Hudson Highland Group Reports 2004 Third Quarter and Nine Month Results NEW YORK, Oct. 28 /PRNewswire-FirstCall/ -- Hudson Highland Group, Inc. (NASDAQ:HHGP), one of the world's leading providers of specialized professional staffing, retained executive search and human capital solutions, today announced financial results for the third quarter and nine months ended September 30, 2004. For the third quarter, the company reported revenue of $315.0 million and a net loss of $6.9 million, or $0.68 per basic and diluted share, which included restructuring charges of $3.0 million related to office leases. 2004 Third Quarter Highlights -- Revenue of $315.0 million, an increase of 15.7 percent from $272.2 million for the third quarter of 2003 -- Gross margin of $116.4 million, or 37.0 percent of revenue, up 18.5 percent from $98.2 million, or 36.1 percent of revenue, for the same year ago period -- Adjusted EBITDA of $0.6 million, which excludes the restructuring effects noted above -- Cash and cash equivalents of $26.5 million "Adjusted EBITDA was positive for the second consecutive quarter and cash management continues to be strong," said Jon Chait, chairman and chief executive officer of Hudson Highland Group. "All regional business units contributed positive adjusted EBITDA results, with the exception of Europe, where results were affected by seasonal weakness. North America achieved particularly strong growth in both revenue and gross margin, up 27.1 percent and 36.1 percent, respectively, from the third quarter of 2003." "We are encouraged by steadily improving operating trends and continued strong expense management during the year," said Richard W. Pehlke, Hudson Highland Group executive vice president and chief financial officer. "We expect improved results in the fourth quarter over the third quarter; however, it is too early to determine if that will result in positive adjusted EBITDA for the full year." 2004 Third Quarter Charge For the third quarter of 2004, the company recorded restructuring charges of $3.0 million related to office leases. This included a charge of $2.6 million related to the relocation of its Highland Partners office in Toronto, Canada. The balance of the charges related to revisions to existing office lease restructuring plans. "These steps reflect the company's continuing effort to reduce costs and increase operational efficiencies," Pehlke added. 2004 Nine Month Results For the first nine months of 2004, Hudson Highland Group reported revenue of $912.3 million and an operating loss of $22.4 million. Hudson Highland Group's net loss for the first nine months of 2004 was $25.4 million, or $2.66 per basic and diluted shares. Historical Results On a historical basis for the third quarter ended September 30, 2003, Hudson Highland Group reported revenue of $272.2 million, an operating loss of $225.6 million, which included a goodwill impairment charge of $202.8 million. The company's net loss for the third quarter of 2003 was $226.3 million, or $26.92 per basic and diluted shares. For the first nine months of 2003, Hudson Highland Group reported revenue of $800.7 million and an operating loss of $278.2 million, which included a goodwill impairment charge of $202.8 million. Hudson Highland Group's net loss for the first nine months of 2003 was $285.4 million, or $34.05 per basic and diluted shares. Conference Call / Webcast Hudson Highland Group will conduct a conference call today, Thursday, October 28, 2004 at 10:30 AM EDT to discuss this announcement. Investors wishing to participate can join the conference call by dialing 1-800-374-1532 followed by the participant passcode 1330308 at 10:20 AM EDT. For those outside the United States, please call in on 1-706-634-5594 followed by the participant passcode 1330308. 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/ . Hudson Highland Group Hudson Highland Group offers a full suite of specialized professional staffing, retained executive search and human capital solutions worldwide. The company employs more than 3,700 professionals serving clients and candidates in more than 20 countries through its Hudson and Highland Partners businesses. 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 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; 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; the company's ability to successfully operate as an independent company and the level of costs associated therewith; 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 update any forward-looking statements. HUDSON HIGHLAND GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 Revenue $315,029 $272,181 $912,264 $800,653 Direct costs 198,615 173,959 570,970 501,181 Gross margin 116,414 98,222 341,294 299,472 Selling, general and administrative expenses 120,165 119,082 360,573 364,420 Goodwill impairment charge -- 202,785 -- 202,785 Business reorganization expenses 3,314 2,082 3,450 9,543 Merger and integration expenses (recoveries) (317) (102) (354) 876 Operating loss (6,748) (225,625) (22,375) (278,152) Other income (expense): Other, net 128 (749) (1,759) (930) Interest income (expense), net 203 (121) (53) (376) Loss before provision for (benefit of) income taxes (6,417) (226,495) (24,187) (279,458) Provision for (benefit of) income taxes 530 (221) 1,251 5,917 Net loss $(6,947) $(226,274) $(25,438) $(285,375) Basic and diluted loss per share: Net loss $(.68) $(26.92) $(2.66) $(34.05) Weighted average shares outstanding 10,154 8,405 9,575 8,382 HUDSON HIGHLAND GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except per share amounts) September 30, December 31, 2004 2003 (unaudited) ASSETS Current assets: Cash and cash equivalents $26,528 $26,137 Accounts receivable, net 181,852 149,042 Other current assets 11,633 17,719 Due from Monster -- 5,518 Total current assets 220,013 198,416 Property and equipment, net 36,652 38,625 Other assets 8,801 11,703 Intangibles, net 6,288 2,180 $271,754 $250,924 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $29,407 $26,495 Accrued expenses and other current liabilities 134,196 118,548 Accrued business reorganization expenses 10,158 11,543 Accrued merger and integration expenses 2,021 2,960 Total current liabilities 175,782 159,546 Accrued business reorganization expenses, non-current 7,367 14,840 Accrued merger and integration expenses, non-current 2,176 3,484 Other non-current liabilities 5,856 3,693 Total liabilities 191,181 181,563 Commitments and contingencies Stockholders' equity: Preferred stock, $.001 par value, 10,000 shares authorized; none -- -- issued or outstanding Common stock, $.001 par value, 100,000 shares authorized; issued 10 9 10,238 and 8,573 shares, respectively Additional paid-in capital 352,465 315,130 Retained deficit (310,239) (284,801) Accumulated other comprehensive income - translation adjustments 38,567 39,023 Treasury stock, 8 shares (230) -- Total stockholders' equity 80,573 69,361 $271,754 $250,924 HUDSON HIGHLAND GROUP, INC. SEGMENT ANALYSIS (in thousands) (unaudited) For the Three Months Ended Corporate September 30, 2004 Americas Europe Asia Pac and Other Total Revenue Hudson $83,013 $114,957 $102,175 $683 $300,828 Highland 11,181 1,318 1,702 -- 14,201 $94,194 $116,275 $103,877 $683 $315,029 Gross Margin Hudson $22,658 $43,129 $36,501 $643 $102,931 Highland 10,664 1,253 1,566 -- 13,483 $33,322 $44,382 $38,067 $643 $116,414 Adjusted EBITDA (1) Hudson $3,014 $(318) $7,227 $(1,328) $8,595 Highland 1,293 (890) 81 -- 484 Corporate -- -- -- (8,462) (8,462) $4,307 $(1,208) $7,308 $(9,790) $617 For the Three Months Ended Corporate September 30, 2003 Americas Europe Asia Pac and Other Total Revenue Hudson $63,488 $90,316 $102,712 $256,516 Highland 10,630 3,719 1,316 15,665 $74,118 $94,035 $104,028 $272,181 Gross Margin Hudson $14,618 $36,557 $32,410 $83,585 Highland 9,860 3,594 1,183 14,637 $24,478 $40,151 $33,593 $98,222 Adjusted EBITDA (1) Hudson $(6,584) $(2,164) $2,897 $(5,851) Highland (573) (1,755) (134) (2,462) Corporate -- -- -- $(7,292) (7,292) $(7,157) $(3,919) $2,763 $(7,292) $(15,605) (1) Non-GAAP earnings before interest, income taxes, special charges and depreciation and amortization ("Adjusted EBITDA") is 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 this measurement to evaluate capital needs and working capital requirements. Adjusted 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 as presented above may not be comparable with similarly titled measures reported by other companies. HUDSON HIGHLAND GROUP, INC. SEGMENT ANALYSIS (in thousands) (unaudited) For the Nine Months Ended Corporate September 30, 2004 Americas Europe Asia Pac and Other Total Revenue Hudson $235,243 $327,233 $302,805 $1,263 $866,544 Highland 32,948 5,463 7,309 -- 45,720 $268,191 $332,696 $310,114 $1,263 $912,264 Gross Margin Hudson $59,899 $132,382 $104,841 $1,166 $298,288 Highland 31,109 5,177 6,720 -- 43,006 $91,008 $137,559 $111,561 $1,166 $341,294 Adjusted EBITDA (1) Hudson $6,054 $(458) $15,967 $(4,453) $17,110 Highland 2,101 (1,115) 946 -- 1,932 Corporate -- -- -- (23,959) (23,959) $8,155 $(1,573) $16,913 $(28,412) $(4,917) For the Nine Months Ended Corporate September 30, 2003 Americas Europe Asia Pac and Other Total Revenue Hudson $211,604 $265,675 $275,812 $753,091 Highland 32,278 11,861 3,423 47,562 $243,882 $277,536 $279,235 $800,653 Gross Margin Hudson $48,548 $114,667 $91,332 $254,547 Highland 30,951 10,912 3,062 44,925 $79,499 $125,579 $94,394 $299,472 Adjusted EBITDA (1) Hudson $(10,774) $(11,115) $3,680 $(18,209) Highland (3,730) (6,130) (769) (10,629) Corporate -- -- -- $(20,554) (20,554) $(14,504) $(17,245) $2,911 $(20,554) $(49,392) (1) Non-GAAP earnings before interest, income taxes, special charges and depreciation and amortization ("Adjusted EBITDA") is 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 this measurement to evaluate capital needs and working capital requirements. Adjusted 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 as presented above may not be comparable with similarly titled measures reported by other companies. HUDSON HIGHLAND GROUP, INC. RECONCILIATION OF ADJUSTED EBITDA TO OPERATING LOSS (in thousands) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 Hudson Adjusted EBITDA (1) $8,595 $(5,851) $17,110 $(18,209) Business reorganization (expenses) recoveries (706) 335 (891) (6,205) Merger and integration (expenses) recoveries 317 102 354 (876) Depreciation and amortization (3,860) (3,377) (11,192) (10,324) Goodwill impairment -- (195,404) -- (195,404) Operating loss $4,346 $(204,195) $5,381 $(231,018) Highland Adjusted EBITDA (1) $484 $(2,462) $1,932 $(10,629) Business reorganization (expenses) (2,608) (2,417) (2,559) (3,201) Depreciation and amortization (473) (975) (1,305) (3,280) Goodwill impairment -- (7,381) -- (7,381) Operating loss $(2,597) $(13,235) $(1,932) $(24,491) Corporate Adjusted EBITDA (1) $(8,462) $(7,292) $(23,959) $(20,554) Business reorganization expenses -- -- -- (137) Depreciation and amortization (35) (903) (1,865) (1,952) Corporate expenses $(8,497) $(8,195) $(25,824) $(22,643) Hudson Highland Group consolidated Adjusted EBITDA (1) $617 $(15,605) $(4,917) $(49,392) Business reorganization (expenses) (3,314) (2,082) (3,450) (9,543) Merger and integration (expenses) recoveries 317 102 354 (876) Depreciation and amortization (4,368) (5,255) (14,362) (15,556) Goodwill impairment -- (202,785) -- (202,785) Operating loss $(6,748) $(225,625) $(22,375) $(278,152) (1) Non-GAAP earnings before interest, income taxes, special charges and depreciation and amortization ("Adjusted EBITDA") is 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 this measurement to evaluate capital needs and working capital requirements. Adjusted 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 as presented above may not be comparable with similarly titled measures reported by other companies. DATASOURCE: Hudson Highland Group, Inc. CONTACT: Richard W. Pehlke, Hudson Highland Group, +1-312-795-4228, ; or John D. Lovallo of Ogilvy Public Relations Worldwide, +1-212-880-5216, or Web site: http://www.hhgroup.com/

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