UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2023
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number: 001-38704
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||||||
(Address of principal executive offices) (Zip Code)
(475 ) 988-2068
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
| ☒ | Smaller reporting company | |||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding on July 31, 2023 | |||||||
| Common Stock - $0.001 par value | ||||||||
HUDSON GLOBAL, INC.
INDEX
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| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Direct contracting costs and reimbursed expenses | |||||||||||||||||||||||
| Salaries and related | |||||||||||||||||||||||
| Office and general | |||||||||||||||||||||||
| Marketing and promotion | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Non-operating income (expense): | |||||||||||||||||||||||
| Interest income, net | |||||||||||||||||||||||
| Other (expense) income, net | ( | ( | ( | ||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
- 1 -
HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||
| Foreign currency translation adjustment, net of income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Total other comprehensive loss, net of income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
- 2 -
HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
| June 30, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, less allowance for expected credit losses of $ | |||||||||||
| Restricted cash, current | |||||||||||
| Prepaid and other | |||||||||||
| Total current assets | |||||||||||
Property and equipment, net of accumulated depreciation of $ | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Deferred tax assets, net | |||||||||||
| Restricted cash | |||||||||||
| Goodwill | |||||||||||
Intangible assets, net of accumulated amortization of $ | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued salaries, commissions, and benefits | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
Note payable – short term | |||||||||||
| Operating lease obligations, current | |||||||||||
| Total current liabilities | |||||||||||
| Income tax payable | |||||||||||
| Operating lease obligations | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss, net of applicable tax | ( | ( | |||||||||
Treasury stock, | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
- 3 -
HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Provision for expected credit losses | |||||||||||
| Benefit from deferred income taxes | ( | ( | |||||||||
| Stock-based compensation | |||||||||||
| Changes in operating assets and liabilities, net of effect of dispositions: | |||||||||||
| Increase in accounts receivable | ( | ( | |||||||||
| Increase in prepaid and other assets | ( | ( | |||||||||
| (Increase) decrease in accounts payable, accrued expenses and other liabilities | ( | ||||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payments for business acquisition liabilities | ( | ||||||||||
| Purchase of treasury stock | ( | ||||||||||
| Cash paid for net settlement of employee restricted stock units | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rates on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash, beginning of the period | |||||||||||
| Cash, cash equivalents, and restricted cash, end of the period | $ | $ | |||||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash received during the period for interest | $ | $ | |||||||||
| Net cash payments during the period for income taxes | $ | $ | |||||||||
| Cash paid for amounts included in operating lease liabilities | $ | $ | |||||||||
| Supplemental non-cash disclosures: | |||||||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | |||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
- 4 -
HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Shares | Value | ||||||||||||||||||||||||||||||||||||||||||||||
| Total stockholders’ equity, beginning balance | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock and additional paid-in capital: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of net settled restricted stock from employees | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated deficit: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative-effect adjustment from adoption of ASU 2016-13, Credit Losses | — | — | (51) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total stockholders’ equity, ending balance | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
- 5 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 1 – BASIS OF PRESENTATION
These interim unaudited condensed consolidated financial statements have been prepared in accordance with United States of America (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting and should be read in conjunction with the consolidated financial statements and related notes of Hudson Global, Inc. and its subsidiaries (the “Company”) filed in its Annual Report on Form 10-K for the year ended December 31, 2022.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of operating revenues and expenses. These estimates are based on management’s knowledge and judgments. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows at the dates and for the periods presented have been included. The results of operations for interim periods are not necessarily indicative of the results of operations for the full year. The condensed consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. Intra-entity balances and transactions between and among the Company and its subsidiaries have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current year presentation with no material impact on the condensed consolidated financial statements. For more information, see Note 2 to the Condensed Consolidated Financial Statements.
NOTE 2 – DESCRIPTION OF BUSINESS
The Company is comprised of the operations, assets, and liabilities of the Company’s three regional businesses: the Americas, Asia Pacific, and Europe. The Company delivers Recruitment Process Outsourcing (“RPO”), services consisting of permanent recruitment and contracting outsourced recruitment solutions. These services are tailored to the individual needs of primarily mid-to-large-cap multinational companies. The Company’s RPO delivery teams utilize recruitment process methodologies and project management expertise to meet clients’ ongoing business needs. The Company’s RPO services include complete recruitment outsourcing, project-based outsourcing, contingent workforce solutions, and recruitment consulting.
The Company’s core service offering is RPO, consisting of RPO Recruitment and Contracting. The Company provides complete recruitment outsourcing, project-based outsourcing, and recruitment consulting for clients’ permanent staff hires. Hudson’s RPO Recruitment services leverage the Company’s consultants, supported by the Company’s specialists, in the delivery of its proprietary methods to identify, select, and engage the best-fit talent for critical client roles. In addition, the Company provides RPO clients with a range of outsourced professional contract staffing services and managed service provider services offered sometimes on a standalone basis and sometimes as part of a blended total talent solution. These services draw upon a combination of specialized recruiting and project management competencies to deliver a wide range of solutions. Hudson-employed professionals - either individually or as a team - are placed with client organizations for a defined period of time based on specific business needs of the client.
The Company operates directly in fourteen countries with three reportable geographic business segments: Americas, Asia Pacific, and Europe. See Note 15 to the Condensed Consolidated Financial Statements for further details regarding the reportable segments.
In December 2019, a novel virus, referred to as COVID-19, was reported. On March 11, 2020, the World Health Organization declared the outbreak to be a pandemic, based on the rapid increase in exposure globally. Despite the decline in infection rates, the COVID-19 pandemic continues to have a lasting impact on various aspects of our business including but not limited to workforce shortages.
The Company believes it can continue to take appropriate actions to manage the business in this challenging environment due to the flexibility of its workforce and the strength of its balance sheet.
- 6 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 3 – ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Pronouncements
On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This update was issued by the Financial Accounting Standards Board (the “FASB”) in June 2016. This standard requires an impairment model (known as the current expected credit loss (“CECL”) model) and replaces the methodology that recognizes impairment of financial instruments when losses have been incurred with a methodology that recognizes impairment of financial instruments when losses are expected. The new standard requires entities to use a forward-looking “expected loss” model for most financial instruments, including accounts receivable and unbilled services that is based on historical information, current information, and reasonable and supportable forecasts.
As a result of adopting the new standard, the Company recognized a cumulative increase to allowances for accounts receivable and unbilled services and a reduction to the 2023 opening balance of retained earnings of $51. Comparative periods prior to the adoption of this standard and their respective disclosures have not been adjusted. The adoption of ASU 2016-13 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
NOTE 4 – REVENUE RECOGNITION
Nature of Services
We account for a contract when both parties to the contract have approved the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Revenues are recognized over time, using an input or output method, as the control of the promised services is transferred to the client in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The majority of our contracts are short-term in nature as they include termination clauses that allow either party to cancel within a short termination period, without cause. Revenue includes billable travel and other reimbursable costs and is reported net of sales or use taxes collected from clients and remitted to taxing authorities.
We generally determine standalone selling prices based on the prices included in our client contracts, using expected cost plus profit, or other observable prices. The price as specified in our client contracts is generally considered the standalone selling price as it is an observable input that depicts the price as if sold to a similar client in similar circumstances. Certain client contracts have variable consideration, including usage-based fees that increase the transaction price and volume rebates or other similar items that generally reduce the transaction price. We estimate variable consideration using the expected value method based on the terms of the client contract and historical evidence. These amounts may be constrained and are only included in revenue to the extent we do not expect a significant reversal when the uncertainty associated with the variable consideration is resolved. Other than bonuses to be paid to contractors, on behalf of our clients, our estimated amounts of variable consideration subject to constraints are not material, and we do not believe that there will be significant changes to our estimates. Certain contract employees are entitled to performance bonuses at the sole discretion of the client and are constrained until approved. Bonuses approved and paid to our contracting employees were approximately $0.5 6.1
We record accounts receivable when our right to consideration becomes unconditional. Contract assets primarily relate to our rights to consideration for services provided that such rights to consideration are conditional on satisfaction of future performance obligations. A contract liability for deferred revenue is recorded when consideration is received, or is unconditionally due, from a client prior to transferring control of services to the client under the terms of a contract. Deferred revenue balances typically result from advance payments received from clients prior to transferring control of services. Other than deferred revenue, we do not have any material contract assets or liabilities as of and for the six months ended June 30, 2023 and 2022. As of June 30, 2023 and December 31, 2022, deferred revenue was $70 and $170 , respectively.
Payment terms vary by client and the services being provided to the client. We consider payment terms that exceed one year to be extended payment terms. Substantially all of the Company’s contracts include payment terms of 90 days or less, and we do not extend payment terms beyond one year.
- 7 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
We primarily record revenue on a gross basis in the Consolidated Statements of Operations and Comprehensive Income based upon the following key factors:
•We maintain the direct contractual relationship with the client and are responsible for fulfilling the service promised to the client.
•We maintain control over our contractors while the services to the client are being performed, including our contractors’ billing rates, and are ultimately responsible for paying them.
RPO Recruitment. We provide complete recruitment outsourcing, project-based outsourcing, and recruitment consulting services for clients’ permanent staff hires. We recognize revenue for our RPO recruitment over time in an amount that reflects the consideration we expect to be entitled to and have an enforceable right to payment in exchange for our services. The client simultaneously receives and consumes the benefits of the services as they are provided. The transaction prices contain both fixed fees and variable consideration. Variable consideration is constrained by candidates accepting offers of permanent employment. We recognize revenue on fixed fees as the performance obligations are satisfied and variable fees as the constraint is lifted. We do not incur incremental costs to obtain our RPO recruitment contracts. The costs to fulfill these contracts are expensed as incurred.
We recognize permanent placement revenue when employment candidates accept offers of permanent employment. We have a substantial history of estimating the financial impact of permanent placement candidates who do not remain with our clients through a guarantee period. Fees to clients are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement services are charged to employment candidates.
Contracting. We provide RPO clients with a range of outsourced professional contract staffing services and managed service provider services, sometimes offered on a standalone basis and sometimes offered as part of a blended total talent solution. We recognize revenue for our contracting services over time as services are performed in an amount that reflects the consideration we expect to be entitled to and have an enforceable right to payment in exchange for our services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur incremental costs to obtain our contracts for outsourced professional contract staffing services and managed service provider services. The costs incurred to fulfill these contracts are expensed as incurred.
Unsatisfied performance obligations. As a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an expected original duration of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Disaggregation of Revenue
| Three Months Ended June 30, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| RPO Recruitment | $ | $ | ||||||||||||
| Contracting | ||||||||||||||
| Total Revenue | $ | $ | ||||||||||||
| Six Months Ended June 30, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| RPO Recruitment | $ | $ | ||||||||||||
| Contracting | ||||||||||||||
| Total Revenue | $ | $ | ||||||||||||
- 8 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 5 – ACCOUNT RECEIVABLE, NET
Accounts receivable balances are composed of trade and unbilled receivables. Unbilled accounts receivable represent revenue recorded in advance of processing formal invoices pursuant to the completion of contract provisions and, generally, become billable at contractually specified dates. Unbilled receivables of $8,298 and $8,523 as of June 30, 2023 and December 31, 2022, respectively, are expected to be invoiced and collected within one year. The Company records accounts receivable when its right to consideration becomes unconditional. Contract assets primarily relate to our rights to consideration for services provided that they are conditioned on satisfaction of future performance obligations. Accounts receivable, net, are stated at the amount the Company expects to collect, which is net of estimated losses resulting from the inability of its customers to make required payments.
Allowance for Expected Credit Losses
The allowance for doubtful accounts is estimated based on the CECL model and it takes into account information about past events, current conditions, and reasonable and supportable forecasts of future economic conditions. It represents the aggregate amount of credit risk arising from the inability of specific clients to pay our fees or disputes that may affect our ability to fully collect our billed accounts receivable. When determining the collectability of specific customer accounts, a number of factors are evaluated, including: customer creditworthiness, past transaction history with the customer, changes in customer financial stability, payment terms or practices, and effect of market conditions on each customer. Other factors include, but are not limited to, current economic conditions and forward-looking estimates. Our actual experience may vary from our estimates. If the financial condition of our clients were to deteriorate, resulting in their inability or unwillingness to pay our fees, we may need to record additional provisions for expected credit losses in future periods. The risk of credit losses may be mitigated to the extent that we received a retainer from some of our clients prior to performing services. Changes in allowance for doubtful accounts are recorded in office and general expenses on the Condensed Consolidated Statements of Operations and were not material for the three and six months ended June 30, 2023. Accounts receivable, net of the allowance for expected credit losses, represents the amount we expect to collect. At each reporting date, we adjust the allowance for expected credit losses to reflect our current estimate. Our billed accounts receivables are written off when the potential for recovery is considered remote.
The Company generally establishes customer credit limits and estimates the allowance for credit losses on a country or geographic basis. Customer credit limits are based upon an initial evaluation of the customer’s credit quality and we adjust that limit accordingly based upon ongoing credit assessments of the customer, including payment history and changes in credit quality. Consistent with our adoption of ASU 2016-13, effective January 1, 2023 (refer to Note 2 – Recent Accounting Pronouncements), the allowance for uncollectible accounts receivable is determined based on an assessment of past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends. Based on that assessment, the allowance for expected credit losses as a percent of gross accounts receivable increased to 0.4 % at June 30, 2023 from 0.2 % at December 31, 2022.
- 9 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
| June 30, | December 31, | |||||||||||||
| Accounts Receivable: | 2023 | 2022 | ||||||||||||
| Billed receivables | $ | $ | ||||||||||||
| Unbilled receivables | ||||||||||||||
| Accounts Receivable, Gross | $ | $ | ||||||||||||
| Allowance for expected credit losses | ( | ( | ||||||||||||
| Accounts Receivable, Net | $ | $ | ||||||||||||
The following table summarizes the total provision for expected credit losses and write-offs:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||||||||
| Provision for expected credit losses | |||||||||||||||||||||||
| Write-offs | ( | ( | |||||||||||||||||||||
Cumulative-effect adjustment from adoption of ASU 2016-13, Credit Losses | |||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | |||||||||||||||||||
NOTE 6 – ACQUISITIONS
Hunt & Badge Consulting Private Limited
On August 19, 2022, the Company entered into a share purchase agreement by and among Hudson RPO Limited, a wholly owned subsidiary of the Company (“HnB Buyer”), Hunt & Badge Consulting Private Limited (“Seller” or “HnB”), and certain principals of HnB, and completed the acquisition by HnB Buyer of all of the membership interests of the Seller (the “HnB Acquisition”).
HnB is a provider of recruitment services to customers operating in India. HnB partners with companies of all sizes, including well-known multinationals, across a variety of industries to help meet their talent procurement needs.
In connection with the HnB Acquisition, Seller received $1,064 in cash, subject to certain adjustments, at the closing of the HnB Acquisition. Additionally, Seller has a contingent right to receive earn-out payments not to exceed $350 in aggregate payable over an eighteen-month period, subject to the achievement of certain performance thresholds and, the satisfaction of certain conditions.
The HnB Acquisition was accounted for as a business combination under the acquisition method of accounting. The purchase price of $1,260 , which consists of the amount paid in cash of $1,064 , a working capital adjustment of $47 , net of an owner receivable of $28 , and contingent earn-out payments of up to $350 (which such earn-out payments are contingent upon the achievement of certain revenue milestones through December 2023), was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date of August 19, 2022, with the excess recorded as goodwill. None of the goodwill is expected to be deductible for tax purposes. The Company’s goodwill represents the expected profit growth over time that is attributable to expanding our footprint and market share in India. The purchase price included $314 of cash and cash equivalents acquired. As of June 30, 2023, the estimated fair value for the contingent earn-out payments that the Company classified as Level 3 in the fair value hierarchy was $150 , which is based on achievement of 70 % of the specified revenue targets. These fair value estimates are based on significant inputs not observed in the market and reflect our own assumptions (forecasted revenue) through December 31, 2023.
In determining the fair value of the contingent consideration liability, the Company used an estimate based on a number of possible projections over the earn-out period. Given the short duration of the earn-out period, the fair value of contingent liability was measured on an undiscounted basis. The Company will continue to reassess the fair value of the acquisition-related contingent consideration at each reporting period based on additional information as it becomes available. This contingent consideration will be remeasured quarterly. If, as a result of remeasurement, the value of the contingent
- 10 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
consideration changes, any charges or income will be marked to market and included in “Other income (expense), net” on the Company’s Condensed Consolidated Statements of Operations. For the three and six months ended June 30, 2023, no gains or losses were recognized in earnings for changes in the remeasurement of the contingent consideration.
The values assigned to the assets acquired and liabilities assumed are based on the fair value available and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Excluding the contingent consideration, any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. The Company incurred transaction costs related to the HnB Acquisition of $63 that were expensed as part of “Office and general”. The Company’s accounting for the business combination was completed as of December 31, 2022.
The Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2023 included revenue of $21 and $40 , respectively, and net loss of $13 and $29 , from HnB, respectively.
| Fair Value | ||||||||
| Assets Acquired: | ||||||||
| Cash and cash equivalents | $ | |||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other assets | ||||||||
| Property and equipment | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Assets Acquired | $ | |||||||
| Liabilities Assumed: | ||||||||
| Accrued expenses and other current liabilities | $ | |||||||
| Other long-term liabilities | ||||||||
| Liabilities Assumed | $ | |||||||
| Fair value of consideration transferred | $ | |||||||
| Fair Value | Useful Life | |||||||||||||
Non-compete agreements | $ | |||||||||||||
| Customer lists | ||||||||||||||
| Trade name | ||||||||||||||
| Total identifiable assets | $ | |||||||||||||
Karani, LLC
On October 29, 2021, the Company entered into a membership interest purchase agreement (the “MIPA”) by and among the Company, Hudson Global Resources Management, Inc. (“HGRM”), a wholly owned subsidiary of the Company, and Daniel Williams (“Williams”), and completed the acquisition by HGRM of all of the membership interests of Karani, LLC, (the “Karani Acquisition”).
- 11 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
Karani, LLC (“Karani”) partners with recruitment and staffing firms to assist with recruiting, sourcing, screening, onboarding, and other talent-related services across a variety of industries to customers primarily located in the United States. On the date of acquisition, Karani had approximately 560 employees in India and 120 employees in the Philippines.
As outlined in the MIPA, Williams received (i) $6,805 in cash subject to certain adjustments set forth in the MIPA at the closing of the Karani Acquisition; and (ii) a non-interest bearing promissory note in the aggregate principal amount of $2,000 , payable in installments on the six-month and eighteen-month anniversaries of the closing date subject to the satisfaction of certain conditions as further described in the MIPA. There are no employment stipulations for Williams associated with the MIPA.
The Karani Acquisition was accounted for as a business combination under the acquisition method of accounting. The purchase price of $8,673 , which consists of the amount paid in cash of $6,805 , a promissory note of $2,000 , and a working capital credit of $132 , was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date of October 29, 2021, with the excess recorded as goodwill. None of the goodwill is expected to be deductible for tax purposes. The Company's goodwill represents the expected profit growth over time that is attributable to increasing our footprint and market share in India. The purchase price included $737 of cash and cash equivalents acquired. The Company incurred transaction costs related to the acquisition of approximately $200 that were expensed as part of Office and general on the Consolidated Statements of Operations. In addition to the purchase price, the Company agreed to pay a $250 retention payment to the Chief Financial Officer of Karani, which is classified as compensation expense, recorded on a straight-line basis. The Company's accounting for the business combination was completed as of December 31, 2021.
The Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2023 included revenue of $1,573 and $3,410 , and net loss of $306 and $600 , respectively, from Karani.
- 12 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
| Fair Value | ||||||||
| Assets Acquired: | ||||||||
| Cash and cash equivalents | $ | |||||||
| Accounts receivable | ||||||||
| Restricted cash, current | ||||||||
| Prepaid expenses and other assets | ||||||||
| Property and equipment | ||||||||
| Operating lease right-of-use assets | ||||||||
| Restricted cash | ||||||||
| Other long-term assets | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Assets Acquired | $ | |||||||
| Liabilities Assumed: | ||||||||
| Accrued expenses and other current liabilities | $ | |||||||
| Operating lease obligations, current | ||||||||
| Operating lease obligations, non-current | ||||||||
| Other long-term liabilities | ||||||||
| Liabilities Assumed | $ | |||||||
| Fair value of consideration transferred | $ | |||||||
Intangible assets are amortized on a straight-line basis over their estimated useful lives. The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives on the date of the Karani Acquisition.
| Fair Value | Useful Life | |||||||||||||
Developed technology | $ | |||||||||||||
| Customer lists | ||||||||||||||
| Trade name | ||||||||||||||
| Total identifiable assets | $ | |||||||||||||
Unaudited Pro Forma Financial Information
The following unaudited consolidated pro forma information gives effect to the acquisition of HnB as if the transaction had occurred on January 1, 2022.
| June 30, 2022 | ||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||
| Revenue | $ | $ | ||||||||||||
| Net income | $ | $ | ||||||||||||
- 13 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 7 – STOCK-BASED COMPENSATION
Incentive Compensation Plan
The Company maintains the Hudson Global, Inc. 2009 Incentive Stock and Awards Plan, as amended and restated on May 24, 2016 and further amended on September 14, 2020 and May 17, 2022 (the “ISAP”), pursuant to which it can issue equity-based compensation incentives to eligible participants. The ISAP permits the granting of stock options, restricted stock, restricted stock units, and other types of equity-based awards. The Compensation Committee (the “Compensation Committee”) of the Board of Directors (the “Board”) will establish such conditions as it deems appropriate on the granting or vesting of stock options, restricted stock, restricted stock units and other types of equity-based awards. As determined by the Compensation Committee, equity awards may also be subject to immediate vesting upon the occurrence of certain events including death, disability, retirement or a change in control of the Company. When we make grants of restricted stock or restricted stock units to our executive officers, including the named executive officers, we enter into Restricted Stock Agreements and Restricted Stock Unit Agreements with such executive officers that contain provisions that are triggered upon a termination of an executive officer or a change in control of our Company. For awards of restricted stock granted beginning on November 6, 2015, effective upon a change in control of our Company, if the executive is employed by us or an affiliate of ours immediately prior to the date of such change in control and is subsequently terminated within 12 months following the date of such change in control, the shares of restricted stock will fully vest and the restrictions imposed upon the restricted stock will be immediately deemed to have lapsed. For awards of restricted stock units granted beginning on March 10, 2016, effective upon a change in control of our Company, if the executive is employed by us or an affiliate of ours immediately prior to the date of such change in control and is subsequently terminated within 12 months following the date of such change in control, the restricted stock units will fully vest and the restrictions imposed upon the restricted stock units will be immediately deemed to have lapsed. The Company primarily grants restricted stock and restricted stock units to its employees. A restricted stock unit is equivalent to one share of the Company’s common stock and is payable only in common stock of the Company issued under the ISAP.
The Compensation Committee administers the ISAP and may designate any of the following as a participant under the ISAP: any officer or other employee of the Company or its affiliates or individuals engaged to become an officer or employee, consultants or other independent contractors who provide services to the Company or its affiliates, and non-employee directors of the Company. On May 17, 2022, the Company’s stockholders at the 2022 Annual Meeting of Stockholders approved amendments to the ISAP to, among other things, increase the number of shares of the Company’s common stock that are reserved for issuance by 250,000 shares. As of June 30, 2023, there were 214,551 shares of the Company’s common stock available for future issuance under the ISAP.
All share issuances related to stock compensation plans are issued from the aforementioned stock available for future issuance under stockholder approved compensation plan.
For the six months ended June 30, 2023, the Company granted 28,841 restricted stock units subject to performance vesting conditions for the year ended December 31, 2023. For the six months ended June 30, 2022, the Company granted 50,160 restricted stock units subject to performance vesting conditions for the year ended December 31, 2022, and granted 4,250 of discretionary time-vested restricted stock units to certain employees that were not subject to performance conditions.
| Vesting conditions | Number of Restricted Stock Units Granted | |||||||
Performance and service conditions - Type 1 (1) (2) | ||||||||
Performance and service conditions - Type 2 (1) (2) | ||||||||
| Total shares of stock award granted | ||||||||
- 14 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
(1)The performance conditions with respect to restricted stock units may be satisfied as follows:
(a)For grants to Corporate office employees subject to 2023 performance conditions, 100% of the restricted stock units may be earned on the basis of performance as measured by a “group adjusted EBITDA”.
(2)To the extent restricted stock units are earned, such restricted stock units will vest on the basis of service as follows:
(a)33 % and 66.6 % for Type 1 and Type 2, respectively, of the restricted stock units will vest on the first anniversary of the grant date;
(b)33 % and 16.7 % for Type 1 and Type 2, respectively, of the restricted stock units will vest on the second anniversary of the grant date; and
(c)34 % and 16.7 % for Type 1 and Type 2, respectively, of the restricted stock units will vest on the third anniversary of the grant date; provided that, in each case, the employee remains employed by the Company from the grant date through the applicable service vesting date.
The Company also maintains the Director Deferred Share Plan (the “Director Plan”) as part of the ISAP pursuant to which it can issue restricted stock units to its non-employee directors. A restricted stock unit is equivalent to one share of the Company’s common stock and is payable only in common stock issued under the ISAP upon a director ceasing service as a member of the Company’s Board. The restricted stock units vest immediately upon grant and are credited to each of the non-employee director’s retirement accounts under the Director Plan. Restricted stock units issued under the Director Plan contain the right to a dividend equivalent award in the form of additional restricted stock units. The dividend equivalent award is calculated using the same rate as the cash dividend paid on a share of the Company’s common stock, and then divided by the closing price of the Company’s common stock on the date the dividend is paid to determine the number of additional restricted stock units to grant. Dividend equivalent awards have the same vesting terms as the underlying awards. During the six months ended June 30, 2023, the Company granted 3,710 restricted stock units to its non-employee directors pursuant to the Director Plan.
As of June 30, 2023, 247,126 restricted stock units are deferred under the Company’s ISAP.
For the three and six months ended June 30, 2023 and 2022, the Company’s stock-based compensation expense related to restricted stock units and restricted shares of common stock were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Restricted shares of common stock | $ | $ | $ | $ | ||||||||||||||||||||||
| Restricted stock units | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Restricted Stock Units
As of June 30, 2023, the Company had $1,254 of unrecognized stock-based compensation expense related to outstanding unvested restricted stock units. The Company expects to recognize that cost over a weighted average service period of 0.7 years. Restricted stock units have no voting or dividend rights until the awards are vested.
- 15 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||
| Performance-based | Time-based/Director | Total | |||||||||||||||||||||||||||||||||
| Number of Shares of Restricted Stock Units | Weighted Average Grant-Date Fair Value | Number of Shares of Restricted Stock Units | Weighted Average Grant-Date Fair Value | Number of Shares of Restricted Stock Units | Weighted Average Grant-Date Fair Value | ||||||||||||||||||||||||||||||
Unvested restricted stock units at January 1, 2023 | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Granted | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Shares earned above target (a) | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Vested | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||
| Forfeited | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||
Unvested restricted stock units at June 30, 2023 | $ | $ | $ | ||||||||||||||||||||||||||||||||
(a) The number of shares earned above target are based on the performance target established by the Compensation Committee at the initial grant date.
(a) The number of shares earned above target are based on the performance targets established by the Compensation Committee at the initial grant date.
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||
| Performance-based | Time-based/Director | Total | |||||||||||||||||||||||||||||||||
| Number of Shares of Restricted Stock Units | Weighted Average Grant-Date Fair Value | Number of Shares of Restricted Stock Units | Weighted Average Grant-Date Fair Value | Number of Shares of Restricted Stock Units | Weighted Average Grant-Date Fair Value | ||||||||||||||||||||||||||||||
Unvested restricted stock units at January 1, 2022 | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Granted | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Shares earned above target (a) | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Vested | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||
| Forfeited | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||
Unvested restricted stock units at June 30, 2022 | $ | $ | $ | ||||||||||||||||||||||||||||||||
(a) The number of shares earned above target are based on the performance targets established by the Compensation Committee at the initial grant date.
(a) The number of shares earned above target are based on the performance target established by the Compensation Committee at the initial grant date.
Shares of Common Stock
On October 1, 2020, the Company granted 52,226 restricted shares of common stock to be issued over 30 months in connection with the acquisition of Coit Staffing, Inc. (“Coit Acquisition”), of which all had vested as of June 30, 2023. As of June 30, 2023, the Company did not have any unrecognized stock-based compensation expense related to unvested restricted shares of common stock issued in connection with the Coit Acquisition.
- 16 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
| Six Months Ended June 30, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| Number of Restricted Shares of Common Stock | Weighted Average Grant-Date Fair Value | Number of Restricted Shares of Common Stock | Weighted Average Grant-Date Fair Value | |||||||||||||||||||||||
| Unvested restricted shares of common stock at January 1 | $ | $ | ||||||||||||||||||||||||
| Vested | ( | $ | ( | $ | ||||||||||||||||||||||
Unvested restricted shares of common stock at June 30, | $ | $ | ||||||||||||||||||||||||
NOTE 8 – INCOME TAXES
Income Tax Provision
Under ASC 270, “Interim Reporting”, and ASC 740-270, “Income Taxes – Intra Period Tax Allocation”, the Company is required to adjust its effective tax rate for each quarter to be consistent with the estimated annual effective tax rate. Jurisdictions with a projected loss for the full year where no tax benefit can be recognized are excluded from the calculation of the estimated annual effective tax rate. Applying the provisions of ASC 270 and ASC 740-270 could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.
Effective Tax Rate
The provision for income taxes for the six months ended June 30, 2023 was $718 on a pre-tax income of $1,650 , compared to a provision for income taxes of $1,317 on pre-tax income of $7,429 for the same period in 2022. The Company’s effective income tax rate was positive 44 % and positive 18 % for the six months ended June 30, 2023 and 2022, respectively. For the six months ended June 30, 2023, the effective tax rates differed from the U.S. Federal statutory rate of 21 % primarily due to a discrete tax benefit recognized following the lapse of certain statutes of limitations related to Spain, recognition of a portion of a deferred tax asset in Canada, state income taxes, changes in valuation allowances in the U.S. and certain foreign jurisdictions which reduces or eliminates the effective tax rate on current year profits or losses, foreign tax rate differences, taxes on repatriations or deemed repatriation of foreign profits, and non-deductible expenses. For the six months ended June 30, 2022, the effective tax rates differed from the U.S. Federal statutory rate of 21% primarily due to changes in valuation allowances in the U.S. and certain foreign jurisdictions, which reduces or eliminates the effective tax rate on current year profits or losses, foreign tax rate differences, and non-deductible expenses.
Uncertain Tax Positions
As of June 30, 2023 and December 31, 2022, the Company had $60 and $360 , respectively, of unrecognized tax benefits, excluding interest and penalties, which if recognized in the future, would lower the Company’s effective income tax rate.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. As of June 30, 2023 and December 31, 2022, the Company had $24 and $129 , respectively, of accrued interest and penalties associated with unrecognized tax benefits.
The statute of limitations for capital gains taxes on the transfer of shares in Spain lapsed in January 2023. The FIN48 reserve for Spain capital gains taxes, interest, and penalties of approximately $408 was released as a tax benefit in the first quarter of 2023.
Based on information available as of June 30, 2023, it is reasonably possible that the total amount of unrecognized tax benefits could decrease by $84 over the next 12 months as a result of projected resolutions of global tax examinations and controversies and potential expirations of the applicable statutes of limitations.
In many cases, the Company’s unrecognized tax benefits are related to tax years that remain subject to examination by the relevant tax authorities. Tax years with net operating losses (“NOLs”) remain open until such losses expire or until the
- 17 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
statutes of limitations for those years when the NOLs are used expire. As of June 30, 2023, the Company’s open tax years, which remain subject to examination by the relevant tax authorities, are between 2016 and 2022 depending on the jurisdiction.
The Company believes that its unrecognized tax benefits as of June 30, 2023 are appropriately reflected for all years subject to examination above.
Net Operating Losses (“NOLs”), Capital Losses, and Valuation Allowance
The Company recorded a valuation allowance against all of our consolidated US deferred tax assets for NOLs and Capital Losses as of June 30, 2023 and December 31, 2022. We intend to continue maintaining a full valuation allowance on our deferred tax assets for NOLs until there is sufficient evidence to support the reversal of all or some portion of these allowances in the future.
NOTE 9 – EARNINGS PER SHARE
Basic earnings per share is computed by dividing the Company’s net income by the weighted average number of shares outstanding during the period. When the effects are not anti-dilutive, diluted earnings per share is computed by dividing the Company’s net income by the weighted average number of shares outstanding and the impact of all dilutive potential common shares, primarily stock options “in-the-money”, unvested restricted stock, and unvested restricted stock units. The dilutive impact of stock options, unvested restricted stock, and unvested restricted stock units is determined by applying the “treasury stock” method. Performance-based restricted stock awards are included in the computation of diluted earnings per share only to the extent that the underlying performance conditions: (i) are satisfied prior to the end of the reporting period; or (ii) would be satisfied if the end of the reporting period were the end of the related performance period and the result would be dilutive under the treasury stock method. Stock awards subject to vesting or exercisability based on the achievement of market conditions are included in the computation of diluted earnings per share only when the market conditions are met.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| Earnings per share (“EPS”): | |||||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||||||||
| EPS numerator - basic and diluted: | |||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||
| EPS denominator (in thousands): | |||||||||||||||||||||||||||||
| Weighted average common stock outstanding - basic | |||||||||||||||||||||||||||||
| Common stock equivalents: restricted stock units and restricted shares of common stock | |||||||||||||||||||||||||||||
Weighted average number of common stock outstanding - diluted | |||||||||||||||||||||||||||||
- 18 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Unvested restricted shares of common stock | ||||||||||||||||||||||||||
| Unvested restricted stock units | ||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
NOTE 10– GOODWILL AND INTANGIBLE ASSETS
Goodwill
The Company recorded goodwill of $687 on August 19, 2022 in connection with the HnB Acquisition (See Note 6 for further information on the HnB Acquisition).
For the six months ended June 30, 2023 and the twelve months ended December 31, 2022, the changes in carrying amount of goodwill were as follows:
| Carrying Value | ||||||||
| 2023 | ||||||||
| Goodwill, January 1, | $ | |||||||
| Acquisition | ||||||||
| Currency translation | ||||||||
Goodwill, June 30, 2023 | $ | |||||||
| Carrying Value | |||||||||||
| 2022 | |||||||||||
| Goodwill, January 1, | $ | ||||||||||
| Acquisition | |||||||||||
| Currency translation | ( | ||||||||||
Goodwill, December 31, 2022 | $ | ||||||||||
- 19 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
Intangible Assets
The Company’s intangible assets consisted of the following components as of June 30, 2023 and December 31, 2022:
| June 30, 2023 | Weighted Average Remaining Amortization Useful Lives (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||
| Non-compete agreements | $ | $ | ( | $ | ||||||||||||||||||||||
| Trade name | ( | |||||||||||||||||||||||||
| Customer lists | ( | |||||||||||||||||||||||||
Developed technology | ( | |||||||||||||||||||||||||
| $ | $ | ( | $ | |||||||||||||||||||||||
| December 31, 2022 | Weighted Average Remaining Amortization Useful Lives (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||
| Non-compete agreements | $ | $ | ( | $ | ||||||||||||||||||||||
| Trade name | ( | |||||||||||||||||||||||||
| Customer lists | ( | |||||||||||||||||||||||||
Developed technology | ( | |||||||||||||||||||||||||
| $ | $ | ( | $ | |||||||||||||||||||||||
Amortization expense for the three and six months ended June 30, 2023 was $280 and $560 , respectively. Intangible assets are amortized on a straight-line basis over their estimated useful lives. No
- 20 -
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
Estimated future amortization expense for intangible assets for the remainder of the fiscal year ending December 31, 2023, and for each of the next fiscal years are as follows:
| 2023 | $ | ||||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| Thereafter | |||||||||||
| $ | |||||||||||
The change in the book value of amortizable intangible assets is as follows:
January 1, 2023 Beginning Balance | Acquisition | Amortization | Translation and Other | June 30, 2023 Ending Balance | ||||||||||||||||||||||||||||
| Non-compete agreements | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||
| Trade name | ( | |||||||||||||||||||||||||||||||
| Customer lists | ( | |||||||||||||||||||||||||||||||
Developed technology | ( | |||||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Litigation and Complaints
The Company is subject, from time to time, to various claims, lawsuits, contracts disputes, and other complaints from, for example, clients, candidates, suppliers, landlords for both leased and subleased properties, former and current employees, and regulators or tax authorities arising in the ordinary course of business. The Company routinely monitors claims such as these, and records provisions for losses when the claim becomes probable and the amount due is estimable. Although the outcome of these claims cannot be determined, the Company believes that the final resolution of these matters will not have a material adverse effect on the Company’s financial condition, results of operations or liquidity.
For matters that reach the threshold of probable and estimable, the Company establishes reserves for legal, regulatory, and other contingent liabilities. The legal reserves are included under the caption “Other non-current liabilities” in the Condensed Consolidated Balance Sheets. The Company did not have any legal reserves as of June 30, 2023 and December 31, 2022.
Operating Leases
Our office space leases have lease terms of one year to five years . Some of these operating leases include options to extend the lease terms, and some operating leases include options to terminate the leases earlier than the expiration of the full terms. These options are considered in our determination of the valuation of our right-of-use assets and lease liabilities.
None of our operating leases include implicit rates, and we have determined that the difference between the contractual cost basis and the present value of lease payments calculated using incremental borrowing rates is not material. Our operating lease costs for the six months ended June 30, 2023 and 2022 were $588 and $586 , respectively (reflected in Net cash used in operating activities). The weighted average remaining lease term of our operating leases as of June 30, 2023 was 2.4 years.
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HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
| 2023 | 2024 | 2025 | 2026 | 2027 | Total | ||||||||||||||||||||||||||||||
| Minimum lease payments | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Invoice Finance Credit Facility
On April 8, 2019, the Company’s Australian subsidiary (“Australian Borrower”) entered into an invoice finance credit facility agreement (the “NAB Facility Agreement”) with National Australia Bank Limited (“NAB”). The NAB Facility Agreement provides the Australian Borrower with the ability to borrow funds based on a percentage of eligible trade receivables up to a maximum of 4 million Australian dollars. No receivables have terms greater than 90 days, and any risk of loss is retained by the Australian Borrower. The interest rate is calculated as the variable receivable finance indicator rate, plus a margin of 1.60 % per annum. Borrowings under this facility are secured by substantially all of the assets of the Australian Borrower. The NAB Facility Agreement does not have a stated maturity date and can be terminated by either the Australian Borrower or NAB upon 90 days written notice. As of June 30, 2023, there were no amounts outstanding under the NAB Facility Agreement. Interest expense and fees incurred on the NAB Facility Agreement were $5 and $9 for the three and six months ended June 30, 2023, respectively, and $4 and $9 for the three and six months ended June 30, 2022, respectively.
The NAB Facility Agreement contains various restrictions and covenants for the Australian Borrower including (1) that EBITDA must be at least two times total interest paid on debt on a 12-month rolling basis; (2) minimum tangible net worth must be at least 2.5 million Australian dollars and be equal to at least 25 % of total tangible assets on June 30 and December 31 (as defined in the NAB Facility Agreement); and (3) additional periodic reporting requirements to NAB. The Australian Borrower was in compliance with all financial covenants under the NAB Facility Agreement as of June 30, 2023.
Amounts borrowed from the NAB Facility may be large, contain short maturities and have quick turnovers. Amounts borrowed and repaid are presented on a net basis on the Condensed Consolidated Statements of Cash Flows.
NOTE 12 – ACCUMULATED OTHER COMPREHENSIVE LOSS
| June 30, | December 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Foreign currency translation adjustments | $ | ( | $ | ( | ||||||||||
| Accumulated other comprehensive loss | $ | ( | $ | ( | ||||||||||
NOTE 13 – STOCKHOLDERS ’ EQUITY
Common Stock
On July 30, 2015, the Company announced that its Board authorized the repurchase of up to $10,000 of the Company’s common stock. The Company has repurchased shares from time to time as market conditions warrant. This authorization does not expire. During the six months ended June 30, 2023, the Company repurchased 27,277 shares of its common stock on the open market for $573 . In the same period last year, no repurchases of shares were made by the Company under this authorization. As of June 30, 2023, under the July 30, 2015 authorization, the Company had repurchased an aggregate of 492,455 shares for a total cost of $10,000 , completing the authorization.
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HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 14 – SHELF REGISTRATION STATEMENT
NOTE 15 – SEGMENT AND GEOGRAPHIC DATA
Segment Reporting
The Company operates in three reportable segments: the Hudson regional businesses of Americas, Asia Pacific, and Europe. Corporate expenses are reported separately for the three reportable segments and pertain to certain functions, such as executive management, corporate governance, investor relations, legal, accounting, tax, and treasury. A portion of these expenses are attributed to the reportable segments for providing the above services to them, and have been allocated to the segments as management service expenses, and are included in the segments’ non-operating other income (expense). Segment information is presented in accordance with ASC 280, “Segment Reporting.” This standard is based on a management approach that requires segmentation based upon the Company’s internal organization and disclosure of revenue and certain expenses based upon internal accounting methods. The Company’s financial reporting systems present various data for management to run the business, including internal profit and loss statements prepared on a basis not consistent with U.S. GAAP. Accounts receivable and long-lived assets are the only significant asset separated by segment for internal reporting purposes.
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HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
| Americas | Asia Pacific | Europe | Corporate | Inter-Segment Elimination | Total | ||||||||||||||||||||||||||||||
| For The Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||
| Revenue, from external customers | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Inter-segment revenue | ( | ||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
Adjusted net revenue, from external customers (a) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Inter-segment adjusted net revenue | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Total adjusted net revenue | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
EBITDA (loss) (b) | $ | ( | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
| Depreciation and amortization | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Intercompany dividend/interest (expense) income, net | ( | ( | |||||||||||||||||||||||||||||||||
| Interest income, net | |||||||||||||||||||||||||||||||||||
| Provision for income taxes | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Net income (loss) | $ | ( | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||
| For The Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||
| Revenue, from external customers | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Inter-segment revenue | ( | ( | |||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
Adjusted net revenue, from external customers (a) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Inter-segment adjusted net revenue | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Total adjusted net revenue | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
EBITDA (loss) (b) | $ | ( | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
| Depreciation and amortization | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Intercompany dividend/interest (expense) income, net | ( | ( | |||||||||||||||||||||||||||||||||
| Interest income, net | |||||||||||||||||||||||||||||||||||
| Provision for income taxes | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Net income (loss) | $ | ( | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||
| As of June 30, 2023 | |||||||||||||||||||||||||||||||||||
| Accounts receivable, net | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Long-lived assets, net of accumulated depreciation and amortization (c) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Total assets | $ | $ | |||||||||||||||||||||||||||||||||