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, 2010.

2010 Third Quarter Summary

  • Revenue of $200.4 million, an increase of 18.1 percent over the third quarter of 2009, and an increase of 2.8 percent from the second quarter of 2010  
  • Gross margin of $75.0 million, or 37.4 percent of revenue, up 16.8 percent from the same period last year, and an increase of 1.0 percent from the second quarter of 2010  
  • EBITDA* of $1.2 million, or 0.6 percent of revenue, improved from an EBITDA loss of $6.0 million for the third quarter of 2009, which included $2.9 million of restructuring charges  
  • Net loss of $1.9 million, or $0.06 per basic and diluted share, compared with net loss of $6.9 million, or $0.26 per basic and diluted share, for the third quarter of 2009

* EBITDA is defined in the segment tables at the end of this release and includes other non-operating income.

"Hudson achieved year-over-year revenue and gross margin growth in all four of our core regions globally during the third quarter, led by strength in permanent recruitment in Australia, the U.K. and Asia," said Jon Chait, Hudson Highland Group's chairman and chief executive officer. "Our underlying operational trends remained positive in the third quarter, despite the negative seasonal impact."

"We continue to take disciplined actions and make certain key investments to position the company for growth," said Mary Jane Raymond, the company's executive vice president and chief financial officer. "The improvements to our capital structure in 2010 will help the company achieve its long-term objectives."  

Regional Results

Regional results in constant currency were as follows:

  • Europe gross margin was up 19 percent, led by 38 percent growth in the U.K., compared with third quarter 2009. Sequentially, Europe gross margin was down 9 percent compared with second quarter 2010.  
  • Australia/New Zealand (ANZ) gross margin was up 19 percent compared with third quarter 2009, led by an increase of 63 percent in permanent recruitment. Sequentially, ANZ gross margin was up 7 percent compared with second quarter 2010.  
  • Asia gross margin was up 29 percent compared with third quarter 2009 and up 9 percent compared with second quarter 2010.  
  • North America gross margin was up slightly compared with third quarter 2009 and down 7 percent compared with second quarter 2010, delivering positive EBITDA for the first time this year.

Liquidity and Capital Resources

During the third quarter, the company signed two new revolving credit facilities, including a $40 million facility with RBS secured by receivables in the U.S. and the U.K., and an AUD$15 million facility ($14.5 million) with Commonwealth Bank of Australia (CBA) secured by receivables in Australia.  The combination of these new credit facilities increased the company's availability by over $10 million. 

The company ended the third quarter of 2010 with $34.2 million in cash, and had breakeven cash flow from operations.  During the quarter, the company made its final earn-out payment to Tony Keith Associates in China and recorded costs associated with the new credit facilities. The company ended the quarter with $13.9 million in borrowings under all credit facilities.

Availability under the new RBS and CBA agreements at the end of the third quarter totaled $26.9 million. Availability under other local country facilities is $5.8 million for a total availability of $32.8 million.

The company incurred termination costs related to the prior credit facility of approximately $0.9 million, consisting of $0.6 million for early termination and $0.3 million for unamortized costs. The latter is recorded in interest expense.

Guidance

The company currently expects fourth quarter 2010 revenue of $210 - $220 million and EBITDA of $3 - $5 million at prevailing exchange rates. This compares with revenue of $182.5 million and an EBITDA loss of $5.0 million in the fourth quarter of 2009.

Additional Information

Additional information about the company's quarterly results can be found in the shareholder letter and the quarterly earnings slides in the investor information section of the company's Web site at www.hudson.com.

Conference Call/Webcast Hudson Highland Group will conduct a conference call Thursday, October 28, 2010 at 10:00 a.m. ET to discuss this announcement. Individuals wishing to listen can access the Web cast on the investor information section of the company's Web site at www.hudson.com. 

The archived call will be available on the investor information section of the company's Web site at www.hudson.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 2,000 professionals serving clients and candidates in approximately 20 countries. More information is available at 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 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 important factors, risks, uncertainties and assumptions, including industry and economic conditions' that could cause actual results to differ materially from those described in the forward-looking statements. Such factors, risks, uncertainties and assumptions include, but are not limited to, global economic fluctuations; the ability of clients to terminate their relationship with the company at any time; risks in collecting the company's accounts receivable; the company's history of negative cash flows and operating losses may continue; the company's limited borrowing availability under its credit facilities, which may negatively impact its liquidity; restrictions on the company's operating flexibility due to the terms of its credit facility; risks related to fluctuations in the company's operating results from quarter to quarter; risks related to international operations, including foreign currency fluctuations; risks associated with the company's investment strategy; risks and financial impact associated with dispositions of underperforming assets; implementation of the company's cost reduction initiatives effectively; the company's heavy reliance on information systems and the impact of potentially losing or failing to develop technology; competition in the company's markets; the company's exposure to employment-related claims from both clients and employers and limits on related insurance coverage; the company's dependence on key management personnel; the company's ability to attract and retain highly skilled professionals; volatility of the company's stock price; the impact of government regulations; and restrictions imposed by blocking arrangements. 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 document. The company assumes no obligation, and expressly disclaims any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.

HUDSON HIGHLAND GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
         
  Three Months Ended Nine Months Ended
  September 30,  September 30, 
  2010 2009 2010 2009
         
Revenue  $ 200,394  $ 169,647  $ 575,481  $ 508,645
Direct costs  125,403  105,457  359,833  317,567
Gross margin  74,991  64,190  215,648  191,078
Operating expenses:        
Selling, general and administrative expenses  74,378  67,412  214,121  208,442
Depreciation and amortization  1,981  2,741  6,453  9,369
Business reorganization and integration expenses  41  2,878  705  12,279
Goodwill and other impairment charges  --  --  --  1,549
Total operating expenses  76,400  73,031  221,279  231,639
   (1,409)  (8,841)  (5,631)  (40,561)
Other (expense) income:        
Interest, net  (497)  (96)  (972)  (469)
Other, net  1,184  99  2,687  773
Fee for early extinguishment of credit facility  (563)  --  (563)  --
Loss from continuing operations before provision for income taxes  (1,285)  (8,838)  (4,479)  (40,257)
Provision for (benefit from) income taxes  599  (1,215)  1,366  (2,300)
Loss from continuing operations  (1,884)  (7,623)  (5,845)  (37,957)
(Loss) income from discontinued operations, net of income taxes  (14)  770  (31)  7,773
Net loss  $ (1,898)  $ (6,853)  $ (5,876)  $ (30,184)
Basic earnings (loss) per share:        
Loss from continuing operations  $ (0.06)  $ (0.29)  $ (0.20)  $ (1.47)
(Loss) income from discontinued operations  (0.00)  0.03  (0.00)  0.30
Net loss   $ (0.06)  $ (0.26)  $ (0.20)  $ (1.17)
         
Diluted earnings (loss) per share:        
Income (loss) from continuing operations  $ (0.06)  $ (0.29)  $ (0.20)  $ (1.47)
Income (loss) from discontinued operations  --  0.03  (0.00)  0.30
Net income (loss)  $ (0.06)  $ (0.26)  $ (0.20)  $ (1.17)
         
Weighted average shares outstanding:        
Basic  31,225  26,311  29,493  25,744
Diluted  31,225  26,311  29,493  25,744
         
HUDSON HIGHLAND GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
     
     
  September 30,   December 31,
  2010 2009
ASSETS    
Current assets:    
Cash and cash equivalents  $ 34,174  $ 36,064
Accounts receivable, net  129,116  98,994
Prepaid and other  17,463  13,308
Total current assets  180,753  148,366
Property and equipment, net  15,360  19,433
Other assets  17,975  14,145
Total assets  $ 214,088  $ 181,944
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable  $ 13,567  $ 12,811
Accrued expenses and other current liabilities  75,000  54,103
Short-term borrowings  13,871  10,456
Accrued business reorganization expenses  2,398  8,784
Total current liabilities  104,836  86,154
Other non-current liabilities  9,260  10,768
Income tax payable, non-current  8,476  8,415
Accrued business reorganization expenses, non-current  627  347
Total liabilities  123,199  105,684
Stockholders' equity:    
Preferred stock, $0.001 par value, 10,000 shares authorized; none issued or outstanding  --   -- 
Common stock, $0.001 par value, 100,000 shares authorized; issued 32,214 and 26,836 shares, respectively  32  27
Additional paid-in capital  466,178  445,541
Accumulated deficit  (409,390)  (403,514)
Accumulated other comprehensive income—translation adjustments  34,107  34,509
Treasury stock, 9 and 114 shares, respectively, at cost  (38)  (303)
Total stockholders' equity  90,889  76,260
Total liabilities and stockholders' equity  $ 214,088  $ 181,944
 
 
HUDSON HIGHLAND GROUP, INC.
SEGMENT ANALYSIS - QUARTER TO DATE
(in thousands)
(unaudited)
             
             
             
             
             
For The Three Month Ended September 30, 2010 Hudson Americas Hudson Europe Hudson ANZ Hudson Asia  Corporate Total
Revenue, from external customers  $ 37,839  $ 80,503  $ 72,974  $ 9,078  $ --   $ 200,394
Gross margin, from external customers  $ 9,311  $ 32,647  $ 24,259  $ 8,774  $ --   $ 74,991
Business reorganization and integration expenses (recovery)  $ 41  $ --   $ --   $ --   $ --   $ 41
Non-operating expense (income), including corporate administration charges  (407)  3,088  1,433  478  (5,213)  (621)
EBITDA (Loss) (1)  $ 532  $ (2,128)  $ 1,376  $ 1,169  $ 244  $ 1,193
Depreciation and amortization expenses            1,981
Interest expense, net             497
Provision for income taxes            599
Income from discontinued operations, net of taxes            14
Net income            $ (1,898)
             
For The Three Month Ended September 30, 2009  Hudson Americas Hudson Europe Hudson ANZ Hudson Asia  Corporate Total
Revenue, from external customers  $ 35,705  $ 67,898  $ 59,026  $ 7,018  $ --   $ 169,647
Gross margin, from external customers  $ 9,258  $ 29,571  $ 18,754  $ 6,607  $ --   $ 64,190
Business reorganization and integration expenses (recovery)  $ 592  $ 1,881  $ 405  $ --   $ --   $ 2,878
Non-operating expense (income), including corporate administration charges  569  554  (12)  70  (1,280)  (99)
EBITDA (Loss) (1)  (2,795)  (2,406)  1,156  961  (2,917)  (6,001)
Depreciation and amortization expenses            2,741
Interest expense, net             96
Provision for income taxes            (1,215)
Loss from discontinued operations, net of taxes            (770)
Net loss            $ (6,853)
             
For the Three Months Ended December 31, 2009 Hudson Americas Hudson Europe Hudson ANZ Hudson Asia  Corporate Total
Revenue, from external customers  $ 39,010  $ 74,503  $ 61,494  $ 7,497  $ --   $ 182,504
Gross margin, from external customers  $ 10,220  $ 33,005  $ 18,971  $ 7,179  $ --   $ 69,375
Business reorganization and integration expenses (recovery)  $ 1,794  $ 3,135  $ 849  $ --   $ 123  $ 5,901
Non-operating expense (income), including corporate administration charges  (936)  91  177  (22)  19  (671)
EBITDA (Loss) (1)  $ (1,162)  $ (1,552)  $ (494)  $ 1,167  $ (3,006)  $ (5,047)
Depreciation and amortization expenses            3,175
Interest expense, net             224
Benefit from income taxes            (3,450)
Income from discontinued operations, net of taxes            5,429
Net loss            $ (10,425)
             
(1) Non-GAAP earnings before interest, income taxes, 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. 
(2) Prior year revenue has been reclassed to conform to current year presentation.            
 
HUDSON HIGHLAND GROUP, INC.
SEGMENT ANALYSIS - YEAR TO DATE
(in thousands)
(unaudited)
             
             
             
             
             
For The Nine Months Ended September 30, 2010 Hudson Americas Hudson Europe Hudson ANZ Hudson Asia  Corporate Total
Revenue, from external customers  $ 118,165  $ 237,875  $ 195,045  $ 24,396  $ --   $ 575,481
Gross margin, from external customers  $ 28,643  $ 99,722  $ 63,758  $ 23,525  $ --   $ 215,648
Business reorganization and integration expenses (recovery)  $ 285  $ 536  $ (116)  $ --   $ --   $ 705
Non-operating expense (income), including corporate administration charges  (523)  5,414  3,030  704  (11,312)  (2,687)
EBITDA (Loss) (1)  $ (699)  $ 771  $ 2,994  $ 3,076  $ (3,196)  $ 2,946
Depreciation and amortization expenses            6,453
Interest expense, net             972
Provision for income taxes            1,366
Loss from discontinued operations, net of taxes            31
Net loss            $ (5,876)
             
For The Nine Months Ended September 30, 2009  Hudson Americas Hudson Europe Hudson ANZ Hudson Asia  Corporate Total
Revenue, from external customers  $ 122,861  $ 202,473  $ 165,675  $ 17,636  $ --   $ 508,645
Gross margin, from external customers  $ 30,741  $ 91,155  $ 52,718  $ 16,464  $ --   $ 191,078
Business reorganization and integration expenses (recovery)  $ 3,339  $ 6,547  $ 2,281  $ 98  $ 14  $ 12,279
Non-operating expense (income), including corporate administration charges  1,705  1,437  (83)  (151)  (3,681)  (773)
EBITDA (Loss) (1)  (10,187)  (8,236)  221  (1,717)  (10,500)  (30,419)
Depreciation and amortization expenses            9,369
Interest expense, net             469
Benefit from income taxes            (2,300)
Income from discontinued operations, net of taxes            (7,773)
Net loss            $ (30,184)
(1) Non-GAAP earnings before interest, income taxes, 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.
(2) Prior year revenue has been reclassed to conform to current year presentation.            
 
 
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 monthly financial data for the previously reported period. The company uses constant currency to depict the current period results at the exchange rates of the prior 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.        
         
  2010 2009
  As Reported  Currency Translation  Constant Currency As Reported
Revenue:        
Hudson Americas  $ 37,839  $ (15)  $ 37,824  $ 35,705
Hudson Europe  80,503  5,580  86,083  67,898
Hudson ANZ  72,974  (5,843)  67,131  59,026
Hudson Asia   9,078  (281)  8,797  7,018
Total  200,394  (559)  199,835  169,647
Direct costs:        
Hudson Americas  28,528  --  28,528  26,447
Hudson Europe  47,856  3,144  51,000  38,327
Hudson ANZ  48,715  (3,901)  44,814  40,272
Hudson Asia   304  (14)  290  411
Total  125,403  (771)  124,632  105,457
Gross margin:        
Hudson Americas  9,311  (15)  9,296  9,258
Hudson Europe  32,647  2,436  35,083  29,571
Hudson ANZ  24,259  (1,942)  22,317  18,754
Hudson Asia   8,774  (267)  8,507  6,607
Total  $ 74,991  $ 212  $ 75,203  $ 64,190
Selling, general and administrative (1)        
Hudson Americas  $ 9,572  $ (17)  $ 9,555  $ 11,935
Hudson Europe  32,473  2,435  34,908  30,456
Hudson ANZ  22,083  (1,789)  20,294  17,775
Hudson Asia   7,224  (201)  7,023  5,747
Corporate  5,007  --  5,007  4,240
Total  $ 76,359  $ 428  $ 76,787  $ 70,153
         
         
(1) Selling, general and administrative expenses include depreciation and amortization expenses.         
CONTACT:  Hudson Highland Group 
          David F. Kirby
          212-351-7216 
          david.kirby@hudson.com
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