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Heidrick & Struggles International Inc (NASDAQ:HSII)
Q1 2020 Earnings Call
Apr 27, 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 Q1 Fiscal Year 2020 Results Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Suzanne Rosenberg, Vice President of Investor Relations. Please go ahead.

Suzanne Rosenberg -- Vice President, Investor Relations

Good afternoon everyone, and thank you for participating in Heidrick & Struggles 2020 first quarter conference call. Joining me on today's call is our President and CEO, Krishnan Rajagopalan; and Chief Financial Officer, Mark Harris. We have posted our first quarter slides on the IR homepage of our website at heidrick.com and we encourage you to view them for additional context but we won't be referring to specific page numbers during our opening comments. 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'll be making forward-looking statements and ask that you please refer to the Safe Harbor language contained in our news release.

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

Krishnan Rajagopalan -- President and Chief Executive Officer

Suzanne, 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 our well-wishes to everyone during these challenging and turbulent times, and we truly hope that each and every one of you and your families are keeping safe and healthy. We're extremely grateful for the healthcare professionals and other frontline workers who bear the greatest risk in this fight against the 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 over for low employees. I'm proud of our team at Heidrick. We're stepping up during this unprecedented period and continuing to serve our clients in a turbulent market. We believe we'll emerge from these uncertain times well-positioned to help our clients recover and plan for the future.

On today's call, I'll start by reviewing our first quarter results. Then I will frame up how our business is responding in the current environment and how we are positioned to not only navigate today's economic uncertainties but also emerge stronger. The principles on which we built our business have laid the foundation for Heidrick to meet head on the challenges of disruptive events. And at the heart of our company and our culture is an incredibly engaged and dedicated team of professionals who rise to the occasion each and every day to serve our clients. In the first quarter, our team delivered solid results, despite the onset of the COVID-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 managed 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 of $171.6 million. Operating income increased by 10.7% and 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 promotions, strategic hiring, and very low turnover. We're extremely proud of our newly promoted class of consultants who have proven their ability to deliver exceptional client service, drive 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 to ensure we're bringing the very best of Heidrick to our clients. In 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 create behavioral change by shifting the mindsets of how people work to deliver transformational and breakthrough results. While 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.

Here, our team is quickly pivoting to create new thought pieces to new digital solutions that can be delivered virtually to help shift away from a reliance on physical gatherings of people. Looking ahead, the next several quarters will be challenging in the marketplace. In the Americas and Europe, we will see the situation get worse before it gets better. It's important to recall that 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 the market conditions will eventually improve but it's too early to predict what that curve actually looks like. Nevertheless, we are certain that as conditions get better, our client needs for talent solutions will be more important than ever.

In these uncertain times we are squarely focused on four key objectives: First, ensuring the safety and well-being of our employees; second, continuing to align and emerge through this crisis as one firm; third, doing everything we can to help our clients during this difficult period; and fourth, emerging from this global pandemic even stronger as a firm. On our first objective, making sure our 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 well-being. Our actions have centered on maintaining employee safety and business continuity, while concurrently supporting our clients.

Our IT capabilities allowed us to rapidly shift to remote access solutions, while also maintaining cyber safety. Early on we closed some of our offices in Asia and moved to work from home model and in early March, we shifted to a 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 return to work, putting the safety of our employees as our top priority. Regarding the second objective, continuing to align and emerge through this crisis as one firm; even prior to the current pandemic, disruption had demonstrated itself to be the new normal, and continues to radically transform the business landscape across every sector and industry. At Heidrick, we are not immune to disruption and are in the midst of our own transformation.

We were the pioneers of Executive Search when our firm was founded back in 1953 and today, while we continue to innovate and build for the future we have already established a completely digital search platform. You have heard me speak to our digital client platform, Heidrick Connect, and never has it been more of an asset than today. Across our organization we're also finding great new ways to virtually gather and connect with one another. Importantly, our IT 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 our clients.

We're 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, and how we can fuel our future opportunities for growth. We also continue to align and enable cross-enterprise collaboration between search and consulting. We are winning great projects around the world including Board building exercises and succession planning as well as collaborative work on assessments related to mergers and acquisitions. We also continue to see activity in the private equity world and cross-border engagements. On the third objective, doing everything we can to help our clients during this difficult period. A 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 are committed to supporting our clients as 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 our proven and distinctive data-driven and 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, won, and completed virtually giving us even greater confidence we can operate successfully in this environment.

We're also preparing to transition Heidrick Consulting Solution through 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, and different scenarios for the future workplace among others. Over the past several weeks, we have convened hundreds of C-Suite executives across the globe to share these ideas. These sessions have generated great feedback and opportunities for deeper engagement and we look forward to continuing to provide these types of valuable forums to our client community. We've also published several thought pieces on leadership and culture amid the COVID-19 crisis advising 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 continue to work closely with our clients through these unprecedented times, we remain optimistic and believe the types of transformational projects we are working on will continue to be strong business imperatives for our clients. We remain focused on retaining our talent and we continue to invest in our digital and data capabilities inside the firm. We'll continue with online training and development including cross-training between Search and Heidrick Consulting and as I mentioned, we are 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 have been investing heavily in this space and are launching a D&I 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 Bock, who joined our Board this April. Laszlo, the Co-Founder and CEO of Humu 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, the challenges we are facing are unprecedented. However, we are a strong and resilient company both strategically and financially. We'll 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.

Importantly, 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 are confident we will emerge even stronger as one Heidrick team. Thank you for joining us, and thank you again to our 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.

Mark Harris -- Chief Financial Officer

Thank you, Krishnan. Good afternoon to 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 your families are safe during these trying times. I'm going to change my call structure a little bit. As usual, I'll start with the 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 reviewing the first quarter numbers, we saw another great achievement in net revenue of $171.5 million that was in the 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 Asia operations due to the COVID-19 pandemic.

On a constant currency basis, our net revenue increased 1% and by any reasonable measure, our team's accomplishments in the first quarter was clearly an incredible achievement. Looking at Executive Search, net 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 Europe decreased 1.4% but on a constant currency basis grew 0.8%. Asia-Pacific is where we saw a much larger decline of 13.3% and on a constant currency basis it declined 10.5%, which wasn't surprising given the impact of the pandemic to this region in the first quarter. As Krishnan noted, we're already beginning to see pockets of Asia returning to more normal levels in April, which is a positive sign and potential model for how we forecast the impacted markets in the Americas and Europe.

We're also pleased to report Heidrick Consulting's net revenue growth of 20.6% or 21.2% on a constant currency basis. This shows good traction at the beginning of the year and again this 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 improve by $0.4 million and variable compensation increase by $0.6 million due to the contingent compensation for the 2GET acquisition. Salary and benefits as a percentage of revenue was 70.6% compared to 70.4% in 2019's 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 net revenue, general and administrative expenses were 18.8% compared to 20% in 2019's 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 our transformative digital strategy, we expect to see savings and G&A in the second and 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% to $18.2 million. Further, operating margins expanded by 100 basis points to 10.6%, mainly driven by G&A reductions discussed. This allowed our adjusted EBITDA to grow 14.6% over the prior period to $23.6 million and adjusted EBITDA margin expanding 180 basis points to 13.8%. You will see an unusual charge in other non-operating income, which is related to Heidrick's deferred compensation plan that allows participants to defer a percentage of their compensation into various investment vehicles.

We have to mark-to-market these assets and liabilities. Given the first quarter's global stock market performance this had a non-cash 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 was $0.44. This compares to net income of $12.1 million and diluted earnings per share of $0.62 in last year's first quarter. However, as I noted earlier, our income statement was impacted by the non-cash $3.9 million charge related to the deferred compensation plan in the first quarter. Thus without this expense we would have had a higher net income and EPS. Given our performance in the first quarter, our Board of Directors approved and we announced that we will pay a $0.15 per share cash dividend in May for all shareholders of record on May 8. This dividend currently generates a dividend yield of nearly 3% while outpacing treasuries and any standout in the industry.

Now, let me turn to the balance sheet. As you know, in March we proactively drew down $100 million of our $175 million unsecured revolving credit facility. Borrowings under the revolving credit facility are scheduled to mature on October 2023 and bear an 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 the 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-bills held at custody accounts at different banks. We have always been of the view that our facility is primarily for acquisitions, which has not changed.

We ended the first quarter with cash and cash equivalents of $251 million compared to $114.4 million at March 31, 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 in our 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 our needs today and into the future. We have negative net debt due to our cash being significantly higher than our debt while our credit facility as a debt covenant of not more than 3 times leverage allowed, which equates to nearly $300 million of leverage we potentially could add to our balance sheet.

However, we're 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 2GET Brazil, and alliances, some of the 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 and 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 our 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 some time 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 G&A has been reducing over the last several years and we expect that trend to continue. Now, let me turn to Q2 and beyond. In light of the continued uncertainty due to the pandemic, we believe it is prudent to refrain from providing financial guidance for the second quarter currently. Instead, let me give you some of the latest trends we are seeing in the month of April. Regarding confirmations, we are seeing confirmations lag by approximately 25% thus far in April compared to the same period last year, a trend that we would expect to continue at a more 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 are 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 in delivery of our services. Turning to our on-hold assignments, we are seeing our on-hold rate increase 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 holes will be delays in the search and not cancellation 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 in the 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 confirmations 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 Heidrick Consulting, which have some offerings that require 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 are seeing in today's work environment.

In some cases, we're able to conduct these virtually and 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 Heidrick Consulting thus this will partially offset our expected Q2 revenue decline, but we would anticipate our revenue decline may be 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 and 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 of pursuing new path 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.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Josh Vogel with Sidoti. Please go ahead.

Josh Vogel -- Sidoti & Company -- Analyst

Hey, good afternoon guys. Thanks for taking my questions and hope you and your families are doing well. My first question is can you tell us what the bonus payout was in Q1 of this year and also remind me what it was last year?

Mark Harris -- Chief Financial Officer

Sure. This year, we made a comment that it was $205 million pertaining to Q1 and I believe last year it was about $175 million, $185 million. I have to pull it since it's been a little bit of time.

Josh Vogel -- Sidoti & Company -- Analyst

Okay, great. So when we think about both the Executive and the Consulting size, what percent and type of business would you say is being conducted today virtually or remote and generating revenue for you?

Krishnan Rajagopalan -- President and Chief Executive Officer

Josh, hi, it's Krishnan. All of our searches that we've got under way, we fully transformed our search model into a virtual model and we've done that actually in advance of this disruption, OK? 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 under way and all the searches are being conducted, interviews are happening, clients are seeing the presentation, etc. So we're prosecuting every single one of those searches in a virtual model except for the ones that went on hold, as Mark said, there are a handful 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. The rest of them are all being worked on right now.

Josh Vogel -- Sidoti & Company -- Analyst

Okay, great. Mark, you had commented around G&A and you did a very nice job lowering it as a percentage of revenue. I was just curious, did this reflect any late quarter actions on your end in response to COVID-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?

Mark Harris -- Chief Financial Officer

No, I think what I'll try to do is paint you two different pictures on that, Josh. Oh, and by the way, it's $200 million the year before and $205 million last year or this year, excuse me.

Josh Vogel -- Sidoti & Company -- Analyst

Okay. Thank you.

Mark Harris -- Chief Financial Officer

Sure. So let's think of it two ways, right? Number one, the shelter in place and obviously us abiding by that and a lot of people working from home and a lot of our G&A's been suppressed just because there's no really travel BD, etc, that we would normally be experiencing. So our travel and entertainment goes down, some of our usage and facility usages, electricity, etc, is going down. Everything that you would expect, I would say that's kind of path one. Path two is, we'll call it the new norm potentially, which is how do we really want to reshape our footprint? How do we want to reshape the way we deliver our services? If the digital enablement really takes off, so to speak, that could be very different in terms of the operating costs, etc. So, Krishnan and 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 G&A as a percentage versus any kind of expansion upward.

Josh Vogel -- Sidoti & Company -- Analyst

Okay, great. And just last one, I'll hop off. Krishnan, you had a comment around turnover being down. I was wondering if you can just give us some metrics there in both Executive Search and the Consulting side? Just also given this environment how important it is to hold on to your consultants, are you thinking about making any changes to the fixed or variable component and how you pay these people?

Krishnan Rajagopalan -- President and Chief Executive Officer

Yeah, so let me just talk to attrition. We're 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 in the business right now. So it's a good place for us to be and we'd kind of retain our team as well so that's a good thing. Look, we have a compensation structure that is highly performance-based in any case. So based on the performance of the team, the revenues that we drive, that's how the compensation formulas work across the board. So we're pretty comfortable with the structure of that formula at least.

Josh Vogel -- Sidoti & Company -- Analyst

Okay, great. Well, thank you guys again, and glad to hear you're both doing well.

Krishnan Rajagopalan -- President and Chief Executive Officer

Yeah. Thank you, Josh.

Mark Harris -- Chief Financial Officer

Thanks Josh.

Operator

Your next question comes from Kevin Steinke with Barrington Research. Please go ahead.

Kevin Steinke -- Barrington Research -- Analyst

Good afternoon, everyone. So you talked about seeing pockets of Asia beginning to normalize and you kind of tied that to maybe what a model could look like going forward as U.S. and Europe recover. Just trying to get a sense of how much those pockets in Asia normalize, maybe how far they are away from normal operations, normal capacity just to get a sense of how quickly maybe an office or a region can recover as we go forward?

Krishnan Rajagopalan -- President and Chief Executive Officer

Kevin, hey, it's Krishnan. 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 -- what I can tell you is that the energy level in those offices is high, the business community in those offices is starting to come back and there are certainly a lot more conversations happening that we think will ultimately lead toward additional projects. So we're on that track of trying to see that and we think it's a positive trend, positive energy. So that's what we would imagine is going to occur in the U.S. as well and Europe as well.

Kevin Steinke -- Barrington Research -- Analyst

Okay. Thank you for that. And then last quarter you talked about $5 million to $10 million of incremental expenses for investments as you kind of look to the future. Should we think about those investments being put on hold as a component of G&A coming down or are you continuing to think longer term and looking to make those investments where you can?

Krishnan Rajagopalan -- President and Chief Executive Officer

Yeah, 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, look it's obviously, it's a difficult time and I think as we laid out all of our investments, OK, for the year, we laid it out by month. And what we did is we figured out the ones that we will defer, OK. And sort of some of them we may end up doing at the beginning of next year now, and those that aren't necessarily as strategic. So, we probably won't be investing as much, but we've still got some very strategic investments that we'll continue to make. We continue to make some strategic hiring decisions. We continue to invest inside of HLabs. We continue to invest in some key technology projects that we've got under way 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.

Kevin Steinke -- Barrington Research -- Analyst

Okay, good. And then you talked about the drawdown on the credit facility and you link that to wanting to capitalize on opportunities and then you talked about how the facilities are primarily for acquisitions and you're seeing a good pipeline. I mean, so, yeah, I wanted to maybe get more color on that if indeed in this environment you're seeing more opportunities, cheaper opportunities? And if you think you can really capitalize on some acquisition opportunities in this market environment here?

Mark Harris -- Chief Financial Officer

Sure. Hey Kevin, it's Mark. 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 the spot market. So prices are on the pressure down, not the pressure up. I think the second one you have is liquidity just generally in the capital markets is very difficult. So we've seen that with a lot of what the government is trying to do, but we also know in the community that which we plan, the venture capital community and the financial services community, pricing is going to be very expensive. So then you kind of have 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 $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 pulled the trigger. I think to answer your question fully, it's going to create a really interesting opportunity, again, in terms of either accelerating similar 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 toward us.

Kevin Steinke -- Barrington Research -- Analyst

Okay, thanks. That's helpful. I guess one last one here. You talked about the large consulting engagement in the first quarter, how that leverage your corporate lab offering. I know you expect Consulting to take somewhat of a pause here in this environment. But maybe just talk about that link to the corporate lab and when things start to normalize or maybe even in this virtual world how you can leverage that corporate labs in your cConsulting engagements and how it was used in the first quarter?

Krishnan Rajagopalan -- President and Chief Executive Officer

Yeah, let me say, it's Krishnan 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 it here in the month of May with this client, in fact, in the second phase in a virtual model. So it wasn't as we sold that project, it wasn't conducted that way but we 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 and digitize that and make that a virtual offer. So it's a great example in fact of offering that we will continue to drive in that manner.

Kevin Steinke -- Barrington Research -- Analyst

Okay. Thanks for taking the questions. Best wishes for the next few quarters here.

Krishnan Rajagopalan -- President and Chief Executive Officer

Thank you.

Mark Harris -- Chief Financial Officer

Thanks Kevin.

Operator

Your next question comes from Tobey Sommer with SunTrust. Please go ahead.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Thank you. Could you talk about how you're -- the constraint that you're using to manage the income statement amid the downturn and decline in demand? Are you managing to a margin level -- revenue per consultant or some sort of utilization? How are you -- what's your approach?

Krishnan Rajagopalan -- President and Chief Executive Officer

So look, here's your first approach because I've been through already several cycles. The first thing, Tobey, in my view that you want to do is you really want to think about what's in front of you, OK? What's in 2021? What's in 2022? And what you don't want to do is you don't want to right size 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 a view on that and then we step back and we make an assessment in terms of G&A and other type of spends and what makes the most sense from that. So the levers, I think that you're kind of asking about is, 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 that's going to generate. We look at what that's going to do to our margins. We feel very confident. It's not going to impact our dividends. So there is no issue on that, which is why we raised our dividend last year in the first quarter. We felt $0.15 was sustainable even for periods through periods, excuse me, like this and so, just generally that's really what we kind of focus ourselves on. I think like a lot of people will do in this market, if Q2 again, depending if you're a widget company, etc 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, what's 2021 going to look like and build yourself ready for that. And it is what it is in terms of Q2 just help people understand the way you did it.

Mark Harris -- Chief Financial Officer

Yeah, let me just add to it. I think we're, in our scenarios we think we can get toward a near normal in 2021. So that's how we're thinking about the business, people, and culture, it's our number one asset. And in that scenario, we're kind of pull the full Heidrick team through. Of course, we do our normal performance management, etc, that we would do in any case and we've taken a lot of prudent actions we think related to cost, to think about margins, reducing hiring; only doing some very strategic hiring. We're not back filling. We've moved all of our learning and development, which is really important to our virtual platform, over time, I mean on and on. And we've laid out as I mentioned, all these investments and tried to figure out which ones do we not do now, where do we have a little bit of ability to do it in a different way. And we've taken all that excess or some of the excess capacity that we may have and we've turned it toward things are going to then accelerate us out of this crisis as well, training on digital, IP on leadership, culture, all of those types of things. So that's our plan to attack this market.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Okay. Are there any cash flow implications from searches being put on hold?

Krishnan Rajagopalan -- President and Chief Executive Officer

Yeah, it depends on where they are in the retainer process. If we can obviously extend if there was like the last payment for the retainer to extend that out a little bit, but for the most part the on-holds that are coming through are ones that have already more or less been paid for and they're just simply extending that path or putting on hold right now. And saying, look, we don't want to cancel, we're going to come back to it, and obviously it's been paid for. So that's kind of where we see that one falling right now.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

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 differences by level and sort of throughput -- are CEO searches really being closed virtually over the last six weeks or is it different sort of by level and category?

Krishnan Rajagopalan -- President and Chief Executive Officer

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 where they may have met the person along the way. I'm not sure we've done a top CEO search yet completely virtually. We've done them for CFOs, OK completely virtually already where we got the search virtually, we conducted it and replaced the candidate that way as well. So at the CFO level, I know that we've already done that and we've done that across the world at 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've got. And so, they're adapting. We've got many, many clients who are changing their recruiting processes as well, learning to leverage technology in terms of how they want to proceed. So this dial is moving fast is what I would say.

Mark Harris -- Chief Financial Officer

Yeah, and the only voiceover I'd add to Krishnan point is we took kind of the pre-pandemic completion run rate and we looked at it and compared it to end of March and April and where -- if you're around that average, it's actually marginally above it. So we're not seeing that impact. And then to your other point, which is, because we're shifting in a different mix with the average retainers staying where they are, which is I made a comment on, it doesn't feel like that's being impacted. Otherwise, we would have seen a very dramatic shift in the average retainer. So it feels again, just mathematically that we're pretty much holding that course.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Okay. Of the offices that have reopened after a period of shutting, are there any particular lessons and which ones have been kind of most successful at kind of reaccelerating business activity?

Krishnan Rajagopalan -- President and Chief Executive Officer

Yeah, I think as I said before, they're kind of early in that game of sort of in the two- to three-week stage. I think there are a lot of lessons we pick up in terms of how to open an office or how to run that office; we're staggering teams in some cases to create the appropriate spacing, cleaning protocols, I mean, all kinds of things to give safety and to give comfort to people as well. So and it varies by geography between sort of the cultural norms of Asia and how it operates over there and some of the models and now we've got Copenhagen up and running as well. So no data yet that I could share with you on that, but I think a lot of lessons learned on how to open up offices safely.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Thank you.

Operator

[Operator Instructions] And your next question comes from Kevin McVeigh with Credit Suisse. Please go ahead.

Kevin McVeigh -- Credit Suisse -- Analyst

Great, thanks. Again, hope all as well. Hey, and just a comment on the headcount in Executive Search and Heidrick Consulting, it looks like it was up year-on-year in the first quarter. Have you taken any actions there or do you plan to? And I guess just any thoughts on that as you think about cost given the environment we're in?

Krishnan Rajagopalan -- President and Chief Executive Officer

Yeah, Krishnan -- look, as I said in this scenario that we're modeling and as we're seeing of where we're going -- we anticipate a difficult second quarter ramping up a bit toward the end of the third quarter, fourth quarter to be up and getting toward the near normal in 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 firms. So that's what we're trying to do. And of course, as I mentioned before for normal, there will always be performance management that we do. But beyond that, that's how we're thinking about it. Services firm. So that's what we're trying to do. And of course, as I mentioned before for normal, there will always be performance management that we do. But beyond that, that's how we're thinking about it.

Kevin McVeigh -- Credit Suisse -- Analyst

It's helpful. And then Krishnan or Mark, is it fair to say that the kind of 25% decline in confirmations -- I know you're not giving explicit guidance. But would you expect revenue to kind of be above that 25% range or below it, as you think about Q2, Q3?

Krishnan Rajagopalan -- President and Chief Executive Officer

I mean that's the complexity, right? As I said in the comments when we opened up, we had 25% as of now, I'm expecting that to slide further and as we get through April [Indecipherable] into May. You have the backlog rolling over with the revenue recognition. So that's always going to kind of put some noise in the clock, so until I know how deep and the backlog performance kind of coming through, it's very difficult for me to tell you if that's going to be 25%, 30% or 10%. It's just -- a lot can happen, and then of course, you have June, which I don't have any realize on yet in terms of the performance that are coming through on it. So that's what makes it so complicated.

Kevin McVeigh -- Credit Suisse -- Analyst

Yeah, I get that. And then Krishnan my last question, you talked about emerging stronger. As you kind of come out of this, what would kind of be three areas you'd focus on in terms of positioning Heidrick as you come out of this emerging stronger?

Krishnan Rajagopalan -- President and Chief Executive Officer

Yeah, I mean, I think a couple of areas sort of -- areas we're working in today but I think helping companies with their digital transformation. I think that would be an area and clearly that we should be even deep -- more deeply embedded in. I think there will be some turnover as a result of all of this in the C-Suite and Board level, so continuing to work at the top. And then helping organizations accelerate out of this crisis. I think those would be the three areas that we'll continue to drive.

Kevin McVeigh -- Credit Suisse -- Analyst

Great, thank you.

Krishnan Rajagopalan -- President and Chief Executive Officer

Welcome.

Operator

[Operator Instructions] There are currently no more telephone questions at this time. I'll turn the call back to the presenters.Great. Thank you everyone for joining our call today. I do want to reiterate, we hope that you and your families remains safe and healthy. A big shout out and thank you to the Heidrick team. Look, while there is uncertainty in this marketplace, which we acknowledge, we're also quite confident that we're going to emerge strong as one Heidrick team. Thank you everyone. [Operator Closing Remarks]

Duration: 49 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

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

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