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A Tough Year For Hudson

A Tough Year For Hudson

Hudson Global Reports 2012 Full-Year and Fourth Quarter Results

Hudson Global, Inc. has today announced financial results for the full-year and fourth quarter ended December 31, 2012.

2012 Full-Year Summary

*Revenue of $777.6 million, a decrease of 16.7 percent from 2011, or 15.8 percent in constant currency.

&middot         Gross margin of $284.9 million, or 36.6 percent of revenue, a decrease of 19.6 percent from 2011, or 18.2 percent in constant currency.

&middot         Adjusted EBITDA* of $7.5 million, compared with adjusted EBITDA of $24.4 million in 2011.

&middot         Restructuring charges of $7.8 million and other income of $0.4 million in 2012.

&middot         EBITDA* of $0.1 million in 2012, compared with $23.6 million in 2011.

&middot         Net loss of $5.3 million, or $0.17 per basic and diluted share, compared with net income of $10.9 million, or $0.35 per basic share and $0.34 per diluted share, in 2011.

&middot         2012 Fourth Quarter Summary

&middot         of $184.3 million, a decrease of 17.3 percent from the fourth quarter of 2011, or 18.2 percent in constant currency.

&middot         Gross margin of $66.9 million or 36.3 percent of revenue, a decrease of 20.9 percent from the same period in 2011, or 21.6 percent in constant currency.

&middot         Adjusted EBITDA* of $3.2 million, compared with adjusted EBITDA of $6.3 million in the fourth quarter of 2011.

&middot         Restructuring charges of $0.2 million and other income of $0.6 million in the fourth quarter of 2012.

&middot         EBITDA* of $3.5 million, compared with $6.0 million in the fourth quarter of 2011.

&middot         Net loss of $0.3 million, or $0.01 per basic and diluted share, compared with net income of $3.3 million, or $0.10 per basic and diluted share, for the fourth quarter of 2011.

&middot         EBITDA and adjusted EBITDA are defined in the segment tables at the end of this release.

"2012 proved difficult to navigate by any measure. However, despite these market conditions, we were able to deliver positive EBITDA for the full-year, including restructuring charges," said Manuel Marquez, chairman and chief executive officer at Hudson. "We took significant actions throughout the year with two goals in mind: manage through the tough economic environment and reposition the company to thrive during a global economic rebound. As no real recovery is yet in sight, we must continue to focus on strengthening our business foundation, preserving liquidity and making progress in our performance improvements. At the same time, we will continue investing in our strategic initiatives in order to keep us on the path towards long-term success."

"During 2013, we will continue to focus on optimizing our organization, expanding efficient business models and managing our cash position," said Mary Jane Raymond, chief financial officer at Hudson.

Strategic Initiatives

The company announced in May 2012 that the strategic initiatives launched in 2011 would be fast-tracked during 2012. The company's accelerated plan included:

&middot         Redirecting resources to, and driving sustainable growth from, its high potential strategic businesses and focusing on the growth markets of the world. The following steps were taken:

&middot         Continued to move leaders into key positions in high potential businesses including RPO, Legal eDiscovery and Asia.

&middot         Redirected field operations to concentrate on its largest clients around the globe.

&middot         Focused the IT Practice in the Americas on its largest markets and clients while consolidating offices and reducing headcount.

&middot         Optimizing its operations in underperforming sectors and markets to deliver improved performance, re-engineering its delivery model, and consolidating operations globally. Specifically, the company:

&middot         Reduced management and support services in underperforming markets in France, the UK, Middle East and Financial Solutions in the Americas.

&middot         Removed organizational layers and associated support positions in Asia Pacific to get management closer to the client.

&middot         Consolidated offices to more efficiently support our clients.

&middot         Streamlining its back office support areas and business processes through shared services and global centers of excellence to gain efficiencies of operation. Specifically, the company:

&middot         Streamlined back office operations in the Americas and Asia Pacific.

&middot         Established shared services in select locations around the world.

&middot         Consolidated operations to more efficiently supply back office services.

Regional Highlights

Americas

Hudson Americas experienced reduced demand in Legal eDiscovery and slower growth in RPO as client behavior was increasingly cautious following a robust 2011, when gross margin growth reached 29 percent. Hudson Americas' gross margin in 2012 decreased 15 percent from 2011. The decline was driven by a 21 percent decrease in contracting gross margin, primarily attributable to Legal eDiscovery, offset in part by 6 percent growth in permanent recruiting gross margin, led by RPO. In response to these conditions, the company took a set of actions focused primarily on accelerating business development, as well as reducing costs and internal operations. SG&A* and headcount were reduced by 14 percent and 22 percent, respectively. As a result, adjusted EBITDA was $4.9 million, or 2.9 percent of revenue, compared with $6.4 million, or 3.4 percent of revenue, in 2011.

In the fourth quarter, Hudson Americas' gross margin decreased 2 percent sequentially and 32 percent compared with the same period in 2011. This was primarily due to reduced project demand in Legal eDiscovery, which had particularly strong growth in the fourth quarter of 2011. After double digit growth in recent quarters, RPO gross margin decreased 27 percent compared with the fourth quarter of 2011 as clients reduced hiring volumes or opted to bring the work in-house. Adjusted EBITDA declined to $1.4 million for the fourth quarter, or 3.5 percent of revenue, compared with $2.4 million for the same period a year ago.

Asia Pacific

Hudson Asia Pacific's gross margin in 2012 decreased 21 percent in constant currency compared with 2011 as demand in the region slowed due to increasingly cautious hiring activity and cost controls implemented in response to the economic environment. The decline was partially offset by 36 percent constant currency gross margin growth in Talent Management, driven by strength in assessment services. The company took steps to rebalance its portfolio and streamline its operating structure. These actions to reduce costs resulted in an SG&A* decline of 17 percent and headcount decline of 22 percent from 2011. Adjusted EBITDA was $12.9 million, or 4.5 percent of revenue, down from $21.3 million in 2011.

The fourth quarter trends were consistent with the rest of the year, with gross margin down 24 percent in constant currency from the same period in 2011. A 28 percent decline in permanent recruitment gross margin accounted for most of the overall gross margin drop, while Talent Management continued to deliver strong growth, with gross margin up 44 percent in constant currency. The company reduced SG&A* by 18 percent and headcount by 22 percent from the fourth quarter of 2011. Asia Pacific delivered adjusted EBITDA of $2.3 million, or 3.7 percent of revenue, down from $5.0 million, or 6.0 percent of revenue in the fourth quarter of 2011.

Europe

The prolonged economic downturn and high levels of unemployment in Europe continued to impact our permanent placement and temporary contracting businesses in 2012. Hudson Europe's gross margin decreased 17 percent in 2012 in constant currency compared with 2011. Temporary contracting gross margin decreased 19 percent in constant currency, driven by declines in the UK on weaker demand from the Financial Services sector. Temporary contracting gross margin decreased to 17.4 percent of revenue from 18.8 percent in 2011. Permanent recruitment declined 20 percent in 2012 compared with 2011, as a result of reduced client demand in France and Belgium, despite strong, double-digit growth in RPO. Adjusted EBITDA of $8.0 million represented a decrease of 52 percent from $16.5 million in 2011.

During the fourth quarter of 2012, European gross margin increased 8 percent sequentially from the third quarter, though it was down 16 percent in constant currency compared with the fourth quarter of 2011. Reduced demand in the Financial Services sector continued to drive lower gross margin in the UK, while a decline in permanent recruitment resulted in lower gross margin in continental Europe. Actions taken to address costs resulted in SG&A* and headcount reductions of 19 percent and 15 percent, respectively, from the same period in 2011. Adjusted EBITDA of $3.5 million, or 4.2 percent of revenue, was up from $3.0 million, or 3.2 percent of revenue in the fourth quarter of 2011.

* SG&A excludes non-operating expenses and rent redundancy.

Liquidity and Capital Resources

The company ended the fourth quarter of 2012 with $80.3 million in liquidity, composed of $38.7 million in cash and $41.7 million in availability under its credit facilities. The company generated $4.3 million in cash flow from operations during the quarter and $13.2 million in cash flow from operations for 2012. The company had no outstanding borrowings at the end of the fourth quarter, unchanged from the third quarter of 2012.

Business Outlook

Given the current economic conditions, first quarter 2013 revenue may decline by 14 to 18 percent against the first quarter of 2012 at prevailing exchange rates. The company expects first quarter 2013 adjusted EBITDA to be negative $2 million to negative $5 million before restructuring charges. The company expects to incur up to $4 million of restructuring charges to continue the 2012 actions. The company expects to take these actions in the first half of the year. In the first quarter of 2012, revenue was $200.6 million and adjusted EBITDA was a loss of $0.9 million.

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