Hudson Highland Group Reports 2005 First Quarter Financial Results NEW YORK, May 5 /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 first quarter ended March 31, 2005. 2005 First Quarter Highlights * Revenue of $352.9 million, an increase of 21.8 percent from $289.8 million for the first quarter of 2004 * Gross margin of $128.2 million, or 36.3 percent of revenue, up 20.5 percent from $106.4 million, or 36.7 percent of revenue, for the same year ago period * EBITDA of $2.8 million, compared to a loss of $11.2 million in the first quarter of 2004 * Net loss of $4.1 million, or $0.20 per basic and diluted share, compared to a net loss of $18.7 million, or $1.09 per basic and diluted share for the first quarter of 2004 "The company performed admirably in the first quarter, recording strong year-over-year revenue growth -- particularly Hudson North America where revenue increased 54 percent -- and our sixth consecutive quarter of improved year-over-year operating profitability," said Jon Chait, chairman and chief executive officer of Hudson Highland Group. "This progress can be attributed to continuing strength in the employment market and our focus on key, high-value offerings for segments with strong growth potential." Richard W. Pehlke, executive vice president and chief financial officer of Hudson Highland Group added, "All around, the first quarter was fundamentally sound, with strong top-line and gross margin growth, solid expense control, good operating leverage and EBITDA ahead of plan." Guidance Given the current economic environment, the company expects EBITDA as a percent of revenue to be 1.5 to 2 percent in 2005 and 3.5 to 4 percent in 2006. The company now believes that an assumption of 12 to 15 percent revenue growth for 2005 is reasonable, resulting in a full-year EBITDA range of $22 to 29 million. This is based on expectations of constant currency revenue and gross margin growth of 30 to 35 percent in Hudson North America, 10 to 15 percent in Hudson Europe, and 0 to 5 percent in Hudson Asia Pacific and Highland Partners. Conference Call / Webcast Hudson Highland Group will conduct a conference call today Thursday, May 5, 2005 at 10:30 AM EDT to discuss this announcement. Investors wishing to participate can join the conference call by dialing 1-800-374-1532 followed by the participant passcode 5580704 at 10:20 AM EDT. For those outside the United States, please call in on 1-706-634-5594 followed by the participant passcode 5580704. 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 attracting, selecting, engaging 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 and fund working capital associated therewith; 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 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. Hudson Highland Group, Inc. Consolidated Condensed Statements Of Operations (in thousands, except share and per share amounts) (unaudited) Three Months Ended March 31, 2005 2004 Revenue $ 352,869 $ 289,804 Direct costs 224,662 183,413 Gross margin 128,207 106,391 Selling, general and administrative expenses 124,899 117,596 Depreciation and amortization 4,857 5,079 Business reorganization expenses 529 60 Merger and integration recoveries (43) (37) Operating loss (2,035) (16,307) Other expenses: Other 276 1,597 Interest, net 426 401 Loss before provision for income taxes and accounting change (2,737) (18,305) Provision for income taxes 1,400 403 Net loss $ (4,137) $ (18,708) Basic and diluted loss per share: Net loss $(.20) $(1.09) Weighted average shares outstanding 20,504,000 17,231,000 Hudson Highland Group, Inc. Consolidated Condensed Balance Sheets (in thousands, except share and per share amounts) March 31, December 31, 2005 2004 (unaudited) ASSETS Current assets: Cash and cash equivalents $12,316 $ 21,064 Accounts receivable, net 222,804 197,582 Other current assets 14,142 14,187 Total current assets 249,262 232,833 Property and equipment, net 34,492 36,360 Other assets 6,335 6,081 Intangibles, net 5,896 6,104 $295,985 $281,378 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $28,754 $27,023 Accrued expenses and other current liabilities 140,019 140,903 Short-term borrowings and current portion of long-term debt 23,354 4,066 Accrued business reorganization expenses 8,031 8,930 Accrued merger and integration expenses 1,751 1,872 Total current liabilities 201,909 182,794 Accrued business reorganization expenses, non-current 5,674 6,832 Accrued merger and integration expenses, non-current 2,843 3,329 Other non-current liabilities 2,564 2,648 Long-term debt, less current portion 2,367 2,041 Total liabilities 215,357 197,644 Commitments and Contingencies Stockholders' equity: Preferred stock, $0.001 par value, 10,000,000 shares authorized; none issued or outstanding -� -� Common stock, $0.001 par value, 100,000,000 shares authorized; issued 20,739,722 and 20,612,966 shares, respectively 21 21 Additional paid-in capital 355,707 353,825 Retained deficit (315,713) (311,576) Accumulated other comprehensive income - translation adjustments 40,843 41,694 Treasury stock, 15,798 shares (230) (230) Total stockholders' equity 80,628 83,734 $295,985 $281,378 Hudson Highland Group, Inc. Segment Analysis (in thousands) (unaudited) For the Three Months Ended March 31, Corporate 2005 Americas Europe Asia Pac & Other Total Revenue Hudson $111,131 $122,399 $103,501 $974 $338,005 Highland 11,785 1,921 1,158 -- 14,864 $122,916 $124,320 $104,659 $974 $352,869 Gross Margin Hudson $26,800 $50,451 $36,116 $774 $114,141 Highland 11,093 1,862 1,111 -- 14,066 $37,893 $52,313 $37,227 $774 $128,207 Adjusted EBITDA (1) Hudson $3,324 $3,234 $6,825 $(858) $12,525 Highland 654 (86) (118) 450 Corporate -- -- -- (9,667) (9,667) $3,978 $3,148 $6,707 $(10,525) $3,308 EBITDA (1) Hudson $2,758 $3,314 $6,825 $(858) $12,039 Highland 654 (86) (118) 450 Corporate -- -- -- (9,667) (9,667) $3,412 $3,228 $6,707 $(10,525) $2,822 For the Three Months Ended March 31, Corporate 2004 Americas Europe Asia Pac & Other Total Revenue Hudson $72,234 $103,016 $99,877 $148 $275,275 Highland 9,564 2,047 2,918 -- 14,529 $81,798 $105,063 $102,795 $148 $289,804 Gross Margin Hudson $16,752 $43,372 $32,524 $117 $92,765 Highland 8,906 1,965 2,755 -- 13,626 $25,658 $45,337 $35,279 $117 $106,391 Adjusted EBITDA (1) Hudson $(986) $(2,665) $2,120 $(1,596) $(3,127) Highland (404) (68) 528 56 Corporate -- -- -- (8,134) (8,134) $(1,390) $(2,733) $2,648 $(9,730) $(11,205) EBITDA (1) Hudson $(916) $(2,665) $2,103 $(1,596) $(3,074) Highland (314) (234) 528 (20) Corporate -- -- -- (8,134) (8,134) $(1,230) $(2,899) $2,631 $(9,730) $(11,228) See following page for descriptions of note (1). Hudson Highland Group, Inc. Reconciliation Of Adjusted Ebitda To Operating Loss (in thousands) (unaudited) Three Months Ended March 31 Hudson Adjusted EBITDA (1) $12,525 $(3,127) Business reorganization (expenses) recoveries (529) 16 Merger and integration recoveries 43 37 EBITDA (1) 12,039 (3,074) Depreciation and amortization (4,371) (3,733) Operating income (loss) $ 7,668 $(6,807) Highland Adjusted EBITDA (1) $450 $56 Business reorganization expenses -- (76) EBITDA (1) 450 (20) Depreciation and amortization (354) (423) Operating income (loss) $96 $(443) Corporate & Other Adjusted EBITDA and EBITDA (1) $(9,667) $(8,134) Depreciation and amortization (132) (923) Corporate expenses $(9,799) $(9,057) Hudson Highland Group consolidated Adjusted EBITDA (1) $ 3,308 $(11,205) Business reorganization expenses (529) (60) Merger and integration recoveries 43 37 EBITDA (1) 2,822 (11,228) Depreciation and amortization (4,857) (5,079) Operating loss $(2,035) $(16,307) (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. DATASOURCE: Hudson Highland Group, Inc. CONTACT: Richard W. Pehlke of Hudson Highland Group, +1-212-351-7285, ; or Thomas Smith of Ogilvy Public Relations Worldwide, +1-212-880-5269, for Hudson Highland Group Web site: http://www.hhgroup.com/

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