Hudson Highland Group Reports 2004 Fourth Quarter and Full Year Financial Results NEW YORK, Feb. 3 /PRNewswire-FirstCall/ -- Hudson Highland Group, Inc. (NASDAQ:HHGP), one of the world's leading providers of specialized professional staffing, retained executive search and human capital solutions, today announced financial results for the fourth quarter and full year ended December 31, 2004. 2004 Fourth Quarter Summary * Revenue of $344.1 million, an increase of 20.9 percent from $284.6 million for the fourth quarter of 2003 * Gross margin of $128.9 million, or 37.5 percent of revenue, up 24.5 percent from $103.6 million, or 36.4 percent of revenue, for the same year ago period * Adjusted EBITDA of $5.9 million, compared to a loss of $10.7 million in the fourth quarter of 2003 * Net loss of $1.3 million, or $0.13 per basic and diluted share, compared to a net loss of $43.4 million, or $5.14 per basic and diluted share for the fourth quarter of 2003 2004 Full Year Summary * Revenue of $1.256 billion, an increase of 15.8 percent from $1.085 billion for 2003 * Gross margin of $470.2 million, or 37.4 percent of revenue, up 16.7 percent from $403.0 million, or 37.1 percent of revenue, for 2003 * Adjusted EBITDA of $1.0 million, compared to a loss of $60.1 million for 2003 * Cash and cash equivalents of $21.1 million "The results we achieved in both the fourth quarter and the full year reflect our repositioning and the continued strengthening of both our business and the marketplace," said Jon Chait, chairman and chief executive officer of Hudson Highland Group. "We experienced solid improvement both sequentially and year-over-year in all of our regional units. The hard work of all our employees allowed us to take an important step in our brief history by delivering $1.0 million of positive adjusted EBITDA for the full year and begin 2005 with solid momentum." Richard W. Pehlke, executive vice president and chief financial officer of Hudson Highland Group commented, "We anticipate making continued progress toward our long term goal of sustainable EBITDA margins in the 7 to 10 percent range. Given the current economic environment, we anticipate EBITDA margins in the range of 1.5 to 2 percent in 2005 and 3.5 to 4 percent in 2006. "We expect the first quarter of 2005, which is historically our weakest, to show higher year-over-year revenue and a significant improvement in operating results, although EBITDA may not reach breakeven," added Mr. Pehlke. Full Year Results For the full year 2004, Hudson Highland Group reported revenues of $1.256 billion and a net loss of $26.8 million, or $2.75 per basic and diluted share. For the full year 2003, Hudson Highland Group reported revenues of $1.085 billion and a net loss of $328.8 million, which included a goodwill impairment charge of $202.8 million, or $39.15 per basic and diluted share. Conference Call / Webcast Hudson Highland Group will conduct a conference call today Thursday, February 3, 2005 at 10:30 AM ET to discuss this announcement. Investors wishing to participate can join the conference call by dialing 1-800-374-1532 followed by the participant passcode 3355299 at 10:20 AM ET. For those outside the United States, please call in on 1-706-634-5594 followed by the participant passcode 3355299. Hudson Highland Group's quarterly conference call can also be accessed online through Yahoo! Finance at http://www.yahoo.com/ and the investor information section of the company's website at http://www.hhgroup.com/. Hudson Highland Group Hudson Highland Group is one of the world's leading professional staffing, retained executive search and human capital solution providers. We help our clients achieve greater organizational performance by assessing, recruiting and developing the best and brightest people for their businesses. Our approximately 3,800 employees in more than 20 countries are dedicated to providing unparalleled service and value to our clients. More information about Hudson Highland Group is available at http://www.hhgroup.com/. Safe Harbor Statement This press release contains statements that the company believes to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this press release, including statements regarding the company's future financial condition, results of operations, business operations and business prospects, are forward-looking statements. Words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "predict," "believe" and similar words, expressions and variations of these words and expressions are intended to identify forward-looking statements. All forward- looking statements are subject to 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 on temporary contracting operations; the cyclical nature of the company's executive search and mid-market professional staffing businesses; the company's ability to manage its growth; risks associated with expansion; the company's reliance on information systems and technology; competition; fluctuations in operating results; risks relating to foreign operations, including foreign currency fluctuations; dependence on highly skilled professionals and key management personnel; the impact of employees departing with existing executive search clients; risks maintaining professional reputation and brand name; restrictions imposed by blocking arrangements; exposure to employment-related claims, and limits on insurance coverage related thereto; government regulations; the company's ability to successfully operate as an independent company and the level of costs associated therewith; and restrictions on the company's operating flexibility due to the terms of its credit facility. 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 press release. The company assumes no obligation, and expressly disclaims any obligation, to update any forward-looking statements. HUDSON HIGHLAND GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited) Three Months Ended Year Ended December 31, December 31, 2004 2003 2004 2003 Revenue $344,090 $284,646 $1,256,354 $1,085,299 Direct costs 215,164 181,089 786,134 682,270 Gross margin 128,926 103,557 470,220 403,029 Selling, general and administrative expenses 128,749 119,986 489,322 484,407 Goodwill impairment charge - - - 202,785 Business reorganization expenses (recoveries) (89) 17,281 3,361 26,823 Merger and integration expenses (recoveries) 1,090 1,787 736 2,663 Operating loss (824) (35,497) (23,199) (313,649) Other income (expense): Interest income (expense), net (51) 93 (104) (283) Other, net (75) (1,929) (1,834) (2,859) Loss before provision for income taxes (950) (37,333) (25,137) (316,791) Provision for income taxes 387 6,104 1,638 12,021 Net loss $(1,337) $(43,437) $(26,775) $(328,812) Basic and diluted loss per share: Loss before accounting change $(.13) $(5.14) $(2.75) $(39.15) Net loss $(.13) $(5.14) $(2.75) $(39.15) Weighted average shares outstanding 10,185 8,448 9,729 8,399 HUDSON HIGHLAND GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except per share amounts) December 31, December 31, 2004 2003 (unaudited) ASSETS Current assets: Cash and cash equivalents $21,064 $26,137 Accounts receivable, net 197,582 149,042 Other current assets 10,071 17,719 Due from Monster Worldwide, Inc. - 5,518 Total current assets 228,717 198,416 Property and equipment, net 36,360 38,625 Intangibles, net 6,104 2,180 Other assets 9,571 11,703 $280,752 $250,924 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $27,023 $26,495 Accrued expenses and other current liabilities 140,277 117,370 Accrued business reorganization expenses 8,930 11,543 Accrued merger and integration expenses 1,872 2,960 Current portion of long term debt 4,066 453 Total current liabilities 182,168 158,821 Accrued business reorganization expenses, non-current 6,832 14,840 Accrued merger and integration expenses, non-current 3,329 4,209 Other non-current liabilities 2,648 3,391 Long-term debt, less current portion 2,041 302 Total liabilities 197,018 181,563 Commitments and contingencies 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 10,306 and 8,573 shares, respectively 10 9 Additional paid-in capital 353,836 315,130 Retained deficit (311,576) (284,801) Accumulated other comprehensive income: Foreign currency translation adjustments 41,694 39,023 Treasury stock, 8 and 0 shares, respectively (230) - Total stockholders' equity 83,734 69,361 $280,752 $250,924 HUDSON HIGHLAND GROUP, INC. SEGMENT ANALYSIS (in thousands) (unaudited) For the Three Months Ended Corporate December 31, 2004 Americas Europe Asia Pac and Other Total Revenue Hudson $97,818 $120,250 $109,622 $441 $328,131 Highland 11,968 1,988 2,003 - 15,959 $109,786 $122,238 $111,625 $441 $344,090 Gross Margin Hudson $25,155 $49,687 $38,519 $442 $113,803 Highland 11,267 1,936 1,920 - 15,123 $36,422 $51,623 $40,439 $442 $128,926 Adjusted EBITDA (1) Hudson $4,653 $1,427 $7,391 $(973) $12,498 Highland 992 (177) 124 - 939 Corporate - - - (7,514) (7,514) $5,645 $1,250 $7,515 $(8,487) $5,923 For the Three Months Ended December 31, 2003 Revenue Hudson $67,331 $99,091 $101,743 $268,165 Highland 11,486 3,243 1,752 16,481 $78,817 $102,334 $103,495 $284,646 Gross Margin Hudson $16,672 $39,965 $31,508 $88,145 Highland 10,915 3,122 1,375 15,412 $27,587 $43,087 $32,883 $103,557 Adjusted EBITDA (1) Hudson $(1,569) $(1,888) $2,926 $(531) Highland 47 (2,017) 88 (1,882) Corporate - - - $(8,273) (8,273) $(1,522) $(3,905) $3,014 $(8,273) $(10,686) (1) Non-GAAP earnings before interest, income taxes, special charges and depreciation and amortization ("Adjusted EBITDA") is 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 this measurement to evaluate capital needs and working capital requirements. Adjusted 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 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 Year Ended Corporate December 31, 2004 Americas Europe Asia Pac and Other Total Revenue Hudson $333,061 $447,483 $412,427 $1,704 $1,194,675 Highland 44,916 7,451 9,312 - 61,679 $377,977 $454,934 $421,739 $1,704 $1,256,354 Gross Margin Hudson $85,054 $182,069 $143,360 $1,608 $412,091 Highland 42,376 7,113 8,640 - 58,129 $127,430 $189,182 $152,000 $1,608 $470,220 Adjusted EBITDA (1) Hudson $10,707 $969 $23,358 $(5,426) $29,608 Highland 3,093 (1,292) 1,070 - 2,871 Corporate - - - (31,473) (31,473) $13,800 $(323) $24,428 $(36,899) $1,006 For the Year Ended December 31, 2003 Revenue Hudson $278,935 $364,766 $377,555 $1,021,256 Highland 43,764 15,104 5,175 64,043 $322,699 $379,870 $382,730 $1,085,299 Gross Margin Hudson $65,220 $154,632 $122,840 $342,692 Highland 41,866 14,034 4,437 60,337 $107,086 $168,666 $127,277 $403,029 Adjusted EBITDA (1) Hudson $(12,343) $(13,003) $6,606 $(18,740) Highland (3,683) (8,147) (682) (12,512) Corporate - - - $(28,827) (28,827) $(16,026) $(21,150) $5,924 $(28,827) $(60,079) (1) Non-GAAP earnings before interest, income taxes, special charges and depreciation and amortization ("Adjusted EBITDA") is 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 this measurement to evaluate capital needs and working capital requirements. Adjusted 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 as presented above may not be comparable with similarly titled measures reported by other companies. HUDSON HIGHLAND GROUP, INC. RECONCILIATION OF ADJUSTED EBITDA TO OPERATING LOSS (in thousands) (unaudited) Three Months Ended Year Ended December 31, December 31, 2004 2003 2004 2003 Hudson Adjusted EBITDA (1) $12,498 $(531) $29,608 $(18,740) Business reorganization (expenses) (125) (9,572) (1,016) (15,777) Merger and integration (expenses) (495) (1,787) (141) (2,663) Depreciation and amortization (5,051) (3,747) (16,243) (14,071) Goodwill impairment - - - (195,404) Operating income (loss) $6,827 $(15,637) $12,208 $(246,655) Highland Adjusted EBITDA (1) $939 $(1,882) $2,871 $(12,512) Business reorganization (expenses) recoveries 214 (7,629) (2,345) (10,829) Merger and integration (expenses) (595) - (595) - Depreciation and amortization (500) (954) (1,805) (4,234) Goodwill impairment - - - (7,381) Operating income (loss) $58 $(10,465) $(1,874) $(34,956) Corporate and Other Adjusted EBITDA (1) $(7,514) $(8,273) $(31,473) $(28,827) Business reorganization (expenses) - (80) - (217) Depreciation and amortization (195) (1,042) (2,060) (2,994) Corporate expenses $(7,709) $(9,395) $(33,533) $(32,038) Hudson Highland Group consolidated Adjusted EBITDA (1) $5,923 $(10,686) $1,006 $(60,079) Business reorganization (expenses) recoveries 89 (17,281) (3,361) (26,823) Merger and integration (expenses) (1,090) (1,787) (736) (2,663) Depreciation and amortization (5,746) (5,743) (20,108) (21,299) Goodwill impairment - - - (202,785) Operating loss $(824) $(35,497) $(23,199) $(313,649) (1) Non-GAAP earnings before interest, income taxes, special charges and depreciation and amortization ("Adjusted EBITDA") is 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 this measurement to evaluate capital needs and working capital requirements. Adjusted 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 as presented above may not be comparable with similarly titled measures reported by other companies. DATASOURCE: Hudson Highland Group, Inc. CONTACT: Richard W. Pehlke of Hudson Highland Group, +1-212-351-7285, ; or John D. Lovallo of Ogilvy Public Relations Worldwide, +1-212-880-5216, , for Hudson Highland Group Web site: http://www.hhgroup.com/

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