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Heidrick & Struggles International Inc (HSII 0.82%)
Q4Â 2019 Earnings Call
Feb 24, 2020, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Heidrick & Struggles Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Suzanne Rosenberg, Vice President, Investor Relations. Thank you. Please go ahead.
Suzanne Rosenberg -- Vice President, Investor Relations
Good afternoon everyone and thank you for participating in Heidrick & Struggles fourth quarter and 2019 conference call. Joining me on today's call is our President and CEO, Krishnan Rajagopalan and our Chief Financial Officer, Mark Harris. Our fourth quarter slides are posted on the IR homepage of our website at heidrick.com and we encourage you to view them for additional context, but we won't refer to specific page numbers during our prepared remarks.
In our materials, we refer to 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 the release. Also in our remarks, we will be making forward-looking statements and ask that you please refer to the Safe Harbor language contained in our news release.
I would now like to turn the call over to Krishnan.
Krishnan Rajagopalan -- President and Chief Executive Officer
Suzanne, thank you. Good afternoon everyone and thank you for joining our call. We delivered solid 2019 results by successfully navigating global market volatility, while maintaining a focus on bottom line results. Net revenue in 2019 was approximately 1% below record setting 2018 results and marked the second consecutive year of full-year net revenue over $700 million. I'm very proud of all that our team has accomplished and I'm excited about how we are positioned, both strategically and financially for 2020. Our financial strength gives us ample opportunity to prudently invest in growth, innovation and differentiation. We see attractive opportunities emerging on which we intend to capitalize in 2020, while maintaining our disciplined opportunistic approach to capital allocation.
Let me now share some of the full-year highlights of 2019. Our strong results were driven by Executive Search for which net revenue was $646.4 million, a 1% decrease from 2018, but up 1% on a constant-currency basis. The Americas region, increased by $10.2 million or 2.5% offset by decreases in Europe and Asia Pacific. The Global Technology & Services, Consumer Markets and Healthcare & Life Sciences practices all exhibited growth over the prior year. We confirmed approximately 4,900 engagements, 100% of which were executed by Heidrick Connect with strong productivity of $1.7 million per consultant. We acquired and successfully integrated 2Get in Brazil, which expands our growth platform throughout Latin America where we see compelling opportunities for both Executive Search and Heidrick Consulting. During 2019, we expanded our head count in Heidrick Consulting to 71 consultants from 66 consultants and look forward to ramping up in 2020. Confirmations in Heidrick Consulting increased 12% sequentially. We continue to increase Heidrick Consulting's presence in key global markets and we'll continue that in 2020 while entering new emerging markets. Importantly, an increasing percentage of consulting revenue continues to be driven through search introductions and in 2019 this has reached 33%.
Turning back to our consolidated financial results. We improved general and administrative expenses to 19.4% of net revenue, the lowest level in 12 years. Our continued focus on driving operational efficiencies enabled us to deliver consistent adjusted operating margin on slightly lower revenue. On an adjusted basis, we delivered full-year diluted EPS of $2.59, which was our strongest in 11 years. Key to achieving these financial results is our steadfast focus on increasing the scale and impact of our two businesses, increasing cross-enterprise collaboration, and driving a premium data driven tech-enabled service experience for our clients while maintaining a focus on our cost structure. As we continue to engage at the top of our client organization, we are deeply entrenched as advisors and we're at the forefront of impacting transformational change such as digital transformation, sustainability and diversity and inclusion.
As we look ahead to 2020 from a macro point of view, it certainly will be a complex environment within election in the US and with the implementation of Brexit and trade wars perhaps taking a back seat. In the near term, there is significant level of uncertainty associated with the coronavirus in Asia. While we expect and are feeling some delays due to this fluid situation, we remain optimistic and believe that the types of transformational projects we are working on will continue to be strong business imperatives for our clients. As I alluded to earlier in my remarks, in 2020, we intend to leverage our market position and strong cash flow to make disciplined investments in innovation and long-term growth to support our ability to advance the foundational changes our clients seek to implement.
To capitalize on these opportunities, we are expanding our product teams and providing new innovative offerings to broaden our capabilities. For example, we have been investing in the area of better outcomes related to diversity and inclusion. We recently completed a global survey of more than 400 companies to gain insights into how organizations are defining diversity and inclusion, as well as how they're linking diversity and inclusion to business performance. We recently were awarded a highly integrated piece of work across search and consulting by a financial services client to help them develop a comprehensive diversity strategy and roadmap, based on their specific business needs to engage the leaders to be purposeful and creating and leading an inclusive culture, and to embed the diversity into all of their talent practices, including executive searches.
We also received a verbal award from another client for comprehensive work that includes assessing the inclusiveness of the culture, conducting multiple searches and creating a program focused on the development and retention of diverse talent. We recently joined forces with program advisors, including EY, Skadden, Arps and the Rock Center for Corporate Governance at Stanford University to establish the Director Institute. This is a groundbreaking, first of its kind program, designed to accelerate the development of high potential diverse leaders for Corporate Director and broader operating roles. The program utilizes an apprenticeship model were a board observer is paired with the board of a relevant, but non-competitive company for an exceptional executive development experience. We're pleased to announce the establishment of our sustainability office. We are seeing a spike in the demand in the area of ESG and have organized our capabilities and best practices, and are working with numerous clients. In fact, we're even taking our own learnings and applying them internally to critically consider our own office footprints.
In terms of product development, our teams are focusing on developing new products, hiring and enhancing our data science capabilities, and driving innovation, as we continue down the path of transforming into a data driven tech-enabled firm. For example, we're beginning to harness the power of AI and are pleased to announce that we are currently testing our agile leader potential tool with some of our clients. To achieve this, we're partnering with technology firms to implement an AI-based tool, that enhances our clients' existing talent development processes by identifying a differentiating leadership attribute that is critical in today's leader, namely agility.
In addition, we're investing internally for the long term. In IT, we are upgrading internal platforms and databases. We also continue to shift more on-premise technology delivery platforms to the cloud, which we believe will drive meaningful savings in future years.
In summary, we are excited by our clients continued desire for Heidrick's talent, leadership, and culture solutions. They are seeking more insights on leadership and talent trends connected to their business strategies. They are eager to receive more creative and agile solutions for the increasingly complex and fast-changing landscape and they need to strike the right balance between strengthening their core business while embracing disruptive change. Heidrick is in a position of strength to meet these needs and we are looking forward to the year ahead. Again, thank you to all my colleagues around the firm for their hard work this past year. I'm truly excited about what we will accomplish as a firm in 2020.
Now, I'd like to turn the call over to Mark, to further discuss our financial results.
Mark Harris -- Chief Financial Officer
Thank you, Krishnan.
Let me extend my greetings to all of you on the call today and thank you for joining us. Krishnan spoke to the annual highlights of 2019. So my remarks will focus on the fourth quarter results. We're pleased to report net revenue for the fourth quarter of $180 million, which surpassed consensus estimate and was at the high end of our guidance range. Executive Search delivered $163 million of net revenue, down $5.5 million or 3.3% year-over-year. Our Global Technology & Services and Consumer Markets practices grew year-over-year, while our Financial Services and Healthcare & Life Sciences did show some softening compared to the same period. Regionally, Asia-Pacific revenue increased $0.6 million or 2.6% driven by an increase in average revenue per executive search as a result of more upticks in the quarter. Offsetting this growth were decreases in the Americas and Europe. In the Americas, this was due to softness in the Financial Services and Healthcare and & Life Science practices which was partially offset by growth in Global Technology Services and Consumer Markets practices.
In Europe, we experienced softness predominantly driven by Consumer Markets and Healthcare & Life Sciences practices. While we did experience some headwinds in the Executive Search overall, our team did an excellent job of navigating these headwinds and based on industry data, we believe we fared better overall than others in our industry. We saw a nice revenue increase in Heidrick Consulting of 1.4% in the fourth quarter compared to the same period last year making its third consecutive quarter of sequential revenue growth. We're very encouraged by Heidrick Consulting's performance in 2019 and look forward to building on the momentum and gaining scale in 2020.
Turning to salaries and benefits. We saw a decrease by $3.4 million or 2.6% from 2018's fourth quarter. As a percentage of net revenue, salaries and benefits was 72.1%, essentially flat to last year. While fixed compensation increased $6.1 million primarily related to our deferred compensation plan, stock compensation and base salaries, this was more than offset by a $9.6 million decrease in variable compensation associated with lower revenue. As a reminder, deferred compensation is impacted by mark-to-market asset valuation, which impacts both salary and benefits and other non-operating income, neutralizing the impact on the bottom line. Excluding deferred compensation due to the strong equity performance in the US in 2019, salary and benefits as a percentage of revenue improved to 71.4% versus 72.8% in last year's fourth quarter.
General and administrative expenses was $35.8 million, up 1.6% or approximately $0.6 million compared to the prior year's fourth quarter, due to increase in professional fees and the use of external third-party consultants, partially offset by other general operating expense reductions. G&A as a percentage of revenue was 19.9% in the fourth quarter of 2019, compared to 19% in the same quarter last year due to the timing of the expenditures. When looking at G&A on an annual basis, as a percentage of revenue, it was the lowest in 12 years at 19.4%.
Adjusted EBITDA in the fourth quarter of 2019 was $20.5 million, generating adjusted EBITDA margin of 11.4% compared to $22.2 million in the fourth quarter of 2018 with margins of 12%. The declines in adjusted EBITDA and adjusted EBITDA margin were primarily driven by lower revenue in the quarter. Interest income earned on all marketable securities, including those classified as cash and cash equivalents was $0.7 million for the fourth quarter and $2.5 million for the year, increasing significantly from the $1 million in 2018. This reflects the positive improvement we are seeing from putting our cash to work in liquid, low-risk investments mostly treasuries and highly rated corporate paper.
Our effective tax rate in the fourth quarter came in where we expected in the low 30% range and we expect a similar tax rate in 2020. Our tax team has done a very good job of proactively managing our tax efficiencies, particularly with our global operations. Net income in the fourth quarter of 2019 was $10.6 million and diluted earnings per share was $0.54 as compared to last year's fourth quarter net income of $11.2 million and diluted earnings per share of $0.58.
I know my remarks have been focused on the fourth quarter, but I really want to highlight what our shareholders achieved this year. Full year 2019 adjusted diluted earnings per share of $2.59 was both an increase over 2018's diluted EPS of $2.54 [Phonetic] and more than doubled as compared to the average adjusted diluted EPS over the prior five years, which demonstrates what we can achieve in challenging markets.
Now, I'll turn to our balance sheet. We ended 2019 with cash and cash equivalents and marketable securities of $332.9 million compared to $279.9 million at the end of 2018 or a growth of $53 million or 19% year-over-year. Thus, the income statement performance is clearly translating into increasing cash flows. Please remember, our cash position builds throughout the year as we accrue for bonuses. Earlier this quarter, we paid approximately $17 million in compensation related to the portion of consultant bonuses that were deferred prior to 2019 and in March of this year, we're expecting to pay out an additional $205 million in variable compensation related to last year's performance. I think it's important to note that we ended the year with the highest net liquidity in the Company's history at $286 million with ample ability to fund future investments. We define net liquidity as cash and cash equivalents and marketable securities, plus the availability we have on our credit line less the annual performance bonus payouts discussed above. Finally, I'm pleased to announce the Board approved paying a $0.15 per share cash dividend payable on March 20 to shareholders of record at the close of business on March 6.
Now, let me provide the outlook for the first quarter and some additional information around comments Krishnan made earlier about our internal investment plans. As a reminder, our guidance is based on the seasonality of search confirmation trends in the previous quarters, search backlog, our expectations for Heidrick Consulting assignments, anticipated fees and the economic climate, including what we are aware of today regarding the current macro uncertainty related to the coronavirus.
With this in mind, we expect the 2020 first quarter net revenue will be in the range of $165 million to $175 million compared to the $171.6 million in last year's first quarter. As Krishnan discussed earlier, in 2020, we will utilize our strong financial position to make strategic internal investments in our business. This will likely create an incremental $5 million to $10 million in expenses in 2020 as we continue to execute our strategy of becoming a data-driven tech-enabled leadership advisory firm. Given what we were able to achieve over the last three years, we believe now is the time for Heidrick to be opportunistic with the business opportunities we are seeing both internally and externally. Our capital allocation strategy will always evolve, balancing our ability to adequately invest in the future growth and ensure the investments are accretive to our shareholders, generating further value.
With that, I'll turn the call back over to the operator to open the call for questions.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from Josh Vogel with Sidoti & Company. Your line is open.
Josh Vogel -- Sidoti & Company -- Analyst
Hey, good evening guys. Thanks for taking my questions. I guess just, Mark, based on your last comments, the incremental $5 million to $10 million in expenses, can you just give us an idea of how that would trend throughout the years and mostly first half or front-loaded?
Mark Harris -- Chief Financial Officer
No problem. The $5 million to $10 million are probably more back weighted than front-weighted. So, the idea is as we invest in some of the technology, we'll start capitalizing and amortizing a lot of the investment decisions we're doing. So, you'll kind of see that come through both in terms of the balance sheet as well as kind of the amort -- but I would tell you more Q3, Q4 is where I would expect that to kind of come through.
Josh Vogel -- Sidoti & Company -- Analyst
Okay, thank you. And, Krishnan, mentioned that 33%, I think, search insurers -- or consulting revenue came from search insurers that was up from, I believe, 20% in 2018. Do you have an internal or what's your long-term target there?
Krishnan Rajagopalan -- President and Chief Executive Officer
Yeah. I think if we get about 40%, we'll be in a pretty good spot on that. We want to maintain a healthy balance there between inside and outside. So, we're trying to push toward that number and that's what I think will be pretty healthy for us.
Josh Vogel -- Sidoti & Company -- Analyst
Okay, great. And obviously, it sounds like the 2Get integration is going well. I was just wondering if you could talk a little bit more and your plans to leverage that office to expand across the region in Latin America, and I know it's still early, but can you talk to the consulting opportunities down there and how you plan to leverage 2Get to source more consulting business in that region.
Krishnan Rajagopalan -- President and Chief Executive Officer
Yeah. Yeah, let me try to answer that, Josh, and we'll have Mark also add to that. But we see a -- we've got a great team there that's really engaged in the market in a wide range of conversations and already that's led us down the path of exploring consulting opportunities down there and growing the team. So, I think our first focus there will be on hiring into the consulting opportunity and working with that team to be able to leverage that with some of the services and offerings that we've already got. So, that's beginning to -- that's already progressing is what I would say. We're moving on that and hopefully within a quarter we'll be able to start talking about some of the results we get out of that as well. So, that's the focus of what we're trying to do outside of the core search business there in Brazil. Mark, I don't know if you want to add to that.
Mark Harris -- Chief Financial Officer
No. I think the only thing I'd voice over as well is that, again, the team down there is doing a heck of a job in terms of executing on their strategy and as we look at twofold is what I would tell you. I think the first one is, not just expansion in the region, which is obviously a big part of the strategy that we're trying to implement, but also expansion of just beyond search is a very important critical step of what we're looking to do in Latin America. So, the team and the leaders down there are doing a great job in terms of focusing and coming up with the strategy we can execute on both of those pillars.
Josh Vogel -- Sidoti & Company -- Analyst
Okay, great. And Krishnan, you did talk about the events going on in 2020 whether it's the election or Brexit, trade wars and obviously near term with the coronavirus. I was just -- knowing that your strategy on the search side is focused on the top of the executive ladder and we know historically your business has done well at the beginning of recessions, but I was wondering if you guys can talk or give some insight into how much more resilient your model is today against the recession than your peers and can you also remind us how the business fared a decade ago. And then lastly, just building off that, how do you see the consulting business holding up during a potential recession? I guess, what portion of that would you classify as non-discretionary? Sorry, I know that was a lot.
Krishnan Rajagopalan -- President and Chief Executive Officer
Yeah. Yeah. So, let me go backwards in time maybe and just build from there. 10 years ago, I don't think we were nearly as resilient as we are today in terms of relationships. Where we work, how we work with clients across a wide range of issues. So, I think from a resiliency perspective, we're much better. It was far more transactional at that point in time though the work was high and brand and it clearly added a lot of value, but I think the relationships were a bit more transactional.
So, I think we moved the dial on that. When we look at -- we're just -- we're in February. We're coming out of actually [Indecipherable] as well in January and I would say that macro environment wise, let me just put aside coronavirus for a second because that has some near term, it's a fluid situation, but I think what most felt is that, 2020 felt like 2019, OK, quite a bit in terms of how it didn't feel quite like 2018 where perhaps geographies grew synchronously. There were going to be some headwinds that we would all face with trade wars and a whole bunch of other things, but still it would be a solid robust market. So, that's how we're looking at and with major opportunities for us to grow our consulting business in 2020.
Josh Vogel -- Sidoti & Company -- Analyst
All right. Well, thank you guys for taking my questions. I'll hop back in the queue.
Krishnan Rajagopalan -- President and Chief Executive Officer
Thank you.
Mark Harris -- Chief Financial Officer
Thank you.
Operator
Your next question comes from Kevin Steinke with Barrington Research. Your line is open.
Kevin Steinke -- Barrington Research -- Analyst
Hi, just -- maybe talk a little bit about your ability to drive G&A expenses lower, just your perspective on how lean the organization is now, obviously, reaching a 12-year low and G&A expenses as a percent of revenue. I know you talked about the $5 million to $10 million of incremental expenses in 2020, but is there more room to streamline the organization to may be offset some of that incremental expense? I know you mentioned migrating some of your technology to the cloud, which will result in savings. So, maybe just any more perspective on how you can continue to streamline costs.
Mark Harris -- Chief Financial Officer
Sure. I am going to try to handle that one. So, look, G&A right now as we talked about, is in that nice 19.4% range. I think on today's revenue, given our current infrastructure, trying to get that marginally down maybe another 20 basis points, 30 basis points to be the best we're going to be able to achieve. I think what we're going to need to see is really kind of a material catalyst to move that dial below 19% and I think you hit it right on the head, which is, it's going to be a combination of some technology enablement that allows us to accelerate and we'll just talk about search -- accelerate searches that helps us get to shortlist faster, that helps our clients make decisions quicker. Those types of tech-enabled abilities would, obviously, help us drive that G&A further down. I don't think you really ever going to see it fall dramatically below. I mean even if we get into the 18%, to get it below that would be pretty difficult without a much bigger revenue stream, so to speak. So, I think based on what we're looking at today, we're pretty thin to be honest with you and I think the only way really we can move that out materially where you'll see it is through that major catalyst.
Kevin Steinke -- Barrington Research -- Analyst
Okay, that's helpful. And so, the incremental $5 million to $10 million of expenses this year, is that all related to technology investments or does that incorporate some headcount investments as well?
Krishnan Rajagopalan -- President and Chief Executive Officer
Yeah.
Mark Harris -- Chief Financial Officer
Go ahead.
Krishnan Rajagopalan -- President and Chief Executive Officer
Yeah. So, yeah, look, it includes a quite a few things really. I mean the conversations we're having with clients. They're asking us a lot of questions and creating a lot of interesting opportunities and permission. I talked a little bit about diversity and inclusion and what we're seeing there, we're investing in that area and creating some new offerings. I talked a little bit about sustainability and what we're doing. We're standing up a sustainability office and what we're seeing on that, the Director Institute is an investment we continue to make. Clearly, we're hiring a bit more into our HLabs organization. We're hiring data scientists and others to help us with insights associated with our data and with new products. For example, the one that I referenced before, the agility leader tool that we've got as well. So those -- I mean, we're doing a variety of investments across the board like that that we think are going to really add value to our clients.
Kevin Steinke -- Barrington Research -- Analyst
Okay, good. And then, the Heidrick -- on the Heidrick Consulting business, you saw some good sequential revenue growth as you moved throughout 2019, although the business is still generating operating losses as you invest there what -- you mentioned potentially gaining more scale in the business in 2020. How should we think about the balance of investments versus greater scale in that business in 2020 and how it maybe plays out and the operating loss as it relates to 2019, how that might trend?
Mark Harris -- Chief Financial Officer
I think we kind of see three different buckets just to explain 2019, a little bit. So, you saw some expansion on the operating losses, really, kind of came from, one, we were very focused in the tail end of the year on hiring, to bring in the right partners consultants to help build the platform. We had a couple of really strong engagements in both Q3 and Q4. So, we had some outside service costs that we had to, basically, take on to continue to service as it pertain to those contracts. So, we're really kind of seeing a little bit of a different bucket on what's compressing. I think it was going to be interesting for us to see in 2020, especially, as we kind of go through Q1 and Q2, which is a little bit easier for me to see and is where we're again very hopeful on our revenue expansion continuing and to watch that and watch obviously the margins. We still -- it's a scale issue in Heidrick Consulting. So, I think the -- and we've talked about this before where we need to get up to a certain level of revenue and operational efficiencies that drive that breakeven metric and we still believe we can achieve that obviously. We've got a lot of models and strategic thoughts around that and how to kind of get that done and what I will call the near term in the next year or two. So as we kind of kind of go up and through it, I think, that's really where you're going to see the benefits in terms of the model we're trying to do.
Kevin Steinke -- Barrington Research -- Analyst
Okay, got it. Can you remind us, I believe, you've discussed it before, but kind of the revenue level you think you need to achieve to get more to that breakeven level in Heidrick Consulting?
Mark Harris -- Chief Financial Officer
Yeah. I mean we've talked about with people. We still believe somewhere between that kind of $80 million, $85 million revenue cadence is based on the services and products we have today, not taking any expenses in terms of build-out for example, but based on the core business of what we have will get us to that kind of breakeven spot, but again, we are trying to make some investments in [Indecipherable] Krishnan rightly pointed out. So, some of that will kind of be noise in the numbers, but we'll certainly be able to, as we get up to show you in terms what the core is doing versus the reinvestment is doing.
Kevin Steinke -- Barrington Research -- Analyst
Okay, great. Yeah, that's helpful. And maybe -- you mentioned the uncertainty around the coronavirus and it's a fluid situation. I guess, it doesn't sound like you had a major impact on you as of now, but just any more color on what you've seen over the last couple of months and say the ability of your people to travel or just reduced business activity among your clients, if at all, from that uncertainty?
Krishnan Rajagopalan -- President and Chief Executive Officer
Yeah, look, I think it's a great question and it's fluid. So, what we try to do -- I mean, look -- first, let me just start off by saying when we think about this, we think about our employees. Number one, making sure that they're safe, making sure that we're able to provide them appropriate work environment. Safety is important, masks, etc., things like that, all of that's available on the ground as well. We spend some amount of time making sure that our teams are taken care of and -- so, we start there.
Then, as we begin to really look at the impact of this, our numbers and our guidance reflects pretty much of what we saw through last Thursday, Friday, OK? We've tried to bake that in China in particular. Typically January and February are a bit slower, because of the Lunar New Year and the holidays that are taken there. So, we've embedded that in. Clearly, some of the news is changing from even Thursday, Friday of last week and what we're seeing. So, we do expect that it had some delays. We've embedded that in and we're going to continue to have additional delays, but underlying that, we don't see the types of projects changing or the demand changing in digital transformation, in innovation, and in diversity, include all of the topics that we're really working on trying to help companies grow. So, we're going to stay tuned with this and report back on this, but I think that's sort of how we're feeling about it right now from a fact based perspective. I mean, it can impact consulting businesses as well, because they tend to gather a bit more to create some of the change that's required for management team. So, it's put a few delays into group meetings that are going on in Asia right now. So, that is causing some delays and we just need to keep our eye on this.
Kevin Steinke -- Barrington Research -- Analyst
Okay. Well, thanks for all the insight. That's all I had. Thank you.
Krishnan Rajagopalan -- President and Chief Executive Officer
Thank you.
Operator
Your next question comes from Kevin McVeigh with Credit Suisse. Your line is open.
Kevin McVeigh -- Credit Suisse -- Analyst
Great, thank you. Hey, I wonder how much have you factored into the Q1 guidance for the corona uncertainty. It sounds like just based on the prepared remarks, you factored some of that in. Any sense of how much of that is in the Q1 guide?
Mark Harris -- Chief Financial Officer
Yeah, I mean -- so, in terms of -- I mean, just to give you some numbers in terms of 2019, when you look at the impacted countries for Asia Pacific, it's about 8% of our global staff and it's about 5% of our revenue. So, in the guidance itself, that's really the 5% that we're focused on without getting into the algorithms that we use. We use three different models, but it's really a little bit in there so to speak, in terms of where we think both initiated searches, deferrals of Heidrick Consulting assignments, and completion. Obviously, it's difficult to complete a search at the top without meeting up with that person. And so, we expect some slowness in that 5% and that's really what we baked into the guidance. So, I think we're OK in terms of what we gave the guidance. Clearly, you've just heard about Italy and if for some reason it becomes a bigger issue for Europe, that is not -- really, we focused a great deal of time on Europe.
Kevin McVeigh -- Credit Suisse -- Analyst
That's helpful. And then on the -- the $5 million to $10 million of investment, any way to think about what the potential impact can be on the model, Mark, in terms of the benefit of that and then when we should start to see that surface?
Mark Harris -- Chief Financial Officer
Yeah. So, the $5 million to $10 million is obviously the P&L number, not the cash flow number, and that's the one really where I think it's more second half than first half. It's probably the best I can give you in terms of the one-time impact on the model. The benefit side of the equation is really a 2021 outlook. So, as we acquire, as we hire, as we get the people on board, as they're starting to develop the systems and the process enhancements etc., I believe it's going to be real 2020 focus and we'll start to see that kind of come through in 2021 and 2022, especially, in terms of, again, efficiencies. So where we'll see it, really, kind of more G&A process. I wouldn't imagine salary and benefits to be monumental. So, I think that's where we're going to see that real ROI start to come through so to speak.
Kevin McVeigh -- Credit Suisse -- Analyst
That's helpful. And then, can you remind us, would you expect any impact on the business. I'm thinking more positive heading into the election, just is there any kind of change in client behavior around that within any particular verticals? Does that vary based on kind of a sitting president as opposed to a non-incumbent.
Mark Harris -- Chief Financial Officer
So, I mean it's not so much incumbent or non-incumbent, OK. So, I think what you need to focus on the presidential elections and this kind of happened last time when I was in venture capital and if you think about it from either a technology or bioscience and the difference between Hillary Clinton or President Trump, both are going to do two different things in terms of, let's take, medical compounds, medical and life sciences. And I would imagine that similarly in terms of either suppression of revenue or suppression of the ability to charge a certain cost as it pertains to those compounds, if Clinton sat in one area that was very different to where Mr. Trump was sitting at that time and those would have very different impacts in terms of who got elected.
So, it's hard for me to kind of speculate in terms of the impact on us. I think the easiest way to say it is when you have an incumbent like President Trump's get reelected, I think, people have made their management decisions in terms of what they expect the markets to do. I would imagine if it was, again, a democratic candidate that was very different to President Trump, that people may -- Boards may want to reshift a little bit in terms of what they expect the economic environment to be as well as where the pressure points may come from a new candidate in terms of focused on technology, focused on compounds, focused on financial service regulations, those types of things kind of kick in and that could just change the landscape of what type of manager you may want in the seats depending on what you're looking at and forward.
Kevin McVeigh -- Credit Suisse -- Analyst
Helpful.
Operator
[Operator Instructions] Tobey Sommer with SunTrust. Your line is open.
Tobey Sommer -- SunTrust -- Analyst
Thanks. I'd like to start out by doing a kind of follow-up question on the cyclicality and how that's changed over time. Krishnan, you've seemed to mention relationships and the strengthening and changing of those with their clients as being a driver of a potential change. In my experience, you need kind of a contract change or a business model change to change the cyclicality. Is there something else in addition to the relationships in the executive search that have changed to improve what you think the business might look like during a downturn?
Krishnan Rajagopalan -- President and Chief Executive Officer
Yeah, I mean, I think, what we're trying to do is cross collaboration. I mean, reviewed by those clients who are working within that context in a wider lens is providing a different value proposition. So, I think that changes the nature of the relationship and each and every day, we have more and more conversations surrounding that as well. So, I think it's that rounding out that changes out that relationship and our focus at the top on that set of issues that's important to the C-suite. So, I think, those are the things that I would say, create a different conversation on a different relationship that we've got.
Tobey Sommer -- SunTrust -- Analyst
So, if we went through a similar downturn as 2007 to 2009, do you think that those relationship changes would be sufficient so as to alter how the business performs?
Krishnan Rajagopalan -- President and Chief Executive Officer
Yeah, I mean, look, I think do you go through a downturn, you will go through a downturn. I think sort of it would be the trajectory and shape of that curve that we think that we could realigned to be more solid. I mean, it will be down, OK. But, I don't want to pretend that it's immunized from that, but I think the slope of that curve looks different.
Tobey Sommer -- SunTrust -- Analyst
Okay, that's fair. You'd mentioned in prepared remarks that the firm may be faring better than the competitor may have toward the end of the year. Could you describe how much and maybe what -- why do you think the firm fared better?
Krishnan Rajagopalan -- President and Chief Executive Officer
We looked at -- obviously we look at a lot of different public companies that are kind of in our space. We also look at the Association of Executive Search in terms of the data that comes out there as well. So, one thing we do is we kind of -- we know our numbers. So, it's pretty easy for us to back our numbers out and redo the average and see how we're performing and that's really kind of how we run the mathematics and we can see how others look like they're slowing more than we are if you want to look at it that way in terms of reason. We've seen our expansion in '18. We saw our expansion in some of '19 as well in terms of our trajectory when you run the linear regression on it. So, the slope of our line seems to be either steeper on the expansion or less steep if you will, on the contraction. So, that's kind of where we come with those prepared remarks. So, I think, we've got an updated -- that model that supports what we're saying.
Tobey Sommer -- SunTrust -- Analyst
Okay. And then, Mark, you gave some numbers about the cash balance and bonus for prior years as well as the bonus payout that's expected. What should we think of as spendable cash to the Company once you do have that bonus payout?
Mark Harris -- Chief Financial Officer
I kind of gave the number of the $281 million odd. You can probably figure about $50 million of that is what I would call, difficult to use cash that it's overseas or in tax restrictions, it's kind of difficult to bring back. Remember, that has the $175 million of liquidity also on top of it, saved for back end -- again, back that up. That's [Indecipherable] liquidity comment that I think that was made. I think that's the -- what I would call disposable cash for lack of a better word, and our ability to then use that either on internal investments that we made comments that generate the $5 million to $10 million of expense in 2020 that's expected or again pipeline and acquisition and as you know, we've made comments previously. We're very focused in terms of looking at acute situations that really benefit the strategy and execution that we want to kind of go on and that's really what that cash, plus the facility is going to be used for. And what we are seeing, Tobey, which is a really good question, we're seeing a lot more in that pipeline it seems, what I would call realistic that is, real potential to potentially have a meeting of the minds and doing something versus the craziness of 2018 and the valuation expectations. I think they've really subsided and have come down to very reasonable terms and I think that's going to hopefully unlock potential opportunities for us.
Tobey Sommer -- SunTrust -- Analyst
I appreciate that addition. Thanks.
Krishnan Rajagopalan -- President and Chief Executive Officer
Yeah, no problem.
Operator
There are no further questions at this time. I will now turn the call back over to Krishnan for closing remarks.
Krishnan Rajagopalan -- President and Chief Executive Officer
Thank you. Thank you to our team for a solid 2019 and a strong start to 2020. 2020 is a pivotal year as we continue to transform our business. Look, we're going to continue to monitor the impact of the coronavirus and we will update you in April on that as well and I just want to say thank you to our investors for your continued support. Good afternoon, everyone.
Operator
[Operator Closing Remarks]
Duration: 44 minutes
Call participants:
Suzanne Rosenberg -- Vice President, Investor Relations
Krishnan Rajagopalan -- President and Chief Executive Officer
Mark Harris -- Chief Financial Officer
Josh Vogel -- Sidoti & Company -- Analyst
Kevin Steinke -- Barrington Research -- Analyst
Kevin McVeigh -- Credit Suisse -- Analyst
Tobey Sommer -- SunTrust -- Analyst
