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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended June 30, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-34993

 

 

CTPARTNERS EXECUTIVE SEARCH INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   52-2402079

(State or other Jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1166 Avenue of the Americas, 3rd Fl., New York, NY   10036
(Address of principal executive offices)   (Zip Code)

(212) 588-3500

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large Accelerated Filer   ¨    Accelerated Filer   ¨
Non-Accelerated Filer   ¨    Smaller Reporting Company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    ¨  Yes    x  No

The number of the registrant’s common shares outstanding as of June 30, 2012 was 7,163,195.

 

 

 


Table of Contents

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

Table of Contents

 

Item #

 

Description

   Page  
PART I. Financial Information   

Item 1.

 

Condensed Consolidated Financial Statements

  
 

Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011 (unaudited)

     1   
 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011 (unaudited)

     2   
 

Condensed Consolidated Statements Of Comprehensive Income for the three and six months ended June 30, 2012 and 2011 (unaudited)

     3   
 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (unaudited)

     4   
 

Notes to Condensed Consolidated Financial Statements (unaudited)

     5-13   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     14-18   

Item 4.

 

Controls and Procedures

     18   
Part II. Other Information   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     19   

Item 6.

 

Exhibits

     20   
 

Signatures

     21   

EX - 31.1 Chief Executive Officer Certification pursuant to Rule 13a-14(a) under the Exchange Act

  

EX - 31.2 Chief Financial Officer Certification pursuant to Rule 13a-14(a) under the Exchange Act

  

EX - 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350

  

EX- 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350

  
EX - 101 INSTANCE DOCUMENT   
EX - 1 SCHEMA DOCUMENT   
EX - 101 CALCULATION LINKBASE DOCUMENT   
EX - 101 LABELS LINKBASE DOCUMENT   
EX - 101 PRESENTATION LINKBASE DOCUMENT   


Table of Contents

PART I. Financial Information

Item 1. Condensed Consolidated Financial Statements

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

     June 30,
2012
    December 31,
2011
 

Assets

    

Current Assets

    

Cash

   $ 13,792,597      $ 21,830,120   

Accounts receivable, net

     25,293,354        19,612,236   

Other receivables

     196,833        559,526   

Prepaid expenses

     2,912,287        2,394,872   

Deferred income taxes

     611,765        1,769,936   

Income taxes receivable

     2,029,254        1,592,562   

Other

     1,616,831        712,519   
  

 

 

   

 

 

 

Total current assets

     46,452,921        48,471,771   

Non-current Assets

    

Leasehold Improvements and Equipment, net

     3,901,146        4,332,865   

Goodwill

     7,406,879        0   

Intangibles, net

     2,565,000        0   

Other Assets

     2,081,863        2,056,931   

Deferred Income Taxes

     853,284        678,554   
  

 

 

   

 

 

 
   $ 63,261,093      $ 55,540,121   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current Liabilities

    

Current portion of long-term debt

   $ 2,650,301      $ 155,340   

Accounts payable

     1,383,232        993,558   

Accrued compensation

     23,147,075        23,660,070   

Accrued business taxes

     1,410,278        741,141   

Accrued expenses

     4,054,947        3,032,950   
  

 

 

   

 

 

 

Total current liabilities

     32,645,833        28,583,059   
  

 

 

   

 

 

 

Long-Term Liabilities

    

Long-term debt, less current maturities

     2,968,257        470,109   

Deferred rent, less current maturities

     1,501,543        1,649,070   
  

 

 

   

 

 

 

Total long-term liabilities

     4,469,800        2,119,179   
  

 

 

   

 

 

 

Stockholders’ Equity

    

Preferred stock: 1,000,000 shares authorized, no shares issued and outstanding

     0        0   

Common stock: $0.001 par value, 30,000,000 shares authorized, 7,363,101 shares issued; 7,163,195 and 7,110,360 shares outstanding at June 30, 2012 and December 31, 2011, respectively.

     7,362        7,287   

Additional paid-in capital

     36,670,769        35,737,584   

Accumulated deficit

     (8,126,966 )     (9,026,290

Accumulated other comprehensive loss

     (1,257,731 )     (881,997

Treasury stock, at cost 199,906 and 176,271 shares at June 30, 2012 and December 31, 2011, respectively.

     (1,147,974     (998,701 )
  

 

 

   

 

 

 
     26,145,460        24,837,883   
  

 

 

   

 

 

 
   $ 63,261,093      $ 55,540,121   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

1


Table of Contents

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  

Revenue

        

Net revenue

   $ 33,754,266      $ 33,084,669      $ 66,157,011      $ 63,565,860   

Reimbursable expenses

     1,169,007        1,321,617        2,191,406        2,436,323   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenue

     34,923,273        34,406,286        68,348,417        66,002,183   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses

        

Compensation and benefits

     25,364,399        25,548,189        50,314,177        48,906,941   

General and administrative

     7,145,682        6,514,538        13,934,480        12,570,645   

Reimbursable expenses

     1,318,366        1,284,869        2,345,102        2,512,832   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

     33,828,447        33,347,596        66,593,759        63,990,418   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     1,094,826        1,058,690        1,754,658        2,011,765   

Interest (expense) income, net

     (40,324     6,919        (79,626     (3,466
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     1,054,502        1,065,609        1,675,032        2,008,299   

Income tax expense

     (503,109     (412,126     (775,708     (749,312
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 551,393      $ 653,483      $ 899,324      $ 1,258,987   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic income per common share

   $ 0.08      $ 0.09      $ 0.13      $ 0.18   

Diluted income per common share

   $ 0.07      $ 0.09      $ 0.12      $ 0.17   

Basic weighted-average common shares

     7,151,227        7,183,163        7,143,380        7,180,957   

Diluted weighted-average common shares

     7,488,327        7,551,020        7,479,365        7,548,814   

See Notes to Condensed Consolidated Financial Statements.

 

2


Table of Contents

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  

Net income

   $ 551,393      $ 653,483      $ 899,324      $ 1,258,987   

Other Comprehensive (Loss) Income, net of tax

        

Foreign currency translation adjustments

     (332,949     (154,651     (375,734     22,842   

Other

     0        10,809        0        51,597   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Comprehensive (Loss) Income

     (332,949     (143,842     (375,734     74,439   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

   $ 218,444      $ 509,641      $ 523,590      $ 1,333,426   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

3


Table of Contents

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

     For the Six Months Ended
June 30,
 
     2012     2011  

Cash Flows From Operating Activities

    

Net income

   $ 899,324      $ 1,258,987   

Adjustments to reconcile net income to net cash used in operating activities

    

Depreciation and amortization

     793,449        603,752   

Share-based compensation

     558,263        1,042,289   

Amortization of discount on seller note

     86,115        0   

Deferred income taxes

     983,441        527,101   

Changes in operating assets and liabilities, net of effects of acquired business

    

Accounts receivable, net

     (5,701,917     (5,841,145

Prepaid expenses

     (460,076     (715,286

Income taxes receivable

     (436,692     (1,172,649

Other assets and receivables

     (642,651     (1,766,347

Accounts payable

     396,431        (780,957

Accrued compensation

     (151,840     4,706,041   

Accrued business taxes

     709,171        (250,373

Accrued expenses

     985,432        (1,050,258

Deferred rent

     (56,618     159,343   
  

 

 

   

 

 

 

Net cash used in operating activities

     (2,038,168     (3,279,502
  

 

 

   

 

 

 

Cash Flows From Investing Activities

    

Acquisition of a business

     (5,250,000     0   

Purchase of leasehold improvements and equipment

     (96,936     (1,476,568
  

 

 

   

 

 

 

Net cash used in investing activities

     (5,346,936     (1,476,568
  

 

 

   

 

 

 

Cash Flows From Financing Activities

    

Payments on long-term debt

     (79,703     (105,866

Repurchase of common stock

     (137,516     0   
  

 

 

   

 

 

 

Net cash used in financing activities

     (217,219     (105,866
  

 

 

   

 

 

 

Net decrease in cash

     (7,602,323     (4,861,936

Effect of foreign currency on cash

     (435,200     (213,485

Cash:

    

Beginning

     21,830,120        24,030,543   
  

 

 

   

 

 

 

Ending

   $ 13,792,597      $ 18,955,122   
  

 

 

   

 

 

 

Supplemental Disclosure of Noncash Financing Activities

    

Treasury stock (1,682 shares) acquired in lieu of shareholder receivable

   $ (11,757   $ 0   

Employee discount stock purchase award in lieu of cash compensation

   $ 375,000      $ 0   

Supplemental Disclosure of Noncash Investing Activities

    

Acquisition of a business

    

Total identifiable assets acquired

   $ 2,829,818      $ 0   

Goodwill

     7,406,879        0   
  

 

 

   

 

 

 
   $  10,236,697      $ 0   

Less: Due to seller

     (4,986,697     0   
  

 

 

   

 

 

 
   $ 5,250,000      $ 0   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

4


Table of Contents

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANANCIAL STATEMENTS (UNAUDITED)

Note 1. Basis of Presentation

Description of Business - CTPartners Executive Search Inc., along with its subsidiaries (collectively, “CTPartners” or the “Company”), is a retained executive search firm with global capabilities. The Company operates in North America, Europe and the Middle East (EMEA), Asia Pacific and Latin America.

As further disclosed in Note 2, effective January 2, 2012, the Company purchased its Latin America licensee.

On December 7, 2010, the Company conducted an initial public offering of its common stock and became subject to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”), and the relevant provisions of the Securities Acts of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The Company’s common stock trades on the NYSE MKT exchange under the symbol “CTP”.

Principles of Consolidation - The accompanying unaudited condensed consolidated financial statements include the accounts of CTPartners Executive Search Inc., together with its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, and with the instructions to Form 10-Q and the requirements of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.

The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

The interim financial statements contained in this report should be read in conjunction with the audited consolidated financial statements and footnotes presented in our Form 10-K filing for the year ended December 31, 2011, filed with the SEC on March 22, 2012.

Goodwill - As a result of the acquisition of its Latin America licensee, the Company recorded initial goodwill of $7,406,879. Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed, if any. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of a reporting unit’s goodwill is compared to the carrying amount of that goodwill. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is indicated. For this test, the fair value of the Company’s relevant reporting unit is determined using a combination of valuation techniques, including a discounted cash flow methodology. Since the goodwill from the Latin American acquisition was recorded as of January 2, 2012, annual impairment tests will commence in the fourth quarter of 2012. As of June 30, 2012, there were no indicators of impairment with respect to the Company’s goodwill.

In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-08, Intangibles - Goodwill and Other (Topic 350) - Testing Goodwill for Impairment (ASU 2011-08), to allow entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. The guidance regarding the qualitative approach to goodwill impairment testing is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.

Intangible Assets - Intangible assets primarily consist of customer relationships and developed technology and are recorded at their estimated fair value at the date of acquisition and are amortized using the straight-line method over their estimated useful lives of 10 years.

Other Comprehensive Loss - Other comprehensive loss primarily consists of foreign currency translation gains and losses, net of income tax effects.

 

5


Table of Contents

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 1. Basis of Presentation (continued)

 

The components of accumulated other comprehensive loss, net of tax, are as follows:

 

     June 30,
2012
    December 31,
2011
 

Foreign currency translation adjustment

   $ (1,172,411   $ (796,676

Other

     (85,320     (85,320
  

 

 

   

 

 

 

Accumulated other comprehensive loss

   $ (1,257,731   $ (881,996
  

 

 

   

 

 

 

Fair Value - The Company measures the fair values of its financial instruments in accordance with accounting guidance that defines fair value, provides guidance for measuring fair value and requires certain disclosures. The guidance also discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 

 

Level 2: Inputs other than quoted prices which are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

 

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The inputs used in the fair value measurement should be from the highest level available. In instances where the measurement is based on inputs from different levels of the fair value hierarchy, the fair value measurement will fall within the lowest level input that is significant to the fair value measurement in its entirety.

Reclassifications - Certain items in the 2011 condensed consolidated financial statements have been reclassified to conform to the 2012 presentation.

Note 2. Acquisition

Latin America

Effective January 2, 2012, the Company completed its acquisition of stock of the direct and indirect subsidiaries of CTPartners Latin America Inc. (collectively, such subsidiaries being referred to as “CTPLA”), its independently-owned licensee that had been operating under the name of CTPartners in Latin America for the past five years. CTPLA operates in Brazil, Chile, Colombia, Mexico, Panama, Peru, and Venezuela. The Company believes the acquisition further strengthens its brand in Latin America by making the Company a more attractive platform for our local, regional and global clients looking to invest in the region, and for attracting and retaining talented employees. The results of CTPLA have been included in the consolidated financial statements since that date.

The transaction resulted in a new basis of accounting whereby the assets acquired were recorded at fair value. The aggregate purchase price was $10,236,697 which was paid in cash and the issuance of a non-interest bearing seller note for $5,250,000. The note has been discounted by the Company in the amount of $263,303 to reflect fair value of the note. This amount is due in equal installments of $2,625,000 each on January 2, 2013 and January 2, 2014 respectively. Future payments can be reduced if certain key employees do not remain employed with the Company, or if covenants related to non-competition are violated. The note is subordinated to any borrowing on the Company’s revolving credit facility. The Company also incurred acquisition related costs of $420,100, which were recorded as general and administrative expenses in the consolidated statements of operations during the fourth quarter of 2011 and during the first and second quarters of 2012.

 

6


Table of Contents

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 2. Acquisition (continued)

 

The following table summarizes fair value of the consideration paid and assets acquired at the acquisition date:

 

Consideration:

  

Cash

   $ 5,250,000   

Seller note payable

     4,986,697   
  

 

 

 
     10,236,697   
  

 

 

 

Recognized amounts of identifiable assets acquired:

  

Leasehold improvements and equipment

     129,818   

Intangible assets

     2,700,000   
  

 

 

 

Total identifiable net assets acquired

     2,829,818   

Goodwill

     7,406,879   
  

 

 

 
   $ 10,236,697   
  

 

 

 

Goodwill of $7,406,879 arising from the acquisition consists mainly of the synergies of an ongoing, retained executive search business which operates as a cooperative group in seven Latin American countries, a consistent brand message, and an experienced, assembled workforce. The goodwill relating to the Company’s Latin America reporting unit is fully deductible for the United States federal income tax purposes.

The fair value of the identifiable intangible assets are measured based upon significant inputs that are not observable in the market, and therefore are classified as Level 3. The fair value was provided by an independent valuation firm; key assumptions included (a) management’s projections of future cash flows based upon past experience and future expectations and (b) a weighted-average discount rate of 19.0 percent.

The fair value assigned to identifiable intangible assets and their useful lives at the acquisition date is as follows:

 

     Amount      Useful
Life
 

Customer relationships

   $ 2,480,000         10 years   

Developed technology

     220,000         10 years   
  

 

 

    
   $ 2,700,000      
  

 

 

    

The weighted-average useful life of total amortizable intangible assets acquired is ten years.

The total revenues and net income attributable to the acquisition, since the acquisition date, included in the consolidated statements of operations for the three and six months ended June 30, 2012 are as follows:

 

     Three Months
Ended
June 30, 2012
     Six Months
Ended
June 30, 2012
 

Total Revenues

   $ 3,113,029       $ 6,066,880   

Net Income

   $ 634,867       $ 1,162,184   

The amounts of revenue and net income related to the acquisition that are included in our consolidated statements of operations and the pro forma financial information as if the acquisition had occurred on January 1, 2011, are presented in the following table. This pro forma information is presented for informational purposes only and is not necessarily indicative of what our actual results of operations would have been had the acquisitions occurred at such time.

 

7


Table of Contents

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 2. Acquisition (continued)

 

Pro forma unaudited total revenues and net income of the combined entity had the acquisition date been January 1, 2011 are as follows:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2012      2011      2012      2011  

Total Revenues

   $ 34,923,000       $ 37,603,000       $ 68,348,000       $ 71,747,000   

Net Income

   $ 569,000       $ 933,000       $ 990,000       $ 1,665,000   

The supplemental pro forma net income information for the three and six months ended June 30, 2011 has been adjusted to exclude certain non-recurring expenses of $450,000 and $910,000, respectively, relating to non-recurring management compensation. Pro forma net income for the six months ended June 30, 2011 was adjusted to include total acquisition-related costs of $420,100. Pro forma net income for the three and six months ended June 30, 2012 excludes acquisition costs (before tax) of $39,200 and $157,500, respectively.

Note 3. Intangibles

The following is a summary of acquired intangible assets at June 30, 2012:

 

     Amortizable
Lives
     Gross Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Amount
 

Customer relationships

     10 years       $ 2,480,000       $ 124,000       $ 2,356,000   

Developed technology

     10 years         220,000         11,000         209,000   
     

 

 

    

 

 

    

 

 

 
      $ 2,700,000       $ 135,000       $ 2,565,000   
     

 

 

    

 

 

    

 

 

 

Total amortization expense of intangible assets for the three and six months ended June 30, 2012 was $67,500 and $135,000, respectively. Estimated aggregate future amortization expense for the following five years and thereafter is as follows:

 

Years ending December 31,

   Estimated Aggregate
Future Amortization
Expense
 

2012

   $ 135,000   

2013

     270,000   

2014

     270,000   

2015

     270,000   

2016

     270,000   

Thereafter

     1,350,000   
  

 

 

 
   $ 2,565,000   
  

 

 

 

Note 4. Accounts Receivable

The Company extends unsecured credit to customers under normal trade agreements, which generally require payment upon invoice receipt. The allowance for doubtful accounts is based upon management’s review of delinquent accounts and an assessment of the Company’s historical evidence of collections. The Company also provides a reserve for billing adjustments based upon historical experience. The allowance for doubtful accounts and billing adjustments amounted to $1,490,550 and $1,143,840 at June 30, 2012, and December 31, 2011, respectively.

 

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CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 5. Share Repurchase Program

On January 19, 2012, the Company’s Board of Directors authorized a second share repurchase program (“2012 Share Repurchase Program”) to acquire up to $1 million of the Company’s outstanding shares of common stock in open-market, privately negotiated transactions, and block trades. The 2012 Share Repurchase Program extends the previous share repurchase program which was authorized in August 2011 (“2011 Share Repurchase Program”). The Company repurchased a cumulative amount of $998,701 under the 2011 Share Repurchase Program. As of June 30, 2012, 21,953 shares had been repurchased at a cost of $137,516, which is the cumulative amount used to repurchase shares under the 2012 Share Repurchase Program.

Note 6. Basic and Diluted Earnings Per Share

A reconciliation of the amounts used in the basic and diluted earnings per share computation is shown in the following table.

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2012      2011      2012      2011  

Numerator

           

Net income

   $ 551,393       $ 653,483       $ 899,324       $ 1,258,987   

Denominator

           

Basic weighted-average common shares

     7,151,227         7,183,163         7,143,380         7,180,957   

Effect of stock options and restricted stock

     337,100         367,857         335,985         367,857   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted-average common shares

     7,488,327         7,551,020         7,479,365         7,548,814   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic income per common share

   $ 0.08       $ 0.09       $ 0.13       $ 0.18   

Diluted income per common share

   $ 0.07       $ 0.09       $ 0.12       $ 0.17   

Note 7. Leasehold Improvements and Equipment

The components of the leasehold improvements and equipment as of June 30, 2012 and December 31, 2011, are as follows:

 

     June 30,
2012
    December 31,
2011
 

Leasehold improvements

   $ 3,212,016      $ 3,133,511   

Office furniture, fixtures, and equipment

     2,691,164        2,627,058   

Computer equipment and software

     4,480,234        4,393,904   
  

 

 

   

 

 

 
     10,383,414        10,154,473   

Accumulated depreciation and amortization

     (6,482,268     (5,821,608 )
  

 

 

   

 

 

 
   $ 3,901,146      $ 4,332,865   
  

 

 

   

 

 

 

Depreciation and amortization expense relating to leasehold improvements and equipment for the three and six months ended June 30, 2012 was $321,870 and $658,449, respectively, and for the three and six months ended June 30, 2011 was $309,920 and $603,752, respectively.

Note 8. Line of Credit

The Company, under the terms of its revolving credit facility, may borrow an amount equal to the lesser of $10,000,000 or the “Borrowing Base” (the Company’s eligible accounts receivable as defined in the revolving credit facility), with interest calculated at 325 basis points above the LIBOR rate as defined in the revolving credit agreement (the adjusted LIBOR rate), which was 0.243% at June 30, 2012. The Company has zero outstanding balances under the revolving credit facility at June 30, 2012 and December 31, 2011. Additionally, the Company had issued letters of credit related to certain office lease agreements secured by the revolving credit facility of $3,258,600 as of June 30, 2012 and December 31, 2011. Available borrowings under the revolving credit facility were $10,000,000 at June 30, 2012.

 

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CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 9. Share-Based Compensation

Restricted Shares

Share-based compensation is the result of the vesting and clawback provisions of share-based awards and options granted under the Company’s 2010 Equity Incentive Plan. The purpose of the 2010 Equity Incentive Plan is to promote the interests of the Company and our stockholders by (i) attracting and retaining employees, non-employee directors and independent contractors, (ii) motivating such individuals to achieve long-term Company goals and to further align their interests with those of the Company’s stockholders by providing incentive compensation opportunities tied to the performance of the common stock of the Company and (iii) promoting increased ownership of our common stock by such individuals.

Subject to adjustment for changes in capitalization, the maximum aggregate number of shares of our common stock that may be delivered pursuant to awards granted under the 2010 Equity Incentive Plan is 1,000,000.

A summary of the Company’s common stock subject to vesting provisions for the six months ended June 30, 2012, is presented below:

 

Non-Vested Common Stock

   Common
Stock
    Weighted-
Average
Grant-Date
Fair Value
 

Total non-vested common stock at December 31, 2011

     266,853      $ 13.32   

Granted

     15,596        5.13   

Vested

     (76,469     12.94   

Forfeited

     (28,978     13.00   
  

 

 

   

 

 

 

Total non-vested common stock at June 30, 2012

     177,002      $ 12.81   
  

 

 

   

 

 

 

Total share-based compensation expense related to shares subject to vesting provision for the three and six months ended June 30, 2012 was $216,706 and $516,135, respectively, and for the three and six months ended June 30, 2011 was $388,716 and $719,587, respectively. As of June 30, 2012, there was $1,206,167 of unrecognized compensation expense related to shares subject to vesting provisions granted under the 2010 Equity Incentive Plan. This expense is expected to be recognized over a weighted-average period of 1.5 years.

Certain shares are subject to clawback provisions, which require the recipient to surrender a portion of the shares if their employment with the Company terminates before a specified date, typically three years from date of grant. At June 30, 2012, there were no shares subject to clawback provisions.

Total share-based compensation expense subject to clawback provisions for the three and six months ended June 30, 2012 was $0, and for the three and six months ended June 30, 2011 was $157,854 and $322,702, respectively.

Stock Options

In December 2011, the Company authorized and granted 102,500 non-qualified stock options to various employees under its 2010 Equity Incentive Plan. All options have an exercise price that is equal to the fair value of the Company’s common stock on the grant date. Options are subject to ratable vesting over a three-year period, and compensation expense is recognized on a straight-line basis over the vesting period.

 

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CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 9. Share-Based Compensation (continued)

 

A summary of the Company’s non-qualified stock option activity for the three and six months ended June 30, 2012, is presented below:

 

     Number of
Non-qualified
Stock
Options
     Weighted
Average
Exercise
Price
Per Share
     Weighted
Average
Remaining
Contractual
Term (in
years)
     Aggregate
Intrinsic
Value
 

Outstanding on December 31, 2011

     102,500       $ 5.35         0       $ 0   

Granted

     0         0         0         0   

Exercised

     0         0         0         0   

Expired

     0         0         0         0   

Forfeited

     0         0         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding on June 30, 2012

     102,500       $ 5.35         2.4       $ 5,125   
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable on June 30, 2012

     0       $ 0         0       $ 0   

The aggregate intrinsic value is based upon the Company’s closing stock price of $5.40 at June 29, 2012, the last trading day prior to the end of the Company’s fiscal quarter. The compensation expense related to the options was $20,145 and $40,290 for the three and six months ended June 30, 2012, respectively. There were no options outstanding at June 30, 2011. As of June 30, 2012, there was $194,725 of unrecognized compensation expense related to unvested non-qualified stock options, which is expected to be recognized over a weighted average period of 2.4 years.

Employee Stock Purchase Program

The Company’s 2010 Equity Incentive Plan provides for the issuance of equity incentive awards, such as restricted stock, in order to retain qualified personnel. On March 21, 2012, the Compensation Committee of the Board of Directors approved the adoption of a stock purchase discount program that would allow selected employees, based on performance metrics defined by the Compensation Committee, to purchase up to $100,000 of the Company’s stock in lieu of cash bonuses, at a 15% discount to the NYSE MKT trading price of those shares. Shares are subject to ratable vesting over a three-year period, and compensation expense relating to the discount is recognized on a straight-line basis over the vesting period. As of June 30, 2012 no shares were vested or issued, and the company awarded 73,406 shares at $5.11 per share, at a discount of $0.90 per share. In the second quarter of 2012, the Company recorded $1,838 in compensation expense relating to the stock purchase discount program. As of June 30, 2012, there was $64,338 of unrecognized compensation expense related to shares subject to vesting provisions granted under the stock purchase discount program. This expense is expected to be recognized over a weighted-average period of 2.9 years.

Note 10. Enterprise Geographic Concentrations

The Company operates in four principal geographic regions: North America, EMEA, Asia Pacific and Latin America. There is no comparative data for Latin America for 2011 as these operations were conducted by CTPLA under a licensing agreement with the Company.

Effective January 1, 2012, the Company is separately reporting its global operations support costs in its geographic disclosures in order to provide a more informative disclosure about each geographic region’s financial position and operational results. The Company has separately reported its global operations support costs for the three and six month period ended June 30, 2011 to be comparative with the current period’s disclosure.

Also effective January 1, 2012, the Company has combined its European and Middle East geographic disclosures into a single EMEA (Europe, Middle East, Africa) geographic region. The Company has also combined the European and Middle East geographic disclosures as of June 30, 2011 to be comparative with the current period’s disclosure.

 

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CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 10. Enterprise Geographic Concentrations (continued)

 

The revenue, operating income (loss), depreciation and amortization, and capital expenditures, by region, for the three and six months ended June 30, 2012 and 2011 are as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  

Revenue:

        

North America

   $ 21,365,726      $ 22,019,434      $ 41,488,815      $ 40,661,680   

EMEA

     6,707,445        8,378,655        13,429,391        16,841,580   

Asia Pacific

     2,568,066        2,686,580        5,171,925        6,062,600   

Latin America

     3,113,029        0        6,066,880        0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue before reimbursements

     33,754,266        33,084,669        66,157,011        63,565,860   

Reimbursements

     1,169,007        1,321,617        2,191,406        2,436,323   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 34,923,273      $ 34,406,286      $ 68,348,417      $ 66,002,183   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss):

        

North America

   $ 4,039,056      $ 4,068,845      $ 7,277,345      $ 6,355,605   

EMEA

     (499,733     (267,074     (975,987     1,547,770   

Asia Pacific

     420,123        368,924        831,123        387,551   

Latin America

     568,223        0        1,201,190        0   

Global Operations Support

     (3,432,843     (3,112,005     (6,579,013     (6,279,161
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,094,826      $ 1,058,690      $ 1,754,658      $ 2,011,765   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization:

        

North America

   $ 118,283      $ 90,196      $ 246,058      $ 204,939   

EMEA

     71,995        88,470        144,155        172,115   

Asia Pacific

     41,636        32,450        83,400        60,257   

Latin America

     87,043        0        174,620        0   

Global Operations Support

     70,451        98,804        145,216        166,441   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 389,408      $ 309,920      $ 793,449      $ 603,752   
  

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures:

        

North America

   $ 18,869      $ 120,426      $ 5,274,370      $ 1,001,534   

EMEA

     4,641        70,945        10,961        168,964   

Asia Pacific

     (69     77,377        3,583        126,488   

Latin America

     (6,057     0        25,139        0   

Global Operations Support

     19,963        23,524        32,883        179,582   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 37,347      $ 292,272      $ 5,346,936      $ 1,476,568   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 10. Enterprise Geographic Concentrations (continued)

 

Identifiable assets by geographic concentrations are as follows:

 

     June 30,
2012
     December 31,
2011
 

Identifiable assets:

     

North America

   $ 18,562,790       $ 38,049,259   

EMEA

     11,835,195         12,143,142   

Asia Pacific

     5,705,202         4,491,980   

Latin America

     16,324,217         0   

Global Operations Support

     861,810         855,740   
  

 

 

    

 

 

 

Total

   $ 53,289,214       $ 55,540,121   
  

 

 

    

 

 

 

Goodwill and other intangible assets, net:

     

Latin America

   $ 9,971,879       $ 0   
  

 

 

    

 

 

 

Total

   $ 9,971,879       $ 0   
  

 

 

    

 

 

 

Note 11. Subsequent Events

On July 25, 2012, the Company filed an amendment to its Certificate of Incorporation reducing the authorized number of common shares to 15,000,000 from its previous authorized number of 30,000,000.

In the third quarter of 2012, the Company’s management initiated a plan to reorganize its operations resulting in certain organizational changes in its Canadian and EMEA locations. The plan consists of workforce reorganization, and elimination of redundant or unneeded positions, which will allow us to combine business operations in certain geographic locations and serve our clients more efficiently. In connection with this reorganization, we anticipate to incur severance and other employee related costs in the range of $1.0 million to $1.2 million in the third quarter of 2012.

 

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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as other sections of this quarterly report on Form 10-Q contain forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. The forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate and management’s beliefs and assumptions. Forward-looking statements may be identified by the use of words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,” “forecasts,” and similar expressions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied in the forward-looking statements. Factors that may affect the outcome of the forward-looking statements include, among other things, our expectations regarding our revenues, expenses and operations and our ability to sustain profitability; our ability to recruit and retain qualified executive search consultants to staff our operations appropriately; our ability to expand our customer base and relationships, especially given the off-limit arrangements we are required to enter into with certain of our clients; declines in the global economy and our ability to execute successfully through business cycles; our anticipated cash needs; our anticipated growth strategies and sources of new revenues; unanticipated trends and challenges in our business and the markets in which we operate; social or political instability in markets where we operate; the impact of foreign currency exchange rate fluctuations; price competition; the ability to forecast, on a quarterly basis, variable compensation accruals that ultimately are determined based on the achievement of annual results; the mix of profit and loss by country; and our ability to estimate accurately for purposes of preparing our consolidated financial statements. For more information on the factors that could affect the outcome of forward-looking statements, see Risk Factors in Item 1A of our annual report on Form 10-K which was filed with the Securities and Exchange Commission on March 22, 2012. We caution the reader that the list of factors may not be exhaustive. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

On January 2, 2012, we acquired our Latin America licensee for $10.5 million consisting of an initial cash payment of $5.25 million and a non-interest bearing seller note for $5.25 million which has been discounted by the Company in the amount of $263,303. Management’s discussion and analysis includes the searches engaged to be performed by our Latin American offices and the resulting net revenues, expenses and cash flows for periods beginning January 1, 2012. For periods prior to January 1, 2012, we disclose the results of our then Latin America licensee separately.

For the three-month period ended June 30, 2012, we were engaged to perform 350 searches including 77 by our Latin America offices. For the three-month period ended June 30, 2011, we were engaged to perform 287 searches. Our then Latin American licensee was engaged to perform 98 searches during the three-month period ended June 30, 2011. For the three-month period ended June 30, 2012, we placed candidates in 121 U.S. searches and 151 non-U.S. searches, including 52 by our Latin America offices. For the three-month period ended June 30, 2011, we placed candidates in 133 U.S. searches and 86 non-U.S. searches. Our then Latin American licensee placed 80 candidates during the three-month period ended June 30, 2011.

Net revenue increased $700,000, or 2%, to $33.8 million for the three-month period ended June 30, 2012 compared to $33.1 million for the three-month period ended June 30, 2011. The increase in net revenue was the result of the acquisition of our Latin American operations on January 2, 2012, which accounted for $3.1 million, offset by a decrease in net revenue of $2.4 million for all other locations.

For the six-month period ended June 30, 2012, we were engaged to perform 735 searches including 148 by our Latin America offices. For the six-month period ended June 30, 2011, we were engaged to perform 587 searches. Our then Latin American licensee was engaged to perform 196 searches during the six-month period ended June 30, 2011. For the six-month period ended June 30, 2012, we placed candidates in 225 U.S. searches and 281 non-U.S. searches, including 97 by our Latin America offices. For the six-month period ended June 30, 2011, we placed candidates in 248 U.S. searches and 172 non-U.S. searches. Our then Latin American licensee placed 144 candidates during the six-month period ended June 30, 2011.

Net revenue increased $2.6 million, or 4.1%, to $66.2 million for the six-month period ended June 30, 2012 compared to $63.6 million for the six-month period ended June 30, 2011. The increase in net revenue was primarily due to the results of operations of our Latin American locations, acquired on January 2, 2012, in the amount of $6.1 million, offset by a decline in the revenues of $3.5 million for all other locations.

 

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Table of Contents

Relevant data is set forth below (this data excludes the operations of our associated offices in Latin America for 2011):

 

Performance Metrics

   Three Months Ended
June 30,
     Increase/
Decrease
    Percentage
Increase/
Decrease
    Six Months Ended
June 30,
     Increase/
Decrease
    Percentage
Increase/
Decrease
 
   2012      2011          2012      2011       

Number of new search assignments

     350         287         63        22.0     735         587         148        25.2

Number of executive search consultants (as of period end)

     109         99         10        10.1     109         99         10        10.1

Productivity, as measured by average annualized net revenue per executive search consultant

   $ 1,238,689       $ 1,336,754       $ (98,065     (7.3 )%    $ 1,213,890       $ 1,284,160       $ (70,270     (5.5 )% 

Average revenue per executive search

   $ 94,373       $ 111,950       $ (17,577     (15.7 )%    $ 91,456       $ 105,900       $ (14,444     (13.6 )% 

The decrease in average revenue per executive search is attributable to the inclusion of Latin America in the first and second quarters of 2012. Excluding Latin America, average revenue per executive search would have been $110,606 and $105,566 in the three and six months ended June 30, 2012, respectively.

Operating income remained flat at $1.1 million for the three-month period ended June 30, 2012 compared to the three-month period ended June 30, 2011. Operating income results include an increase in net revenues of $700,000 and a decrease in compensation and benefits expense of $200,000 offset by a $600,000 increase in general and administrative expenses and a $300,000 increase in unreimbursed and other expenses.

Operating income decreased $200,000 to $1.8 million for the six-month period ended June 30, 2012, compared to operating income of $2.0 million for the six-month period ended June 30, 2011. The decrease primarily reflects an increase in net revenues of $2.6 million offset by a $1.4 million increase in compensation and benefits expense and $1.4 million increase in general and administrative expenses.

Results of Operations

The following table summarizes, for the periods indicated, our results of operations as a percentage of net revenue:

 

     Three Months Ended
June  30
    Six Months Ended
June  30
 
     2012     2011     2012     2011  

Revenue:

        

Net revenue

     100.0 %     100.0     100.0     100.0

Reimbursable expenses

     3.4        4.0        3.3        3.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     103.4        104.0        103.3        103.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses:

        

Compensation and benefits

     75.1        77.2        76.1        76.9   

General and administrative

     21.2        19.7        21.1        19.8   

Reimbursable expenses

     3.9        3.9        3.5        3.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     100.2        100.8        100.7        100.6   

Operating income

     3.2        3.2        2.6        3.2   

Net interest expense

     (0.1     0.0        (0.1     0.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     3.1        3.2        2.5        3.2   

Income tax expense

     (1.5     (1.2     (1.2     (1.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     1.6     2.0     1.3     2.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Three-Month Period Ended June 30, 2012 Compared to Three-Month Period Ended June 30, 2011

Net Revenue. Net revenue increased $700,000, or 2.0%, to $33.8 million for the three-month period ended June 30, 2012 compared to $33.1 million for the three-month period ended June 30, 2011. The increase in net revenue was the result of the inclusion of Latin American operations which contributed $3.1 million in net revenue for the three-month period ended June 30, 2012, offset by a reduction of $2.4 million in net revenue for all other locations. License fees from our Latin America licensee of $150,000 were included in net revenue for the three-month period ended June 30, 2011.

 

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Table of Contents

Compensation and Benefits Expenses. Compensation and employee benefits expense decreased $200,000, or 0.7%, to $25.4 million for the three-month period ended June 30, 2012 from $25.6 million for the three-month period ended June 30, 2011. As a percentage of net revenue, compensation and benefits decreased to 75.1% for the three-month period ended June 30, 2012 compared to 77.2% for the three-month period ended June 30, 2011.

The decrease in compensation and benefits expense is comprised of an increase of $2.0 million from our Latin America operation offset by a $2.2 million decrease from all other locations. The $2.0 million increase from Latin America was comprised of a $1.4 million increase in consultant compensation and benefits expense which was the direct result of the net revenues generated by our 16 Latin America search consultants, and a $600,000 increase in non-consultant compensation and benefits expense due to the addition of 63 support staff from the Latin America acquisition.

The $2.2 million decrease in compensation and benefits expense from all other locations consisted of a decrease in consultant compensation of $1.5 million, a decrease in payroll taxes of $200,000, and a decrease in talent acquisition costs of $500,000. The $1.5 million decrease in consultant compensation and benefits expense was a direct result of the $2.5 million decrease in net revenues in our non-Latin America locations.

General and Administrative Expenses. General and administrative expenses increased to $7.1 million, or 21.2% of net revenue for the three-month period ended June 30, 2012, from $6.5 million, or 19.7% of net revenue for the three-month period ended June 30, 2011. The increase in general and administrative expenses was primarily the result of the inclusion of $500,000 of operating expenses from our Latin America offices.

Operating Income. Operating income remained flat at $1.1 million for the three-month period ended June 30, 2012 compared to the three-month period ended June 30, 2011. Operating income results include an increase in net revenues of $700,000 and a decrease in compensation and benefits expense of $200,000 offset by a $600,000 increase in general and administrative expenses and a $300,000 increase in unreimbursed and other expenses. The net revenues and operating income attributable to Latin America and included in the consolidated statement of operations for the three months ended June 30, 2012, were $3.1 million and $700,000, respectively.

Net Interest Expense. Net interest expense increased to $40,000 for the three-month period ended June 30, 2012 compared to $7,000 interest income for the three-month period ended June 30, 2011. The increase in net interest expense is principally due to a $49,000 increase in imputed interest expense related to the seller note for the Latin America acquisition.

Income Before Taxes and Income Tax Expense. For the three-month period ended June 30, 2012, we reported income before taxes of $1,054,502 and recorded income tax expense of $503,109, compared to income before taxes of $1,065,659 and income tax expense of $412,126 for the three month period ended June 30, 2011. Our effective income tax rate for the second quarter of 2012 was 47.7%, compared to 38.7% for the second quarter of 2011. The increase is due to delays in the realization of foreign income tax payments as credits against our current United States tax obligation until foreign taxable income is generated.

Six-Month Period Ended June 30, 2012 Compared to Six-Month Period Ended June 30, 2011

Net Revenue. Net revenue increased $2.6 million, or 4.1%, to $66.2 million for the six-month period ended June 30, 2012 compared to $63.6 million for the six-month period ended June 30, 2011. The increase in net revenue was the result of the inclusion of Latin American operations which contributed $6.1 million in net revenue for the six-month period ended June 30, 2012, offset by a reduction of $3.5 million in net revenue for all other locations. License fees from our Latin America licensee of $300,000 were included in net revenue for the six -month period ended June 30, 2011.

Compensation and Benefits Expenses. Compensation and employee benefits expense increased $1.4 million, or 2.9%, to $50.3 million for the six -month period ended June 30, 2012 from $48.9 million for the six -month period ended June 30, 2011. As a percentage of net revenue, compensation and benefits decreased to 76.1% for the six -month period ended June 30, 2012 compared to 76.9% for the six -month period ended June 30, 2011.

The increase in compensation and benefits expense is comprised of an increase of $3.7 million from our Latin America operation offset by a $2.3 decrease from all other locations. The $3.7 million increase from Latin America was comprised of a $2.4 million increase in consultant compensation and benefits expense which was the direct result of the net revenues generated by our 16 Latin America search consultants, and a $1.3 million increase in non-consultant compensation and benefits expense due to the addition of 63 support staff from the Latin America acquisition.

The $2.3 million decrease from all other locations consisted of a decrease in consultant compensation of $2.0 million, directly related to a decrease in net revenues in our non-Latin American locations, a decrease of $700,000 in talent acquisition costs offset by an increase in consultant employee benefits of $200,000, an increase in non-consultant compensation of $200,000 and an increase in non-consultant benefits expense of $100,000. The decrease in consultant compensation was a direct result of the $2.6 million decrease in net revenues. The $300,000 increase in overall benefits expense was due to increases in the rates incurred by the company to provide medical benefits to our employees.

 

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General and Administrative Expenses. General and administrative expenses increased to $13.9 million, or 21.1% of net revenue for the six-month period ended June 30, 2012, from $12.6 million, or 19.8% of net revenue for the six-month period ended June 30, 2011. The increase in general and administrative expenses was primarily the result of the inclusion of $1.1 million of operating expenses from our Latin America offices, and a $200,000 increase in our reserve for bad debt.

Operating Income. Operating income decreased $257,000 to $1.7 million for the six-month period ended June 30, 2012, compared to operating income of $2.0 million for the six-month period ended June 30, 2011. The decrease primarily reflects an increase in net revenues of $2.6 million offset by an increase in compensation and benefits expense of $1.4 million, and a $1.4 million increase in general and administrative expenses. The net revenues and operating income attributable to the Latin America acquisition since the acquisition date, included in the consolidated statement of operations for the six months ended June 30, 2012, were $6.1 million and $1.3 million, respectively.

Net Interest Expense. Net interest expense increased to $80,000 for the six-month period ended June 30, 2012 compared to $3,000 for the six-month period ended June 30, 2011. The increase in net interest expense is principally due to a $96,000 increase in imputed interest expense related to the seller note for the Latin America acquisition.

Income Before Taxes and Income Tax Expense. For the six-month period ended June 30, 2012, we reported income before taxes of $1,675,032 and recorded income tax expense of $775,708, compared to income before taxes of $2,008,299 and income tax expense of $749,312 for the six month period ended June 30, 2011. Our effective income tax rate for the six-month period ended June 30, 2012 was 46.3%, compared to 37.3% for the six-month period ended June 30, 2011. We expect our full year annualized effective tax rate to be approximately 50%, which is due to our overall foreign tax loss position, which delays the realization of foreign income tax payments as credits against our current United States tax obligation until foreign taxable income is generated. Generally, credits can be carried forward for up to ten years.

Liquidity and Capital Resources

General. Our primary sources of liquidity are cash, cash flow from operations and borrowing availability under our revolving credit facility. We continually evaluate our liquidity requirements, capital needs and availability of capital resources based on our operating needs. We believe that our existing cash balances together with the funds expected to be generated from operations and funds available under our committed revolving credit facility will be sufficient to finance our operations for the foreseeable future.

The following table summarizes our cash flow for the periods shown:

 

     Six months Ended
June 30,
 
     2012     2011  

Net cash used in operating activities

   $ (2,038,168   $ (3,279,502

Net cash used in investing activities

     (5,346,936     (1,476,568

Net cash used in financing activities

     (217,219     (105,866
  

 

 

   

 

 

 

Net decrease in cash

   $ (7,602,323   $ (4,861,936
  

 

 

   

 

 

 

Cash. Cash at June 30, 2012 was $13.8 million, as compared to $21.8 million at December 31, 2011. The decrease in cash principally reflects a decrease in cash used in operating activities of $1.2 million, an increase of cash used in investing activities of $3.9 million, $5.2 million of which was related to the purchase of our Latin America licensee, offset by a decrease of capital expenditures of $1.3 million, and a $100,000 increase in cash used in financing activities.

Cash Flow from Operating Activities. Cash used in operating activities was $2.0 million in the six-month period ended June 30, 2012, compared to cash used in operating activities of $3.3 million in the six-month period ended June 30, 2011. The decrease in cash used in operating activities is due to a decrease in accrued compensation of $4.9 million, an increase in prepaid expenses and other receivables of $900,000 and an increase in accounts payable and accrued expenses of $5.3 million.

Cash from Investing Activities. For the six-month period ended June 30, 2012, cash used in investing activities was $5.3 million compared to $1.5 million for the six-month period ended June 30, 2011. The increase was due to a payment for the acquisition of our Latin America licensee for $5.2 million offset by a decrease of $1.3 million in capital expenditures.

Cash from Financing Activities. For the six-month period ended June 30, 2012, cash used in financing activities was $220,000 consisting of $80,000 of payments made on long-term debt and $140,000 used to repurchase shares. Cash used in financing activities for the six-month period ended June 30, 2011, was $105,000 resulting from payments made on long-term debt.

Off-Balance Sheet Arrangements. We do not have off-balance sheet arrangements, special purpose entities, trading activities or non-exchange traded contracts.

 

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Recently Adopted Financial Accounting Standards

On January 1, 2012, we adopted the Financial Accounting Standards Board’s guidance to increase the prominence of other comprehensive income within the financial statements. The guidance requires entities to present the components of net income and other comprehensive income either in a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The option to only present other comprehensive income within the statement of stockholders’ equity has been eliminated. We have presented the components of net income and other comprehensive income in two separate, but consecutive, statements of net income and other comprehensive income.

On January 1, 2012, the Financial Accounting Standards Board Accounting Standards Update No. 2011-08, Testing Goodwill for Impairment, became effective. This standard gives an entity the option of performing a qualitative assessment to determine whether it is necessary to perform step 1 of the annual goodwill impairment test. An entity is required to perform step 1, only if it concludes that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some, or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit in any period and proceed directly to step 1 of the impairment test. We perform our impairment test during the fourth quarter of each year.

Item 4. Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of June 30, 2012, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports we file, or submit, under the Exchange Act is recorded, processed, summarized and reported as and when required.

There were no changes in our internal control over financial reporting identified in the evaluation described in the preceding paragraph that occurred during the second quarter of 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table presents the number of shares purchased monthly under the Company’s stock repurchase program for the three-month period ended June 30, 2012.

 

Period

   Total Number of
Shares Purchased
     Average Price
Paid per
Share
     Total Number of
Shares Purchased as
Part of Publicly
Announced Plan
     Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plan
 

April 1, 2012 – April 30, 2012

     2,000       $ 6.30         2,000       $ 914,625   

May 1, 2012 – May 31, 2012

     4,151         6.16         4,151         889,051   

June 1, 2012 – June 30, 2012

     4,802         5.40         4,802         863,142   
  

 

 

    

 

 

    

 

 

    

Total

     10,953       $ 5.85         10,953      
  

 

 

    

 

 

    

 

 

    

On January 19, 2012, the Company’s Board of Directors authorized a new share repurchase program (“2012 Share Repurchase Program”) to acquire up to $1 million of the Company’s outstanding shares of common stock in open-market, privately negotiated transactions and block trades. The 2012 Share Repurchase Program extends the previous program which was authorized in August 2011 (“2011 Share Repurchase Program”). The Company repurchased a cumulative amount of $998,701 under the 2011 Share Repurchase Program. As of June 30, 2012, 21,953 shares had been repurchased at a cost of $137,516, which is the cumulative amount used to repurchase shares under the 2012 Share Repurchase Program.

Use of Proceeds from Registered Securities

The offer and sale of the shares in our initial public offering were registered under the Securities Act of 1933, as amended, pursuant to a registration statement on Form S-1 (File No. 333-169224), which was declared effective by the Securities and Exchange Commission on December 7, 2010.

After deducting underwriting discounts and commissions, and offering-related expenses, our net proceeds from the initial public offering were approximately $24.4 million.

During the six-month period ending June 30, 2012, we:

 

   

Used approximately $137,000 to repurchase shares pursuant to our share repurchase program; and

 

   

Used approximately $5.25 million to pay the cash payment related to the acquisition of our Latin America licensee.

There has been no material change in the planned use of the net proceeds from that described in the prospectus included in our registration statement.

 

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Item 6. Exhibits

 

Exhibit

No.

 

Description

    *31.1   Chief Executive Officer Certification pursuant to Rule 13a-14(a) under the Exchange Act.
    *31.2   Chief Financial Officer Certification pursuant to Rule 13a-14(a) under the Exchange Act.
    *32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
    *32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
**101   The following financial information from CTPartners Executive Search Inc. Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012 formatted in Extensible Business Reporting Language (XBRL) and furnished electronically herewith: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) related Footnotes to the Condensed Consolidated Financial Statements.

 

* Filed herewith
** Pursuant to Rule 406T of Regulations S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CTPartners Executive Search Inc.

 

By: /s/ DAVID C. NOCIFORA
David C. Nocifora
Chief Operating Officer and Chief Financial Officer

Date: August 8, 2012

 

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