NEW YORK, Feb. 6 /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 fourth quarter and full-year ended December 31, 2007. 2007 Fourth Quarter Summary -- Revenue of $290.5 million, an increase of 1.4 percent from $286.4 million for the fourth quarter of 2006 -- Gross margin of $130.0 million, or 44.7 percent of revenue, up 10.1 percent from $118.1 million, or 41.2 percent of revenue for the same period last year -- Adjusted EBITDA of $13.5 million, or 4.6 percent of revenue, up 14.4 percent from $11.8 million for the fourth quarter of 2006 -- EBITDA of $12.9 million, or 4.4 percent of revenue, up 75.9 percent from $7.3 million for the same period last year -- Net income from continuing operations of $4.6 million, or $0.18 per basic and diluted share, compared with net income of $1.2 million, or $0.05 per basic and diluted share, for the fourth quarter of 2006 -- Net income of $12.0 million, or $0.47 per basic and $0.46 per diluted share, compared with net income of $22.8 million, or $0.93 per basic and $0.90 per diluted share, for the fourth quarter of 2006 2007 Full-Year Summary -- Revenue of $1.18 billion, an increase of 1.8 percent from $1.16 billion for 2006 -- Gross margin of $507.9 million, or 43.1 percent of revenue, an increase of 10.6 percent from $459.3 million, or 39.7 percent of revenue for 2006 -- Adjusted EBITDA of $41.5 million, or 3.5 percent of revenue, an increase of 76.6 percent from $23.5 million, or 2.0 percent of revenue, for 2006 -- EBITDA of $32.6 million, or 2.8 percent of revenue, an increase of 111.3 percent from $15.4 million, or 1.3 percent of revenue for 2006 -- Net income from continuing operations of $4.9 million, or $0.19 per basic and diluted share, compared with a net loss of ($8.2) million, or ($0.33) per basic and diluted share, for 2006 -- Net income of $15.0 million, or $0.59 per basic and $0.58 diluted share, compared with net income of $20.4 million, or $0.83 per basic and diluted share, for 2006 "Our fourth quarter and full-year results demonstrate the value of our geographic diversity and depth of specialization," said Jon Chait, Hudson Highland Group chairman and chief executive officer. "Our international operations delivered an adjusted EBITDA margin greater than seven percent, which is in our long-term target range. With this week's Energy and Engineering business sale, we have completed our non-core divestitures and are focused globally on specialized high-margin business segments with strong growth potential. We believe Hudson is well positioned today regardless of what the economy may bring." Mary Jane Raymond, executive vice president and chief financial officer, added, "We expect earnings improvement in 2008 as a result of our stronger core focus, process re-engineering in North America and continued strength of our international operations. Additionally, strong cash flow in the fourth quarter and transaction proceeds provide financial flexibility for investments." Sale of Energy and Engineering Business On February 4, 2008, the company announced it had completed the asset sale of its energy and engineering staffing businesses to System One Holdings LLC. The company received approximately $11 million in cash, subject to post- closing adjustment; a five-year $5 million seller note; and a warrant exercisable for 10 percent of the equity of System One. Hudson Highland Group also has the right to receive an additional $600,000 in cash upon resolution of certain liabilities, and has retained $3.6 million of receivables of the business. The company will treat the business as a discontinued operation effective December 31, 2007. Sale of Netherlands Reintegration Business On December 20, 2007, the company announced it had completed the sale of its Dutch Reintegration subsidiary, Hudson Human Capital Solutions B.V. to Workx! Holding B.V. The company recorded a gain on the sale of approximately $5.0 million, including $7.4 million in accumulated foreign currency translation gains. As of December 1, 2007, the business was considered a discontinued operation. Share Repurchase Program On February 4, 2008, the company announced that its board of directors authorized the repurchase of up to $15 million of the company's common stock. The company intends to make purchases from time to time as market conditions warrant. Guidance The company currently expects first quarter 2008 revenue of $285 - $300 million at prevailing exchange rates and adjusted EBITDA of $2 - $5 million, excluding the impact of any restructuring, acquisitions or divestitures. This compares with revenue of $288.1 million and adjusted EBITDA of $4.5 million in the first quarter of 2007. During 2008, the company intends to streamline its support operations to match its narrowed focus on specialization. Although the company has not committed to take any such actions, the company expects to have $5 - $7 million of restructuring actions through this year, including $1 - $3 million in the first quarter. 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, February 7, 2008 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 32241194 at 8:50 AM ET. For those outside the United States, please call in on 1-706-634-5594 followed by the participant passcode 32241194. 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 32241194. For those outside the United States, the call will be available on 1-706-645-9291 followed by the participant passcode 32241194. 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, 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; restrictions on the company's operating flexibility due to the terms of its credit facility; 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 Year Ended December 31, December 31, 2007 2006 (1) 2007 (1) 2006 (1) Revenue $290,484 $286,421 $1,179,075 $1,157,874 Direct costs 160,500 168,355 671,162 698,619 Gross margin 129,984 118,066 507,913 459,255 Operating expenses: Selling, general and administrative 116,511 106,289 466,413 435,754 Acquisition- related expenses 837 858 5,299 1,687 Depreciation and amortization 3,532 8,117 14,624 19,803 Business reorganization expenses (recoveries) (276) 3,297 4,362 6,015 Merger and integration expenses (recoveries) 8 287 (787) 362 Total operating expenses 120,612 118,848 489,911 463,621 Operating income (loss) 9,372 (782) 18,002 (4,366) Other income (expense): Interest, net 195 173 700 (1,634) Other, net (242) (223) 3,445 1,584 Income (loss) from continuing operations before income taxes 9,325 (832) 22,147 (4,416) Provision (benefit) for income taxes 4,762 (2,011) 17,240 3,771 Income (loss) from continuing operations 4,563 1,179 4,907 (8,187) Income from discontinued operations, net of income taxes 7,402 21,666 10,074 28,615 Net income $11,965 $22,845 $14,981 $20,428 Basic income (loss) per share: Income (loss) from continuing operations $0.18 $0.05 $0.19 $(0.33) Income from discontinued operations 0.29 0.88 0.40 1.16 Net income $0.47 $0.93 $0.59 $0.83 Diluted income (loss) per share: Income (loss) from continuing operations $0.18 $0.05 $0.19 $(0.33) Income from discontinued operations 0.28 0.85 0.39 1.16 Net income $0.46 $0.90 $0.58 $0.83 Weighted average shares outstanding Basic 25,479,000 24,668,000 25,274,000 24,471,000 Diluted 25,781,000 25,346,000 25,914,000 24,471,000 (1) Note -- 2007 and 2006 financial statements have been adjusted to reflect the sales of businesses as discontinued operations and the restatement filed on Form 8-K on February 4, 2008. HUDSON HIGHLAND GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except share and per share amounts) December 31, December 31, 2007 (1) 2006 (1) (unaudited) ASSETS Current assets: Cash and cash equivalents $39,245 $44,649 Accounts receivable, net 189,072 199,583 Prepaid and other 18,493 16,609 Current assets from discontinued operations 12,265 19,266 Total current assets 259,075 280,107 Intangibles, net 78,235 38,916 Property and equipment, net 29,470 27,276 Other assets 7,214 4,560 Non-current assets of discontinued operations 212 1,323 Total assets $374,206 $352,182 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $21,237 $21,274 Accrued expenses and other current liabilities 120,842 125,561 Credit facility and current portion of long-term debt 243 238 Accrued business reorganization expenses 3,490 5,077 Accrued merger and integration expenses 314 837 Current liabilities from discontinued operations 6,300 14,302 Total current liabilities 152,426 167,289 Other non-current liabilities 18,648 8,204 Accrued business reorganization expenses, non-current 2,689 3,409 Accrued merger and integration expenses, non-current 327 1,721 Long-term debt, less current portion 1 235 Total liabilities 174,091 180,858 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: 25,690,631 and 24,957,732 shares, respectively 26 25 Additional paid-in capital 444,075 427,645 Accumulated deficit (288,587) (300,031) Accumulated other comprehensive income-translation adjustments 44,946 43,915 Treasury stock, 24,680 shares (345) (230) Total stockholders' equity 200,115 171,324 $374,206 $352,182 (1) Note -- 2007 and 2006 financial statements have been adjusted to reflect the sale of businesses as discontinued operations and the restatement filed on Form 8-K on February 4, 2008. HUDSON HIGHLAND GROUP, INC. SEGMENT ANALYSIS (in thousands) (unaudited) For the Three Months Ended Hudson Hudson Hudson December 31, 2007 Americas Europe Asia Pacific Corporate Total Revenue $68,482 $115,203 $106,799 $- $290,484 Gross margin $21,041 $60,386 $48,557 $- $129,984 Adjusted EBITDA (2) $1,207 $10,512 $8,736 $(6,982) $13,473 Acquisition- related expenses - 837 - - 837 Business reorganization (recoveries) (118) - (34) (124) (276) Merger and integration expenses 2 - - 6 8 EBITDA (2) 1,323 9,675 8,770 (6,864) 12,904 Depreciation and amortization 1,069 1,381 1,037 45 3,532 Operating income (loss) $254 $8,294 $7,733 $(6,909) $9,372 For the Three Months Ended Hudson Hudson Hudson December 31, 2006(1) Americas Europe Asia Pacific Corporate Total Revenue $74,295 $114,603 $97,523 $- $286,421 Gross margin $24,397 $54,325 $39,344 $- $118,066 Adjusted EBITDA (2) $2,338 $7,627 $7,358 $(5,546) $11,777 Acquisition- related expenses - 858 - - 858 Business reorganization expenses 323 2,162 666 146 3,297 Merger and integration expenses (recoveries) 325 - (38) - 287 EBITDA (2) 1,690 4,607 6,730 (5,692) 7,335 Depreciation and amortization 2,480 1,832 879 2,926 8,117 Operating income (loss) $(790) $2,775 $5,851 $(8,618) $(782) (1) Note -- 2006 financial statements have been adjusted to reflect the sale of businesses as discontinued operations and the restatement filed on Form 8-K on February 4, 2008. (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. SEGMENT ANALYSIS (in thousands) (unaudited) For the Year Ended December 31, 2007 (1) Hudson Hudson Hudson Americas Europe Asia Pacific Corporate Total Revenue $291,525 $472,407 $415,143 $- $1,179,075 Gross margin $87,494 $239,559 $180,860 $- $507,913 Adjusted EBITDA (2) $(114) $34,716 $33,428 $(26,530) $41,500 Acquisition-related expenses 3,551 1,748 - - 5,299 Business reorganization expenses (recoveries) 541 2,438 (15) 1,398 4,362 Merger and integration (recoveries) (50) - - (737) (787) EBITDA (2) (4,156) 30,530 33,443 (27,191) 32,626 Depreciation and amortization 4,354 6,059 3,937 274 14,624 Operating income (loss) $(8,510) $24,471 $29,506 $(27,465) $18,002 For the Year Ended December 31, 2006 (1) Hudson Hudson Hudson Americas Europe Asia Pacific Corporate Total Revenue $306,732 $458,815 $392,327 $- $1,157,874 Gross margin $91,461 $208,966 $158,828 $- $459,255 Adjusted EBITDA (2) $(5,396) $25,797 $30,801 $(27,701) $23,501 Acquisition-related expenses - 1,687 - - 1,687 Business reorganization expenses 1,764 2,684 874 693 6,015 Merger and integration expenses (recoveries) 399 1 (38) - 362 EBITDA (2) (7,559) 21,425 29,965 (28,394) 15,437 Depreciation and amortization 6,343 6,871 3,171 3,418 19,803 Operating income (loss) $(13,902) $14,554 $26,794 $(31,812) $(4,366) (1) Note -- 2007 and 2006 financial statements have been adjusted to reflect the sale of businesses as discontinued operations and the restatement filed on Form 8-K on February 4, 2008. (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 December 31, 2007 2006 (1) As Currency Constant As Reported Translation Currency Reported Revenue: Hudson Americas $68,482 $(165) $68,317 $74,295 Hudson Europe 115,203 (9,171) 106,032 114,603 Hudson Asia Pacific 106,799 (12,760) 94,039 97,523 Total 290,484 (22,096) 268,388 286,421 Direct costs: Hudson Americas 47,441 (46) 47,395 49,898 Hudson Europe 54,817 (4,000) 50,817 60,278 Hudson Asia Pacific 58,242 (7,557) 50,685 58,179 Total 160,500 (11,603) 148,897 168,355 Gross margin: Hudson Americas 21,041 (119) 20,922 24,397 Hudson Europe 60,386 (5,171) 55,215 54,325 Hudson Asia Pacific 48,557 (5,203) 43,354 39,344 Total $129,984 $(10,493) $119,491 $118,066 Selling, general and administrative (2) Hudson Americas $20,903 $(135) $20,768 $24,539 Hudson Europe 52,092 (4,469) 47,623 49,388 Hudson Asia Pacific 40,858 (4,493) 36,365 32,865 Corporate 7,027 - 7,027 8,472 Total $120,880 $(9,097) $111,783 $115,264 (1) Note -- 2006 financial statements have been adjusted to reflect the sale of business segments as discontinued operations. (2) Selling, general and administrative expenses include depreciation and amortization and acquisition related expenses. 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) Year Ended December 31, 2007 (1) 2006 (1) As Currency Constant As Reported Translation Currency Reported Revenue Hudson Americas $291,525 $(239) $291,286 $306,732 Hudson Europe 472,407 (38,382) 434,025 458,815 Hudson Asia Pacific 415,143 (40,251) 374,892 392,327 Total 1,179,075 (78,872) 1,100,203 1,157,874 Direct costs: Hudson Americas 204,031 (61) 203,970 215,271 Hudson Europe 232,848 (18,871) 213,977 249,849 Hudson Asia Pacific 234,283 (24,405) 209,878 233,499 Total 671,162 (43,337) 627,825 698,619 Gross margin: Hudson Americas 87,494 (178) 87,316 91,461 Hudson Europe 239,559 (19,511) 220,048 208,966 Hudson Asia Pacific 180,860 (15,846) 165,014 158,828 Total $507,913 $(35,535) $472,378 $459,255 Selling, general and administrative (2) Hudson Americas $95,513 $(198) $95,315 $103,200 Hudson Europe 212,650 (17,3860) 195,264 191,727 Hudson Asia Pacific 151,369 (13,018) 138,351 131,198 Corporate 26,804 - 26,804 31,119 Total $486,336 $(30,602) $455,734 $457,244 (1) Note -- 2007 and 2006 financial statements have been adjusted to reflect the sale of business segments as discontinued operations. (2) Selling, general and administrative expenses include depreciation and amortization and acquisition related expenses. Amortization for 2006 includes accelerated amortization expense related to changes in estimates and valuations. DATASOURCE: Hudson Highland Group, Inc. CONTACT: David F. Kirby, Hudson Highland Group, +1-212-351-7216, Web site: http://www.hudson.com/

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