Hudson Highland Group Reports 2011 Full Year and Fourth Quarter Results
Hudson Highland Group Reports 2011 Full Year and Fourth Quarter Results
Full Year Revenue Grew 17.5 Percent, 10.9 Percent in Constant Currency EBITDA Grew 264 Percent to $23.6 Million
Hudson Highland Group, Inc. a leading global provider of professional recruitment and related talent solutions, today announced financial results for the full year and fourth quarter ended December 31, 2011.
"During 2011, we launched new strategic initiatives to maximize the value of Hudson's global platform and achieve greater operating efficiencies. In more than 20 countries, our teams placed over 16,000 professionals and managed on average 5,800 highly skilled contract consultants per day to deliver solutions that helped our clients grow and address these uncertain times," said Manuel Marquez, chairman and chief executive officer of Hudson Highland Group. "Despite headwinds in the fourth quarter, we achieved double digit revenue growth, generated positive cash flow and realized record net income from continuing operations in 2011. We believe we are now better positioned to confront the market contraction in Europe and its ripple effect in Asia Pacific."
2011 Full Year Summary
Revenue of $933.7 million, an increase of 17.5 percent from 2010, or 10.9 percent in constant currency.
Gross margin of $354.3 million, or 37.9 percent of revenue, grew 18.7 percent in 2011, or 11.9 percent in constant currency.
EBITDA* of $23.6 million, or 2.5 percent of revenue in 2011, compared with $6.5 million, or 0.8 percent of revenue, in 2010.
Net income of $10.9 million, or $0.35 per basic share and $0.34 per diluted share, compared with net loss of $4.7 million, or $0.16 per basic and diluted share, in 2010.
"Improvements in our earnings and cash position in 2011 resulted from our global commitment to move our company to solid profitability and liquidity," said Mary Jane Raymond, the company's chief financial officer. "In the fourth quarter, we took steps to further optimize our operations by moving from four to three regional units. This structure helped us weather the deteriorating conditions at the end of the year. We expect to generate additional synergies in 2012 to drive our earnings."
2011 Fourth Quarter Summary
Revenue of $222.7 million, an increase of 1.7 percent over the fourth quarter of 2010, or 1.0 percent in constant currency.
Gross margin increased to $84.6 million in the fourth quarter, or 38.0 percent of revenue, representing a 2.1 percent increase from the same period last year, or 1.4 percent in constant currency.
EBITDA* of $6.0 million, or 2.7 percent of revenue in the fourth quarter, improved from $3.6 million, or 1.6 percent of revenue, for the fourth quarter of 2010.
Net income of $3.3 million, or $0.10 per basic and diluted share, compared with net income of $1.2 million, or $0.04 per basic and diluted share, for the fourth quarter of 2010.
Cash flow from operations was $20.4 million in the fourth quarter. Liquidity increased to $89.1 million, composed of $37.3 million in cash and $51.8 million in available borrowings.
* EBITDA and adjusted EBITDA are defined in the segment tables at the end of this release.
Key Strategic Initiatives
During 2011, the company launched a new global strategy focused on four key initiatives which were instrumental in delivering the full year results:
Reap the value of Hudson's global business
To further align operations with the needs of its global clients, Hudson established global practices for two of its fastest growing businesses, Legal eDiscovery and RPO, which represented 70 percent of constant currency gross margin growth in 2011. In addition, the company simplified its operating platform, organizing operations into three regions, which it believes will facilitate greater alignment with its global clients' needs, better coordination of global activities and more efficient utilization of resources.
Attract, develop and retain the right people
Following the appointment of a new chief people officer, the company started to deploy best-practice processes to help its teams be more successful. These efforts contributed to Hudson's adjusted EBITDA leverage on incremental gross margin of 49 percent in constant currency in 2011.
Focus on selected clients and services in the market
The company further developed its professional recruitment and talent solutions services to bring more value to clients. Higher value solutions helped improve the gross margin on contract talent and interim management by 100 basis points in constant currency to 18.5 percent. In permanent recruitment, Hudson's RPO clients increasingly use the company's talent management offerings to further align recruitment processes with their business needs.
Create a compelling digital presence
To deliver a more compelling digital presence for its clients and candidates – critical to the company's future – Hudson began integrating its existing technology, information, social media and branding efforts. Under the direction of its chief knowledge officer, in December 2011, Hudson launched a new search engine optimized web site in more than 20 countries. The new web platform is already generating an increasing flow of targeted candidates and business leads.
In 2011, Hudson Americas delivered one of its best-performing years. Gross margin increased 29 percent compared with 2010, while adjusted EBITDA reached $6.4 million compared with $0.2 million in 2010. A 19 percent increase in contracting gross margin was driven primarily by the company's Legal eDiscovery practice. This business provides end-to-end eDiscovery solutions, process management and managed review services tailored to meet client needs. Temporary contracting gross margin increased 60 basis points to 22.2 percent in 2011, driven primarily by higher margins in eDiscovery. Permanent recruiting gross margin grew by 95 percent, attributable to the early success of RPO in the Americas, a strategic service that allows clients to transfer all or part of their recruitment process to Hudson.
For the fourth quarter, Hudson Americas' gross margin increased 27 percent compared with the prior year period, driven by 14 percent gross margin growth in temporary contracting, including eDiscovery. Permanent recruitment more than doubled due to growth in RPO. Adjusted EBITDA reached $2.4 million for the fourth quarter, more than doubling from the prior year period.
Asia Pacific delivered strong adjusted EBITDA gains in 2011 on 10 percent gross margin growth in constant currency, driven by the expansion of RPO and efficient leverage. Gross margin growth was driven by 14 percent growth in permanent recruitment and 5 percent growth in temporary contracting. Permanent recruitment growth was led by 35 percent growth in RPO across the region as well as 23 percent growth in China.
Adjusted EBITDA was $21.3 million, or 5.9 percent of revenue, an increase of 56 percent or $7.6 million from 2010. Asia Pacific continued to be the most profitable region in the organization, and benefitted from 51 percent constant currency leverage in 2011.
During the fourth quarter, European economic conditions created a ripple effect in Asia Pacific as some multi-national clients delayed hiring decisions. Gross margin was down 5 percent in constant currency in the fourth quarter from prior year, but despite this, adjusted EBITDA reached $5.0 million, or 6.0 percent of revenue, an increase of 24 percent or $1.0 million from the fourth quarter of 2010.
For the full year 2011, Hudson Europe's gross margin increased 9 percent in constant currency compared with the prior year. Adjusted EBITDA of $16.5 million increased 79 percent from $9.2 million in 2010.
Temporary contracting gross margin increased 30 percent in constant currency, driven by the expansion of Legal eDiscovery in the U.K., as well as growth in the Netherlands professional contracting business and Belgium's interim management business. The temporary contracting gross margin increased to 18.9 percent, up from 16.9 percent in 2010, driven primarily by higher margins in eDiscovery. Permanent recruitment delivered modest growth in 2011, a combination of growth in retained search in Belgium and France, and declines in the U.K.
The second half of 2011 was notable for volatile economic conditions in Europe, marked by the sovereign debt crisis and the contraction of the banking and finance industry. During the fourth quarter, several clients delayed permanent hiring decisions. Nonetheless, the balanced service portfolio helped maintain gross margin flat compared with the fourth quarter of 2010 in constant currency. Adjusted EBITDA of $3.0 million increased 18 percent over the fourth quarter of 2010.
The company remains optimistic about 2012, but the European debt situation has persisted and the weaker economic conditions witnessed in the fourth quarter have continued into the first quarter. Given the current environment, the company expects first quarter 2012 revenue to be down between 4 – 8 percent to prior year at prevailing exchange rates, and EBITDA about breakeven from operations. This compares with revenue of $218.5 million and EBITDA of $2.5 million in the first quarter of 2011.