Hudson Global Reports 2012 Third Quarter Results
Hudson Global Reports 2012 Third Quarter Results
Hudson Global, Inc. (Nasdaq:HSON), a leading global talent solutions company, today announced financial results for the third quarter ended September 30, 2012.
2012 Third Quarter Summary
§ Revenue of $187.9 million, a decrease of 23.3 percent from the third quarter of 2011, or 21.0 percent in constant currency.
§ Gross margin of $67.7 million or 36.0 percent of revenue, representing a 27.2 percent decrease from the same period last year, or 24.5 percent in constant currency.
§ Adjusted EBITDA* of $1.5 million, compared with adjusted EBITDA of $7.7 million in the third quarter of 2011.
§ Restructuring charges of $1.5 million in the third quarter of 2012.
§ EBITDA* of $0.7 million, compared with EBITDA of $7.4 million in the third quarter of 2011.
§ Net loss of $2.2 million, or $0.07 per basic and diluted share, compared with net income of $3.4 million, or $0.11 per basic and diluted share, for the third quarter of 2011.
* EBITDA and adjusted EBITDA are defined in the segment tables at the end of this release.
"During the third quarter, the business environment deteriorated further due to global economic uncertainties," said Manuel Marquez, chairman and chief executive officer at Hudson. "While these conditions challenge our results in the near term, we remain fully committed to our strategy. Our restructuring actions during 2012 are helping us streamline our operations, advance our long-term goals and better position Hudson to capture the upside potential when conditions improve."
"We continue our work toward breakeven EBITDA for the year, while focusing on our long-term objectives," said Mary Jane Raymond, Hudson's chief financial officer. "Our liquidity position remains strong, with positive cash flow from operations year-to-date."
The company announced in May that the strategic initiatives launched in 2011 would be fast-tracked during 2012. That accelerated plan focused on:
§ Redirecting resources to, and driving sustainable growth from, high potential strategic businesses, RPO and eDiscovery, and focusing on the growth markets of the world.
§ Optimizing its operations in underperforming sectors and markets to deliver improved performance, re-engineering its delivery model, and consolidating operations globally.
§ Streamlining its back office support areas and business processes through shared services and global centers of excellence, to gain significant efficiencies of operation.
Actions during the third quarter eliminated 30 positions, affecting front and back office roles, primarily in Europe. This resulted in a restructuring charge of $1.5 million in the third quarter, including some additional charges for real estate actions. Year to date, the company has eliminated 210 positions, or 9 percent of the company's total employee base, resulting in a total charge of $7.6 million. During 2012, the total restructuring charge is expected to be $8 million to $9 million, including $0 million to $1 million in the fourth quarter. Cost savings are expected to offset approximately 75 percent of the charge in 2012, with annualized cost savings of twice the charge expected.
Hudson Americas' gross margin decreased 30 percent in the third quarter compared with the prior year period primarily due to reduced project demand in Legal eDiscovery, which had particularly strong growth last year. However, Legal eDiscovery continued to establish key relationships with clients during the third quarter to maintain its market position amidst difficult conditions. After strong double digit growth in recent quarters, RPO gross margin decreased 5 percent compared with third quarter 2011 due to more cautious hiring by clients. Actions taken to establish a more efficient operating platform delivered SG&A* and headcount reductions of 25 percent and 20 percent, respectively, from the same period a year ago. Adjusted EBITDA declined to $0.8 million for the third quarter, or 1.9 percent of revenue, compared with $2.0 million a year ago. The RPO business was named to the prestigious "Baker's Dozen" for the third year in a row, improving its position by two notches this year.
Facing a rapidly deteriorating economic environment, Asia Pacific remained a solid profit contributor, delivering adjusted EBITDA of $4.7 million, or 6.4 percent of revenue, though down from $7.1 million, or 7.0 percent of revenue in the third quarter of 2011. Hiring expectations and GDP growth have continued to slow throughout the region, contributing to a gross margin decline of 26 percent in constant currency in the third quarter from the prior year period. A 32 percent decline in permanent recruitment gross margin accounted for most of the overall gross margin drop. Talent Management continued to deliver double-digit gross margin growth in the quarter on increases in assessment services. Actions taken to reduce costs resulted in an SG&A* decline of 25 percent and headcount decline of 17 percent from the same period last year.
As expected given the significant economic weakness affecting business across Europe, gross margin was down 20 percent in constant currency compared with the third quarter of 2011. Reduced demand in the Financial Services sector remained a key contributing factor in the drop in gross margin in the U.K., while a decline in permanent recruitment in France and Belgium resulted in lower gross margin in continental Europe. Actions taken to address costs resulted in SG&A* and headcount reductions of 13 percent and 18 percent, respectively, from the same period a year ago. Adjusted EBITDA of $0.6 million, or 0.9 percent of revenue, was down from $3.9 million, or 4.0 percent of revenue a year ago.
* SG&A excludes non-operating expenses and rent redundancy.
Liquidity and Capital Resources
The company ended the third quarter of 2012 with $84.8 million in liquidity, composed of $34.9 million in cash and $49.9 million in availability under its credit facilities. The company generated $7.9 million in cash flow from operations during the quarter. The company had no outstanding borrowings at the end of the third quarter, compared with $1.5 million at the end of the second quarter of 2012.
Given deteriorating economic conditions and the continuing weakness in the financial services sector, fourth quarter 2012 revenue may decline by 21 to 24 percent against the prior year fourth quarter at prevailing exchange rates. The company expects fourth quarter 2012 adjusted EBITDA between $0 and $3.5 million before restructuring charges and anticipates the charge in the quarter will range from $0 million to $1 million. In the fourth quarter of 2011 revenue was $222.7 million and adjusted EBITDA was $6.3 million. For the full year, revenue is expected to decline 17 to 19 percent at prevailing exchange rates and adjusted EBITDA is expected to range from $4 to $8 million.