Hudson Revises Performance
Hudson Highland Group, Inc. has announced revised guidance for the fourth quarter and an update on its annual impairment testing, both of which reflect the impact of the global economic slowdown.
Hudson's markets worldwide declined significantly during November. Results for the month were below prior year in all regions: Asia Pacific, Europe, and North America. The company experienced reduced demand in both contract and permanent recruitment from October levels, with the largest percentage drop coming from the permanent recruitment business.
Given these trends, the company now expects its fourth quarter 2008 revenue to be between $200-$210 million at prevailing exchange rates, compared with previous guidance of $205-$220 million. The company also believes adjusted EBITDA could be as low as a loss of $6 million, compared with previous adjusted EBITDA guidance of $2-$5 million. Adjusted EBITDA excludes the impact of any restructuring, acquisitions, divestitures and impairments.
Economic conditions in North America began to deteriorate in late 2007. Hudson took a number of actions at the end of 2007 and through 2008 in all of its markets that reduced its pre-tax expense base by $40 million on an annualized basis, about half of which was realized during 2008 to offset gross margin declines, and continues to assess options to align its operations with the market while serving client and candidate needs. A number of additional actions to reduce expenses are already underway, but the rapid drop in permanent recruitment during November limited the company's ability to mitigate the adjusted EBITDA decline in a few weeks. Hudson currently expects that the benefit of these additional actions will begin to be realized in the early part of 2009, in addition to the full annualized impact of the 2008 actions. More detailed information regarding cost reduction actions and the timing of benefits will be provided when the company announces fourth quarter and full-year earnings results.
These cost reduction actions are also important to the company's liquidity position. As of yesterday, the company had net cash of approximately $42 million. Every region is focused on cash management as part of its response to the economic conditions.
Hudson expected slowing economic conditions when it announced its third quarter 2008 results and set guidance for the fourth quarter. However, economic conditions during the quarter have been worse than anticipated with greater contraction in North America and the European Union, and slower growth rates in the emerging markets. The company expects weak global conditions to persist throughout 2009, resulting in a reduction in demand for its services. In addition, revenue has been affected by the strengthening U.S. dollar against most currencies in 2008, and this condition may continue in 2009.