NEW YORK, Oct. 24 /PRNewswire-FirstCall/ -- Hudson Highland Group, Inc. (NASDAQ:HHGP), one of the world's leading providers of permanent recruitment, contract professionals and talent management solutions, today announced financial results for the third quarter ended September 30, 2007. 2007 Third Quarter Summary -- Revenue of $341.3 million, a decrease of 0.1 percent from $341.5 million for the third quarter of 2006 -- Gross margin of $136.1 million, or 39.9 percent of revenue, up 8.2 percent from $125.9 million, or 36.9 percent of revenue, for the same year-ago period -- Adjusted EBITDA of $11.8 million, or 3.4 percent of revenue, up 3.5 percent from $11.4 million for the third quarter of 2006 -- EBITDA of $12.6 million, or 3.7 percent of revenue, up 35.7 percent from $9.3 million for the same period last year -- Net income of $3.9 million, or $0.15 per basic and diluted share, compared with net income of $4.3 million, or $0.18 per basic and $0.17 per diluted share, for the third quarter of 2006 "Our strong third quarter results stemmed from continued execution of our strategic objectives, including higher temporary contracting margins in every region and signing a definitive agreement to divest our Australian Trade and Industrial business," said Jon Chait, Hudson Highland Group chairman and chief executive officer. "As well, our actions in Hudson Americas have begun to pay off with improved sequential performance." "Led by Europe and Asia Pacific, our international operations continued to demonstrate steady performance improvement," added Mary Jane Raymond, executive vice president and chief financial officer. "Given the current global concerns about a slowing economy, we continue to focus on improving our liquidity." Unresolved Accounting Issue The company is examining an accounting issue with its external auditors relating to contingent cash earn out payments the company made in connection with the JMT acquisition between 2004 and 2007. The company accounted for the contingent cash earn out payments as goodwill. The company is determining whether up to $19 million of those payments must be reclassified from goodwill to compensation expense. Any such reclassification could require a restatement of prior period financial statements, but would not affect the company's cash flows for such periods. The company intends to resolve this accounting issue prior to the timely filing of its Form 10-Q for the third quarter of 2007. Sale of Australian Trade and Industrial Business On October 2, 2007, the company announced it had signed a definitive agreement to sell its Australian Trade and Industrial business to the Skilled Group Limited. This represents the company's exit from the Australian blue-collar labor market, no longer core to its long-term business strategy of specialized professional recruitment, talent management and managed services solutions. The company will record a gain on sale from this transaction in the fourth quarter, as this is expected to close at the end of October, but will treat this business as a discontinued operation in the third quarter of 2007. Guidance The company currently expects fourth quarter 2007 revenue of $325 - $340 million at prevailing exchange rates and adjusted EBITDA of $12 - $14 million, excluding the impact of any future restructuring, acquisitions or divestures. This compares with revenue of $329.3 million and adjusted EBITDA of $14.8 million in the fourth quarter of 2006. Additional Information Please find additional information about the company's quarterly results in the shareholder letter in the investor information section of the company's website at http://www.hudson.com/. Conference Call/Webcast Hudson Highland Group will conduct a conference call Thursday, October 25, 2007 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 20262666 at 8:50 AM ET. For those outside the United States, please call in on 1-706-634-5594 followed by the participant passcode 20262666. 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.hudson.com/. The archived call will be available for one week by dialing 1-800-642-1687 followed by the participant passcode 20262666. For those outside the United States, the call will be available on 1-706-645-9291 followed by the participant passcode 20262666. 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.hudson.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, any restatement of the company's prior period financial statements arising out of the unresolved accounting issue described in this release; the company's history of negative cash flows and operating losses may continue; the ability of clients to terminate their relationship with the company at any time; the impact of global economic fluctuations on temporary contracting operations; risks and financial impact associated with acquisitions and dispositions 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; restrictions imposed by blocking arrangements; exposure to employment-related claims and limits on insurance coverage related thereto; government regulations; 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 September 30, 2007 (1) 2006 (1) Revenue $341,296 $341,523 Direct costs 205,154 215,648 Gross margin 136,142 125,875 Operating expenses: Selling, general and administrative 124,374 114,501 Depreciation and amortization 3,642 3,864 Business reorganization expenses (recoveries) (56) 2,090 Merger and integration expenses (recoveries) (753) 14 Total operating expenses 127,207 120,469 Operating income 8,935 5,406 Other income (expense): Interest, net (143) (661) Other, net 1,096 709 Income from continuing operations before income taxes 9,888 5,454 Provision for income taxes 5,721 1,994 Income (loss) from continuing operations 4,167 3,460 Income (loss) from discontinued operations, net of income taxes (277) 866 Net income (loss) $3,890 $4,326 Basic income (loss) per share: Income (loss) from continuing operations $0.16 $0.14 Income (loss) from discontinued operations (0.01) 0.04 Net income (loss) $0.15 $0.18 Diluted income (loss) per share: Income (loss) from continuing operations $0.16 $0.14 Income (loss) from discontinued operations (0.01) 0.03 Net income (loss) $0.15 $0.17 Weighted average shares outstanding Basic 25,443,000 24,574,000 Diluted 26,058,000 25,023,000 (1) Note - 2007 and 2006 financial statements have been adjusted to the Highland Partners segment and the Australian Trade and Industrial business as discontinued operations. The sale of Highland Partners was completed effective on October 1, 2006 and the sale of the Australian Trade and Industrial business was announced on October 2, 2007. HUDSON HIGHLAND GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except share and per share amounts) September 30, December 31, 2007 (1) 2006 (1) (unaudited) ASSETS Current assets: Cash and cash equivalents $34,874 $44,649 Accounts receivable, net 233,105 213,559 Prepaid and other 17,163 16,682 Current assets from discontinued operations 4,129 5,217 Total current assets 289,271 280,107 Intangibles, net 76,521 37,612 Property and equipment, net 29,187 28,100 Other assets 8,147 5,045 Non-current assets of discontinued operations 8 5 Total assets $403,134 $350,869 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $32,116 $24,042 Accrued expenses and other current liabilities 131,408 132,942 Short-term borrowings and current portion of long-term debt 15,494 238 Accrued business reorganization expenses 3,483 5,077 Accrued merger and integration expenses 440 837 Current liabilities from discontinued operations 539 1,134 Total current liabilities 183,480 164,270 Other non-current liabilities 20,205 8,204 Accrued business reorganization expenses, non-current 3,763 3,409 Accrued merger and integration expenses, non-current 398 1,721 Long-term debt, less current portion 27 235 Total liabilities 207,873 177,839 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: 25,594,657 and 24,957,732 shares, respectively 26 25 Additional paid-in capital 438,746 427,645 Accumulated deficit (294,403) (298,344) Accumulated other comprehensive income-translation adjustments 51,193 43,934 Treasury stock, 19,662 shares (301) (230) Total stockholders' equity 195,261 173,030 $403,134 $350,869 (1) Note - 2007 and 2006 financial statements have been adjusted to reflect the Highland Partners segment and the Australian Trade and Industrial business as discontinued operations. The sale of Highland Partners was completed effective on October 1, 2006 and the sale of the Australian Trade and Industrial business was announced on October 2, 2007. HUDSON HIGHLAND GROUP, INC. SEGMENT ANALYSIS (in thousands) (unaudited) For the Three Months Ended September 30, 2007 (1) Hudson Hudson Hudson Corporate Total Americas Europe Asia Pacific Revenue $111,405 $120,213 $109,678 $ - $341,296 Gross margin $27,706 $60,579 $47,857 $ - $136,142 Adjusted EBITDA (2) $1,972 $6,556 $9,990 $(6,750) $11,768 Business reorganization expenses (recoveries) (63) (2) (12) 21 (56) Merger and integration (recoveries) (10) - - (743) (753) EBITDA (2) 2,045 6,558 10,002 (6,028) 12,577 Depreciation and amortization 1,018 1,553 1,023 48 3,642 Operating income (loss) $1,027 $5,005 $8,979 $(6,076) $8,935 For the Three Months Ended September 30, 2006 (1) Hudson Hudson Hudson Corporate Total Americas Europe Asia Pacific Revenue $117,071 $119,872 $104,580 $ - $341,523 Gross margin $30,237 $53,523 $42,115 $ - $125,875 Adjusted EBITDA (2) $3,807 $4,982 $9,973 $(7,388) $11,374 Business reorganization expenses 1,221 579 56 234 2,090 Merger and integration expenses 13 1 - - 14 EBITDA (2) 2,573 $4,402 9,917 (7,622) 9,270 Depreciation and amortization 1,130 1,819 756 159 3,864 Operating income (loss) $1,443 $2,583 $9,161 $(7,781) $5,406 (1) Note - 2007 and 2006 financial statements have been adjusted to reflect the Highland Partners segment and the Australian Trade and Industrial business as discontinued operations. The sale of Highland Partners was completed effective on October 1, 2006 and the sale of the Australian Trade and Industrial business was announced on October 2, 2007. (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. Amortization for 2006 includes accelerated amortization expense related to changes in estimates and valuations. HUDSON HIGHLAND GROUP, INC. RECONCILIATION FOR CONSTANT CURRENCY (in thousands) (unaudited) The company defines the term "constant currency" to mean that financial data for a period are translated into U.S. Dollars using the same foreign currency exchange rates that were used to translate financial data for the previously reported period. Changes in revenues, direct costs, gross margin and selling, general and administrative expenses include the effect of changes in foreign currency exchange rates. Variance analysis usually describes period-to-period variances that are calculated using constant currency as a percentage. The company's management reviews and analyzes business results in constant currency and believes these results better represent the company's underlying business trends. The company believes that these calculations are a useful measure, indicating the actual change in operations. Earnings from subsidiaries are rarely repatriated to the United States, and there are no significant gains or losses on foreign currency transactions between subsidiaries. Therefore, changes in foreign currency exchange rates generally impact only reported earnings and not the company's economic condition. Quarter Ended September 30, 2007 (1) 2006 (1) As Reported Currency Constant As Reported Translation Currency Revenue: Hudson Americas $111,405 $(69) $111,336 $117,071 Hudson Europe 120,213 (8,744) 111,469 119,872 Hudson Asia Pacific 109,678 (11,525) 98,153 104,580 Total 341,296 (20,338) 320,958 341,523 Direct costs: Hudson Americas 83,699 (11) 83,688 86,834 Hudson Europe 59,634 (4,341) 55,293 66,349 Hudson Asia Pacific 61,821 (7,105) 54,716 62,465 Total 205,154 (11,457) 193,697 215,648 Gross margin: Hudson Americas 27,706 (58) 27,648 30,237 Hudson Europe 60,579 (4,403) 56,176 53,523 Hudson Asia Pacific 47,857 (4,420) 43,437 42,115 Total $136,142 $(8,881) $127,261 $125,875 Selling, general and administrative (2) Hudson Americas $26,752 $(61) $26,691 $27,560 Hudson Europe 55,576 (4,035) 51,541 50,360 Hudson Asia Pacific 38,890 (3,619) 35,271 32,898 Corporate 6,798 - 6,798 7,547 Total $128,016 $(7,715) $120,301 $118,365 (1) Note - 2007 and 2006 financial statements have been adjusted to reflect the Highland Partners segment and the Australian Trade and Industrial business as discontinued operations. The sale of Highland Partners was completed effective on October 1, 2006 and the sale of the Australian Trade and Industrial business was announced on October 2, 2007. (2) Selling, general and administrative expenses include depreciation and amortization. Amortization for 2006 includes accelerated amortization expense related to changes in estimates and valuations. DATASOURCE: Hudson Highland Group, Inc. CONTACT: David F. Kirby of Hudson Highland Group, +1-212-351-7216, Web site: http://www.hhgroup.com/

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