Restructuring Hits Hudsons Earnings
Restructuring Hits Hudson’s Earnings
Hudson Global, Inc. has announced Its financial results for the first quarter ended March 31, 2012.
2012 First Quarter Summary
? Revenue of $200.6 million, a decrease of 8.2 percent from the first quarter of 2011, or 8.9 percent in constant currency
? Gross margin of $73.2 million, or 36.5 percent of revenue, representing a 9.8 percent decrease from the same period last year, or 10.1 percent in constant currency
? Adjusted EBITDA* loss of $0.9 million, compared with adjusted EBITDA of $2.4 million in the first quarter of 2011
? EBITDA* loss of $2.2 million, compared with EBITDA of $2.5 million in the first quarter of 2011
? Net loss of $3.2 million, or $0.10 per basic and diluted share, compared with net loss of $0.0 million, or $0.00 per basic and diluted share, for the first quarter of 2011
* EBITDA and adjusted EBITDA are defined in the segment tables at the end of this release.
"Challenging market conditions persisted throughout the first quarter and drove our results to the low end of our expectations. After making significant progress in 2011 towards our long-term goals, we have initiated the next phase of our strategic transition," said Manuel Marquez, chairman and chief executive officer at Hudson. "We will take action to accelerate investment in our growth businesses, optimize the Hudson service delivery model, and extract synergies from our back office and business processes. We believe that by taking these actions, we will make 2012 a foundational year in our progress towards achieving our long-term financial and strategic goals."
Commenting on the company's plans, chief financial officer Mary Jane Raymond said, "Our action plan is designed to address some of the more imbedded aspects of our operating model that have caused our earnings progress to be too slow. We have taken the initial steps to move to a leaner regional structure and more consistent global operations. Our 2011 efforts to build greater global coordination have prepared the organization to undertake this work."
The company launched its strategic transformation program in 2011 and now moves to accelerate the changes through the following actions:
? Redirect resources to, and drive sustainable growth from, high potential strategic businesses, RPO and eDiscovery, and focus on the growth markets of the world.
? Optimize its operations in underperforming sectors and markets to deliver improved performance. The company will re-engineer the delivery model and consolidate operations globally.
? Streamline its back office support areas and business processes, and establish a shared services operation and global centers of excellence, to gain significant efficiencies of operation.
The above actions will be supported by a restructuring charge of $8 - $10 million during 2012, including $4 - $6 million in the second quarter. Annualized cost savings are expected to be twice the charge. In 2012, savings from the program are expected to offset 50 percent of the charge. First quarter actions related to the restructuring, primarily severance expenses in Europe, and other charges, totaled $1.3 million.
In the first quarter, Hudson Americas' gross margin increased 14 percent compared with the prior year period, driven by 100 percent gross margin growth in permanent recruitment, primarily from strength in RPO. Temporary contracting was down 3 percent from prior year as Legal eDiscovery declined due to gaps in large project workflow. Adjusted EBITDA was $0.3 million for the first quarter, up slightly from $0.2 million a year ago.
During the first quarter, European economic conditions and a slowdown in financial services continued to impact Asia Pacific as some multi-national clients delayed hiring decisions. Gross margin was down 12 percent in constant currency in the first quarter from the prior year period, as a 31 percent increase in talent management could not offset reductions in permanent recruitment and temporary contracting. China's gross margin was up 6 percent while all other countries in the region declined in the quarter. Adjusted EBITDA declined 36 percent to $2.1 million, or 2.9 percent of revenue from $3.2 million in the first quarter of 2011.
Gross margin in Europe was down 15 percent in constant currency in the first quarter compared with the first quarter of 2011, as a slowdown in financial services demand impacted the U.K. business. In continental Europe, growth in the Netherlands contracting business and steady results in Belgium were not enough to offset declines in France. Adjusted EBITDA of $1.4 million, or 1.7 percent of revenue, was down from $4.1 million a year ago.
Liquidity and Capital Resources
The company ended the first quarter of 2012 with $81.0 million in liquidity, composed of $24.9 million in cash and $56.1 million in availability under its credit facilities. The company used $7.2 million in cash flow from operations during the quarter and had no outstanding borrowings at the end of the first quarter, compared with $3.4 million at the end of the fourth quarter of 2011.
Given the current economic environment, the slowdown in the financial services sector, and the actions being taken to reposition the business, the company expects sequential second quarter 2012 revenue growth to range from down slightly to up 5 percent. Against prior year, revenue may decline by around 20 percent at prevailing exchange rates. The company expects second quarter 2012 adjusted EBITDA between $0 and $3 million before restructuring charges and expects the charge in the quarter will range from $4 to $6 million. This compares with revenue of $247.4 million and EBITDA of $7.7 million in the second quarter of 2011.