UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 8-K
 

 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): November 1, 2011
 

 
Hudson Highland Group, Inc.
(Exact name of registrant as specified in its charter)
 

 
Delaware
(State or other jurisdiction of incorporation)
 
000-50129
59-3547281
(Commission File Number)
(IRS Employer Identification No.)
 
560 Lexington Avenue
New York, NY 10022
(Address of Principal Executive Offices)
 
Registrant’s telephone number, including area code (212) 351-7300
 

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨
Written communications pursuant to Rule 425 under the Securities Act (16 CFR 230.425)
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (16 CFR 240.14a-12)
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (16 CFR 240.14d-2(b))
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (16 CFR 240.13e-4(c)
 

 
 
 

 


ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
 
On November 1, 2011, Hudson Highland Group, Inc. issued a press release announcing its financial results for the three months ended September 30, 2011. A copy of such press release is furnished as Exhibit 99.1 to this Current Report.
 
Also on November 1, Hudson Highland Group, Inc. posted on its web site a Letter to Shareholders, which discusses results for the three months ended September 30, 2011. A copy of such letter is furnished as Exhibit 99.2 to this Current Report.
 
Included in each of these exhibits are references to “liquidity.” The company believes that this non-GAAP measure provides investors useful information about its combined available cash and borrowing capacity.
 
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
 
(a) Financial Statements.
 
None.
 
(b) Pro Forma Financial Information.
 
None.
 
(c) Shell Company Transactions
 
None.
 
(d) Exhibits
 
99.1
Press Release of Hudson Highland Group, Inc. issued on November 1, 2011.
   
99.2
Letter to Shareholders issued on November 1, 2011 and posted to the Company’s website.
 
 
2

 

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
HUDSON HIGHLAND GROUP, INC.
(Registrant)
     
 
By:
/s/ Mary Jane Raymond
   
Mary Jane Raymond
   
Executive Vice President and Chief
Financial Officer
     
   
Dated: November 1, 2011
 
 
3

 

Hudson Highland Group, Inc.
Current Report on Form 8-K
 
Exhibit Index

Exhibit
Number
 
Description
99.1
 
Press Release of Hudson Highland Group, Inc. issued on November 1, 2011.
     
99.2
 
Letter to Shareholders issued on November 1, 2011 and posted to Company’s website.
 
 
 

 
 

Exhibit 99.1
 
 
   
For Immediate Release
Contact: David F. Kirby
 
Hudson Highland Group
 
212-351-7216
 
david.kirby@hudson.com

Hudson Highland Group Reports 2011 Third Quarter Financial Results

NEW YORK, NY – November 1, 2011 – Hudson Highland Group, Inc. (Nasdaq: HHGP), one of the world’s leading providers of permanent recruitment, contract professionals and talent management solutions, today announced financial results for the third quarter ended September 30, 2011.

2011 Third Quarter Summary

 
·
Revenue of $245.1 million, an increase of 22.3 percent over the third quarter of 2010, or 13.5 percent in constant currency

 
·
Permanent recruitment revenue increased 22.7 percent from the prior year quarter, or 13.3 percent in constant currency

 
·
Temporary contracting revenue increased 23.6 percent in the third quarter, or 15.1 percent in constant currency

 
·
Gross margin of $93.0 million, or 37.9 percent of revenue, up 24.0 percent from the same period last year, or 14.9 percent in constant currency

 
·
EBITDA* of $7.4 million, or 3.0 percent of revenue, improved from $1.2 million in the third quarter of 2010

 
·
Net income of $3.4 million, or $0.11 per basic and diluted share, compared with a net loss of $1.9 million, or $0.06 per basic and diluted share, in the third quarter of 2010

* EBITDA is defined in the segment tables at the end of this release and includes other non-operating income.

“Our diversified portfolio of professional recruitment practices and global presence supported the delivery of meaningful year-over-year growth during the third quarter,” said Manuel Marquez, chairman and chief executive officer of Hudson Highland Group.  “We are also encouraged by the continued momentum of our legal and recruitment process outsourcing (RPO) solution businesses, two practice areas specifically tailored to respond to the growing international needs of our global clients.”

“We continued to make strides on profitability metrics in the third quarter,” added Mary Jane Raymond, the company’s chief financial officer.  “Our results are starting to reflect steps we are taking to heighten productivity and leverage, which should help offset the effects of challenging macro-economic conditions.”

Regional Results

Regional results for the third quarter in constant currency were:

 
·
Europe gross margin increased 10.4 percent, led by 12.6 percent growth in continental Europe and 8.6 percent growth in the U.K., compared with third quarter 2010

 
·
Australia/New Zealand gross margin increased 13.3 percent compared with the prior year period, led by 22.3 percent growth in permanent recruitment

 
·
Americas gross margin increased 46.5 percent compared with the prior year period, driven by 32.6 percent growth in temporary contracting and continued, strong growth in permanent recruitment

 
·
Asia gross margin increased 4.9 percent compared with third quarter 2010

 
 

 

Liquidity and Capital Resources

The company ended the third quarter of 2011 with $72.2 million in liquidity, composed of $22.5 million in cash and $49.7 million in availability under its credit facilities.  The company used $6.8 million in cash flow from operations during the quarter and reduced its outstanding borrowings from $10.1 million at the end of the second quarter to $6.6 million at the end of the third quarter.
 
Guidance
 
The company currently expects fourth quarter 2011 revenue of $225 - $240 million and EBITDA of $6 - $9 million at prevailing exchange rates.  This compares with revenue of $219.1 million and EBITDA of $3.6 million in the fourth quarter of 2010.

Additional Information

Additional information about the company’s quarterly results can be found in the shareholder letter and the quarterly earnings slides in the investor information section of the company’s Web site at www.hudson.com.

Conference Call/Webcast

Hudson Highland Group will conduct a conference call today at 10:00 a.m. ET to discuss this announcement.  Individuals wishing to listen can access the webcast on the investor information section of the company's Web site at www.hudson.com.

The archived call will be available on the investor information section of the company's Web site at www.hudson.com.

About Hudson Highland Group

Hudson Highland Group, Inc. is a leading provider of permanent recruitment, contract professionals and talent management services worldwide.  From single placements to total outsourced solutions, Hudson helps clients achieve greater organizational performance by assessing, recruiting, developing and engaging the best and brightest people for their businesses.  The company employs more than 2,000 professionals serving clients and candidates in approximately 20 countries. More information is available at www.hudson.com.

Safe Harbor Statement

This press release contains statements that the company believes to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this press release, including statements regarding the company’s future financial condition, results of operations, business operations and business prospects, are forward-looking statements. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “predict,” “believe” and similar words, expressions and variations of these words and expressions are intended to identify forward-looking statements. All forward-looking statements are subject to important factors, risks, uncertainties and assumptions, including industry and economic conditions’ that could cause actual results to differ materially from those described in the forward-looking statements. Such factors, risks, uncertainties and assumptions include, but are not limited to, global economic fluctuations; risks related to fluctuations in the company’s operating results from quarter to quarter; the ability of clients to terminate their relationship with the company at any time; competition in the company’s markets; risks associated with the company’s investment strategy; risks related to international operations, including foreign currency fluctuations; the company’s dependence on key management personnel; the company’s ability to attract and retain highly skilled professionals; risks in collecting the company’s accounts receivable; the company’s history of negative cash flows and operating losses may continue; restrictions on the company’s operating flexibility due to the terms of its credit facilities; the company’s ability to refinance its existing AUD 17 million finance agreement with the Commonwealth Bank of Australia prior to the December 5, 2011 termination date of the existing agreement; implementation of the company’s cost reduction initiatives effectively; the company’s heavy reliance on information systems and the impact of potentially losing or failing to develop technology; risks related to our dependence on uninterrupted service to clients; the company’s exposure to employment-related claims from both clients and employers and limits on related insurance coverage; volatility of the company’s stock price; the impact of government regulations; and restrictions imposed by blocking arrangements. Additional information concerning these and other factors is contained in the company's filings with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this document. The company assumes no obligation, and expressly disclaims any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.

###
Financial Tables Follow

 
 

 

HUDSON HIGHLAND GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Revenue
  $ 245,081     $ 200,394     $ 710,998     $ 575,481  
Direct costs
    152,089       125,403       441,341       359,833  
Gross margin
    92,992       74,991       269,657       215,648  
Operating expenses:
                               
Selling, general and administrative expenses
    85,305       74,378       251,517       214,121  
Depreciation and amortization
    1,537       1,981       4,750       6,453  
Business reorganization and integration expenses
    -       41       747       705  
Total operating expenses
    86,842       76,400       257,014       221,279  
Operating income (loss)
    6,150       (1,409 )     12,643       (5,631 )
Other (expense) income:
                               
Interest, net
    (328 )     (497 )     (910 )     (972 )
Other, net
    (238 )     1,184       244       2,687  
Fee for early extinguishment of credit facility
    -       (563 )     -       (563 )
Income (loss) from continuing operations before provision for income taxes
    5,584       (1,285 )     11,977       (4,479 )
Provision for (benefit from) income taxes
    2,202       599       4,377       1,366  
Income (loss) from continuing operations
    3,382       (1,884 )     7,600       (5,845 )
Income (loss) from discontinued operations, net of income taxes
    -       (14 )     -       (31 )
Net income (loss)
  $ 3,382     $ (1,898 )   $ 7,600     $ (5,876 )
Basic earnings (loss) per share:
                               
Income (loss) from continuing operations
  $ 0.11     $ (0.06 )   $ 0.24     $ (0.20 )
Income (loss) from discontinued operations
    -       (0.00 )     -       (0.00 )
Net income (loss)
  $ 0.11     $ (0.06 )   $ 0.24     $ (0.20 )
                                 
Diluted earnings (loss) per share:
                               
Income (loss) from continuing operations
  $ 0.11     $ (0.06 )   $ 0.24     $ (0.20 )
Income (loss) from discontinued operations
    -       (0.00 )     -       (0.00 )
Net income (loss)
  $ 0.11     $ (0.06 )   $ 0.24     $ (0.20 )
                                 
Weighted average shares outstanding:
                               
Basic
    31,620       31,225       31,541       29,493  
Diluted
    32,085       31,225       31,988       29,493  
 
 
 

 

HUDSON HIGHLAND GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)

   
September 30,
   
December 31,
 
   
2011
   
2010
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 22,482     $ 29,523  
Accounts receivable, less allowance for doubtful accounts of $1,973 and $2,145, respectively
    151,517       128,576  
Prepaid and other
    12,501       13,988  
Total current assets
    186,500       172,087  
Property and equipment, net
    17,126       16,593  
Other assets
    16,561       17,154  
Total assets
  $ 220,187     $ 205,834  
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 10,500     $ 14,812  
Accrued expenses and other current liabilities
    80,709       74,990  
Short-term borrowings
    6,561       1,339  
Accrued business reorganization expenses
    1,200       2,619  
Total current liabilities
    98,970       93,760  
Other non-current liabilities
    10,955       10,493  
Income tax payable, non-current
    8,272       8,303  
Total liabilities
    118,197       112,556  
Stockholders’ equity:
               
Preferred stock, $0.001 par value, 10,000 shares authorized; none issued or outstanding
    -       -  
Common stock, $0.001 par value, 100,000 shares authorized; issued 32,922 and 32,181 shares, respectively
    33       32  
Additional paid-in capital
    470,005       466,582  
Accumulated deficit
    (400,599 )     (408,199 )
Accumulated other comprehensive income—translation adjustments
    32,943       34,902  
Treasury stock, 71 and 9 shares, respectively, at cost
    (392 )     (39 )
Total stockholders’ equity
    101,990       93,278  
Total liabilities and stockholders' equity
  $ 220,187     $ 205,834  


 
 

 

HUDSON HIGHLAND GROUP, INC.
SEGMENT ANALYSIS - QUARTER TO DATE
(in thousands)
(unaudited)

For The Three Months Ended September 30, 2011
 
Hudson
Europe
   
Hudson ANZ
   
Hudson
Americas
   
Hudson Asia
   
Corporate
   
Total
 
Revenue, from external customers
  $ 96,753     $ 90,437     $ 47,691     $ 10,200     $ -     $ 245,081  
Gross margin, from external customers
  $ 38,129     $ 31,439     $ 13,662     $ 9,762     $ -     $ 92,992  
Business reorganization and integration expenses (recovery)
  $ -     $ -     $ -     $ -     $ -     $ -  
Non-operating expense (income), including corporate administration charges
    1,873       1,421       497       427       (3,980 )     238  
EBITDA (Loss) (1)
  $ 2,020     $ 3,934     $ 1,459     $ 1,289     $ (1,253 )   $ 7,449  
Depreciation and amortization expenses
                                            1,537  
Interest expense (income), net
                                            328  
Provision for (benefit from) income taxes
                                            2,202  
Loss (income) from discontinued operations, net of taxes
                                            -  
Net income (loss)
                                          $ 3,382  
 
For The Three Months Ended September 30, 2010
 
Hudson
Europe
   
Hudson ANZ
   
Hudson
Americas
   
Hudson Asia
   
Corporate
   
Total
 
Revenue, from external customers
  $ 80,503     $ 72,974     $ 37,839     $ 9,078     $ -     $ 200,394  
Gross margin, from external customers
  $ 32,647     $ 24,259     $ 9,311     $ 8,774     $ -     $ 74,991  
Business reorganization and integration expenses (recovery)
  $ -     $ -     $ 41     $ -     $ -     $ 41  
Non-operating expense (income), including corporate administration charges
    3,088       1,433       (407 )     478       (5,776 )     (1,184 )
EBITDA (Loss) (1)
  $ (2,128 )   $ 1,376     $ 532     $ 1,169     $ 244     $ 1,193  
Depreciation and amortization expenses
                                            1,981  
Interest expense (income), net
                                            497  
Provision for (benefit from) income taxes
                                            599  
Loss (income) from discontinued operations, net of taxes
                                            14  
Net income (loss)
                                          $ (1,898 )
 
For the Three Months Ended December 31, 2010
 
Hudson
Europe
   
Hudson ANZ
   
Hudson
Americas
   
Hudson Asia
   
Corporate
   
Total
 
Revenue, from external customers
  $ 90,616     $ 74,338     $ 44,268     $ 9,839     $ -     $ 219,061  
Gross margin, from external customers
  $ 37,468     $ 25,231     $ 10,775     $ 9,450     $ -     $ 82,924  
Business reorganization and integration expenses (recovery)
  $ 865     $ 102     $ 21     $ -     $ -     $ 988  
Non-operating expense (income), including corporate administration charges
    1,337       886       (1,298 )     243       (2,979 )     (1,811 )
EBITDA (Loss) (1)
  $ 314     $ 1,254     $ 2,386     $ 1,523     $ (1,921 )   $ 3,556  
Depreciation and amortization expenses
                                            1,730  
Interest expense (income), net
                                            306  
Provision for (benefit from) income taxes
                                            116  
Loss (income) from discontinued operations, net of taxes
                                            212  
Net income (loss)
                                          $ 1,191  
 
For the Three Months Ended June 30, 2011
 
Hudson
Europe
   
Hudson ANZ
   
Hudson
Americas
   
Hudson Asia
   
Corporate
   
Total
 
Revenue, from external customers
  $ 100,191     $ 86,143     $ 50,912     $ 10,132     $ -     $ 247,378  
Gross margin, from external customers
  $ 42,228     $ 30,534     $ 13,021     $ 9,684     $ -     $ 95,467  
Business reorganization and integration expenses (recovery)
  $ 396     $ -     $ -     $ -     $ -     $ 396  
Non-operating expense (income), including corporate administration charges
    2,390       1,375       678       920       (5,358 )     5  
EBITDA (Loss) (1)
  $ 2,735     $ 3,037     $ 1,160     $ 773     $ (44 )   $ 7,661  
Depreciation and amortization expenses
                                            1,636  
Interest expense (income), net
                                            375  
Provision for (benefit from) income taxes
                                            1,426  
Loss (income) from discontinued operations, net of taxes
                                            -  
Net income (loss)
                                          $ 4,224  

(1)
Non-GAAP earnings before interest, income taxes, and depreciation and amortization (“EBITDA”) are presented to provide additional information about the company’s operations on a basis consistent with the measures which the company uses to manage its operations and evaluate its performance. Management also uses these measurements to evaluate capital needs and working capital requirements. EBITDA should not be considered in isolation or as a substitute for operating income, cash flows from operating activities, and other income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of the company’s profitability or liquidity. Furthermore, EBITDA as presented above may not be comparable with similarly titled measures reported by other companies.

 
 

 

HUDSON HIGHLAND GROUP, INC.
SEGMENT ANALYSIS - YEAR TO DATE
(in thousands)
(unaudited)

For The Nine Months Ended September 30, 2011
 
Hudson
Europe
   
Hudson ANZ
   
Hudson
Americas
   
Hudson Asia
   
Corporate
   
Total
 
Revenue, from external customers
  $ 290,656     $ 247,383     $ 144,415     $ 28,544     $ -     $ 710,998  
Gross margin, from external customers
  $ 119,294     $ 85,992     $ 37,040     $ 27,331     $ -     $ 269,657  
Business reorganization and integration expenses (recovery)
  $ 747     $ -     $ -     $ -     $ -     $ 747  
Non-operating expense (income), including corporate administration charges
    5,873       3,840       1,758       1,438       (13,153 )     (244 )
EBITDA (Loss) (1)
  $ 6,930     $ 8,011     $ 2,242     $ 3,034     $ (2,580 )   $ 17,637  
Depreciation and amortization expenses
                                            4,750  
Interest expense (income), net
                                            910  
Provision for (benefit from) income taxes
                                            4,377  
Loss (income) from discontinued operations, net of taxes
                                            -  
Net income (loss)
                                          $ 7,600  
 
For The Nine Months Ended September 30, 2010
 
Hudson
Europe
   
Hudson ANZ
   
Hudson
Americas
   
Hudson Asia
   
Corporate
   
Total
 
Revenue, from external customers
  $ 237,875     $ 195,045     $ 118,165     $ 24,396     $ -     $ 575,481  
Gross margin, from external customers
  $ 99,722     $ 63,758     $ 28,643     $ 23,525     $ -     $ 215,648  
Goodwill and other impairment (recovery)
  $ -     $ -     $ -     $ -     $ -     $ -  
Business reorganization and integration expenses (recovery)
    536       (116 )     285       -       -       705  
Non-operating expense (income), including corporate administration charges
    5,414       3,030       (523 )     704       (11,312 )     (2,687 )
EBITDA (Loss) (1)
  $ 771     $ 2,994     $ (699 )   $ 3,076     $ (3,196 )   $ 2,946  
Depreciation and amortization expenses
                                            6,453  
Interest expense (income), net
                                            972  
Provision for (benefit from) income taxes
                                            1,366  
Loss (income) from discontinued operations, net of taxes
                                            31  
Net income (loss)
                                          $ (5,876 )
 

 
(1)
Non-GAAP earnings before interest, income taxes, and depreciation and amortization (“EBITDA”) are presented to provide additional information about the company’s operations on a basis consistent with the measures which the company uses to manage its operations and evaluate its performance. Management also uses these measurements to evaluate capital needs and working capital requirements. EBITDA should not be considered in isolation or as a substitute for operating income, cash flows from operating activities, and other income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of the company’s profitability or liquidity. Furthermore, EBITDA as presented above may not be comparable with similarly titled measures reported by other companies.

 
 

 

HUDSON HIGHLAND GROUP, INC.
Reconciliation For Constant Currency
(in thousands)
(unaudited)

The company operates on a global basis, with the majority of our gross margin generated outside of the United States. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations. Constant currency information compares financial results between periods as if exchange rates had remained constant period-over-period. The company currently defines the term “constant currency” to mean that financial data for a previously reported period are translated into U.S. dollars using the same foreign currency exchange rates that were used to translate financial data for the current period.

Changes in revenue, direct costs, gross margin, and selling, general and administrative expenses include the effect of changes in foreign currency exchange rates. Variance analysis usually describes period-to-period variances that are calculated using constant currency as a percentage. The company’s management reviews and analyzes business results in constant currency and believes these results better represent the company’s underlying business trends.

The company believes that these calculations are a useful measure, indicating the actual change in operations. Earnings from subsidiaries are rarely repatriated to the United States, and there are no significant gains or losses on foreign currency transactions between subsidiaries. Therefore, changes in foreign currency exchange rates generally impact only reported earnings and not the company’s economic condition.

   
For The Three Months Ended September 30,
 
    
2011
   
2010
 
                
Currency
   
Constant
 
    
As reported
   
As reported
   
translation
   
currency
 
Revenue:
                       
Hudson Europe
  $ 96,753     $ 80,503     $ 4,031     $ 84,534  
Hudson ANZ
    90,437       72,974       10,854       83,828  
Hudson Americas
    47,691       37,839       15       37,854  
Hudson Asia
    10,200       9,078       552       9,630  
Total
    245,081       200,394       15,452       215,846  
                                 
Direct costs:
                               
Hudson Europe
    58,624       47,856       2,144       50,000  
Hudson ANZ
    58,998       48,715       7,374       56,089  
Hudson Americas
    34,029       28,528       -       28,528  
Hudson Asia
    438       304       24       328  
Total
    152,089       125,403       9,542       134,945  
                                 
Gross margin:
                               
Hudson Europe
    38,129       32,647       1,887       34,534  
Hudson ANZ
    31,439       24,259       3,480       27,739  
Hudson Americas
    13,662       9,311       15       9,326  
Hudson Asia
    9,762       8,774       528       9,302  
Total
  $ 92,992     $ 74,991     $ 5,910     $ 80,901  
                                 
Selling, general and administrative (a):
                               
Hudson Europe
  $ 34,630     $ 32,473     $ 2,000     $ 34,473  
Hudson ANZ
    26,759       22,083       3,463       25,546  
Hudson Americas
    11,970       9,572       18       9,590  
Hudson Asia
    8,114       7,224       455       7,679  
Corporate
    5,369       5,007       2       5,009  
Total
  $ 86,842     $ 76,359     $ 5,938     $ 82,297  

(a) Selling, general and administrative expenses include depreciation and amortization expenses and insurance recovery.

 
 

 
 

Exhibit 99.2

         

November 1, 2011

Hudson Highland Group 2011 Third Quarter Shareholder Letter

For the third quarter of 2011, Hudson’s diversified portfolio of key practices and markets delivered growth in both reported and constant currency. All regions contributed even as market conditions weakened toward the end of the quarter.  Our consolidated revenue and gross margin increased 22 percent and 24 percent respectively on a reported basis from the prior year quarter, which translates to 14 percent and 15 percent on a constant currency basis. Both temporary contracting and permanent recruitment gross margin drove this growth, improving 25 percent and 13 percent respectively in constant currency.  Our Legal and RPO (recruitment process outsourcing) businesses contributed over half of our gross margin growth, improving the gross margin percentage to 37.9 percent.  This was a 50 basis point improvement compared with the prior year quarter in constant currency and includes a 150 basis point improvement in our temporary contracting margin.
 
Hudson Americas delivered another strong quarter, with gross margin growth of 47 percent.  We continued to benefit from the strong position of Hudson’s Legal practice in the marketplace and growth in RPO. Hudson Europe delivered 10 percent gross margin growth in constant currency, despite increased caution throughout the banking sector.  Hudson ANZ produced 13 percent gross margin growth in constant currency, and was our largest EBITDA contributor this quarter, with a solid improvement in leverage compared with prior year.  Our business in China delivered a 35 percent increase compared with the prior year period, which helped drive Hudson Asia up 5 percent in constant currency, despite slower hiring in the banking and IT sectors in Singapore.
 
The company delivered $7.4 million EBITDA in the third quarter, or 3 percent of revenue, and net income of $3.4 million.  This compares with EBITDA of $1.2 million and a net loss of $1.9 million in the same period last year. The company used $6.8 million in cash flow from operations in the third quarter due to slower collections from some larger clients and an additional temporary contractor payroll period in one of our markets.  We ended the third quarter with $72.2 million in liquidity, including $22.5 million in cash and $49.7 million in available borrowings.
 
On our second quarter conference call, we announced four key initiatives to migrate our business to the more strategic professional services required by our clients for their talent needs. We believe our third quarter results underscore both the ability of our company to serve our clients well and the increasing importance of delivering value-added services, particularly in challenging economic times.  We have communicated our key initiatives throughout the organization, and we have begun the deployment process in all regions.  We have also recently announced a more streamlined organizational structure and a focus on implementation of our key initiatives, which we expect will provide our clients and ourselves with a better ability to compete for talent even as the economic outlook becomes increasingly uncertain.
 
Regional Highlights

Europe

In the third quarter of 2011, Hudson Europe’s gross margin increased 10 percent in constant currency compared with the prior year period with good contributions from both the U.K. and continental Europe. The year-over-year growth rate is consistent with the second quarter, although market conditions weakened noticeably toward the end of the quarter.  Temporary contracting improved 29 percent while permanent recruitment increased 2 percent, both in constant currency. The strong temporary contracting growth was driven largely by growth in our cross-border Legal practice in the U.K. Permanent recruitment growth was more muted and may remain so.

Hudson Europe produced adjusted EBITDA of $3.9 million compared with $1.0 million in the prior year period.

Hudson Europe
 
Q3 2011
   
Q3 2010
 
(in thousands)
           
Gross margin
  $ 38,129     $ 32,647  
SG&A
    34,236       31,687  
Adjusted EBITDA
    3,893       960  
Reorganization Cost
    -       -  
Non-operating expense, including Corporate Allocations
    1,873       3,088  
EBITDA
    2,020       (2,128 )
 
 
 

 

Australia and New Zealand
 
Hudson ANZ generated a constant currency gross margin increase of 13 percent in the third quarter. This year-over-year growth reflected continued strength in permanent recruitment, which increased 22 percent from the prior year period, while temporary contracting improved 15 percent, both in constant currency. Business was strong across our practices with particular strength in the natural resource sector in Australia and throughout our diversified portfolio in New Zealand. In temporary contracting, the overall mix of business improved by moving away from lower-margin practices, increasing the temporary gross margin by 110 basis points.
 
Adjusted EBITDA was $5.4 million compared with $2.8 million in the prior year period. The overall profitability improvement was driven from revenue producing headcount added over the last twelve months and a better business mix.

Hudson ANZ
 
Q3 2011
   
Q3 2010
 
(in thousands)
           
Gross margin
  $ 31,439     $ 24,259  
SG&A
    26,084       21,450  
Adjusted EBITDA
    5,355       2,809  
Reorganization Cost
    -       -  
Non-operating expense, including Corporate Allocations
    1,421       1,433  
EBITDA
    3,934       1,376  

Asia

Hudson Asia generated a gross margin increase of 5 percent in constant currency in the third quarter. China was the growth driver, increasing 35 percent from the prior year period in constant currency. This increase was primarily due to hiring activity in our Industrial and Legal practices, with a strong contribution from our RPO business as well. Our RPO offering gives our clients the right level of support to find the talent needed to build their businesses in an important market such as China. Our businesses in Singapore and Hong Kong were down compared with prior year, largely due to weaker demand in banking and IT.

Adjusted EBITDA was $1.7 million, or 16.8 percent of revenue, similar to the prior quarter and the prior year period.

Hudson Asia
 
Q3 2011
   
Q3 2010
 
(in thousands)
           
Gross margin
  $ 9,762     $ 8,774  
SG&A
    8,046       7,127  
Adjusted EBITDA
    1,716       1,647  
Reorganization Cost
    -       -  
Non-operating expense, including Corporate Allocations
    427       478  
EBITDA
    1,289       1,169  

Americas

Hudson Americas’ gross margin increased 47 percent compared with the prior year period, driven by 33 percent growth in temporary contracting and more than 100 percent growth in permanent recruitment. Improvements were driven by our Legal practice, which reported 38 percent higher average contractors on billing compared with prior year and about the same level as the prior quarter.  The strong gross margin improvement was driven by a better mix of strategic solutions for clients and a higher temporary contracting gross margin percentage.  The RPO business more than doubled compared with prior year due to client wins, and the IT practice grew 15 percent, with growth in both temporary contracting and permanent placement.

Temporary contracting gross margin percentage grew 190 basis points compared with the prior year, driven primarily by higher margins in Legal.

Adjusted EBITDA was $2.0 million, representing a $1.8 million improvement from the prior year period.

 
 

 
 
Hudson Americas
 
Q3 2011
   
Q3 2010
 
(in thousands)
           
Gross margin
  $ 13,662     $ 9,311  
SG&A
    11,706       9,145  
Adjusted EBITDA
    1,956       166  
Reorganization Cost
    -       41  
Non-operating expense, includingCorporate Allocations
    497       (407 )
EBITDA
    1,459       532  

Corporate

Corporate expense in the third quarter before allocations to the regions was $5.2 million, up $0.3 million compared with prior year and down $0.2 million on a sequential basis. The expense increase was attributable to compensation related to performance and severance.

Liquidity and Capital Resources

The company ended the third quarter of 2011 with $72.2 million in liquidity, consisting of $22.5 million in cash and $49.7 million in availability under its credit facilities.  The company used $6.8 million in cash flow from operations during the quarter and reduced its outstanding borrowings from $10.1 million at the end of the second quarter to $6.6 million at the end of the third quarter.

Guidance
 
The company currently expects fourth quarter 2011 revenue of $225 - $240 million and EBITDA of $6 - $9 million at prevailing exchange rates. This compares with revenue of $219.1 million and EBITDA of $3.6 million in the fourth quarter of 2010.

Safe Harbor Statement

This press release contains statements that the company believes to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this press release, including statements regarding the company’s future financial condition, results of operations, business operations and business prospects, are forward-looking statements. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “predict,” “believe” and similar words, expressions and variations of these words and expressions are intended to identify forward-looking statements. All forward-looking statements are subject to important factors, risks, uncertainties and assumptions, including industry and economic conditions’ that could cause actual results to differ materially from those described in the forward-looking statements. Such factors, risks, uncertainties and assumptions include, but are not limited to, global economic fluctuations; risks related to fluctuations in the company’s operating results from quarter to quarter; the ability of clients to terminate their relationship with the company at any time; competition in the company’s markets; risks associated with the company’s investment strategy; risks related to international operations, including foreign currency fluctuations; the company’s dependence on key management personnel; the company’s ability to attract and retain highly skilled professionals; risks in collecting the company’s accounts receivable; the company’s history of negative cash flows and operating losses may continue; restrictions on the company’s operating flexibility due to the terms of its credit facilities; the company’s ability to refinance its existing AUD 17 million finance agreement with the Commonwealth Bank of Australia prior to the December 5, 2011 termination date of the existing agreement; implementation of the company’s cost reduction initiatives effectively; the company’s heavy reliance on information systems and the impact of potentially losing or failing to develop technology; risks related to our dependence on uninterrupted service to clients; the company’s exposure to employment-related claims from both clients and employers and limits on related insurance coverage; volatility of the company’s stock price; the impact of government regulations; and restrictions imposed by blocking arrangements. Additional information concerning these and other factors is contained in the company's filings with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this document. The company assumes no obligation, and expressly disclaims any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.

###
Financial Tables Follow

 
 

 

HUDSON HIGHLAND GROUP, INC.
SEGMENT ANALYSIS - QUARTER TO DATE
(in thousands)
(unaudited)

For The Three Months Ended September 30, 2011
 
Hudson
Europe
   
Hudson ANZ
   
Hudson
Americas
   
Hudson Asia
   
Corporate
   
Total
 
Revenue, from external customers
  $ 96,753     $ 90,437     $ 47,691     $ 10,200     $ -     $ 245,081  
Gross margin, from external customers
  $ 38,129     $ 31,439     $ 13,662     $ 9,762     $ -     $ 92,992  
Business reorganization and integration expenses (recovery)
  $ -     $ -     $ -     $ -     $ -     $ -  
Non-operating expense (income), including corporate administration charges
    1,873       1,421       497       427       (3,980 )     238  
EBITDA (Loss) (1)
  $ 2,020     $ 3,934     $ 1,459     $ 1,289     $ (1,253 )   $ 7,449  
Depreciation and amortization expenses
                                            1,537  
Interest expense (income), net
                                            328  
Provision for (benefit from) income taxes
                                            2,202  
Loss (income) from discontinued operations, net of taxes
                                            -  
Net income (loss)
                                          $ 3,382  
 
For The Three Months Ended September 30, 2010
 
Hudson
Europe
   
Hudson ANZ
   
Hudson
Americas
   
Hudson Asia
   
Corporate
   
Total
 
Revenue, from external customers
  $ 80,503     $ 72,974     $ 37,839     $ 9,078     $ -     $ 200,394  
Gross margin, from external customers
  $ 32,647     $ 24,259     $ 9,311     $ 8,774     $ -     $ 74,991  
Business reorganization and integration expenses (recovery)
  $ -     $ -     $ 41     $ -     $ -     $ 41  
Non-operating expense (income), including corporate administration charges
    3,088       1,433       (407 )     478       (5,776 )     (1,184 )
EBITDA (Loss) (1)
  $ (2,128 )   $ 1,376     $ 532     $ 1,169     $ 244     $ 1,193  
Depreciation and amortization expenses
                                            1,981  
Interest expense (income), net
                                            497  
Provision for (benefit from) income taxes
                                            599  
Loss (income) from discontinued operations, net of taxes
                                            14  
Net income (loss)
                                          $ (1,898 )
 
For the Three Months Ended December 31, 2010
 
Hudson
Europe
   
Hudson ANZ
   
Hudson
Americas
   
Hudson Asia
   
Corporate
   
Total
 
Revenue, from external customers
  $ 90,616     $ 74,338     $ 44,268     $ 9,839     $ -     $ 219,061  
Gross margin, from external customers
  $ 37,468     $ 25,231     $ 10,775     $ 9,450     $ -     $ 82,924  
Business reorganization and integration expenses (recovery)
  $ 865     $ 102     $ 21     $ -     $ -     $ 988  
Non-operating expense (income), including corporate administration charges
    1,337       886       (1,298 )     243       (2,979 )     (1,811 )
EBITDA (Loss) (1)
  $ 314     $ 1,254     $ 2,386     $ 1,523     $ (1,921 )   $ 3,556  
Depreciation and amortization expenses
                                            1,730  
Interest expense (income), net
                                            306  
Provision for (benefit from) income taxes
                                            116  
Loss (income) from discontinued operations, net of taxes
                                            212  
Net income (loss)
                                          $ 1,191  
 
For the Three Months Ended June 30, 2011
 
Hudson
Europe
   
Hudson ANZ
   
Hudson
Americas
   
Hudson Asia
   
Corporate
   
Total
 
Revenue, from external customers
  $ 100,191     $ 86,143     $ 50,912     $ 10,132     $ -     $ 247,378  
Gross margin, from external customers
  $ 42,228     $ 30,534     $ 13,021     $ 9,684     $ -     $ 95,467  
Business reorganization and integration expenses (recovery)
  $ 396     $ -     $ -     $ -     $ -     $ 396  
Non-operating expense (income), including corporate administration charges
    2,390       1,375       678       920       (5,358 )     5  
EBITDA (Loss) (1)
  $ 2,735     $ 3,037     $ 1,160     $ 773     $ (44 )   $ 7,661  
Depreciation and amortization expenses
                                            1,636  
Interest expense (income), net
                                            375  
Provision for (benefit from) income taxes
                                            1,426  
Loss (income) from discontinued operations, net of taxes
                                            -  
Net income (loss)
                                          $ 4,224  

(1)
Non-GAAP earnings before interest, income taxes, and depreciation and amortization (“EBITDA”) are presented to provide additional information about the company’s operations on a basis consistent with the measures which the company uses to manage its operations and evaluate its performance. Management also uses these measurements to evaluate capital needs and working capital requirements. EBITDA should not be considered in isolation or as a substitute for operating income, cash flows from operating activities, and other income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of the company’s profitability or liquidity. Furthermore, EBITDA as presented above may not be comparable with similarly titled measures reported by other companies.

 
 

 

HUDSON HIGHLAND GROUP, INC.
Reconciliation For Constant Currency
(in thousands)
(unaudited)

The company operates on a global basis, with the majority of our gross margin generated outside of the United States. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations. Constant currency information compares financial results between periods as if exchange rates had remained constant period-over-period. The company currently defines the term “constant currency” to mean that financial data for a previously reported period are translated into U.S. dollars using the same foreign currency exchange rates that were used to translate financial data for the current period.

Changes in revenue, direct costs, gross margin, and selling, general and administrative expenses include the effect of changes in foreign currency exchange rates. Variance analysis usually describes period-to-period variances that are calculated using constant currency as a percentage. The company’s management reviews and analyzes business results in constant currency and believes these results better represent the company’s underlying business trends.

The company believes that these calculations are a useful measure, indicating the actual change in operations. Earnings from subsidiaries are rarely repatriated to the United States, and there are no significant gains or losses on foreign currency transactions between subsidiaries. Therefore, changes in foreign currency exchange rates generally impact only reported earnings and not the company’s economic condition.

   
For The Three Months Ended September 30,
 
    
2011
   
2010
 
                
Currency
   
Constant
 
    
As reported
   
As reported
   
translation
   
currency
 
Revenue:
                       
Hudson Europe
  $ 96,753     $ 80,503     $ 4,031     $ 84,534  
Hudson ANZ
    90,437       72,974       10,854       83,828  
Hudson Americas
    47,691       37,839       15       37,854  
Hudson Asia
    10,200       9,078       552       9,630  
Total
    245,081       200,394       15,452       215,846  
                                 
Direct costs:
                               
Hudson Europe
    58,624       47,856       2,144       50,000  
Hudson ANZ
    58,998       48,715       7,374       56,089  
Hudson Americas
    34,029       28,528       -       28,528  
Hudson Asia
    438       304       24       328  
Total
    152,089       125,403       9,542       134,945  
                                 
Gross margin:
                               
Hudson Europe
    38,129       32,647       1,887       34,534  
Hudson ANZ
    31,439       24,259       3,480       27,739  
Hudson Americas
    13,662       9,311       15       9,326  
Hudson Asia
    9,762       8,774       528       9,302  
Total
  $ 92,992     $ 74,991     $ 5,910     $ 80,901  
                                 
Selling, general and administrative (a):
                               
Hudson Europe
  $ 34,630     $ 32,473     $ 2,000     $ 34,473  
Hudson ANZ
    26,759       22,083       3,463       25,546  
Hudson Americas
    11,970       9,572       18       9,590  
Hudson Asia
    8,114       7,224       455       7,679  
Corporate
    5,369       5,007       2       5,009  
Total
  $ 86,842     $ 76,359     $ 5,938     $ 82,297  

(a) Selling, general and administrative expenses include depreciation and amortization expenses and insurance recovery.