HHGP Hudson Highland Grp., Inc. (MM)

NEW YORK, Oct. 31 /PRNewswire-FirstCall/ -- Hudson Highland Group, Inc. (NASDAQ:HHGP), a leading provider of permanent recruitment, contract professionals and talent management services worldwide, today announced financial results for the third quarter and nine months ended September 30, 2006. 2006 Third Quarter Highlights The sale of Highland Partners was completed effective on October 1, 2006 and its results are treated as discontinued operations in the third quarter 2006 financial statements for all periods presented. Other than net income, the financial information discussed herein refers to continuing operations only. * Revenue from continuing operations of $352.5 million, an increase of 3.3 percent from $341.3 million for the third quarter of 2005 * Gross margin from continuing operations of $127.7 million, or 36.2 percent of revenue, an increase of 5.8 percent from $120.7 million, or 35.4 percent of revenue, for the third quarter of 2005 * Adjusted EBITDA from continuing operations of $12.1 million, or 3.4 percent of revenue, an increase of 101.1 percent from $6.0 million, or 1.8 percent of revenue, for the third quarter of 2005 * EBITDA from continuing operations of $10.0 million, or 2.8 percent of revenue, an increase of 66.1 percent from $6.0 million, or 1.8 percent of revenue, for the third quarter of 2005 * Income from continuing operations of $4.0 million, or $0.16 per basic share and diluted share, compared with $0.0 million, or $0.00 per basic and diluted share, for the third quarter of 2005 * Net income of $4.3 million, or $0.18 per basic share and $0.17 per diluted share, compared with net income of $1.2 million, or $0.05 per basic and diluted share, for the third quarter of 2005 "After a difficult first half of 2006, the company set a solid foundation for the future with its strongest quarterly adjusted EBITDA performance since the 2003 spin-off. Hudson Americas regained profitability, while our international operations showed continued improvement in EBITDA," said Jon Chait, chairman and chief executive officer. "We will continue to focus on lowering the cost base to achieve greater operating leverage to drive profit growth in our core markets," said Mary Jane Raymond, executive vice president and chief financial officer. "Actions under our restructuring plan are a fundamental part of this effort and should produce benefits in 2007." Sale of Highland Partners Effective on October 1, 2006, the company completed the sale of its Highland Partners executive search business to Heidrick & Struggles International, Inc. Highland Partners results in the third quarter of 2006 are included in the consolidated financial statements as discontinued operations, contributing $0.3 million in net income. Revenue in the quarter of $13.7 million was down 11 percent from the third quarter of 2005, while EBITDA reached $1.0 million, or 7.4 percent of revenue, down from $1.5 million, or 9.7 percent of revenue, in the year ago period. The company's third quarter guidance included Highland Partners' results. Guidance The company currently expects fourth quarter revenue of $335 - $350 million at prevailing exchange rates, and EBITDA of $10.5 - $12 million, including $2 million of restructuring charges, compared with revenue of $337 million and EBITDA of $4.5 million in the fourth quarter of 2005. 2006 Nine Month Results For the first nine months of 2006, Hudson Highland Group reported revenue from continuing operations of $1.0 billion, up 0.2 percent from $1.0 billion for the same nine-month period last year. Net loss was $3.2 million, or $0.13 per basic and diluted share, compared with a net loss of $1.0 million, or $0.04 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, November 1, 2006 at 9:00 AM EST to discuss this announcement. Individuals wishing to participate can join the conference call by dialing 1-800-374-1532 followed by the participant passcode 8713535 at 8:50 AM EST. For those outside the United States, please call in on 1-706-634-5594 followed by the participant passcode 8713535. 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/. About Hudson Highland Group Hudson Highland Group, Inc. is a leading provider of permanent recruitment, contract professionals and talent management services worldwide. From single placements to total outsourced solutions, Hudson helps clients achieve greater organizational performance by assessing, recruiting, developing and engaging the best and brightest people for their businesses. The company employs more than 3,600 professionals serving clients and candidates in more than 20 countries. More information 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 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; 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; risks associated with the remediation work being performed on the company's PeopleSoft system; and the company's ability to maintain effective internal control over financial reporting. 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 Nine Months Ended September 30, September 30, 2006(1) 2005(1,2) 2006(1) 2005(1,2) Revenue $352,510 $341,256 $1,030,312 $1,028,056 Direct costs 224,860 220,599 664,921 667,325 Gross margin 127,650 120,657 365,391 360,731 Operating expenses: Selling, general and administrative 115,528 114,628 349,199 343,869 Depreciation and amortization 3,868 3,890 12,081 12,677 Business reorganization expenses (recoveries) 2,090 (1) 2,747 430 Merger and integration expenses (recoveries) 14 - 86 (35) Total operating expenses 121,500 118,517 364,113 356,941 Operating income 6,150 2,140 1,278 3,790 Other income (expense): Interest, net (661) (287) (1,814) (1,127) Other, net 709 322 1,769 (1,543) Income from continuing operations before provision for income taxes 6,198 2,175 1,233 1,120 Provision for income taxes for continuing operations 2,218 2,152 6,244 4,849 Income (loss) from continuing operations 3,980 23 (5,011) (3,729) Income from discontinued operations 346 1,138 1,857 2,761 Net income (loss) $4,326 $1,161 $(3,154) $(968) Basic income (loss) per share: Income (loss) from continuing operations $0.16 $0.00 $(0.21) $(0.17) Income from discontinued operations 0.02 0.05 0.08 0.13 Net income (loss) $0.18 $0.05 $(0.13) $(0.04) Diluted income (loss) per share: Income (loss) from continuing operations $0.16 $0.00 $(0.21) $(0.17) Income from discontinued operations 0.01 0.05 0.08 0.13 Net income (loss) $0.17 $0.05 $(0.13) $(0.04) Weighted average shares outstanding Basic 24,574,000 23,875,000 24,405,000 21,686,000 Diluted 25,023,000 25,540,000 24,405,000 21,686,000 (1) Note - 2006 and 2005 financial statements have been adjusted to reflect the Highland Partners segment as a discontinued operation. The sale of Highland Partners was completed effective on October 1, 2006. (2) 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 September 30, 2006 and 2005 were $1,158 and $1,069, respectively, and for the nine months ended September 30, 2006 and 2005 were $3,872 and $3,271, respectively. The comparable expenses for the Highland Partners discontinued operations for the three months ended September 30, 2006 and 2005 were $34 and $65, respectively, and for the nine months ended September 30, 2006 and 2005 were $173 and $220, respectively. HUDSON HIGHLAND GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except share and per share amounts) Sept. 30, Dec. 31, 2006(1) 2005(1,2) (unaudited) ASSETS Current assets: Cash and cash equivalents $31,954 $34,108 Accounts receivable, net 233,542 222,055 Prepaid and other 11,103 13,593 Current assets of discontinued operations 8,623 10,764 Total current assets 285,222 280,520 Intangibles, net 39,527 30,989 Property and equipment, net 26,575 30,047 Other assets 4,726 4,537 Non-current assets of discontinued operations 1,263 2,323 Total assets $357,313 $348,416 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $32,801 24,124 Accrued expenses and other current liabilities 130,314 125,524 Credit facility and current portion of long-term debt 22,512 32,544 Accrued business reorganization expenses 3,725 3,411 Accrued merger and integration expenses 566 693 Current liabilities of discontinued operations 13,052 16,495 Total current liabilities 202,970 202,791 Other non-current liabilities 5,929 5,948 Accrued business reorganization expenses, non-current 1,152 2,171 Accrued merger and integration expenses, non-current 664 980 Long-term debt, less current portion 293 478 Non-current liabilities of discontinued operations 2,487 2,951 Total liabilities 213,495 215,319 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: 24,709,579 and 24,340,462 shares, respectively 25 24 Additional paid-in capital 425,359 416,448 Accumulated deficit (321,110) (317,956) Accumulated other comprehensive income-translation adjustments 39,774 34,811 Treasury stock, 15,798 shares (230) (230) Total stockholders' equity 143,818 133,097 $357,313 $348,416 (1) Note - 2006 and 2005 financial statements have been adjusted to reflect the Highland Partners segment as a discontinued operation. The sale of Highland Partners was completed effective on October 1, 2006. (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 Three Months Ended Sept. 30, 2006(1) Hudson Hudson Hudson Americas Europe Asia Pacific Corporate Total Revenue $117,071 $119,872 $115,567 $- $352,510 Gross margin $30,237 $53,523 $43,890 $- $127,650 Adjusted EBITDA(2) $3,807 $4,982 $10,721 $(7,388) $12,122 Business reorganization expenses 1,221 579 56 234 2,090 Merger and integration expenses 13 1 - - 14 EBITDA(2) 2,573 4,402 10,665 (7,622) 10,018 Depreciation and amortization 1,130 1,819 760 159 3,868 Operating income (loss) $1,443 $2,583 $9,905 (7,781) $6,150 For the Three Months Ended Sept. 30, 2005(1,3) Hudson Hudson Hudson Americas Europe Asia Pacific Corporate Total Revenue $109,561 $117,285 $114,410 $- $341,256 Gross margin $29,003 $49,561 $42,093 $- $120,657 Adjusted EBITDA(2) $3,939 $3,373 $8,473 (9,756) $6,029 Business reorganization (recoveries) - (1) - - (1) Merger and integration expenses - - - - - EBITDA(2) 3,939 $3,374 $8,473 $(9,756) $6,030 Depreciation and amortization 1,698 1,045 1,001 146 3,890 Operating income (loss) $2,241 $2,329 $7,472 $(9,902) $2,140 (1) Note - 2006 and 2005 financial statements have been adjusted to reflect the Highland Partners segment as a discontinued operation. The sale of Highland Partners was completed effective on October 1, 2006. (2) 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. (3) 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 Nine Months Ended Sept. 30, 2006(1) Hudson Hudson Hudson Americas Europe Asia Pacific Corporate Total Revenue $345,255 $358,075 $326,982 $- $1,030,312 Gross margin $80,497 $160,713 $124,181 $- $365,391 Adjusted EBITDA(2) $(5,151) $18,504 $24,994 $(22,155) $16,192 Business reorganization expenses 1,470 522 208 547 2,747 Merger and integration expenses 85 1 - - 86 EBITDA(2) (6,706) 17,981 24,786 (22,702) 13,359 Depreciation and amortization 3,949 5,334 2,306 492 12,081 Operating income (loss) $(10,655) $12,647 $22,480 $(23,194) $1,278 For the Nine Months Ended Sept. 30, 2005(1,3) Hudson Hudson Hudson Americas Europe Asia Pacific Corporate Total Revenue $329,479 $364,341 $334,236 $- $1,028,056 Gross margin $84,152 $154,522 $122,057 $- $360,731 Adjusted EBITDA(2) $8,996 $12,089 $25,040 $(29,263) $16,862 Business reorganization expenses (recoveries) 510 (80) - - 430 Merger and integration (recoveries) (35) - - - (35) EBITDA(2) 8,521 12,169 25,040 (29,263) 16,467 Depreciation and amortization 3,746 2,943 5,574 414 12,677 Operating income (loss) $4,775 $9,226 $19,466 $(29,677) $3,790 (1) Note - 2006 and 2005 financial statements have been adjusted to reflect the Highland Partners segment as a discontinued operation. The sale of Highland Partners was completed effective on October 1, 2006. (2) 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. (3) Note - 2005 financial statements have been adjusted for the Company's adoption of SFAS 123R using the modified retrospective method. HUDSON HIGHLAND GROUP, INC. HIGHLAND PARTNERS SEGMENT ANALYSIS (in thousands) (unaudited) On September 18, 2006, the Company entered into a Purchase Agreement (the "Agreement") with Heidrick & Struggles International, Inc. ("Heidrick") to sell its Highland Partners executive search business ("Highland") to Heidrick (the "Sale"). Effective October 1, 2006, the Company completed the Sale. The Company will report a gain of approximately $20 million from the Sale in the fourth quarter of 2006, from cash proceeds of $36.6 million, less post-closing net working capital adjustments, $9.55 million paid to certain partners of Highland and other direct costs of the transaction. Up to an additional $15.0 million may be received from Heidrick at future dates, subject to the achievement by Highland of certain future revenue metrics in 2007 and 2008. The Highland business was a separate reportable segment of the Company, and as a result of the Sale, the Company has classified the results of operations of Highland as a discontinued operation. Reported results for the Highland segment by period are as follows: Quarter Ended Sept. 30, Nine Months Ended Sept. 30, 2006 2005 2006 2005 Revenue $13,685 $15,348 $44,419 $46,253 Gross Margin $12,845 $14,511 $41,762 $43,811 EBITDA(1) $1,015 $1,492 $3,811 $2,501 Depreciation and amortization 218 327 854 1,023 Operating income $797 $1,165 $2,957 $1,478 (1) 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. 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, EBITDA as presented above may not be comparable with similarly titled measures reported by other companies. 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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