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Hudson Global Reports 2014 Second Quarter Results
Highest Gross Margin in Six Quarters
Progress on Strategic Actions to Focus on Core Business and Improve Efficiency
NEW YORK, July 31, 2014 (GLOBE NEWSWIRE) -- Hudson Global, Inc. (Nasdaq:HSON), a leading global talent solutions company, today announced financial results for the second quarter ended June 30, 2014.
2014 Second Quarter Summary
Year-over-year gross margin growth in the company's core business lines and geographies was widespread, including 4 percent in Asia Pacific, 9 percent in Europe, and 50 percent in RPO in the Americas, all in constant currency. This growth more than offset the decline in our eDiscovery unit in the Americas.
"We delivered gross margin growth in our major markets and continued to make substantial improvements to our bottom line," said Manolo Marquez, chairman and chief executive officer at Hudson. "Our second quarter results are a clear indication that the changes we have put in place are translating to growth and improved financial performance, and will accelerate our path to sustained profitability."
Stephen Nolan, chief financial officer at Hudson said, "Our focus on disciplined execution, strategic investments, and business efficiencies have resulted in improved performance across most markets and practices."
Strategic Actions
As was previously announced, the company engaged Duff & Phelps to begin exploring opportunities to divest the Legal eDiscovery business, and focus on the company's core businesses that are expected to maximize stockholder value. On July 29, 2014, the company's management and board of directors approved the plan for divestiture of the Legal eDiscovery business, which is expected to be completed within 12 months.
In addition, the company engaged AlixPartners, LLP, a premier consulting firm in the areas of organization design and operational improvement, to assist management in a comprehensive assessment of the company's organization and operations. The engagement with AlixPartners was focused on identifying opportunities to better align the organization model to a more focused business after the divestiture of eDiscovery, to support future growth in core areas, and improve operating efficiencies and effectiveness. Based upon this work, management recommended and the board of directors approved on July 29, 2014 actions including the optimization of real estate and integration of support services and systems at the regional and corporate level. These initiatives are expected to result in a restructuring charge of up to $7 million which is expected to be taken over the next twelve months, depending on the timing of other strategic actions such as the sale of the company's eDiscovery business. The company expects an ongoing annualized return of 1.5 - 2.0x the charge.
Regional Highlights
Americas
Americas' gross margin decreased 24 percent in the second quarter as compared with the same period in 2013. RPO continued to deliver strong results with 50 percent gross margin growth in the second quarter, after becoming the largest practice in the Americas on a gross margin basis in the first quarter of 2014. This growth was offset by declines in Legal eDiscovery and IT of 45 percent and 19 percent, respectively. The quarterly decline in Gross Margin, combined with an unusually significant increase in medical costs, resulted in an adjusted EBITDA loss of $0.1 million for the second quarter, compared with adjusted EBITDA of $1.5 million, or 4.1 percent of revenue for the same quarter a year ago.
Asia Pacific
Asia Pacific's gross margin increased 4 percent in constant currency in the second quarter as compared with the same period in 2013. This was the second consecutive quarter of year-over-year gross margin growth, with all business lines contributing in both quarters. More specifically, growth in the region was driven by strength in talent management and permanent recruitment in China, and Australia. Gross margin increased 30 percent in China in the quarter against the prior year. And in Australia, gross margin increased 6 percent, outperforming the company's major competitors. Talent management delivered 19 percent growth in Asia Pacific, led by large assessment and career transition projects in Australia. A concerted effort to increase front office staff in its highest potential markets and practices in Asia Pacific resulted in a 28 percent increase in fee-earners in the quarter as compared to prior year. The company expects further growth and market share gains in the region as the productivity of these new fee-earners increases. Cost reductions in support areas and real estate, together with top-line growth generated adjusted EBITDA of $1.0 million, or 1.5 percent of revenue, as compared to $0.7 million, or 1.1 percent of revenue in the second quarter of 2013.
Europe
Europe's gross margin increased 9 percent in constant currency compared with the second quarter of 2013. Against prior year, the region experienced gross margin growth in most countries. Particularly strong growth occurred in permanent recruitment in the UK and Belgium, up 18 percent and 27 percent in constant currency, respectively. Talent management in Continental Europe also grew in the quarter driven by Belgium and France, with gross margin up 7 percent compared with the prior year. Europe delivered adjusted EBITDA of $3.2 million, or 4.2 percent of revenue, as compared with adjusted EBITDA of $0.1 million, or 0.1 percent of revenue for the quarter a year ago.
Liquidity and Capital Resources
The company ended the second quarter of 2014 with $51.9 million in liquidity, composed of $17.9 million in cash and $34.1 million in availability under its credit facilities. This included $13.1 million of availability from the RBS facility, which will expire on August 4, 2014 and which the company expects to replace with separate facilities for the US and UK prior to such expiration date. This compares with $22.1 million in cash and $35.8 million in availability under its credit facilities at the end of the first quarter of 2014, and $28.3 million in cash and $35.8 million in availability under its credit facilities at the end of the second quarter of 2013. The company used $4.6 million in cash flow from operations during the quarter, and had $2.2 million in outstanding borrowings at the end of the second quarter.
Business Outlook
Given current economic conditions, the company expects third quarter 2014 revenue of between $165 million and $175 million and adjusted EBITDA of between negative $2 million and breakeven at prevailing exchange rates. In the third quarter of 2013, revenue was $163.6 million and adjusted EBITDA was a loss of $2.9 million.
Conference Call/Webcast
Hudson will conduct a conference call today at 10:00 a.m. ET to discuss this announcement. Individuals wishing to listen can access the webcast on the investor information section of the company's web site at Hudson.com.
The archived call will be available on the investor information section of the company's web site at Hudson.com.
About Hudson
Hudson is a global talent solutions company with expertise in leadership and specialized recruitment, contracting solutions, recruitment process outsourcing, talent management and eDiscovery. We help our clients and candidates succeed by leveraging our expertise, deep industry and market knowledge, and proprietary assessment tools and techniques. Operating in 20 countries through relationships with millions of specialized professionals, we bring an unparalleled ability to match talent with opportunities by assessing, recruiting, developing and engaging the best and brightest people for our clients. We combine broad geographic presence, world-class talent solutions and a tailored, consultative approach to help businesses and professionals achieve higher performance and outstanding results. More information is available at Hudson.com.
Forward-Looking Statements
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 company's ability to successfully achieve its strategic initiatives, including the divestiture of its Legal eDiscovery business; risks related to fluctuations in the company's operating results from quarter to quarter; the ability of clients to terminate their relationship with the company at any time; competition in the company's markets; risks associated with the company's investment strategy; risks related to international operations, including foreign currency fluctuations; the company's dependence on key management personnel; the company's ability to attract and retain highly skilled professionals; the company's ability to collect accounts receivable; the negative cash flows and operating losses that the company has experienced in recent periods and may experience from time to time in the future; restrictions on the company's operating flexibility due to the terms of its credit facilities; the company's ability to achieve anticipated cost savings through its cost reduction initiatives; the company's heavy reliance on information systems and the impact of potentially losing or failing to develop technology; risks related to providing uninterrupted service to clients; the company's exposure to employment-related claims from clients, employers and regulatory authorities, current and former employees in connection with the company's business reorganization initiatives and limits on related insurance coverage; the company's ability to utilize net operating loss carry-forwards; volatility of the company's stock price; the impact of government regulations; restrictions imposed by blocking arrangements; risks related to activist stockholders; and risks related to limited availability under the company's credit facilities. 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.
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