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 3, 2009
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 3, 2009, Hudson Highland Group, Inc. issued a press release announcing
its financial results for the three and nine months ended September 30,
2009. A copy of such press release is furnished as Exhibit 99.1 to this Current
Report.
Also on
November 3, 2009, Hudson Highland Group, Inc. posted on its web site a Letter to
Shareholders, Employees and Friends, which discusses results for the three
months ended September 30, 2009. A copy of such letter is furnished as
Exhibit 99.2 to this Current Report.
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 3,
2009.
|
|
99.2
|
Letter
to Shareholders, Employees and Friends issued on November 3, 2009 and
posted to 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/ Frank P.
Lanuto
|
|
Frank
P. Lanuto
|
|
|
Vice President, Corporate
Controller
and Chief Accounting
Officer
|
|
|
Dated:
November 3, 2009
|
|
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 3,
2009.
|
|
99.2
|
|
Letter
to Shareholders, Employees and Friends issued on November 3, 2009 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 2009
Third
Quarter Financial Results
NEW YORK, NY – November 3, 2009 –
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, 2009.
2009
Third Quarter Summary
|
|
·
|
Revenue
of $169.6 million, a decrease of 37.0 percent from $269.2 million for the
third quarter of 2008, and a decrease of $4.2 million or 2.4 percent from
the second quarter of 2009
|
|
|
·
|
Gross
margin of $64.2 million, or 37.8 percent of revenue, down 43.0 percent
from $112.7 million, or 41.9 percent of revenue for the same period last
year, and a decrease of $0.7 million or 1.1 percent from the second
quarter of 2009
|
|
|
·
|
Adjusted
EBITDA*
loss of $3.2 million, or 1.9 percent of revenue, down from adjusted EBITDA
of positive $6.6 million for the third quarter of 2008, and an improvement
from the adjusted EBITDA loss of $4.4 million in the second quarter of
2009
|
|
|
·
|
EBITDA*
loss of $6.1 million, down from EBITDA of positive $3.8 million for the
same period in 2008
|
|
|
·
|
Net
loss from continuing operations of $7.6 million, or $0.29 per basic and
diluted share, compared with net income from continuing operations of $0.4
million, or $0.01 per basic and diluted share, for the third quarter of
2008
|
|
|
·
|
Net loss of $6.9 million, or
$0.26 per basic and diluted share, compared with net loss of $0.3 million,
or $0.01 per basic and diluted share, for the third quarter of
2008
|
*Adjusted
EBITDA and EBITDA are defined in the segment tables at the end of this
release.
“Sequential
improvement of adjusted EBITDA during the third quarter was encouraging,” said
Jon Chait, Hudson Highland Group’s chairman and chief executive officer. “This
achievement was counter to typical third quarter seasonal softness and resulted
from the company’s earlier restructuring actions and increased sequential demand
in some markets. While we expect the environment to remain challenging, I expect
we will continue to deliver improved sequential financial results for the fourth
quarter of 2009 and into 2010.”
“We
continued to manage our cash well, ending the quarter with $44.5 million, as our
Days Sales Outstanding decreased to 48 days,” said Mary Jane Raymond, the
company’s executive vice president and chief financial officer. “We used $2.8
million of cash during the third quarter, of which $1.7 million was used for an
earn-out payment on our Tony Keith acquisition in China and $0.9 million was a
repayment on our credit facility. Cash flow from operations showed significant
improvement from the first half of the year with a net use under $1
million.”
Restructuring
Program
During
the fourth quarter of 2009, the company expects to continue to streamline its
operations in response to current economic conditions. The company recently
increased the size of its 2009 restructuring plan to $19 million and expects to
incur $2 - $5 million of restructuring charges during the fourth quarter of
2009. Third quarter restructuring expenses of $2.9 million were related to
severance and lease terminations, primarily in Europe.
Liquidity
and Capital Resources
The
company ended the third quarter of 2009 with $44.5 million in cash and $10.5
million currently borrowed under its primary credit facility, down from $47.2
million in cash at the end of the second quarter of 2009 with $11.3 million
borrowed. In addition, the company has availability under its primary credit
facility of $2.3 million, as well as an additional $3.8 million of availability
under local country credit facilities, the majority of which became available
subsequent to September 30, 2009. The company paid $1.7 million in
July 2009 as part of its earn-out for the Tony Keith acquisition in
China.
Guidance
Despite
recent signs of increasing stability, visibility remains low. As a
result, the company will not provide formal guidance for the fourth quarter of
2009. The company will comment on current trends and its outlook for the fourth
quarter on its third quarter earnings call.
Additional
Information
Additional
information about the company’s quarterly results can be found in the
shareholder letter and the third quarter 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 Wednesday, November 4, 2009 at
9:00 a.m. ET to discuss this announcement. Individuals wishing to participate
can join the conference call by dialing 1-800-374-1532 followed by the
participant passcode 36219796 at 8:50 a.m. ET. For those outside the United
States, please call 1-706-634-5594 followed by the participant passcode
36219796. Hudson Highland Group's quarterly conference call can also be accessed
online through Yahoo! Finance at www.yahoo.com and the
investor information section of the company's Web site at www.hudson.com.
The
archived call will be available for two weeks by dialing 1-800-642-1687 followed
by the participant passcode 36219796. For those outside the United States, the
call will be available on 1-706-645-9291 followed by the participant passcode
36219796.
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 nearly
2,500 professionals serving clients and candidates in more than 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 those under the
caption “Guidance” and other 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 risks and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. These factors include,
but are not limited to, the impact of global economic fluctuations including the
current economic downturn; the ability of clients to terminate their
relationship with the company at any time; risks in collecting our accounts
receivable; implementation of the company’s cost reduction initiatives
effectively; the company’s history of negative cash flows and operating losses
may continue; the company's limited borrowing availability under our credit
facility, which may negatively impact our liquidity; restrictions on the
company’s operating flexibility due to the terms of its credit facility;
fluctuations in the company’s operating results from quarter to quarter; risks
relating to the company’s international operations, including foreign currency
fluctuations; risks related to our investment strategy; risks and financial
impact associated with dispositions of underperforming assets; the company’s
heavy reliance on information systems and the impact of potentially losing or
failing to develop technology; competition in the company’s markets and the
company’s dependence on highly skilled professionals; the company’s exposure to
employment-related claims from both clients and employers and limits on related
insurance coverage; the company’s dependence on key management personnel;
volatility of stock price; the impact of government regulations; financial
impact of audits by various taxing authorities; 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
letter. The company assumes no obligation, and expressly disclaims any
obligation, to review or confirm analysts' expectations or estimates or 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 share and per share amounts)
(unaudited)
|
Three Months Ended September
30,
|
Nine Months Ended September
30,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Revenue
|
$ | 169,647 | $ | 269,239 | $ | 508,186 | $ | 865,398 | ||||||||
|
Direct
costs
|
105,457 | 156,544 | 317,108 | 495,123 | ||||||||||||
|
Gross
margin
|
64,190 | 112,695 | 191,078 | 370,275 | ||||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Selling,
general and administrative expenses
|
67,412 | 106,080 | 208,442 | 345,478 | ||||||||||||
|
Depreciation
and amortization
|
2,741 | 3,913 | 9,369 | 11,274 | ||||||||||||
|
Business
reorganization and integration expenses
|
2,878 | 2,817 | 12,279 | 5,033 | ||||||||||||
|
Goodwill
and other impairment charges
|
- | - | 1,549 | - | ||||||||||||
|
Total
operating expenses
|
73,031 | 112,810 | 231,639 | 361,785 | ||||||||||||
|
Operating
(loss) income
|
(8,841 | ) | (115 | ) | (40,561 | ) | 8,490 | |||||||||
|
Other
(expense) income :
|
||||||||||||||||
|
Interest,
net
|
(96 | ) | 337 | (469 | ) | 895 | ||||||||||
|
Other,
net
|
99 | 603 | 773 | 1,963 | ||||||||||||
|
(Loss)
income from continuing operations before provision for income
taxes
|
(8,838 | ) | 825 | (40,257 | ) | 11,348 | ||||||||||
|
(Benefit)
provision for income taxes
|
(1,215 | ) | 464 | (2,300 | ) | 8,524 | ||||||||||
|
(Loss)
income from continuing operations
|
(7,623 | ) | 361 | (37,957 | ) | 2,824 | ||||||||||
|
Income
(loss) from discontinued operations, net of income taxes
|
770 | (670 | ) | 7,773 | 3,187 | |||||||||||
|
Net
(loss) income
|
$ | (6,853 | ) | $ | (309 | ) | $ | (30,184 | ) | $ | 6,011 | |||||
|
Basic
earnings (loss) per share:
|
||||||||||||||||
|
(Loss)
income from continuing operations
|
$ | (0.29 | ) | $ | 0.01 | $ | (1.46 | ) | $ | 0.11 | ||||||
|
Income
(loss) from discontinued operations
|
0.03 | (0.02 | ) | 0.30 | 0.13 | |||||||||||
|
Net
(loss) income
|
$ | (0.26 | ) | $ | (0.01 | ) | $ | (1.16 | ) | $ | 0.24 | |||||
|
Diluted
earnings (loss) per share:
|
||||||||||||||||
|
(Loss)
income from continuing operations
|
$ | (0.29 | ) | $ | 0.01 | $ | (1.46 | ) | $ | 0.11 | ||||||
|
Income
(loss) from discontinued operations
|
0.03 | (0.02 | ) | 0.30 | 0.13 | |||||||||||
|
Net
(loss) income
|
$ | (0.26 | ) | $ | (0.01 | ) | $ | (1.16 | ) | $ | 0.24 | |||||
|
Weighted
average shares outstanding:
|
||||||||||||||||
|
Basic
|
26,320 | 25,245 | 25,938 | 25,180 | ||||||||||||
|
Diluted
|
26,320 | 25,630 | 25,938 | 25,550 | ||||||||||||
HUDSON HIGHLAND GROUP, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except per share amount)
(unaudited)
|
September 30,
|
December 31,
|
|||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 44,483 | $ | 49,209 | ||||
|
Accounts
receivable, net
|
96,994 | 127,169 | ||||||
|
Prepaid
and other
|
13,169 | 15,411 | ||||||
|
Current
assets from discontinued operations
|
314 | 2,360 | ||||||
|
Total
current assets
|
154,960 | 194,149 | ||||||
|
Intangibles,
net
|
1,231 | 2,498 | ||||||
|
Property
and equipment, net
|
19,306 | 24,379 | ||||||
|
Other
assets
|
15,767 | 9,927 | ||||||
|
Total
assets
|
$ | 191,264 | $ | 230,953 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 10,009 | $ | 15,693 | ||||
|
Accrued
expenses and other current liabilities
|
57,523 | 76,447 | ||||||
|
Short-term
borrowings
|
10,456 | 5,307 | ||||||
|
Accrued
business reorganization expenses
|
6,761 | 5,724 | ||||||
|
Current
liabilities from discontinued operations
|
72 | 1,410 | ||||||
|
Total
current liabilities
|
84,821 | 104,581 | ||||||
|
Other
non-current liabilities
|
19,734 | 16,904 | ||||||
|
Accrued
business reorganization expenses, non-current
|
548 | 1,476 | ||||||
|
Total
liabilities
|
105,103 | 122,961 | ||||||
|
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 26,764 and
26,494 shares, respectively
|
27 | 26 | ||||||
|
Additional
paid-in capital
|
445,387 | 450,739 | ||||||
|
Accumulated
deficit
|
(393,089 | ) | (362,905 | ) | ||||
|
Accumulated
other comprehensive income—translation adjustments
|
34,128 | 27,054 | ||||||
|
Treasury
stock, 111 and 1,140 shares, respectively, at cost
|
(292 | ) | (6,922 | ) | ||||
|
Total
stockholders’ equity
|
86,161 | 107,992 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 191,264 | $ | 230,953 | ||||
HUDSON HIGHLAND GROUP, INC.
SEGMENT
ANALYSIS
(in
thousands)
(unaudited)
|
For The Three Months Ended September 30, 2009
|
Hudson
Americas
|
Hudson
Europe
|
Hudson Asia
Pacific
|
Corporate
|
Total
|
|||||||||||||||
|
Revenue
|
$ | 35,705 | $ | 67,898 | $ | 66,044 | $ | - | $ | 169,647 | ||||||||||
|
Gross
margin
|
$ | 9,258 | $ | 29,571 | $ | 25,361 | $ | - | $ | 64,190 | ||||||||||
|
Adjusted
EBITDA (1)
|
$ | (1,625 | ) | $ | 30 | $ | 2,579 | $ | (4,206 | ) | $ | (3,222 | ) | |||||||
|
Business
reorganization and integration expenses
|
592 | 1,881 | 405 | - | 2,878 | |||||||||||||||
|
Goodwill
and other impairment charges
|
- | - | - | - | - | |||||||||||||||
|
EBITDA
(1)
|
(2,217 | ) | (1,851 | ) | 2,174 | (4,206 | ) | (6,100 | ) | |||||||||||
|
Depreciation
and amortization
|
1,047 | 911 | 739 | 44 | 2,741 | |||||||||||||||
|
Operating
(loss) income
|
$ | (3,264 | ) | $ | (2,762 | ) | $ | 1,435 | $ | (4,250 | ) | $ | (8,841 | ) | ||||||
|
For The Three Months Ended September 30, 2008
|
Hudson
Americas
|
Hudson
Europe
|
Hudson Asia
Pacific
|
Corporate
|
Total
|
|||||||||||||||
|
Revenue
|
$ | 66,485 | $ | 98,301 | $ | 104,453 | $ | - | $ | 269,239 | ||||||||||
|
Gross
margin
|
$ | 17,967 | $ | 49,717 | $ | 45,011 | $ | - | $ | 112,695 | ||||||||||
|
Adjusted
EBITDA (1)
|
$ | 1,586 | $ | 3,403 | $ | 7,631 | $ | (6,005 | ) | $ | 6,615 | |||||||||
|
Business
reorganization and integration expenses
|
121 | 813 | 1,883 | - | 2,817 | |||||||||||||||
|
Goodwill
and other impairment charges
|
- | - | - | - | - | |||||||||||||||
|
EBITDA
(1)
|
1,465 | 2,590 | 5,748 | (6,005 | ) | 3,798 | ||||||||||||||
|
Depreciation
and amortization
|
1,175 | 1,495 | 1,190 | 53 | 3,913 | |||||||||||||||
|
Operating
income (loss)
|
$ | 290 | $ | 1,095 | $ | 4,558 | $ | (6,058 | ) | $ | (115 | ) | ||||||||
|
(1)
|
Non-GAAP
earnings before interest, income taxes, special charges, other
non-operating expense, and depreciation and amortization (“Adjusted
EBITDA”) and non-GAAP earnings before interest, income taxes, other
non-operating expense, 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.
Adjusted EBITDA and 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, adjusted EBITDA and EBITDA as
presented above may not be comparable with similarly titled measures
reported by other companies.
|
HUDSON HIGHLAND GROUP, INC.
SEGMENT
ANALYSIS
(in
thousands)
(unaudited)
|
For The Nine Months Ended September 30, 2009
|
Hudson
Americas
|
Hudson
Europe
|
Hudson Asia
Pacific
|
Corporate
|
Total
|
|||||||||||||||
|
Revenue
|
$ | 122,861 | $ | 202,014 | $ | 183,311 | $ | - | $ | 508,186 | ||||||||||
|
Gross
margin
|
$ | 30,741 | $ | 91,155 | $ | 69,182 | $ | - | $ | 191,078 | ||||||||||
|
Adjusted
EBITDA (1)
|
$ | (5,284 | ) | $ | (253 | ) | $ | 2,318 | $ | (14,145 | ) | $ | (17,364 | ) | ||||||
|
Business
reorganization and integration expenses
|
3,339 | 6,547 | 2,379 | 14 | 12,279 | |||||||||||||||
|
Goodwill
and other impairment charges
|
(120 | ) | - | 1,669 | - | 1,549 | ||||||||||||||
|
EBITDA
(1)
|
(8,503 | ) | (6,800 | ) | (1,730 | ) | (14,159 | ) | (31,192 | ) | ||||||||||
|
Depreciation
and amortization
|
3,100 | 3,731 | 2,401 | 137 | 9,369 | |||||||||||||||
|
Operating
(loss) income
|
$ | (11,603 | ) | $ | (10,531 | ) | $ | (4,131 | ) | $ | (14,296 | ) | $ | (40,561 | ) | |||||
|
For The Nine Months Ended September 30, 2008
|
Hudson
Americas
|
Hudson
Europe
|
Hudson Asia
Pacific
|
Corporate
|
Total
|
|||||||||||||||
|
Revenue
|
$ | 221,254 | $ | 324,329 | $ | 319,815 | $ | - | $ | 865,398 | ||||||||||
|
Gross
margin
|
$ | 60,901 | $ | 170,603 | $ | 138,771 | $ | - | $ | 370,275 | ||||||||||
|
Adjusted
EBITDA (1)
|
$ | 4,544 | $ | 18,985 | $ | 22,413 | $ | (21,145 | ) | $ | 24,797 | |||||||||
|
Business
reorganization and integration expenses
|
1,826 | 1,229 | 1,978 | - | 5,033 | |||||||||||||||
|
Goodwill
and other impairment charges
|
- | - | - | - | - | |||||||||||||||
|
EBITDA
(1)
|
2,718 | 17,756 | 20,435 | (21,145 | ) | 19,764 | ||||||||||||||
|
Depreciation
and amortization
|
3,518 | 4,467 | 3,130 | 159 | 11,274 | |||||||||||||||
|
Operating
(loss) income
|
$ | (800 | ) | $ | 13,289 | $ | 17,305 | $ | (21,304 | ) | $ | 8,490 | ||||||||
|
(1)
|
Non-GAAP
earnings before interest, income taxes, special charges, other
non-operating expense, and depreciation and amortization (“Adjusted
EBITDA”) and non-GAAP earnings before interest, income taxes, other
non-operating expense, 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.
Adjusted EBITDA and 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, adjusted EBITDA and EBITDA as
presented above may not be comparable with similarly titled measures
reported by other companies.
|
Exhibit
99.2
November
3, 2009
To:
Shareholders, Employees and Friends
Hudson
Highland Group 2009 Third Quarter Financial Results
Market/Economic
Observations
In the
third quarter of 2009, the developed economies of the world began to show some
encouraging economic data points. Some showed signs of GDP growth, while others
stabilized, meaning that they did not continue to get worse. This was reflected
both in third quarter results and in upgraded economic forecasts for 2010 and
beyond. However, the world’s developed economies face a daunting set
of economic challenges as they struggle to recover from a deep
recession. The conventional wisdom, reflected in the forecasts of the
IMF and OECD, is that the major economies of the world will have a long, slow
recovery, either an L- or U-shaped recovery, with some risk of a W-shaped double
dip. We note that the conventional wisdom often turns out wrong. The
question is whether it is wrong high or wrong low? As we all know, in
2007 economic experts failed to predict the deep recession virtually all markets
experienced by the end of 2008.
The
recession has been fast, hard and globally synchronized. While we now see
initial signs of economic recovery, unemployment continues to lag these
improvements. There is already progress in the employment sentiment in some
regions, notably in Asia Pacific, but as is the typical pattern, employers in
most regions remain cautious about hiring until there is conclusive evidence
that the recovery is sustainable.
The most
noteworthy occurrence in our key markets was the increase in interest rates by
the Reserve Bank of Australia, the first in the G-20 to do so. In
addition, the Australian employment report the following day showed a decline in
the rate of unemployment of 0.1 percent. These factors imply that Australia’s
central bank sees a sustainable recovery and is moving interest rates to more
normal levels. This is confirmed by the results of our Hudson survey of hiring
intentions, which demonstrates a strong positive increase in hiring intentions
in the fourth quarter. Despite these favorable indicators, we have
yet to see any signs of revenue growth in the region.
Comments
on Hudson’s Third Quarter Results
In the
third quarter, Hudson’s adjusted EBITDA was a loss of $3.2 million, an
improvement over the second quarter loss of $4.4 million. In
addition, cash flow from operations improved substantially over the second
quarter and was close to breakeven. Both of these measures were against the
normal seasonal trend in our business, as the second quarter is typically our
strongest quarter of the year and the third quarter is typically weaker, due to
the summer holidays in the Northern Hemisphere. In the fourth quarter, we expect
to further reduce our loss compared with the third quarter.
A strong
economic recovery is evident in parts of Asia led by China, and Hudson’s
operations in the region reflect this. Third quarter gross margin in
Asia was 22 percent ahead of the second quarter of 2009 (although 36 percent
below the third quarter of 2008), a sequential improvement in the year-over-year
rate of decline compared with the second quarter. In China, the sequential
improvement was primarily fueled by the company’s accounting, industrial and
sales & marketing practices. Our largest practice, Technology,
has seen only a small improvement in demand compared with the dire levels in the
first half of 2009. Our Singapore operation also reported strong
sequential growth in the quarter.
The third
quarter also reflected substantial improvement in the United Kingdom on a
sequential basis, led by the financial services sector. Revenue and
gross margin in this business increased markedly in the third quarter.
Consequently, sequential revenue and gross margin declines in the United Kingdom
narrowed to about 2 percent on a constant currency basis, the region’s lowest
decline since the start of the banking crisis.
As we go
through the fourth quarter and begin to plan for 2010, we remain cautious with
regard to the economic environment in most of our major markets. This is not for
any Hudson-specific reason, but because we believe there remains a risk of a
further global downturn in early 2010. Public sector spending is likely to slow
before private sector spending increases materially, and we believe our clients
will continue to be very conservative with respect to hiring until they see
several quarters of solid recovery. We may see some increase in
demand for talent management as employers cope with smaller workforces being
asked to do more with less. We will remain cautious in our hiring and
in our expense plans generally.
Regional
Highlights
Hudson
Americas
In the
third quarter of 2009, Hudson Americas revenue was $36 million, down 46 percent
from the prior year period. This included declines in temporary contracting
revenue of 46 percent and in permanent recruitment of 62 percent. The largest
contributor to the decline in temporary contracting was the legal
business. The legal business revenue declined 52 percent from the
prior year period due in part to client projects that were completed in 2008,
the slower initiation of new client projects and the absence of large projects.
Financial Solutions and IT&T combined contracting revenue was down 36
percent in the third quarter compared with the prior year
period.
Gross
margin dollars declined 49 percent in the third quarter from the prior year
period to $9 million and was down 12 percent from the second quarter of
2009. Temporary contracting gross margin percentage was 23.2 percent,
virtually unchanged from 23.3 percent in the prior year period. Overall, gross
margin percentage was 26 percent, down from 27 percent in the prior year period,
but up 150 basis points from the second quarter of 2009.
Adjusted
EBITDA was a loss of $1.6 million in the third quarter, representing a decline
of $3.2 million from adjusted EBITDA of $1.6 million in the third quarter of
2008, and a $1.2 million decline from the second quarter of 2009. Operating
expenses declined 34 percent from the prior year period, resulting from cost
reduction actions taken last year and continuing through the third quarter of
2009, helping to offset nearly $6 million, or 63 percent, of the gross margin
decline.
Hudson
Europe
In the
third quarter of 2009, Hudson Europe revenue declined 31 percent on a reported
basis, to $68 million compared with $98 million for the same period of 2008, and
declined 23 percent in constant currency. Contract revenue declined 16 percent,
permanent recruitment revenue declined 35 percent and talent management revenue
declined 27 percent from the prior year period in constant
currency. Sequentially, reported revenue remained flat to the second
quarter and gross margin declined 5 percent, driven by slight growth in the
United Kingdom and offset by a decline in continental Europe.
In the
United Kingdom, revenue declined 20 percent in constant currency compared with
the third quarter of 2008, driven by an 18 percent decline in temporary
contracting and a 21 percent decline in permanent recruitment. The gross margin
percentage was 17 percent, down from 20 percent in the prior year period, driven
by client mix. Sequentially, gross margin in the United Kingdom declined 2
percent on a constant currency basis, though we saw progress in a number of
markets, led by Financial Services both in and outside of London.
In
continental Europe, revenue declined 28 percent and gross margin declined 36
percent in constant currency compared with the prior year period, driven
primarily by a 47 percent decline in permanent recruitment. Continental Europe
typically has a seasonal decline from the second to the third quarter, a trend
that continued in the third quarter of 2009. Sequentially, both revenue and
gross margin were down about 10 percent, resulting from weaker demand in France,
Belgium and Spain, offset by stability in Balance’s contracting business in the
Netherlands. The decline in France was driven by weakness in real estate and
financial services, while weakness in Belgium was driven by reductions in
discretionary spending in the public sector. Despite seasonal weakness relative
to the prior quarter, continental Europe again produced positive adjusted EBITDA
in the third quarter.
Adjusted
EBITDA was slightly positive in Europe in the third quarter, down from $3.4
million in the third quarter of 2008 and from $0.8 million in the second quarter
of 2009, representing a smaller sequential decline than in previous years.
Hudson Europe offset 83 percent of its gross margin decline in the third quarter
from the prior year period by reducing operating expenses by 36
percent.
Hudson Asia
Pacific
In the
third quarter of 2009, Hudson Asia Pacific revenue declined 37 percent, to $66
million from $104 million in the prior year period, and declined 33 percent in
constant currency. Contract revenue was down 27 percent and permanent
recruitment declined 53 percent from the prior year period in constant currency,
offset by a 21 percent increase in talent management revenue. Gross margin
declined 41 percent in constant currency.
In
Australia and New Zealand, revenue declined 37 percent on a reported basis or 33
percent in constant currency, both compared with the prior year period.
Temporary contracting declined 27 percent and permanent recruitment declined 60
percent in constant currency. Gross margin decreased 46 percent on a reported
basis and was down 43 percent in constant currency. Compared to the
second quarter of 2009, revenue and gross margin were up 4 percent and 6
percent, respectively, on a reported basis, though on a constant currency basis,
they were down 6 and 7 percent sequentially.
In Asia,
revenue declined 34 percent from the prior year in reported and constant
currency. On a sequential basis, China and Singapore achieved improved gross
margin dollars from the second quarter of 2009, helping to generate a 22 percent
increase over the second quarter in Asia. As noted above, the sequential
improvement was due to growth in the accounting, industrial and sales &
marketing practices.
Asia
Pacific’s adjusted EBITDA in the third quarter was $2.6 million, compared with
$7.6 million in the prior year period. Despite this decline, both Australia/New
Zealand and Asia delivered positive adjusted EBITDA in the third quarter due to
aggressive expense cuts. Australia and New Zealand offset 73 percent of its
gross margin decline in the third quarter from the prior year period, and Asia
offset 79 percent of its gross margin decline.
Corporate
Corporate
expenses were $4.2 million for the quarter, down $1.8 million from the prior
year period, driven primarily by lower professional fees and a reduction in
discretionary spending.
Restructuring
Program
During
the fourth quarter of 2009, the company expects to continue to streamline its
operations in response to current economic conditions. The company recently
increased the size of its 2009 restructuring plan to $19 million and expects to
incur $2 - $5 million of restructuring charges during the fourth quarter of
2009. Third quarter restructuring expenses of $2.9 million were related to
severance and lease terminations, primarily in Europe.
Liquidity
and Capital Resources
The
company ended the third quarter of 2009 with $44.5 million in cash and $10.5
million currently borrowed under its primary credit facility, down from $47.2
million in cash at the end of the second quarter of 2009 with $11.3 million
borrowed. In addition, the company has availability under its primary credit
facility of $2.3 million, as well as an additional $3.8 million of availability
under local country credit facilities, the majority of which became available
subsequent to September 30, 2009. The company paid $1.7 million in
July 2009 as part of its earn-out for the Tony Keith acquisition in
China.
Guidance
Despite
recent signs of increasing stability, visibility remains low. As a
result, the company will not provide formal guidance for the fourth quarter of
2009. The company will comment on current trends and its outlook for the fourth
quarter on its third quarter earnings call.
Safe
Harbor Statement
This letter 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 letter, including those under the
caption “Guidance” and other 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 risks and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. These factors include,
but are not limited to, the impact of global economic fluctuations including the
current economic downturn; the ability of clients to terminate their
relationship with the company at any time; risks in collecting our accounts
receivable; implementation of the company’s cost reduction initiatives
effectively; the company’s history of negative cash flows and operating losses
may continue; the company's limited borrowing availability under our credit
facility, which may negatively impact our liquidity; restrictions on the
company’s operating flexibility due to the terms of its credit facility;
fluctuations in the company’s operating results from quarter to quarter; risks
relating to the company’s international operations, including foreign currency
fluctuations; risks related to our investment strategy; risks and financial
impact associated with dispositions of underperforming assets; the company’s
heavy reliance on information systems and the impact of potentially losing or
failing to develop technology; competition in the company’s markets and the
company’s dependence on highly skilled professionals; the company’s exposure to
employment-related claims from both clients and employers and limits on related
insurance coverage; the company’s dependence on key management personnel;
volatility of stock price; the impact of government regulations; financial
impact of audits by various taxing authorities; 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
letter. The company assumes no obligation, and expressly disclaims any
obligation, to review or confirm analysts' expectations or estimates or to
update any forward-looking statements, whether as a result of new information,
future events or otherwise.
###
Financial
Tables Follow
SEGMENT
ANALYSIS
(in
thousands)
(unaudited)
|
For
The Three Months Ended September 30, 2009
|
Hudson
Americas
|
Hudson
Europe
|
Hudson Asia
Pacific
|
Corporate
|
Total
|
|||||||||||||||
|
Revenue
|
$ | 35,705 | $ | 67,898 | $ | 66,044 | $ | - | $ | 169,647 | ||||||||||
|
Gross
margin
|
$ | 9,258 | $ | 29,571 | $ | 25,361 | $ | - | $ | 64,190 | ||||||||||
|
Adjusted
EBITDA (1)
|
$ | (1,625 | ) | $ | 30 | $ | 2,579 | $ | (4,206 | ) | $ | (3,222 | ) | |||||||
|
Business
reorganization and integration expenses
|
592 | 1,881 | 405 | - | 2,878 | |||||||||||||||
|
Goodwill
and other impairment charges
|
- | - | - | - | - | |||||||||||||||
|
EBITDA
(1)
|
(2,217 | ) | (1,851 | ) | 2,174 | (4,206 | ) | (6,100 | ) | |||||||||||
|
Depreciation
and amortization
|
1,047 | 911 | 739 | 44 | 2,741 | |||||||||||||||
|
Operating
(loss) income
|
$ | (3,264 | ) | $ | (2,762 | ) | $ | 1,435 | $ | (4,250 | ) | $ | (8,841 | ) | ||||||
|
For
The Three Months Ended September 30, 2008
|
Hudson
Americas
|
Hudson
Europe
|
Hudson Asia
Pacific
|
Corporate
|
Total
|
|||||||||||||||
|
Revenue
|
$ | 66,485 | $ | 98,301 | $ | 104,453 | $ | - | $ | 269,239 | ||||||||||
|
Gross
margin
|
$ | 17,967 | $ | 49,717 | $ | 45,011 | $ | - | $ | 112,695 | ||||||||||
|
Adjusted
EBITDA (1)
|
$ | 1,586 | $ | 3,403 | $ | 7,631 | $ | (6,005 | ) | $ | 6,615 | |||||||||
|
Business
reorganization and integration expenses
|
121 | 813 | 1,883 | - | 2,817 | |||||||||||||||
|
Goodwill
and other impairment charges
|
- | - | - | - | - | |||||||||||||||
|
EBITDA
(1)
|
1,465 | 2,590 | 5,748 | (6,005 | ) | 3,798 | ||||||||||||||
|
Depreciation
and amortization
|
1,175 | 1,495 | 1,190 | 53 | 3,913 | |||||||||||||||
|
Operating
income (loss)
|
$ | 290 | $ | 1,095 | $ | 4,558 | $ | (6,058 | ) | $ | (115 | ) | ||||||||
|
(1)
|
Non-GAAP
earnings before interest, income taxes, special charges, other
non-operating expense, and depreciation and amortization (“Adjusted
EBITDA”) and non-GAAP earnings before interest, income taxes, other
non-operating expense, 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.
Adjusted EBITDA and 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, adjusted EBITDA and EBITDA as
presented above may not be comparable with similarly titled measures
reported by other companies.
|
Reconciliation
For Constant Currency
(in
thousands)
(unaudited)
The
company defines the term “constant currency” to mean that financial data for a
period are translated into U.S. Dollars using the same foreign currency exchange
rates that were used to translate financial data for the previously reported
period. The company uses constant currency to depict the current period results
at the exchange rates of the prior period. Changes in revenues, 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.
|
2009
|
2008
|
|||||||||||||||
|
Currency
|
Constant
|
|||||||||||||||
|
As Reported
|
Translation
|
Currency
|
As Reported
|
|||||||||||||
|
Revenue:
|
||||||||||||||||
|
Hudson
Americas
|
$ | 35,705 | $ | 28 | $ | 35,733 | $ | 66,485 | ||||||||
|
Hudson
Europe
|
67,898 | 8,013 | 75,911 | 98,301 | ||||||||||||
|
Hudson
Asia Pacific
|
66,044 | 3,654 | 69,698 | 104,453 | ||||||||||||
|
Total
|
169,647 | 11,695 | 181,342 | 269,239 | ||||||||||||
|
Direct
costs:
|
||||||||||||||||
|
Hudson
Americas
|
26,447 | 2 | 26,449 | 48,518 | ||||||||||||
|
Hudson
Europe
|
38,327 | 4,905 | 43,232 | 48,584 | ||||||||||||
|
Hudson
Asia Pacific
|
40,683 | 2,645 | 43,328 | 59,442 | ||||||||||||
|
Total
|
105,457 | 7,552 | 113,009 | 156,544 | ||||||||||||
|
Gross
margin:
|
||||||||||||||||
|
Hudson
Americas
|
9,258 | 26 | 9,284 | 17,967 | ||||||||||||
|
Hudson
Europe
|
29,571 | 3,108 | 32,679 | 49,717 | ||||||||||||
|
Hudson
Asia Pacific
|
25,361 | 1,009 | 26,370 | 45,011 | ||||||||||||
|
Total
|
$ | 64,190 | $ | 4,143 | $ | 68,333 | $ | 112,695 | ||||||||
|
Selling,
general and administrative (1)
|
||||||||||||||||
|
Hudson
Americas
|
$ | 11,926 | $ | 26 | $ | 11,952 | $ | 17,571 | ||||||||
|
Hudson
Europe
|
30,456 | 3,372 | 33,828 | 47,796 | ||||||||||||
|
Hudson
Asia Pacific
|
23,521 | 1,353 | 24,874 | 38,568 | ||||||||||||
|
Corporate
|
4,250 | - | 4,250 | 6,058 | ||||||||||||
|
Total
|
$ | 70,153 | $ | 4,751 | $ | 74,904 | $ | 109,993 | ||||||||
|
(1)
|
Selling, general and
administrative expenses include depreciation and amortization
expenses.
|