HHGP Hudson Highland Grp., Inc. (MM)

Company Announces $4 - $7 million 2006 Restructuring Program NEW YORK, Aug. 7 /PRNewswire-FirstCall/ -- Hudson Highland Group, Inc. (NASDAQ:HHGP), one of the world's leading providers of specialized professional staffing, retained executive search and talent management solutions, today announced financial results for the second quarter and six months ended June 30, 2006. 2006 Second Quarter Summary -- Revenue of $365.5 million, essentially flat with $364.8 million for the second quarter of 2005 -- Gross margin of $141.0 million, or 38.6 percent of revenue, down slightly from $141.2 million, or 38.7 percent of revenue, for the same year-ago period -- Adjusted EBITDA of $9.3 million, or 2.6 percent of revenue, down slightly from $9.4 million, or 2.6 percent of revenue, for the second quarter of 2005 -- EBITDA of $8.5 million, or 2.3 percent of revenue, down from $9.6 million, or 2.6 percent of revenue, for the second quarter of 2005 -- Net income of $0.6 million, or $0.02 per basic and diluted share, compared with a net income of $3.0 million, or $0.15 per basic share and $0.14 per diluted share for the same period last year "We achieved solid results in Europe, Asia Pacific, and the Highland Partners executive search business, and began seeing signs of stabilization in our North America staffing operation," said Jon Chait, chairman and chief executive officer of Hudson Highland Group. 2006 Six Month Results For the first six months of 2006, Hudson Highland Group reported revenue of $708.5 million, down 1.3 percent from $717.7 million for the first half of last year. Net loss was $7.5 million, or $0.31 per basic and diluted share compared with a net loss of $2.1 million, or $0.10 per basic and diluted share, for the same six-month period last year. 2006 Restructuring Program The company also announced today a restructuring program designed to reduce costs and increase the sustainable, long-term profitability of the company. The company expects to record a charge of between $4 million to $7 million in 2006, of which $0.7 million was incurred in the second quarter of 2006. The actions taken fall into several categories: (1) consolidation of support functions, particularly between North America and corporate; (2) closing or reducing redundant sales functions and unprofitable offices; and (3) moves to more economical properties. "We expect our restructuring plan to help allow us to reduce expenses and tighten our focus," said Mary Jane Raymond, executive vice president and chief financial officer. "As North America recovers, we believe we are well positioned for strong operating leverage." Restatement of First Quarter 2006 Financial Statements As discussed in its first quarter earnings call, the company undertook a comprehensive review of the accounting processes supported by the new PeopleSoft accounting and management reporting system the company implemented last year in its Hudson North America business unit. The company believes this review has been comprehensive and that it has identified the full extent of the differences existing in the accounts as of the end of the second quarter of 2006 that may be material. As a result, the company identified accounting errors in Hudson North America and has restated results of the first quarter 2006 to reflect net charges of $2.2 million, and has included net charges of $1.6 million in its results for the second quarter of 2006. The second quarter charge includes a $0.7 million adjustment to revenue attributable to 2005 results, which is considered immaterial to that year, and a $0.9 million adjustment to receivables, for which the applicable period cannot practicably be determined. Earlier today, the company filed an amended Form 10-Q for the quarter ended March 31, 2006, reflecting the restatement. Guidance The company currently expects third quarter revenue of $355 - $370 million at prevailing exchange rates, and EBITDA of $7.5 - $8.5 million, including $2 million of restructuring charges, compared to revenue of $357 million and EBITDA of $7.5 million in the third quarter of 2005. The company has revised its guidance formulation to bring it in line with the quarterly industry standard. Conference Call / Webcast Hudson Highland Group will conduct a conference call Tuesday, August 8, 2006 at 9:00 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 3401282 at 8:50 AM ET. For those outside the United States, please call in on 1-706-634-5594 followed by the participant passcode 3401282. 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/. Additional Information Please find additional information about the company's quarterly results in our shareholder letter in 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 talent management solution providers. We help our clients achieve greater organizational performance by attracting, selecting 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; risks associated with expansion; risks and financial impact associated with disposition of non-strategic assets; 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; restrictions on the company's operating flexibility due to the terms of its credit facility; and the company's ability to implement remedial actions with respect to internal control weaknesses. 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 Six Months Ended June 30, June 30, 2006 2005 (1) 2006 2005 (1) Revenue $365,478 $364,835 $708,536 $717,704 Direct costs 224,443 223,668 441,878 448,330 Gross margin 141,035 141,167 266,658 269,374 Operating expenses: Selling, general and administrative 131,696 131,759 259,647 257,672 Depreciation and amortization 4,341 4,626 8,849 9,483 Business reorganization expenses (recoveries) 592 (238) 595 291 Merger and integration expenses (recoveries) 279 8 279 (35) Total operating expenses 136,908 136,155 269,370 267,411 Operating income (loss) 4,127 5,012 (2,712) 1,963 Other income (expense): Interest, net (794) (495) (1,208) (921) Other, net (240) 271 539 (5) Income (loss) before provision for income taxes 3,093 4,788 (3,381) 1,037 Provision for income taxes 2,493 1,766 4,099 3,166 Net income (loss) $600 $3,022 $(7,480) $(2,129) Income (loss) per share: Basic $0.02 $0.15 $(0.31) $(0.10) Diluted $0.02 $0.14 $(0.31) $(0.10) Weighted average shares outstanding Basic 24,414,000 20,642,000 24,318,000 20,574,000 Diluted 25,172,000 21,635,000 24,318,000 20,574,000 (1) Note -- 2005 financial statements have been adjusted for the Company's adoption of SFAS 123R using the modified retrospective method. (The comparable expenses for the three months ended June 30, 2006 and 2005 were $1,434 and $1,343, respectively, and for the six months ended June 30, 2006 and 2005 were $2,854 and $2,357, respectively.) HUDSON HIGHLAND GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except share and per share amounts) June 30, December 31, 2006 2005 (1) ASSETS (unaudited) Current assets: Cash and cash equivalents $32,310 $34,108 Accounts receivable, net 241,125 232,081 Prepaid and other 11,104 14,330 Total current assets 284,539 280,519 Intangibles, net 37,208 31,100 Property and equipment, net 28,541 31,438 Other assets 4,767 5,359 Total assets $355,055 $348,416 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $30,911 $24,718 Accrued expenses and other current liabilities 136,355 140,036 Credit facility and current portion of long-term debt 36,575 32,544 Accrued business reorganization expenses 3,844 4,223 Accrued merger and integration expenses 930 1,239 Total current liabilities 208,615 202,760 Other non-current liabilities 5,999 5,948 Accrued business reorganization expenses, non-current 3,262 4,095 Accrued merger and integration expenses, non-current 1,663 2,038 Long-term debt, less current portion 351 478 Total liabilities 219,890 215,319 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: 24,539,889 and 24,340,462 shares, respectively 24 24 Additional paid-in capital 423,851 416,448 Accumulated deficit (325,436) (317,956) Accumulated other comprehensive income - translation adjustments 36,956 34,811 Treasury stock, 15,798 shares (230) (230) Total stockholders' equity 135,165 133,097 $355,055 $348,416 (1) Note -- 2005 financial statements have been adjusted for the Company's adoption of SFAS 123R using the modified retrospective method. HUDSON HIGHLAND GROUP, INC. SEGMENT ANALYSIS (in thousands) (unaudited) For the Three Hudson Months Ended Hudson Hudson Asia Highland June 30, 2006 Americas Europe Pacific Partners Corporate Total Revenue $117,580 $122,061 $110,877 $14,960 $ -- $365,478 Gross margin $27,405 $56,225 $43,430 $13,975 $ -- $141,035 Adjusted EBITDA (1) $(2,982) $7,972 $9,541 $1,653 $(6,845) $9,339 Business reorganization expenses (recoveries) 249 (57) 152 (65) 313 592 Merger and integration expenses 72 -- -- 207 -- 279 EBITDA (1) (3,303) 8,029 9,389 1,511 (7,158) 8,468 Depreciation and amortization 1,314 1,776 770 313 168 4,341 Operating income (loss) $(4,617) $6,253 $8,619 $1,198 $(7,326) $4,127 For the Three Hudson Months Ended Hudson Hudson Asia Highland June 30, 2005(2) Americas Europe Pacific Partners Corporate Total Revenue $107,813 $124,657 $116,325 $16,040 $ -- $364,835 Gross margin $27,575 $54,510 $43,848 $15,234 $ -- $141,167 Adjusted EBITDA (1) $2,785 $5,615 $9,871 $494 $(9,357) $9,408 Business reorganization (recoveries) (99) -- -- (139) -- (238) Merger and integration expenses 8 -- -- -- -- 8 EBITDA (1) 2,876 5,615 9,871 633 (9,357) 9,638 Depreciation and amortization 1,072 920 2,156 342 136 4,626 Operating income (loss) $1,804 $4,695 $7,715 $291 $(9,493) $5,012 (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. (2) Note -- 2005 financial statements have been adjusted for the Company's adoption of SFAS 123R using the modified retrospective method. HUDSON HIGHLAND GROUP, INC. SEGMENT ANALYSIS (in thousands) (unaudited) For the Six Hudson Months Ended Hudson Hudson Asia Highland June 30, 2006 Americas Europe Pacific Partners Corporate Total Revenue $228,184 $238,203 $211,415 $30,734 $ -- $708,536 Gross margin $50,302 $107,190 $80,291 $28,875 $ -- $266,658 Adjusted EBITDA (1) $(8,958) $13,522 $14,273 $2,941 $(14,767) $7,011 Business reorganization expenses (recoveries) 249 (57) 152 (62) 313 595 Merger and integration expenses 72 -- -- 207 -- 279 EBITDA (1) (9,279) 13,579 14,121 2,796 (15,080) 6,137 Depreciation and amortization 2,819 3,515 1,546 636 333 8,849 Operating income (loss) $(12,098) $10,064 $12,575 $2,160 $(15,413) $(2,712) For the Six Hudson Months Ended Hudson Hudson Asia Highland June 30, 2005(2) Americas Europe Pacific Partners Corporate Total Revenue $219,918 $247,056 $219,826 $30,904 $ -- $717,704 Gross margin $55,149 $104,961 $79,964 $29,300 $ -- $269,374 Adjusted EBITDA (1) $5,057 $8,716 $16,567 $869 $(19,507) $11,702 Business reorganization expenses (recoveries) 510 (79) -- (140) -- 291 Merger and integration (recoveries) (35) -- -- -- -- (35) EBITDA (1) 4,582 8,795 16,567 1,009 (19,507) 11,446 Depreciation and amortization 2,048 1,898 4,573 696 268 9,483 Operating income (loss) $2,534 $6,897 $11,994 $313 $(19,775) $1,963 (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. (2) Note -- 2005 financial statements have been adjusted for the Company's adoption of SFAS 123R using the modified retrospective method. DATASOURCE: Hudson Highland Group, Inc. CONTACT: Investors: David F. Kirby, +1-212-351-7216, , or Media: Emmanuel Serrano, +1-212-351-7203, , both of Hudson Highland Group Web site: http://www.hhgroup.com/

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