us great confidence during this exceptional period of uncertainty to continue our drive to execute on our strategy that we started two years ago.
This includes organically continuing our digital journey to further enhance what we do today through greater automation and capturing more valuable information and also expanding our current platforms are pursuing new pass that augment our current platforms and greatly enhance our delivery abilities to our clients and increase shareholder value.
With that we'd be glad to take your questions operator over to you.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad to withdraw your question. Please press the pound <unk>.
First question comes from Josh Vogel Sidoti. Please go ahead.
Hey, good afternoon, guys. Thanks for taking my questions and I Hope you in your families are doing well.
My first question is can.
Can you tell us with the of bonus payout was in Q1 of this year and also remind me what it was last year.
Sure a this year, we made a comment that it was $205 million per turn into Q1 and I believe last year.
It was about 175 wanting to five up a pull it spend spend a little bit of time.
Okay great.
So.
Well, we think about both the executive and the consulting sizes.
What what percent and type of business would you say is being conducted.
Today, virtually or remote and and generating revenue for you.
Yes, it's Josh hides Krishnan.
All of our searches that we've got underway, we we fully transformed our search model.
Into a virtual model than we've done that actually.
In advance of this disruption okay. So we were able to do that we're now prosecuting that way. So we're highly operational in all the searches that we've got underway and all the searches are being conducted interviews are happening clients are seeing the presentation.
Et cetera, so were prosecuting every single one of those searches.
Virtual model.
Except for the ones that went on as Mark said, there and for that went on hold because the clients weren't ready to be able to proceed at this point in time. So we've got those on hold but all the rest of the mall.
Being worked on right now.
Okay, Great Mark you had comments around DNA and you did a very nice job lowering it as percentage of revenue I was just curious if this reflect any linked quarter actions on your end in response to covert 19 or was this just more of a new run rate you think that you can operate at when things are back to a new normal.
[music].
No I think what I tried to do is paying in two different pictures on that Josh on by the way, it's 200, a year before into a five last year or the shirts, okay I'm.
Sure.
So, let's think about two ways right number one the shelter in place and obviously OS abiding by that and a lot of people working from home and a lot of our June as been surprised us because there is no really you know travel BD et cetera that we would normally be experiencing so travel entertainment goes down some of our.
Usage and facility usages electricity et cetera is going down everything that you would expect I would say that's kind of path one and two is what we'll call the new norm potentially.
Which is how do we really want to shut reshape our footprint, how do we want to reshape the way that we deliver our services if the digital enablement really takes off so to speak that could be very different in terms of you know the operating costs et cetera, So Christian I and the rest of the team really sat down and thought about this and are continuing to evolve in our thought process.
But we feel like that will appropriately put more pressure long term down on Jay and I as a percentage versus any kind of expansion upward.
Okay, Great and just last one I'll hop off.
Christian you had a comment around turnover being down as wondering if you can just give us some metrics there in both executive searches and consulting side. It is also given this environment how important it is to hold onto your consultants are you thinking about making any changes to the fixed or variable component in how you pay these people.
Yes, So let me just talk to attrition were in the single digit range on attrition.
And so we're in a good spot I mean, we've been working our performance management processes in the past so attrition is quite low.
Business right now so.
It's a good place for us to be and we're trying to retain or a team as well.
So.
Thats a good thing look we.
A compensation structure that is highly performance based in any case so based on.
The performance of the team that revenues that we that we drive thats, how the compensation formulas work.
Across the board, so we're pretty comfortable with.
The structure of that Formula Please.
Okay, great. Thank you guys again and glad to hear your book doing well.
Yes, Thank you Jess Thanks, Josh.
Your next question comes from Kevin Skanky with Barrington Research. Please go ahead.
Good afternoon, everyone.
So you talked about seeing pockets of Asia beginning to normalize.
And you kind of tie that to maybe a what a model or could look like going forward is.
The U.S. in Europe recover just just trying to get a sense of how much those pockets in Asia, the normalize maybe how how.
Are there away from a normal operations normal capacity, you know just to get a sense of how quickly.
Maybe maybe an office or a region can recover as we go forward.
Yeah, No, Kevin hates, Chris and I hope, you're well as well.
Yeah look I think that.
It's early to have the true data on the ramp up of those offices. They just all pretty much opened up in the last two to three weeks for us as well.
What we can't what I can tell you is that the energy level on those offices by the business community.
Those offices is starting to come back in there.
Certainly the lot more conversations happening that we think.
We will ultimately lead towards additional project. So we're on that track of Oh trying to see that we think it's I had some positive trends positive energy.
So that's what we.
I would imagine is going to occur in the U.S. as well and Europe as well.
Okay that thank you for that and then.
You know last last quarter, you talked about.
Five to 10 million of incremental expenses for for investments is you kind of look to the future.
Should we think about those investments being put on hold a as a component of.
DNA coming down or are you continuing to think longer term and looking to make those investments.
Where do you can.
Yep.
I'll take it first and maybe Mark you can jump in there as well I think the way to think about that is that what we've done but it's obviously, it's a it's a difficult time Oh did it you laid out all of our investments okay.
For the year, we laid it out by month and what we did as we figured out the ones that we will differ okay and sort of some of them. We may end up doing the beginning of next year now and those that aren't necessarily a strategic so we probably won't be investing as much but we still got some very strategic investments that will continue to make we continue to make.
Some strategic hiring decisions continue to invest inside of each labs, we continue to invest in some key technology projects that we've got underway that continue to advance our digital journey. So there are key investments we continue to make but there are several ones, where we think now we can backfill do a few other things.
Differently, and we're doing those things as well.
Okay, Good and then.
You talked about do you draw down on the credit facility and you link that to.
Turning to capital lies on opportunities and then you talked about how the facilities primarily for acquisitions and you're seeing a good pipeline I mean, so yeah I want to maybe get more color on that if indeed in this environment.
We're seeing more opportunities cheaper opportunities and if you think you can really capitalize on some acquisition opportunities in this this market environment here.
Sure.
It's mark.
Are you kind of see three different.
Kind of storms coming together, which I think is interesting I think obviously you have the first one which is the market valuation adjustment that you see in in the stock market. So prices are on the pressure down at the pressure up I think the second one you have is liquidity generally in the capital markets is very difficult. So we've seen that with a lot of.
But the government is trying to do but we also know and the community to which we plan venture capital community in the financial services community.
Pricing is getting to be very expensive. So then you kind of how the third element, which is really kind of where we come in and say look we have a very strategic long term plan, we're talking to a lot of different companies. When we drew down that a $100 million. It really was because we were in a phase of very strong discussions with some potential pipeline partners.
And our view was we didn't want to get hung out there in terms of any balance sheet issues that we don't control so to have it at the ready to go is really what we were focused on and still are focused on and that's the reason we pull the trigger I think to answer your question fully it's it's going to agree create a really interesting opportunity again in terms of either.
Hello, reading some of our long term strategy.
Or at least keeping us on the path that we were already in those conversations around but the pipeline is consistent my comment would be I would imagine over the next three to six months. It is probably going to expand quite a bit just because it's going to draw a lot of people towards.
Okay. Thanks, that's a that's helpful and I guess, what one last one here.
You talked about the large consulting engagement in the first quarter.
And how that leverage your corporate lab offering.
I know you expect consulting to take somewhat a pause here in this environment, but maybe just.
Talk about.
You know that linked to the corporate lab and when things start to normalize or maybe even in this virtual world how.
You can leverage that corporate labs, and your consulting engagements minute and how it was used in the first quarter.
Yeah.
Let me Theres Christian here.
So that's a great example, I mean, it's actually.
One of the offerings that.
We have now digitized and we're going to be launching is here.
In the month of May.
This client in fact in that in a in the second phase in a virtual model. So.
It wasn't as we sold that project it wasn't conducted that way, but when I figured out how to virtually deliver on that as well so those kinds of offerings like that we'll continue to.
Think through how we can offer that digitize that makes that a virtual offered so it's a great example impacts of above offering.
That we will continue to drive.
In that manner.
Okay. Thanks for taking the questions a best wishes for next few quarters here.
Thank you thanks.
Your next question comes from Tobey Sommer Suntrust. Please go ahead.
Oh. Thank you can you talk about how you're the constraint that you're using to manage the income statement.
Amid the the downturn in decline in demand are you managing to a two a margin level revenue per consultants or some sort of utilization how are you. What's your approach.
So I look here's your first approach because I've been through.
Already several cycles. The first thing John told me in my view that you want to do is you really want to think about what's in front of you. Okay. What's in 2021 whats in 2022, and what you don't want to do is you don't want to rightsize for Tomorrow's quarter, you want to right size for what's kind of the longer term down the path and that's the first thing we do we take of you on that and then we step back and we make.
An assessment in terms of DNA and other type of spends on and what makes the most sense from that.
So the levers I think that you're kind of asking about is you know again, we look at it from our travel perspective consultancy conferences.
Subscription we look at all sorts of things in terms of where we think thats going to generate we look at what that's going to due to our margins. We feel very confident it's not going to impact our dividends. So there's no issue on that which is why we raised our dividend last year in the first quarter. We felt 15 cents was sustainable even for periods through periods excuse me like this.
I'm. So generally that's really what we kind of focus cells are focused ourselves on I think like a lot of people will do in this market if Q2.
Again, depending if you're a which accompanies sutter and you know your margins are going to be greatly impacted you may not be able to save the negativity around the margin you really want to focus on what's Q4 with 2021 gonna look like and build yourself ready for that.
And it is what it is in terms of Q2, just so people understand the way you did it.
Yeah, Let me just that look I think were.
In our scenarios, we we think we can get towards the near normal in 2021. So that's how we're thinking about the business people and culture. It's are number one asset and in that scenario you know, we're kind of pull the full hybrid came through.
No of course, we do our normal performance management et cetera that we would do.
In any case and we've taken a lot of prudent actions we think.
Related to costs to think about margins, reducing hiring only doing some very strategic hiring.
We're not back selling.
We've moved all of our learning and development.
Which is really important to a virtual platform over time I mean on it on and we laid out as I mentioned, all these investments and tried to figure out which ones do we now do now where do we have a little bit of.
Ability to do it in a different way, we've taken all that exit or for some of the excess capacity that we may have we've turned the towards things are going to then accelerate as outage.
Out of this crisis as well training on digital.
On leadership culture, all of those types of things. So that's our plan to toward Texas market.
Okay.
Are there any cash flow implications from searches being put on hold.
Yes, it depends on where they are and the retainer process.
If we can obviously extend if there was like a last payment for the retainer.
To extend that up a little bit but for the most part.
The on holds that are coming through or ones that have already more or less than paid for and they're just simply extending that.
Path or putting on hold right now.
Thing look we don't want to cancel the when it come back to and obviously, it's been paper. So that's kind of where we sit on falling right now.
Okay. If we take a look at the business rather than through the lens of confirmations, but through kind of the lens of actually filling positions at the end of a search are there are differences by level in sort of throughput on our CEO search is really being closed virtually over the last six weeks or is it different.
Bye bye level and category.
Yeah, it's probably a little bit different by level and category, but we've seen it all I mean, we have seen searches that we began and have concluded which are CEO searches were.
They may have met the person along the way I'm not sure we've done a tough CEO search it completely virtually we've done them.
For Cfos Okay.
Completely virtually already where we you know got to search virtually we.
Conducted it and we place a candidate that we as well so that CFO level I know that we've already done that we've done that across the world those levels, but.
At the lower levels I would imagine that it might be a little bit easier, but our clients are also learning I mean these are.
Urgent needs that they got and so they are adapting.
That many many clients who are changing their recruiting processes as well learning to leverage technology.
In terms of how.
They want to proceed. So you know this just dial is moving fast is what I would say.
Yeah, and then hopefully voice over I. I add to Christians point, as we took kind of the pre pandemic completion run rate and we looked at and comparative to the end of March and April and were if you run that average it's actually marginally above it. So we're not seeing that impact on to your other point, which is is it because we're shifting in a different mix, but the average retainers.
Staying where they are I wish that I made comments on it doesn't feel like that's being impacted otherwise we would have seen a very dramatic shift than the average retain or so it feels again just mathematically.
That we're pretty much holding that course.
Okay.
One.
Of the offices that have a reopened after a period of shutting in are there any particular lessons and which ones have been kind of most successful at a kind of reaccelerating business activity.
Yes, I think there as I said before they're kind of early in that game of sort of in the two to three weeks stage I think there are lot of lessons we pick up.
In terms of how to open an office so how to run that office.
We are staggering teams in some cases to create the appropriate spacing cleaning protocols and all kinds of things to give a.
Safety and to give comfort that people as well so and it varies by by geography between.
Sort of the cultural norms of Asia, and how it operates over there and some of the models and and now we've got Copenhagen up up and running as well so.
No data, yet, but I can share with you on that but I think lot of lessons learned on how to open up offices safely.
Thank you.
As a reminder, if you'd like to ask a question at this time. Please press Star then the number one on your telephone keypad and your next question comes from Kevin Mcveigh with Credit Suisse. Please go ahead.
Great. Thanks, again hope all is well hey, and just a comment on the head count and executive search and Heidrick insulting looks like it was up year on year in the first quarter and taking any action there or do you plan to and he's just any thoughts.
On that as you think about cost given the environment where it.
Yep personally I look as I said you know.
In this scenario that we were modeling and as we're seeing of where we're going to we anticipate.
A difficult second quarter ramping up in a bit towards the end of the third quarter fourth quarter to be up and getting towards the near normal and 2021 under that scenario right. Now we're trying to pull all the people through and we think that as I said people and culture number one asset for professional services firm.
So that's what we're trying to do and.
Of course, as I mentioned before for normal there will always be forms management that we do but.
Beyond that Thats, how were thinking about.
That's helpful and then.
Christian a mortgage it's fair to say that if it kind of 25% declining confirmations you know I know, you're not giving explicit guidance, but would you expect the revenue to kind of be above that 25% range or below it as you think about Q2 Q3.
I mean, that's the complexity right, we as I said and that in the comments when we opened up we had 25% as of now I'm expecting that the flight further on as we get through April and innovate books has been and to me.
You have the backlog rolling over what the revenue recognition. So that's always going to kind of put some noise in the clock. So until I know how deep in the backlog performance kind of coming through its very difficult from Italia, if thats going to be 25, 30 or time.
It's just that a lot can happen and then of course, you have June which I don't have any relies on yet in terms of the performance at a control on it. So that's what makes it so complicated.
Yeah, I get that and then Chris My last question you talked about emerging stronger you know he kind of come at it is well kind to be three areas you focus on in terms that positioning heidrick is your come out of this emerging stronger.
Yes, I mean I think.
I think couple areas sort of.
Areas, we're working in today, but I think helping companies with their.
Digital transformations, I think that would be an area.
Clearly those.
We should be even.
Even deeper more deeply embedded in.
I think there won't be.
There will be some turnover as a result of all of this in the C suite and send board level, so continuing to to work at the top and then helping organizations accelerate.
Out of this crisis I think those would be in three areas that.
Continue to drive.
Great. Thank you.
Okay.
As a reminder, if you'd like to ask a question. Please press Star then the number one on your telephone keypad, we'll pause briefly to compile any remaining questions.
Okay.
Yeah currently known what telephonic questions at this time I'll turn the call back to the presenters.
Great.
Thank you everyone for joining our call today I just I do want to reiterate we hope that you and your family's remains safe and healthy a big Chalmette and thank you to the heidrick team.
Look while there is uncertainty in this marketplace.
Which we acknowledge we're also quite confident there we're going to merge strong has one heidrick team. Thank you everyone.
This concludes today's conference call. Thank you for joining you may now disconnect.
[music].