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): July 29, 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 July
29, 2009, Hudson Highland Group, Inc. issued a press release announcing its
financial results for the three and six months ended June 30, 2009. A copy
of such press release is furnished as Exhibit 99.1 to this Current
Report.
Also on
July 29, 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 June 30, 2009. A copy of such letter is furnished as Exhibit
99.2 to this Current Report.
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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 July 29,
2009.
|
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99.2
|
|
Letter
to Shareholders, Employees and Friends issued on July 29, 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)
|
||
|
|
||
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By:
|
/s/ MARY JANE RAYMOND
|
|
| Mary Jane Raymond | ||
|
Executive
Vice President and Chief
Financial
Officer
|
||
| Dated: July 29, 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 July 29,
2009.
|
|
99.2
|
|
Letter
to Shareholders, Employees and Friends issued on July 29, 2009 and posted
to Company’s website.
|
Exhibit
99.1
|
Contact:
|
David
F. Kirby
|
|
|
Hudson
Highland Group
|
||
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212-351-7216
|
||
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david.kirby@hudson.com
|
Hudson
Highland Group Reports 2009
Second
Quarter Financial Results
NEW YORK, NY – July 29, 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 second quarter ended June
30, 2009.
2009
Second Quarter Summary
|
·
|
Revenue
of $173.8 million, a decrease of 42.6 percent from $303.1 million for the
second quarter of 2008, and an increase of $9.1 million or 5.6 percent
from the first quarter of
2009
|
|
·
|
Gross
margin of $64.9 million, or 37.3 percent of revenue, down 51.7 percent
from $134.4 million, or 44.3 percent of revenue for the same period last
year, and an increase of $2.9 million or 4.6 percent from the first
quarter of 2009
|
|
·
|
Adjusted
EBITDA* loss of $4.4 million, or 2.6 percent of revenue, down from
adjusted EBITDA of positive $11.4 million for the second quarter of 2008,
and an improvement from the adjusted EBITDA loss of $9.7 million in the
first quarter of 2009
|
|
·
|
EBITDA*
loss of $9.6 million, down from EBITDA of positive $10.4 million for the
same period in 2008
|
|
·
|
Net
loss from continuing operations of $15.5 million, or $0.59 per basic and
diluted share, compared with net income from continuing operations of $1.9
million, or $0.07 per basic and diluted share, for the second quarter of
2008
|
|
●
|
Net
loss of $17.8 million, or $0.68 per basic and diluted share, compared with
net income of $5.0 million, or $0.20 per basic and $0.19 per diluted
share, for the second quarter of
2008
|
*Adjusted
EBITDA and EBITDA are defined in the segment tables at the end of this
release.
“Despite
an adverse economic environment in the second quarter, we were able to reduce
our first quarter adjusted EBITDA loss by 54 percent due to aggressive cost
management,” said Jon Chait, Hudson Highland Group chairman and chief executive
officer. “While we expect the environment to remain challenging, I believe that
we have weathered the worst of the declines and there is evidence that market
demand levels are beginning to stabilize.”
“Our
recent office restructuring actions and additional cost reductions are helping
to position the company for a profitable future when the recovery takes hold,”
said Mary Jane Raymond, the company’s executive vice president and chief
financial officer. “We expect our adjusted EBITDA in the second half of
2009 to improve over the first half of the year, notwithstanding a possible
seasonal decline in the third quarter. We expect cash trends to improve as
well.”
Restructuring
Program
During
the third quarter of 2009, the company expects to continue to streamline its
operations in response to current economic conditions. Last quarter, the
company increased the size of the 2009 restructuring plan to $11 - $16 million
and expects to incur $1 - $4 million of restructuring charges during the third
quarter of 2009. Second quarter restructuring expenses of $3.6 million were
related to severance and lease terminations, primarily in Europe and North
America.
Liquidity
and Capital Resources
The
company ended the second quarter of 2009 with $47.2 million in cash including
$11.3 million currently borrowed under its amended credit facility, up from
$46.3 million at the end of the first quarter of 2009. In addition, the company
has excess availability under its amended credit facility of $6.7 million. The
company received $11.6 million in April 2009 from Heidrick & Struggles for
the final earn-out from the sale of Highland Partners in 2006.
Guidance
Despite
recent signs of increasing stability, visibility remains low. As a
result, the company will not provide formal guidance for the third quarter of
2009. The company will comment on current trends and its outlook for the third
quarter on its second quarter earnings call.
Additional
Information
Additional
information about the company’s quarterly results can be found in the
shareholder letter and the second 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 Thursday, July 30, 2009 at 10:00
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 19999263 at 9:50 a.m. ET. For those outside the United States, please
call in on 1-706-634-5594 followed by the participant passcode 19999263. 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 one week by dialing 1-800-642-1687 followed
by the participant passcode 19999263. For those outside the United States, the
call will be available on 1-706-645-9291 followed by the participant passcode
19999263.
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 or non-core 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;
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
|
Six Months Ended
|
|||||||||||||||
|
June 30,
|
June 30,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
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Revenue
|
$ | 173,848 | $ | 303,128 | $ | 338,539 | $ | 596,159 | ||||||||
|
Direct
costs
|
108,964 | 168,725 | 211,651 | 338,579 | ||||||||||||
|
Gross
margin
|
64,884 | 134,403 | 126,888 | 257,580 | ||||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Selling,
general and administrative expenses
|
69,329 | 123,002 | 141,030 | 239,398 | ||||||||||||
|
Depreciation
and amortization
|
2,840 | 3,537 | 6,628 | 7,362 | ||||||||||||
|
Business
reorganization and integration expenses
|
3,562 | 1,024 | 9,401 | 2,216 | ||||||||||||
|
Goodwill
and other impairment charges
|
1,549 | - | 1,549 | - | ||||||||||||
|
Total
operating expenses
|
77,280 | 127,563 | 158,608 | 248,976 | ||||||||||||
|
Operating
(loss) income
|
(12,396 | ) | 6,840 | (31,720 | ) | 8,604 | ||||||||||
|
Other
(expense) income:
|
||||||||||||||||
|
Interest,
net
|
(182 | ) | 204 | (372 | ) | 558 | ||||||||||
|
Other,
net
|
54 | 1,095 | 674 | 1,358 | ||||||||||||
|
(Loss)
income from continuing operations before income taxes
|
(12,524 | ) | 8,139 | (31,418 | ) | 10,520 | ||||||||||
|
Provision
(benefit) for income taxes
|
2,975 | 6,281 | (1,085 | ) | 8,060 | |||||||||||
|
(Loss)
income from continuing operations
|
(15,499 | ) | 1,858 | (30,333 | ) | 2,460 | ||||||||||
|
(Loss)
income from discontinued operations, net of income taxes
|
(2,272 | ) | 3,098 | 7,003 | 3,860 | |||||||||||
|
Net
(loss) income
|
$ | (17,771 | ) | $ | 4,956 | $ | (23,330 | ) | $ | 6,320 | ||||||
|
Basic
(loss) income per share:
|
||||||||||||||||
|
(Loss)
income from continuing operations
|
$ | (0.59 | ) | $ | 0.07 | $ | (1.18 | ) | $ | 0.10 | ||||||
|
(Loss)
income from discontinued operations
|
(0.09 | ) | 0.13 | 0.27 | 0.15 | |||||||||||
|
Net
(loss) income
|
$ | (0.68 | ) | $ | 0.20 | $ | (0.91 | ) | $ | 0.25 | ||||||
|
Diluted
(loss) income per share:
|
||||||||||||||||
|
(Loss)
income from continuing operations
|
$ | (0.59 | ) | $ | 0.07 | $ | (1.18 | ) | $ | 0.10 | ||||||
|
(Loss)
income from discontinued operations
|
(0.09 | ) | 0.12 | 0.27 | 0.15 | |||||||||||
|
Net
(loss) income
|
$ | (0.68 | ) | $ | 0.19 | $ | (0.91 | ) | $ | 0.25 | ||||||
|
Weighted
average shares outstanding:
|
||||||||||||||||
|
Basic
|
26,311 | 24,984 | 25,744 | 25,135 | ||||||||||||
|
Diluted
|
26,311 | 25,512 | 25,744 | 25,616 | ||||||||||||
HUDSON
HIGHLAND GROUP, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except per share amount)
(unaudited)
|
June 30,
|
December 31,
|
|||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 47,238 | $ | 49,209 | ||||
|
Accounts
receivable, net
|
104,794 | 127,169 | ||||||
|
Prepaid
and other
|
15,438 | 15,411 | ||||||
|
Current
assets from discontinued operations
|
831 | 2,360 | ||||||
|
Total
current assets
|
168,301 | 194,149 | ||||||
|
Intangibles,
net
|
971 | 2,498 | ||||||
|
Property
and equipment, net
|
21,128 | 24,379 | ||||||
|
Other
assets
|
13,152 | 9,927 | ||||||
|
Total
assets
|
$ | 203,552 | $ | 230,953 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 12,984 | $ | 15,693 | ||||
|
Accrued
expenses and other current liabilities
|
60,716 | 76,447 | ||||||
|
Short-term
borrowings
|
11,348 | 5,307 | ||||||
|
Accrued
business reorganization expenses
|
6,955 | 5,724 | ||||||
|
Current
liabilities from discontinued operations
|
1,185 | 1,410 | ||||||
|
Total
current liabilities
|
93,188 | 104,581 | ||||||
|
Other
non-current liabilities
|
19,157 | 16,904 | ||||||
|
Accrued
business reorganization expenses, non-current
|
819 | 1,476 | ||||||
|
Total
liabilities
|
113,164 | 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 26,694 and
26,494 shares, respectively
|
27 | 26 | ||||||
|
Additional
paid-in capital
|
445,123 | 450,739 | ||||||
|
Accumulated
deficit
|
(386,235 | ) | (362,905 | ) | ||||
|
Accumulated
other comprehensive income—translation adjustments
|
31,756 | 27,054 | ||||||
|
Treasury
stock, 107 and 1,140 shares, respectively, at cost
|
(283 | ) | (6,922 | ) | ||||
|
Total
stockholders’ equity
|
90,388 | 107,992 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 203,552 | $ | 230,953 | ||||
HUDSON
HIGHLAND GROUP, INC.
SEGMENT
ANALYSIS
(in
thousands)
(unaudited)
|
For
The Three Months Ended June 30, 2009
|
Hudson
Americas
|
Hudson
Europe
|
Hudson Asia
Pacific
|
Corporate
|
Total
|
|||||||||||||||
|
Revenue
|
$ | 43,133 | $ | 68,187 | $ | 62,528 | $ | - | $ | 173,848 | ||||||||||
|
Gross
margin
|
$ | 10,512 | $ | 31,280 | $ | 23,092 | $ | - | $ | 64,884 | ||||||||||
|
Adjusted
EBITDA (1)
|
$ | (495 | ) | $ | 798 | $ | 444 | $ | (5,192 | ) | $ | (4,445 | ) | |||||||
|
Business
reorganization and integration expenses
|
1,124 | 2,328 | 96 | 14 | 3,562 | |||||||||||||||
|
Goodwill
and other impairment charges
|
(120 | ) | - | 1,669 | - | 1,549 | ||||||||||||||
|
EBITDA
(1)
|
(1,499 | ) | (1,530 | ) | (1,321 | ) | (5,206 | ) | (9,556 | ) | ||||||||||
|
Depreciation
and amortization
|
1,048 | 1,017 | 745 | 30 | 2,840 | |||||||||||||||
|
Operating
(loss) income
|
$ | (2,547 | ) | $ | (2,547 | ) | $ | (2,066 | ) | $ | (5,236 | ) | $ | (12,396 | ) | |||||
|
For
The Three Months Ended June 30, 2008
|
Hudson
Americas
|
Hudson
Europe
|
Hudson Asia
Pacific
|
Corporate
|
Total
|
|||||||||||||||
|
Revenue
|
$ | 71,507 | $ | 115,696 | $ | 115,925 | $ | - | $ | 303,128 | ||||||||||
|
Gross
margin
|
$ | 20,186 | $ | 63,326 | $ | 50,891 | $ | - | $ | 134,403 | ||||||||||
|
Adjusted
EBITDA (1)
|
$ | 1,734 | $ | 9,870 | $ | 9,011 | $ | (9,214 | ) | $ | 11,401 | |||||||||
|
Business
reorganization and integration expenses
|
245 | 779 | - | - | 1,024 | |||||||||||||||
|
Goodwill
and other impairment charges
|
- | - | - | - | - | |||||||||||||||
|
EBITDA
(1)
|
1,489 | 9,091 | 9,011 | (9,214 | ) | 10,377 | ||||||||||||||
|
Depreciation
and amortization
|
1,171 | 1,329 | 984 | 53 | 3,537 | |||||||||||||||
|
Operating
income (loss)
|
$ | 318 | $ | 7,762 | $ | 8,027 | $ | (9,267 | ) | $ | 6,840 | |||||||||
|
(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 Six Months Ended June 30, 2009
|
Hudson
Americas
|
Hudson
Europe
|
Hudson Asia
Pacific
|
Corporate
|
Total
|
|||||||||||||||
|
Revenue
|
$ | 87,155 | $ | 134,116 | $ | 117,268 | $ | - | $ | 338,539 | ||||||||||
|
Gross
margin
|
$ | 21,482 | $ | 61,584 | $ | 43,822 | $ | - | $ | 126,888 | ||||||||||
|
Adjusted
EBITDA (1)
|
$ | (3,659 | ) | $ | (282 | ) | $ | (261 | ) | $ | (9,940 | ) | $ | (14,142 | ) | |||||
|
Business
reorganization and integration expenses
|
2,747 | 4,666 | 1,974 | 14 | 9,401 | |||||||||||||||
|
Goodwill
and other impairment charges
|
(120 | ) | - | 1,669 | - | 1,549 | ||||||||||||||
|
EBITDA
(1)
|
(6,286 | ) | (4,948 | ) | (3,904 | ) | (9,954 | ) | (25,092 | ) | ||||||||||
|
Depreciation
and amortization
|
2,053 | 2,820 | 1,662 | 93 | 6,628 | |||||||||||||||
|
Operating
(loss) income
|
$ | (8,339 | ) | $ | (7,768 | ) | $ | (5,566 | ) | $ | (10,047 | ) | $ | (31,720 | ) | |||||
|
For
The Six Months Ended June 30, 2008
|
Hudson
Americas
|
Hudson
Europe
|
Hudson Asia
Pacific
|
Corporate
|
Total
|
|||||||||||||||
|
Revenue
|
$ | 154,769 | $ | 226,028 | $ | 215,362 | $ | - | $ | 596,159 | ||||||||||
|
Gross
margin
|
$ | 42,940 | $ | 120,883 | $ | 93,757 | $ | - | $ | 257,580 | ||||||||||
|
Adjusted
EBITDA (1)
|
$ | 2,959 | $ | 15,583 | $ | 14,783 | $ | (15,143 | ) | $ | 18,182 | |||||||||
|
Business
reorganization and integration expenses
|
1,705 | 416 | 95 | - | 2,216 | |||||||||||||||
|
Goodwill
and other impairment charges
|
- | - | - | - | - | |||||||||||||||
|
EBITDA
(1)
|
1,254 | 15,167 | 14,688 | (15,143 | ) | 15,966 | ||||||||||||||
|
Depreciation
and amortization
|
2,344 | 2,972 | 1,940 | 106 | 7,362 | |||||||||||||||
|
Operating
(loss) income
|
$ | (1,090 | ) | $ | 12,195 | $ | 12,748 | $ | (15,249 | ) | $ | 8,604 | ||||||||
|
(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
July 29,
2009
To:
Shareholders, Employees and Friends
Hudson
Highland Group 2009 Second Quarter Financial Results
Market
Observations
In the
second quarter of 2009, economic trends around the world continued to reflect
the impact of the global recession. Economic trends were somewhat more mixed
than in the first quarter of the year with some geographic markets showing signs
of continuing decline while others showed signs of stabilization, albeit at
depressed levels. Hudson’s regional results followed these mixed trends to
produce top-line results slightly ahead of the first quarter of 2009, but
failing to exhibit the normal seasonal “bounce”. Our regions have responded to
their challenging environments quickly and effectively and our results, while
not where we want them to be, reflected excellent cost management at the
operational level.
Many
economists believe the worst of the global recession is behind us. The timing
and speed of the recovery to follow will be staggered across regions, depending
in large part on when they were impacted by the recession and, according to
some, the speed and extent of their governments’ responses. The OECD now
forecasts that the US economy is likely to bottom out in the second half of 2009
and begin a slow recovery. In Australia, GDP is expected to remain weak for the
remainder of 2009, followed by moderate growth in 2010. China is thought to be
rebounding already, with expected growth in the second half of 2009 and
accelerated growth in 2010. Signs are far less positive in the euro area, where
further contraction is expected for the remainder of 2009 with no growth to
follow in 2010. Indeed the recession hit much of Europe later than it did the
United States, and the European Union’s recovery has historically lagged due to
structural issues and their monetary focus on maintaining price
stability.
As we
have seen in past recessions, unemployment trends typically lag recovery in the
overall economic condition. While we see the potential for modest economic
growth in much of the developed world in the latter half of 2009, we do not
expect unemployment to peak until 2010 and a recovery in permanent recruitment
sometime thereafter. We are expecting no real improvement in the company’s
consolidated revenue trends in 2009, although we do expect to see evidence of a
blossoming recovery in specific markets in the second half, and particularly in
the fourth quarter.
Hudson’s
consolidated top-line results were up 6 percent from the first quarter, showing
a lack of seasonal pickup typical of the second quarter, but also some stability
after two quarters of sharp declines. The mostly flat sequential results
translated into a larger year-over-year decline than in the first quarter, since
the prior year did reflect the seasonal pickup. While this phenomenon flowed
through many of our markets, several markets showed more encouraging signs. Asia
reported a meaningful sequential gross margin improvement of about 20 percent in
constant currency in the second quarter, with local currency growth in
Singapore, China and Hong Kong. Small sequential gross margin improvements
were achieved in local currency in the UK, Spain and New Zealand. The
other markets ranged from flat to small sequential declines.
Second
quarter results reflected aggressive management of costs at the operational
levels. In the second quarter, operating expenses declined $54 million from the
prior year period following a decline of $45 million in the first quarter of
2009. This reduction in expenses from property and staff initiatives allowed the
company to offset 77 percent of its gross margin decline in the second quarter.
As a result of Hudson’s extensive restructuring program, the company has become
a leaner, more efficient organization, which we believe is sustainable and will
help protect the company’s bottom line and pave the way to greater profitability
when the world economy recovers.
Regional
Highlights
Hudson
Americas
In the
second quarter of 2009, North America revenue was $43 million, down 40 percent
from the prior year period. Temporary contracting revenue was down 38 percent
and permanent recruitment was down 66 percent. The largest driver of the
temporary contracting decline resulted from the region annualizing a large legal
project in the second quarter of 2008, which accounted for approximately
one-third of the decline from the prior year period. In the second quarter of
2009, Financial Solutions and IT&T combined contracting revenue was down 36
percent compared with the prior year period.
Gross
margin declined 48 percent in the second quarter from the prior year period to
$11 million, in line with first quarter 2009 gross margin. Temporary contract
gross margin dollars were up slightly from the first quarter of 2009, led by 4
percent growth in Legal. Temporary contracting represented 88 percent of gross
margin dollars, up from 82 percent in the prior year period. Gross margin
percentage was 24 percent, down from 28 percent in the prior year period, but
sequentially was nearly flat, with contract gross margin up 40 basis
points.
Adjusted
EBITDA was a loss of about $0.5 million in the second quarter, representing a
decline of $2.2 million from adjusted EBITDA of $1.7 million in the second
quarter of 2008 but a substantial improvement on the loss of $3.2 million in the
first quarter. Operating expenses declined over 40 percent from the prior year
period resulting from cost reduction actions taken last year and continuing
through the second quarter of 2009, helping to offset $7.5 million, or 77
percent of the gross margin decline.
Looking
at intra-quarter trends, gross margin dollars progressed much like the second
quarter of 2008, with a slight decline from April to May, and an increase in
June. Adjusted EBITDA increased each month, with the region exiting the quarter
with a profit in June. In each month of the quarter, Hudson Americas offset at
least 70 percent of its year-over-year gross margin decline through expense
reductions.
Hudson
Europe
In the
second quarter of 2009, Hudson Europe revenue declined 41 percent to $68 million
from $116 million in the prior year period and declined 28 percent in constant
currency. Contract revenue declined 16 percent and permanent recruitment was
down 50 percent in constant currency. Gross margin declined 51 percent to $31
million from $63 million in the second quarter of 2008 and was down 40 percent
in constant currency. But sequentially, revenue and gross margin were up
slightly from the first quarter of 2009.
In the
UK, revenue declined 28 percent in constant currency in the second quarter of
2009, driven by a 49 percent decline in permanent recruitment and a 21 percent
decline in temporary contracting, on a constant currency basis. Second quarter
results were affected by continued weakness in financial services and other
professional sectors, partially offset by increases in public sector and some
new client acquisitions.
In
Continental Europe, demand declined at an accelerated rate from the first
quarter of 2009, with revenue down 28 percent on a constant currency basis
driven by a 50 percent decline in permanent recruitment revenue. There were,
however, some areas of strength within the region. Balance in the Netherlands
delivered increased adjusted EBITDA in the second quarter over the prior year
period. Belgium produced increased adjusted EBITDA in the second quarter
over the first, although at a lower level than prior year, with adjusted EBITDA
reaching almost 10 percent of revenue. France, Spain and Central and
Eastern Europe had reduced adjusted EBITDA losses compared with the first
quarter.
Adjusted
EBITDA was a profit of $0.8 million in Europe in the second quarter, down from
$9.9 million in the second quarter of 2008 but improved from the first quarter’s
adjusted EBITDA loss of $1.4 million. Hudson Europe offset 72 percent of its
gross margin decline through expense reduction initiatives that reduced
operating expenses by 43 percent.
Asia
Pacific
In the
second quarter of 2009, Hudson Asia Pacific revenue declined 46 percent, to $63
million from $116 million in the prior year period, and declined 34 percent in
constant currency. Contract revenue was down 27 percent and permanent
recruitment declined 57 percent from the prior year period in constant currency,
offset by a 31 percent increase in talent management. Gross margin declined 55
percent or 46 percent in constant currency.
In
Australia and New Zealand, revenue declined 46 percent 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 57 percent from the prior year and was down 46
percent in constant currency. While Australia and New Zealand did not
experience its typical seasonal pickup in the second quarter from the first
quarter, revenue and gross margin were stable sequentially, increasing slightly
on a reported basis, but down slightly on a local currency basis.
In Asia,
revenue declined 43 percent from the prior year period and declined 41 percent
in constant currency. On a sequential basis, Singapore, China and Hong Kong all
achieved improved gross margin over the first quarter of 2009. While
Asia’s business is typically more sensitive to changes in the economic climate
due to its concentration in the permanent recruitment business, there appears to
have been some recovery in the region during the second quarter.
Asia
Pacific adjusted EBITDA in the second quarter was $0.4 million, compared with
$9.0 million in the prior year period. This result was driven by a small
adjusted EBITDA loss in Asia, offset by positive adjusted EBITDA in Australia
and New Zealand. Australia and New Zealand offset 68 percent of the region’s
gross margin decline in the second quarter from the prior year period and Asia
offset 74 percent of its gross margin decline.
Corporate
Corporate
expenses were $5.2 million for the quarter, down $4 million from the prior year
period almost equally driven by reductions in compensation expense and lower
professional fees.
Restructuring
Program
During
the third quarter of 2009, the company expects to continue to streamline its
operations in response to current economic conditions. Last quarter, the
company increased the size of the 2009 restructuring plan to $11 - $16 million
and expects to incur $1 - $4 million of restructuring charges during the third
quarter of 2009. Second quarter restructuring expenses of $3.6 million
were related to severance and lease terminations in Europe and North
America.
Liquidity
and Capital Resources
The
company ended the second quarter of 2009 with $47.2 million in cash including
$11.3 million currently borrowed under its amended credit facility, up from
$46.3 million at the end of the first quarter of 2009. In addition, the
company has excess availability under its amended credit facility of $6.7
million. The company received $11.6 million in April 2009 from Heidrick
& Struggles for the final earn-out from the sale of Highland Partners in
2006.
Guidance
Despite
recent signs of increasing stability, visibility remains low. As a result,
the company will not provide formal guidance for the third quarter of
2009. The company will comment on current trends and its outlook for the
third quarter on its second 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 or non-core 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;
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.
SEGMENT
ANALYSIS
(in
thousands)
(unaudited)
|
For
The Three Months Ended June 30, 2009
|
Hudson
Americas
|
Hudson
Europe
|
Hudson Asia
Pacific
|
Corporate
|
Total
|
|||||||||||||||
|
Revenue
|
$ | 43,133 | $ | 68,187 | $ | 62,528 | $ | - | $ | 173,848 | ||||||||||
|
Gross
margin
|
$ | 10,512 | $ | 31,280 | $ | 23,092 | $ | - | $ | 64,884 | ||||||||||
|
Adjusted
EBITDA (1)
|
$ | (495 | ) | $ | 798 | $ | 444 | $ | (5,192 | ) | $ | (4,445 | ) | |||||||
|
Business
reorganization and integration expenses
|
1,124 | 2,328 | 96 | 14 | 3,562 | |||||||||||||||
|
Goodwill
and other impairment charges
|
(120 | ) | - | 1,669 | - | 1,549 | ||||||||||||||
|
EBITDA
(1)
|
(1,499 | ) | (1,530 | ) | (1,321 | ) | (5,206 | ) | (9,556 | ) | ||||||||||
|
Depreciation
and amortization
|
1,048 | 1,017 | 745 | 30 | 2,840 | |||||||||||||||
|
Operating
(loss) income
|
$ | (2,547 | ) | $ | (2,547 | ) | $ | (2,066 | ) | $ | (5,236 | ) | $ | (12,396 | ) | |||||
|
For
The Three Months Ended June 30, 2008
|
Hudson
Americas
|
Hudson
Europe
|
Hudson Asia
Pacific
|
Corporate
|
Total
|
|||||||||||||||
|
Revenue
|
$ | 71,507 | $ | 115,696 | $ | 115,925 | $ | - | $ | 303,128 | ||||||||||
|
Gross
margin
|
$ | 20,186 | $ | 63,326 | $ | 50,891 | $ | - | $ | 134,403 | ||||||||||
|
Adjusted
EBITDA (1)
|
$ | 1,734 | $ | 9,870 | $ | 9,011 | $ | (9,214 | ) | $ | 11,401 | |||||||||
|
Business
reorganization and integration expenses
|
245 | 779 | - | - | 1,024 | |||||||||||||||
|
Goodwill
and other impairment charges
|
- | - | - | - | - | |||||||||||||||
|
EBITDA
(1)
|
1,489 | 9,091 | 9,011 | (9,214 | ) | 10,377 | ||||||||||||||
|
Depreciation
and amortization
|
1,171 | 1,329 | 984 | 53 | 3,537 | |||||||||||||||
|
Operating
income (loss)
|
$ | 318 | $ | 7,762 | $ | 8,027 | $ | (9,267 | ) | $ | 6,840 | |||||||||
|
(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.
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
|
$ | 43,133 | $ | 69 | $ | 43,202 | $ | 71,507 | |||||||||
|
Hudson
Europe
|
68,187 | 15,268 | 83,455 | 115,696 | |||||||||||||
|
Hudson
Asia Pacific
|
62,528 | 14,082 | 76,610 | 115,925 | |||||||||||||
|
Total
|
173,848 | 29,419 | 203,267 | 303,128 | |||||||||||||
|
Direct
costs:
|
|||||||||||||||||
|
Hudson
Americas
|
32,621 | 9 | 32,630 | 51,321 | |||||||||||||
|
Hudson
Europe
|
36,907 | 8,780 | 45,687 | 52,370 | |||||||||||||
|
Hudson
Asia Pacific
|
39,436 | 9,658 | 49,094 | 65,034 | |||||||||||||
|
Total
|
108,964 | 18,447 | 127,411 | 168,725 | |||||||||||||
|
Gross
margin:
|
|||||||||||||||||
|
Hudson
Americas
|
10,512 | 60 | 10,572 | 20,186 | |||||||||||||
|
Hudson
Europe
|
31,280 | 6,488 | 37,768 | 63,326 | |||||||||||||
|
Hudson
Asia Pacific
|
23,092 | 4,424 | 27,516 | 50,891 | |||||||||||||
|
Total
|
$ | 64,884 | $ | 10,972 | $ | 75,856 | $ | 134,403 | |||||||||
|
Selling,
general and administrative (1)
|
|||||||||||||||||
|
Hudson
Americas
|
$ | 12,078 | $ | 63 | $ | 12,141 | $ | 19,599 | |||||||||
|
Hudson
Europe
|
31,488 | 6,814 | 38,302 | 54,814 | |||||||||||||
|
Hudson
Asia Pacific
|
23,380 | 4,568 | 27,948 | 42,859 | |||||||||||||
|
Corporate
|
5,223 | - | 5,223 | 9,267 | |||||||||||||
|
Total
|
$ | 72,169 | $ | 11,445 | $ | 83,614 | $ | 126,539 | |||||||||
|
(1)
|
Selling,
general and administrative expenses include depreciation and amortization
expenses.
|