HHGP Hudson Highland Grp., Inc. (MM)

NEW YORK, Oct. 25 /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 third quarter and nine months ended September 30, 2005. 2005 Third Quarter Highlights * Revenue of $356.6 million, an increase of 13.2 percent from $315.0 million for the third quarter of 2004 * Gross margin of $135.2 million, or 37.9 percent of revenue, an increase of 16.1 percent from $116.4 million, or 37.0 percent of revenue, for the third quarter of 2004 * EBITDA of $8.7 million, up from a loss of $2.4 million for the third quarter of 2004 * Net income of $2.3 million, or $0.10 per basic share and $0.09 per diluted share, compared to a net loss of $6.9 million, or $0.34 per basic and diluted share for the third quarter of 2004 * Completed acquisition of Balance Ervaring op Projectbasis B.V. (Balance), a leading professional contract staffing firm in the Netherlands in August "Our strategy is paying off," said Jon Chait, chairman and chief executive officer of Hudson Highland Group. "Our results to date have positioned the company for a strong 2005 overall and demonstrate continuing progress toward our long term profitability goals. Despite historically weak third quarter industry trends, every operating unit delivered improved profitability on a year-over-year basis." "We achieved stronger operating leverage and better EBITDA margins than expected during the third quarter and are raising our guidance for the year accordingly," said Richard W. Pehlke, Hudson Highland Group's executive vice president and chief financial officer. Guidance Given the current economic environment, the company expects EBITDA as a percent of revenue to be at least 2 percent in 2005 and believes that an assumption of 12 to 15 percent revenue growth for 2005 remains reasonable. Considering the strong year-to-date results and the impact of the Balance acquisition, the company now expects 2005 full-year EBITDA to range from $30 to $34 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. Given the current economic environment, the company continues to expect EBITDA as a percent of revenue to be 3.5 to 4 percent in 2006, and believes revenue growth assumptions above 10 percent would be unreasonable. 2005 Nine Month Results For the first nine months of 2005, Hudson Highland Group reported revenue of $1.074 billion, up 17.8 percent from $912.3 million for the same nine-month period last year. Net income was $2.5 million, or $0.12 per basic share and $0.11 per diluted share, compared with a net loss of $25.4 million, or $1.33 per basic and diluted share, for the same nine-month period last year. Conference Call / Webcast Hudson Highland Group will conduct a conference call tomorrow Wednesday, October 26, 2005 at 9:00 AM EDT to discuss this announcement. Individuals wishing to participate can join the conference call by dialing 1-800-374-1532 followed by the participant passcode 1462858 at 8:50 AM EDT. For those outside the United States, please call in on 1-706-634-5594 followed by the participant passcode 1462858. 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 those under the caption "Guidance" and other statements regarding the company's future financial condition, results of operations, business operations and business prospects, are forward-looking statements. Words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "predict," "believe" and similar words, expressions and variations of these words and expressions are intended to identify forward-looking statements. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These factors include, but are not limited to, the impact of global economic fluctuations 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. Financial Tables Follow HUDSON HIGHLAND GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Revenue $356,604 $315,029 $1,074,307 $912,264 Direct costs 221,436 198,615 669,765 570,970 Gross margin 135,168 116,414 404,542 341,294 Selling, general and administrative expenses 126,661 115,797 381,974 346,211 Depreciation and amortization 4,217 4,368 13,701 14,362 Business reorganization expenses (recoveries) (149) 3,314 143 3,450 Merger and integration recoveries - (317) (35) (354) Operating income (loss) 4,439 (6,748) 8,759 (22,375) Other income (expense): Other income (expense), net 380 128 376 (1,759) Interest income (expense), net (331) 203 (1,253) (53) Income (loss) before provision for income taxes 4,488 (6,417) 7,882 (24,187) Provision for income taxes 2,193 530 5,359 1,251 Net income (loss) $2,295 $(6,947) $2,523 $(25,438) Basic and diluted income (loss) per share: Basic income (loss) $.10 $(.34) $.12 $(1.33) Diluted income (loss) $.09 $(.34) $.11 $(1.33) Weighted average shares outstanding: Basic 23,875,000 20,306,000 21,686,000 19,146,000 Diluted 25,540,000 20,306,000 22,951,000 19,146,000 HUDSON HIGHLAND GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except share and per share amounts) September December 30, 31, 2005 2004 (unaudited) ASSETS Current assets: Cash and cash equivalents $33,698 $21,064 Accounts receivable, net 241,127 197,582 Other current assets 15,977 14,187 Total current assets 290,802 232,833 Property and equipment, net 32,644 36,360 Intangibles, net 31,200 6,104 Other assets 5,233 6,081 $359,879 $281,378 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $36,595 $27,023 Accrued expenses and other current liabilities 146,685 140,903 Short-term borrowings and current portion of long-term debt 25,784 4,066 Accrued business reorganization expenses 5,079 8,930 Accrued merger and integration expenses 1,487 1,872 Total current liabilities 215,630 182,794 Accrued business reorganization expenses, non-current 4,439 6,832 Accrued merger and integration expenses, non-current 2,121 3,329 Other non-current liabilities 4,396 2,648 Long-term debt, less current portion 1,134 2,041 Total liabilities 227,720 197,644 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: 24,210,911 and 20,612,966 shares, respectively 24 21 Additional paid-in capital 403,549 353,825 Accumulated deficit (309,052) (311,576) Accumulated other comprehensive income -- translation adjustments 37,868 41,694 Treasury stock, 15,798 shares (230) (230) Total stockholders' equity 132,159 83,734 $359,879 $281,378 HUDSON HIGHLAND GROUP, INC. SEGMENT ANALYSIS (in thousands) (unaudited) For the Three Months Ended September 30, 2005 Americas Europe Asia Corporate Total Pac & Other Revenue Hudson $109,090 $117,285 $114,410 $471 $341,256 Highland 11,132 3,271 945 - 15,348 $120,222 $120,556 $115,355 $471 $356,604 Gross Margin Hudson $28,694 $49,561 $42,093 $309 $120,657 Highland 10,327 3,206 978 - 14,511 $39,021 $52,767 $43,071 $309 $135,168 Adjusted EBITDA(1) Hudson $5,079 $3,537 $8,730 $(948) $16,398 Highland 1,032 160 215 - 1,407 Corporate - - - (9,298) (9,298) $6,111 $3,697 $8,945 $(10,246) $8,507 EBITDA(1) Hudson $5,080 $3,537 $8,730 $(948) $16,399 Highland 1,180 160 215 - 1,555 Corporate - - - (9,298) (9,298) $6,260 $3,697 $8,945 $(10,246) $8,656 For the Three Months Ended September 30, 2004 Americas Europe Asia Corporate Total Pac & Other Revenue Hudson $83,013 $114,957 $102,175 $683 $300,828 Highland 11,181 1,318 1,702 - 14,201 $94,194 $116,275 $103,877 $683 $315,029 Gross Margin Hudson $22,658 $43,129 $36,501 $643 $102,931 Highland 10,664 1,253 1,566 - 13,483 $33,322 $44,382 $38,067 $643 $116,414 Adjusted EBITDA(1) Hudson $3,014 $(318) $7,227 $(1,328) $8,595 Highland 1,293 (890) 81 - 484 Corporate - - - (8,462) (8,462) $4,307 $(1,208) $7,308 $(9,790) $617 EBITDA(1) Hudson $1,995 $(268) $7,807 $(1,328) $8,206 Highland (1,316) (890) 82 - (2,124) Corporate - - - (8,462) (8,462) $679 $(1,158) $7,889 $(9,790) $(2,380) (1) See the Reconciliation of Adjusted EBITDA to Operating Income (Loss) for a description of note (1). HUDSON HIGHLAND GROUP, INC. SEGMENT ANALYSIS (in thousands) (unaudited) For the Nine Months Ended September 30, 2005 Americas Europe Asia Corporate Total Pac & Other Revenue Hudson $327,815 $364,341 $334,236 $1,662 $1,028,054 Highland 34,820 8,426 3,007 - 46,253 $362,635 $372,767 $337,243 $1,662 $1,074,307 Gross Margin Hudson $82,970 $154,522 $122,057 $1,182 $360,731 Highland 32,635 8,233 2,943 - 43,811 $115,605 $162,755 $125,000 $1,182 $404,542 Adjusted EBITDA(1) Hudson $12,957 $12,567 $25,658 $(3,340) $47,842 Highland 2,978 179 (723) - 2,434 Corporate - - - (27,708) (27,708) $15,935 $12,746 $24,935 $(31,048) $22,568 EBITDA(1) Hudson $12,483 $12,646 $25,658 $(3,340) $47,447 Highland 3,272 179 (730) - 2,721 Corporate - - - (27,708) (27,708) $15,755 $12,825 $24,928 $(31,048) $22,460 For the Nine Months Ended September 30, 2004 Americas Europe Asia Corporate Total Pac & Other Revenue Hudson $235,243 $327,233 $302,805 $1,263 $866,544 Highland 32,948 5,463 7,309 - 45,720 $268,191 $332,696 $310,114 $1,263 $912,264 Gross Margin Hudson $59,899 $132,382 $104,841 $1,166 $298,288 Highland 31,109 5,177 6,720 - 43,006 $91,008 $137,559 $111,561 $1,166 $341,294 Adjusted EBITDA(1) Hudson $6,054 $(458) $15,967 $(4,453) $17,110 Highland 2,101 (1,115) 946 - 1,932 Corporate - - - (23,959) (23,959) $8,155 $(1,573) $16,913 $(28,412) $(4,917) EBITDA(1) Hudson $5,105 $(408) $16,329 $(4,453) $16,573 Highland (293) (1,281) 947 - (627) Corporate - - - (23,959) (23,959) $4,812 $(1,689) $17,276 $(28,412) $(8,013) (1) See the Reconciliation of Adjusted EBITDA to Operating Income (Loss) for a description of note (1). HUDSON HIGHLAND GROUP, INC. RECONCILIATION OF ADJUSTED EBITDA TO OPERATING INCOME (LOSS) (in thousands) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Hudson Adjusted EBITDA(1) $16,398 $8,595 $47,842 $17,110 Business reorganization (expenses) recoveries 1 (706) (430) (891) Merger and integration recoveries - 317 35 354 EBITDA(1) 16,399 8,206 47,447 16,573 Depreciation and amortization (3,744) (3,860) (12,264) (11,192) Operating income $12,655 $4,346 $35,183 $5,381 Highland Adjusted EBITDA(1) $1,407 $484 $2,434 $1,932 Business reorganization (expenses) recoveries 148 (2,608) 287 (2,559) EBITDA(1) 1,555 (2,124) 2,721 (627) Depreciation and amortization (327) (473) (1,023) (1,305) Operating income (loss) $1,228 $(2,597) $1,698 $(1,932) Corporate Adjusted EBITDA and EBITDA(1) $(9,298) $(8,462) $(27,708) $(23,959) Depreciation and amortization (146) (35) (414) (1,865) Corporate expenses $(9,444) $(8,497) $(28,122) $(25,824) Hudson Highland Group consolidated Adjusted EBITDA(1) $8,507 $617 $22,568 $(4,917) Business reorganization (expenses) recoveries 149 (3,314) (143) (3,450) Merger and integration recoveries - 317 35 354 EBITDA(1) 8,656 (2,380) 22,460 (8,013) Depreciation and amortization (4,217) (4,368) (13,701) (14,362) Operating income (loss) $4,439 $(6,748) $8,759 $(22,375) (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, Inc. Web site: http://www.hhgroup.com/

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