U.S. Markets open in 3 hrs 47 mins

Edited Transcript of HSII earnings conference call or presentation 29-Jul-19 9:00pm GMT

Q2 2019 Heidrick & Struggles International Inc Earnings Call

Chicago Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Heidrick & Struggles International Inc earnings conference call or presentation Monday, July 29, 2019 at 9:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Julie Creed

Heidrick & Struggles International, Inc. - VP of IR & Real Estate and Director of Workplace Strategies

* Krishnan Rajagopalan

Heidrick & Struggles International, Inc. - President, CEO & Director

* Mark R. Harris

Heidrick & Struggles International, Inc. - CFO & Executive VP

================================================================================

Conference Call Participants

================================================================================

* Kevin Damien McVeigh

Crédit Suisse AG, Research Division - MD

* Kevin Mark Steinke

Barrington Research Associates, Inc., Research Division - MD

* Timothy John McHugh

William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst

* Tobey O'Brien Sommer

SunTrust Robinson Humphrey, Inc., Research Division - MD

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon. My name is Shantell and I'll be your conference operator today. At this time, I would like to welcome everyone to the Heidrick & Struggles 2019 Second Quarter Conference Call. (Operator Instructions) I'll now turn the call over to Julie Creed, Vice President of Investor Relations and Real Estate, to begin your conference.

--------------------------------------------------------------------------------

Julie Creed, Heidrick & Struggles International, Inc. - VP of IR & Real Estate and Director of Workplace Strategies [2]

--------------------------------------------------------------------------------

Good afternoon, everyone, and thank you for participating in Heidrick & Struggles' 2019 second quarter conference call. Joining me on today's call is our President and CEO, Krishnan Rajagopalan; and our Chief Financial Officer, Mark Harris.

We posted our second quarter slides on the IR home page of our website at heidrick.com, and we encourage you to review them for additional context, but we won't be referring to specific page numbers during our opening comments.

In our materials, we refer to adjusted EBITDA and adjusted EBITDA margin. These are non-GAAP financial measures that we believe provide additional insight into our underlying results. A reconciliation between GAAP and non-GAAP financial measures can be found in the last schedule of our press release and in our supporting slides. Also in our remarks, we'll be making forward-looking statements and ask that you please refer to the safe harbor language contained in our news release and on Slide 2 of our presentation.

And now, Krishnan, I'll turn the call over to you.

--------------------------------------------------------------------------------

Krishnan Rajagopalan, Heidrick & Struggles International, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Julie, thank you. Good afternoon, everyone, and thank you for joining our call. We are pleased to report our second quarter and first half of the year results. As evidenced by the numbers, we are still seeing solid demand at the top and we're hitting on all cylinders to win more market share. There are a few markets experiencing economic uncertainty and slowdown but other markets are outperforming so the mix of our revenue is different. But when we look at the results overall for the first 6 months, we're slightly ahead of where we were last year at this time. Given 2018 was a record revenue year, we consider our 2019 performance to date to be positive. Importantly, with all the changes that we've made to our operating model over the last 2 years, we're running the business more efficiently. We are delivering improving profitability and a higher net income and EPS to the shareholders. Let me share a few highlights.

Consolidated net revenue of $173.1 million in the second quarter increased 1% compared to the first quarter and was down 5% year-over-year or 4% in constant currency, about as we expected given that last year's second quarter included an unusually high number of search revenue upticks. Even so, the operating margin expanded to 10.6% compared to 10.1% in last year's second quarter. Net income increased 25% to $14.3 million, and diluted earnings per share improved 24% to $0.73 per share from $0.59 per share in last year's second quarter.

It's also worth noting that our year-to-date consultant turnover globally is quite possibly the lowest in our history at 5%, allowing us to maintain high search consultant productivity at $1.7 million per consultant. Remember that in January, we promoted one of our largest classes to date, 24 individuals to the principal level.

Our data-driven and technology-enabled talent, leadership and culture solutions are increasingly being embraced by our employees, and they're becoming fully embedded across our business. This approach is continuing to resonate more strongly with our clients.

Some examples. We've now executed over 7,000 searches through our tech-enabled process that we refer to as the Heidrick Way. As part of this process, we are leveraging our proprietary Infinity Framework assessment methodology to gather consistent data. Since introducing our clients to the book Goliath's Revenge and our digital acceleration offerings earlier this year, more than 10 of our clients have signed up to work with us on their digital transformation and innovation initiatives by focusing on their culture and human capital.

Last year, approximately 10% of our consulting revenue was driven through search introductions and in the first half of this year that has climbed to approximately 20%. We are continuing to expand our work at the top, not only by placing CEO candidates with our client, but also by working with those CEOs to accelerate their performance starting from day 1. We have several such landmark projects underway.

Last year, we launched hybrid consulting and began going to clients with a single integrated line of advisory services. We've made progress but this business isn't yet where we want it to be. Last year, we focused on the consulting integration and overall margin improvement. This year, our attention is fully focused on growing the consulting business. Our growth will be driven by an increasing collaboration within the firm to bring the full power of Heidrick service offerings to our clients globally and equally important, by increasing the depth and breadth of our advisory services and human capital solutions through strategic hiring, external partnerships and acquisitions. We still have a long ways to go and we must accelerate on this dimension.

As I said earlier, where we are focused in search, at the top of organizations, we continue to see favorable market demand. June confirmations were very good, and July is tracking well too. In aggregate, we aren't seeing a slowdown but we aren't seeing an acceleration either. In this type of a market, it's all about operating efficiently and winning market share. And we believe we're winning more than our fair share of the search business with our global delivery of a premium, diversified portfolio of advisory solutions that empower Boards of Directors and senior executives to leverage top talent and transform their organizations.

To grow our business and achieve our vision, we continue to focus on several initiatives, broadening our capabilities, service offerings to clients, going to market as one firm with an integrated value proposition to distinctive suite of capabilities that maximize leader, team and organizational performance, and delivering superior leadership solutions through a unique, differentiated client experience.

Thank you again to our teams around the world for their hard work and a solid start to the year. Now let me turn the call over to Mark to elaborate on the quarter.

--------------------------------------------------------------------------------

Mark R. Harris, Heidrick & Struggles International, Inc. - CFO & Executive VP [4]

--------------------------------------------------------------------------------

Thank you, Krishnan. Good afternoon, everyone, and thank you for joining our call today. As Krishnan mentioned, our consolidated second quarter net revenue of $173.1 million was down compared to last year's second quarter but not unexpected given the unusual number of search upticks last year. Our net revenue, excluding upticks in both quarters, would have been similar on a pro forma basis, to give that some context.

Executive Search revenue was about even with the first quarter of 2019 but declined about 5% year-over-year due to last year's high uptick revenue. Reflecting on our year-to-date performance given the quarter-to-quarter variability we can see in our markets, search revenue is still ahead of the same period in 2018. In the second quarter, on a constant currency basis, the Americas declined 2% and Europe just 1%. However, Asia Pacific declined 9.4% with several factors at play, including consultant turnover, consultant mix and generally tough comps compared to last year.

Heidrick Consulting revenue increased 10% sequentially although declined 10% year-over-year on a constant currency basis. For the first 6 months of the year, consulting revenue was off 7.4% on a constant currency basis compared to 2018. Factors that contributed to the year-over-year results included productivity being lower because consultants who left after the integration last year were replaced by new consultants who aren't yet fully up to speed. Revenue we had planned from several client engagements was pushed into the third and fourth quarters. However, we continue to see positive trends in the business. As Krishnan mentioned, more revenue is being driven by the search consultants. We are especially excited about several high-profile assignments that were won in conjunction with search. Heidrick Consulting is [proposing] on larger and more complex multilayer projects which are highly strategic and impactful for our clients but also take longer to close and deliver. We believe this strategy will be accretive for Heidrick in the long term.

Turning to salaries and benefits. This was lower by $7.1 million or 6% compared to last year's second quarter. We saw an increase in fixed compensation of $3 million with much of this driven by higher stock compensation expense and other benefit expenses, such as retirement and deferred compensation expense. This increase in fixed compensation was offset by a $10 million decline in variable compensation expense mostly related to lower revenue in the quarter.

For the seventh consecutive quarter, general and administrative expenses were down year-over-year to $34.2 million, a decrease of 7.5% or approximately $2.8 million compared to last year's second quarter. There were savings in a number of areas but the biggest improvement was in the continued focus, reducing Professional Services. All of these improvements led to operating income in the second quarter of $18.4 million, essentially flat with the prior year despite lower revenue. Through active management of our operating expenses, our operating margin expanded 10.6% from 10.1% in last year's second quarter, and on a trailing 12-month basis, our operating margin is at 10% for the first time since the third quarter of 2008 or 11 years ago.

Finally, we're very pleased to report our achievement in net income of $14.3 million in the second quarter of 2019, an increase of 24.6%. This drove our diluted earnings per share to $0.73 compared to $0.59 last year. While much of the increase was driven by our operating performance, our tax team has done a very good job in managing our tax structure in order to help us achieve an effective tax rate of 26.7% in the second quarter. For the full year 2019, we are still expecting an effective tax rate in the low 30% range.

Now I'll turn to our balance sheet. At the end of our second quarter, our cash and marketable securities increased to $144 million compared to $85.8 million at the end of last year's second quarter. Cash provided by operating activities was $33.4 million compared to $30.4 million in last year's second quarter, an increase of 10%.

Turning to the third quarter of 2019. We expect that net revenue will be in the range of $175 million to $185 million compared the quarterly record revenue of $187.6 million achieved in last year's third quarter. June confirmations were very good and July is tracking well, too. Our guidance is further based on search backlog at the end of the second quarter, which increased from the first quarter, the typical seasonality of search confirmation trends in the third quarter, our expectations for Heidrick Consulting assignments, anticipated fees, the number of consultants and their productivity and the anticipated economic climate.

In summary, we are pleased with our second quarter performance, especially our management of the business that delivered tangible improvements to the bottom line. We are on a similar track to 2018, a record year, with an even better bottom line, and we look forward to finding new opportunities to build our brand further. With that, we'd be happy to take your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of Kevin McVeigh with Credit Suisse. Your next question comes from the line of Tobey Sommer with SunTrust.

--------------------------------------------------------------------------------

Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [2]

--------------------------------------------------------------------------------

I was wondering if you could comment about what you're seeing across the verticals within the Executive Search base in which there is strength in. And maybe, conversely, also touch on the 1 or 2 that have been softer than the rest.

--------------------------------------------------------------------------------

Krishnan Rajagopalan, Heidrick & Struggles International, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Yes. Tobey, it's Krishnan here. Vertical, you meant our industry verticals? Is that what you meant?

--------------------------------------------------------------------------------

Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [4]

--------------------------------------------------------------------------------

Correct.

--------------------------------------------------------------------------------

Krishnan Rajagopalan, Heidrick & Struggles International, Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

Yes. So look, we're generally seeing a robust market for health care life sciences, for technology-related work, for our industrial practice and marginally for our consumer practice as well. I would say really the only large practice where we have been some headwinds is our financial services practice, which is a large practice for us. And particularly in Europe, we've seen a little bit more headwinds there in Europe than even in the U.S.

--------------------------------------------------------------------------------

Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [6]

--------------------------------------------------------------------------------

In your prepared remarks, you kind of delineated between the high end of the house in the search industry where you have more concentration, noting that, that demand has been stable. By implication, are you saying that below that is somehow different insomuch as your kind of breadth gives you exposure below the C-suite? What are you seeing in that area?

--------------------------------------------------------------------------------

Krishnan Rajagopalan, Heidrick & Struggles International, Inc. - President, CEO & Director [7]

--------------------------------------------------------------------------------

Yes. I mean I think my comment was intended really to focus on Heidrick and where we play. We tend to play at the top end and we track, by the way, our CEO and Board searches, et cetera and we are seeing a robust market in that area. Our sense is that it might be a bit more robust than below [and] the next level down, but we're not sure. So we don't play in that market as much. I don't have the data to back that up, but I can tell you where we're playing, our confirmations seem to be pretty -- reasonably robust. I mean it does vary by market but -- and it's different than last year, as I mentioned, but I think it's still strong.

--------------------------------------------------------------------------------

Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [8]

--------------------------------------------------------------------------------

What are your intentions -- and the headcount growth up mid-single digits year-over-year, not much changed sequentially, what's your intention for the balance of the year to manage the headcount growth in the context of your comments [for this]?

--------------------------------------------------------------------------------

Krishnan Rajagopalan, Heidrick & Struggles International, Inc. - President, CEO & Director [9]

--------------------------------------------------------------------------------

Sure. Yes. So we'll expect to see in search some very strategic and marginal headcount growth. We promoted 20-plus people in January and we are -- and you'll see it show up in the third quarter some hiring we've done in Asia and strategic markets for us where we're down a bit. So it's not that -- it's going to be -- you're saying sort of in the single digits, [in fact, that] we'll be doing hiring like that. In Heidrick Consulting, we expect to do more hiring and we're trying to grow that business and it's a competitive business. And we again are in a business where we work on the top. So the talent is quite competitive over there as well but we expect to grow that business and headcount, and you'll see that in the third quarter as well.

--------------------------------------------------------------------------------

Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [10]

--------------------------------------------------------------------------------

Last question from me and I'll get back in the queue. Could you give a little -- elaborate a little bit more about the trends in Asia Pac and connect if you could or say there's no connection between the trade dispute in China and that kind of thing?

--------------------------------------------------------------------------------

Krishnan Rajagopalan, Heidrick & Struggles International, Inc. - President, CEO & Director [11]

--------------------------------------------------------------------------------

Sure. Yes. Look, the trends that we're seeing in Asia is that there are clearly some headwinds in China, Greater China, that we've seen. So I think it is impacting that market a little bit. In Asia, our Japan business is still strong. It's coming off a historic high. So that's a little bit down. India is doing very well for us. Singapore is doing quite well for us as well. So those are markets that are taking advantage of -- I guess of all of this trade imbalance, but I would say China is an area where there are some issues still.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Your next question comes from Tim McHugh with William Blair.

--------------------------------------------------------------------------------

Timothy John McHugh, William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst [13]

--------------------------------------------------------------------------------

I just wondered if there -- sorry, I wanted to ask if you could elaborate a little on the consulting business. I know you've talked about seeing some progress but it's taking a little longer. I guess maybe more specifically, are there certain types of projects you're doing well with and certain specialties where you're lagging and haven't found the right team? I guess just any more color around the strategy there.

--------------------------------------------------------------------------------

Krishnan Rajagopalan, Heidrick & Struggles International, Inc. - President, CEO & Director [14]

--------------------------------------------------------------------------------

Sure. Yes. Tim, thank you. So look, in Heidrick Consulting, we're doing a lot of things here. So we are continuing to hire, as I said. So -- and that will show up here -- as I said, we work at the top. It's highly competitive to get those individuals on board. You will see some new hires on board in the third quarter. Our strategy was very much driven by trying to increase the collaboration with Search. I feel very good about that. As I mentioned, we were about 10% last year in the revenue that were being driven for consulting through search, and we're up over 20% right now. So that's good as well.

The backlog has increased for consulting as well. So that's another positive that we see. We are focused on, as Mark mentioned, more complex strategic projects. We consider those to be high impact and very sticky clients. Examples would include our culture shaping and what we're doing there. Example would be around helping companies with their digital transformation through our digital acceleration offering. And then more and more, we're helping onboard CEOs and helping with the CEO acceleration offering. And all of these are reasonably complex. The CEO has to get their agenda set before we get engaged. So that causes a little bit of delays in all of this but nonetheless a very, very strategic work. And we do see trends in there and positive trends in there that we hope to amplify on for the remainder of the year.

--------------------------------------------------------------------------------

Timothy John McHugh, William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst [15]

--------------------------------------------------------------------------------

Okay. Great. And then just one follow-up. You talked about the retention being the strongest it's ever been, but you also mentioned kind of, I guess, obviously, what's natural tight labor market and then bonus accruals being down year-over-year which matches kind of the revenue trend, but in a tight labor market, what's the risk? And as we think forward to the rest of the year and I guess in the future, can you continue to use that as a lever? Or is there some risk in the labor market like this in managing that expense line?

--------------------------------------------------------------------------------

Krishnan Rajagopalan, Heidrick & Struggles International, Inc. - President, CEO & Director [16]

--------------------------------------------------------------------------------

Yes. Look, I think there's -- a, look, there's always some risk but I think it's about more than that and what we're building here, okay? So I think it comes down to our firm's purpose and our culture of the organization that we've got. We're coming off of a fantastic regional -- global conference where we brought the teams together to collaborate and it's all around what we're building and how we're trying to impact clients in that context, and I think there's a lot of energy that surrounds that.

--------------------------------------------------------------------------------

Mark R. Harris, Heidrick & Struggles International, Inc. - CFO & Executive VP [17]

--------------------------------------------------------------------------------

The only thing -- it's Mark -- that I would add to that is the actual bonus accrual in and of itself is still actually higher than it was the same point in 2018. Remember our year-to-date revenue is still up 5.7%. So don't misunderstand my comment as being that we've lowered the actual overall accrual when we look at it on a comparative basis.

--------------------------------------------------------------------------------

Timothy John McHugh, William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst [18]

--------------------------------------------------------------------------------

Okay. And then lastly, you mentioned the global conference. Is that in the second quarter? Or is that a third quarter expense item as we think about today?

--------------------------------------------------------------------------------

Krishnan Rajagopalan, Heidrick & Struggles International, Inc. - President, CEO & Director [19]

--------------------------------------------------------------------------------

That was in the second -- yes.

--------------------------------------------------------------------------------

Mark R. Harris, Heidrick & Struggles International, Inc. - CFO & Executive VP [20]

--------------------------------------------------------------------------------

That was on the second quarter. It's all been expensed.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from Kevin Steinke with Barrington Research.

--------------------------------------------------------------------------------

Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [22]

--------------------------------------------------------------------------------

So just following up on the discussion about the global conference. Obviously, it looks like you continue to control G&A cost pretty well. I mean was there a meaningful expense in the quarter from the conference that you could call out just so we can kind of get an idea of maybe what the run rate on G&A might be over the next couple of quarters?

--------------------------------------------------------------------------------

Mark R. Harris, Heidrick & Struggles International, Inc. - CFO & Executive VP [23]

--------------------------------------------------------------------------------

Sure. Let me try to help you out. So again, we talked about in the last call that we have regional meetings last year. The regional meetings were comparatively to the global meeting, it was about $500,000 more in Q2 than you saw last quarter on a comparative basis. So the comment would be Q3 is probably relatively consistent, obviously a little bit less on the G&A side because of some initiatives that we've done over here but there's a pretty minor difference between the 2. So on a comparative basis, it's pretty comparable.

--------------------------------------------------------------------------------

Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [24]

--------------------------------------------------------------------------------

Okay. And then you started off by talking about some geographic markets overperforming, some underperforming. I mean you touched on China, maybe some weakness in Europe around financial services, I mean some of the markets in Asia doing better, but any others we should highlight as maybe a little softer, a little stronger than you've expected?

--------------------------------------------------------------------------------

Mark R. Harris, Heidrick & Struggles International, Inc. - CFO & Executive VP [25]

--------------------------------------------------------------------------------

Well, I think expected or comparative? I'll use comparative. Most of everything we've seen was expected as we were expecting the U.K. on a comparative basis given Brexit and what's been going on in the elections, et cetera. Financial services clearly helps lead that pack given the demographics of those compared to the other industries in the U.K. So we're obviously seeing softening there. Germany, based on all the macroeconomic data that's been released, obviously we've seen some softening in Germany. Italy, oddly enough, even though the economic data suggests there should be a softening, we've been very good and very strong. That was probably the surprise but pleasant one. Spain is doing very good. Denmark's doing pretty well, France.

So I would just tell you that those are the ones and it's been interesting because obviously, when you're replacing U.K. and German confirmations with other Continental Europe confirmations, by definition, demographics of those confirmations are going to be economically different and we've seen that. And hence, well, even though we're on a constant currency basis down 1% in Europe, we're still very pleased with that result just given the natural shift that we see going on there and what we've been doing to diversify ourselves within Europe.

--------------------------------------------------------------------------------

Krishnan Rajagopalan, Heidrick & Struggles International, Inc. - President, CEO & Director [26]

--------------------------------------------------------------------------------

And we've been happy to see that look, we were running very, very fast last year and it continues at that speed in the U.S. if not even a little bit faster sometimes. So we shouldn't forget that.

--------------------------------------------------------------------------------

Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [27]

--------------------------------------------------------------------------------

Okay. And you mentioned that you're not really seeing a slowdown but you're not seeing an acceleration either. Just trying to reconcile with the confirmation percentage decline you had in the press release, down 8.5%. Year-over-year in the second quarter, you said June was good. I mean just would you attribute that year-over-year decline to somewhat of a difficult comp? I know last year was really strong, up 23% year-over-year. So just trying to reconcile when you're saying not necessarily a slowdown but we've seen some confirmation softness at least on a year-over-year basis.

--------------------------------------------------------------------------------

Mark R. Harris, Heidrick & Struggles International, Inc. - CFO & Executive VP [28]

--------------------------------------------------------------------------------

Yes. I mean again, I would think about it from a mix point of view. You might see the confirmation numbers actually tracking down a bit. The fees per search are up. So again, when you look at that -- and that's why you see kind of in the revenue on a 6-month basis, we're about I think 0.5% ahead. It's really what's kind of offsetting them. So I'd kind of keep an eye on that. But overall, I mean again, when you're kind of trading off with what's going on in Greater China, in the U.K., et cetera, with Continental, other emerging markets in Asia Pacific and obviously America's performing very, very well for us, we're pretty happy in terms of what we're seeing on those [sites] counterbalancing each other.

--------------------------------------------------------------------------------

Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [29]

--------------------------------------------------------------------------------

Okay. And lastly, I think you said you've executed 7,000 searches through the technology-enabled Heidrick Way. What percentage of your searches are now running through that technology solution and, I mean, would be the goal to get most or all running through that technology?

--------------------------------------------------------------------------------

Krishnan Rajagopalan, Heidrick & Struggles International, Inc. - President, CEO & Director [30]

--------------------------------------------------------------------------------

Yes. Look, the goal will be, at some point, 100%. There are some languages required being in -- some searches required or local languages. So we're well over 90%. We're actually a tad over 90%. So it's -- we're headed in the right direction there.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

Your next question comes from the line of Kevin McVeigh with Credit Suisse.

--------------------------------------------------------------------------------

Kevin Damien McVeigh, Crédit Suisse AG, Research Division - MD [32]

--------------------------------------------------------------------------------

Mark or Krishnan, I wonder if you could give a sense -- from a planning perspective, it's good to see the hires. Just any sense of some of the areas where you've seen a little trade-related impact? Are you doing any kind of planning for maybe more of a slowdown as opposed to a head fake? I know there's been some debate in the market as to the sustainability but just any thoughts around that. Or do you use this uncertainty to higher incremental? Or just any thoughts on strategic M&A as well.

--------------------------------------------------------------------------------

Krishnan Rajagopalan, Heidrick & Struggles International, Inc. - President, CEO & Director [33]

--------------------------------------------------------------------------------

Yes. Let me start with the -- your hiring question there. I mean I don't think we're seeing any market with a sort of -- like a falling off of a cliff type of a slowdown so -- where we're adjusting our plans. I mean I think that in those areas, we may go a little bit slower with our hiring in fact and that may be a bit more elongated, but I don't see anything like that that's changing how we're thinking about it. We started off the year thinking that we would promote many and we would hire a few in search and we're executing that plan.

So I think that that's what we're seeing and it isn't -- as Mark said -- too surprising from some of what we had forecasted in our plans. So -- then on the strategic acquisition side, I mean clearly our focus of that -- one of the focus areas is the consulting area and we continue to look at assets in that area in a very thoughtful manner.

--------------------------------------------------------------------------------

Mark R. Harris, Heidrick & Struggles International, Inc. - CFO & Executive VP [34]

--------------------------------------------------------------------------------

Yes. I mean the only thing I would supplement that with is when we look at our pipeline on the corporate development side, we're very disciplined in ensuring that the companies we look at quite seriously have kind of a pre-identified need before we kind of take a look at the company, so not just finding something and putting it on, but it actually is something that's part of our longer-term strategy. When the IRRs make sense, both cash and P&L IRRs and we get the valuations to where we think it's going be accretive for the shareholders, only then would we consider putting a structure in place to actually do the acquisitions. So I think it's important to always remember that even though you may not be seeing it right now, we're seeing a lot of deals. We just haven't seen the ones that we think are an appropriate accretive fit for us [right yet].

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

Your next question comes from the line of Tobey Sommer with SunTrust.

--------------------------------------------------------------------------------

Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [36]

--------------------------------------------------------------------------------

I just had a numbers question. Mark, could you discuss the tax rate in the quarter, any discrete items that kind of won't recur and were just beneficial in the quarter? And what's a good tax rate for the rest of the year or the full year, some sort of long-term benchmark that we can use for modeling?

--------------------------------------------------------------------------------

Mark R. Harris, Heidrick & Struggles International, Inc. - CFO & Executive VP [37]

--------------------------------------------------------------------------------

Yes. So I mean Tobey, on that one, that's why I try to give kind of the idea of around 30% as where we're going to kind of come in at the end of the year, the low 30s. What we saw in the second quarter was a couple of things. Number one are some discrete items pertaining to some capital gains that we were planning for and then measured out. The other comment is we changed some of our corporate tax structure where we felt it was more prudent to either check the box or some other tax that we looked at from an analytics point of view and brought them under the tent. So our longer-term view is that we should be able to maintain low 30s without policy changes and the different demographics that we kind of plan, and we hope to obviously continue and very focused on that. That's why we -- to us, tax is cash, which is why we're hyperfocused on it.

--------------------------------------------------------------------------------

Tobey O'Brien Sommer, SunTrust Robinson Humphrey, Inc., Research Division - MD [38]

--------------------------------------------------------------------------------

Perfect. And do you have an estimate for what CapEx will be in 2019?

--------------------------------------------------------------------------------

Mark R. Harris, Heidrick & Struggles International, Inc. - CFO & Executive VP [39]

--------------------------------------------------------------------------------

It's a great question. Not really.

--------------------------------------------------------------------------------

Julie Creed, Heidrick & Struggles International, Inc. - VP of IR & Real Estate and Director of Workplace Strategies [40]

--------------------------------------------------------------------------------

[I think to] real estate and that's pretty low for this year.

--------------------------------------------------------------------------------

Mark R. Harris, Heidrick & Struggles International, Inc. - CFO & Executive VP [41]

--------------------------------------------------------------------------------

Yes. We don't have a lot of CapEx initiatives this year. We've got some leases that will be coming up next year that we'll probably have some build-outs for. But again, I don't think we've done any quantifiable analysis on that yet in terms of what we think the spend will be.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

There are no further questions at this time. I will now turn the call back over to Heidrick's management to make any closing remarks.

--------------------------------------------------------------------------------

Krishnan Rajagopalan, Heidrick & Struggles International, Inc. - President, CEO & Director [43]

--------------------------------------------------------------------------------

Okay. Thank you and thank you to our -- let me just start off saying thank you to our Heidrick team. Great job. We are seeing and we hear a lot in the market and from clients about trade wars, slowdowns, and much of that is true. And we take it seriously and we take it head-on as well. Through the first half of the year, we are executing well. The themes that what Heidrick & Struggles is focused on are highly relevant in this market. We're on track to our record performance in 2018. We're ahead on profitability and we look forward to performing the rest of the year. Thank you very much.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

This concludes today's conference call. You may now disconnect.