Hudson Global reports 2013 Q4 and full-year results
2013 Fourth Quarter Summary
? Revenue of $159.5 million, a decrease of 13.4 percent from the fourth quarter of 2012, or 11.9 percent in constant currency. Sequentially, from the third quarter of 2013 to the fourth quarter of 2013, revenue was down 2.5 percent or 4.4 percent in constant currency, as compared with a decline of 1.9 percent for the same period in 2012.
? Gross margin of $56.9 million or 35.7 percent of revenue, a decrease of 15.0 percent from the same period in 2012, or 13.8 percent in constant currency. Sequentially, gross margin increased 2.0 percent or 0.1 percent in constant currency, as compared with a decrease of 1.1 percent for the same period in 2012.
? Adjusted EBITDA* loss of $2.0 million, compared with adjusted EBITDA of $3.2 million in the fourth quarter of 2012. Sequentially, adjusted EBITDA improved by 31.3 percent or 33.2 percent in constant currency. Fourth quarter adjusted EBITDA included $0.8 million of costs related to the leadership change in Hudson Europe.
? Restructuring charges of $2.8 million, asset impairments of $1.3 million and other income of $0.3 million in the fourth quarter of 2013.
? EBITDA* loss of $5.8 million, compared with EBITDA of $3.5 million in the fourth quarter of 2012.
? Net loss of $11.3 million, or $0.35 per basic and diluted share, compared with net loss of $0.3 million, or $0.01 per basic and diluted share, for the fourth quarter of 2012.
2013 Full-Year Summary
? Revenue of $660.1 million, a decrease of 15.1 percent from 2012, or 13.7 percent in constant currency.
? Gross margin of $229.9 million, or 34.8 percent of revenue, a decrease of 19.3 percent from 2012, or 18.3 percent in constant currency.
? Adjusted EBITDA* loss of $12.3 million, compared with adjusted EBITDA of $7.5 million in 2012.
? Restructuring charges of $6.7 million, asset impairments of $1.3 million and other income of $0.7 million in 2013.
? EBITDA* loss of $19.6 million in 2013, compared with EBITDA of $0.1 million in 2012.
? Net loss of $30.4 million, or $0.94 per basic and diluted share, compared with net loss of $5.3 million, or $0.17 per basic and diluted share, in 2012.
* EBITDA and adjusted EBITDA are defined in the segment tables at the end of this release.
"We closed out 2013 with sequential gross margin growth in our business in the fourth quarter, a leadership team strengthened with experienced executives from the industry, and an emphasis on disciplined execution in both our front office and back office," said Manolo Marquez, chairman and chief executive officer at Hudson. "Our focus in 2014 will be driving top-line growth through selective investments in key opportunity areas and recapturing positive trajectory in our earnings profile."
Stephen Nolan, chief financial officer at Hudson said, "Given the progress we have made on the cost structure over the past two years and the positive momentum we are experiencing in some of our business units and markets, we expect to show further traction in 2014. We intend to keep a sharp eye on costs, continue to maintain a strong liquidity position and ensure that we strengthen the operating rigor we have established in recent months."
In the fourth quarter, Hudson Americas' gross margin decreased 14 percent sequentially as compared with the third quarter of 2013 and 17 percent as compared with the fourth quarter in 2012. This was primarily due to reduced project demand in Legal eDiscovery. Recruitment Process Outsourcing (RPO) gross margin in the fourth quarter recorded an increase of approximately 29 percent as compared with the fourth quarter in 2012, as business development efforts earlier in the year resulted in the initiation of several new client relationships in the quarter. Adjusted EBITDA declined to $1.1 million or 3.8 percent of revenue for the fourth quarter, compared with $1.4 million or 3.5 percent of revenue for the same period a year ago.
Hudson Americas' gross margin in 2013 decreased 21 percent from 2012. Contracting gross margin declined by 21 percent, primarily attributable to Legal eDiscovery, and permanent recruitment gross margin dropped by 20 percent. Despite growth in the fourth quarter, RPO gross margin declined by 13 percent in 2013 following 26 percent growth in 2012. The decline was primarily driven by the loss of a large client following its acquisition in 2012. Aggressive cost actions and reductions in support staff drove SG&A and headcount down in 2013 by 20 percent and 18 percent, respectively. The efforts to reduce SG&A offset approximately 86 percent of the gross margin decline. As a result, adjusted EBITDA was $3.6 million, or 2.6 percent of revenue, compared with $4.9 million, or 2.9 percent of revenue, in 2012.
Hudson Asia Pacific gross margin declined 19 percent in constant currency in the fourth quarter of 2013 from the same period in 2012. Sequentially, gross margin declined 7 percent in the seasonally slower fourth quarter as compared with the third quarter of 2013, against a 12 percent sequential decline in the fourth quarter of 2012. A 24 percent year-over-year decline in permanent recruitment gross margin accounted for over 80 percent of the overall gross margin drop, driven by softer demand in the IT and industrial sectors. Asia Pacific delivered an adjusted EBITDA loss of $1.3 million, or 2.3 percent of revenue, down from adjusted EBITDA of $2.3 million, or 3.7 percent of revenue in the fourth quarter of 2012.
Hudson Asia Pacific's gross margin in 2013 decreased 23 percent in constant currency compared with 2012, impacted by difficult economic conditions and increasingly subdued hiring activity, amidst concern over slowing economic growth in China. Mining and related industries, including manufacturing, were particularly affected, accounting for over 50 percent of the decline in gross margin. In response to these challenging conditions, 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 12 percent and headcount decline of 6 percent in 2013 from 2012. Our effort to reduce SG&A offset 48 percent of the decline in gross margin. Adjusted EBITDA loss was $1.4 million, or 0.6 percent of revenue, down from adjusted EBITDA of $12.9 million in 2012 or 4.5 percent of revenue.
During the fourth quarter of 2013, Hudson Europe gross margin increased 11 percent in constant currency sequentially from the third quarter 2013, compared with an 8 percent sequential increase in fourth quarter 2012. The sequential growth was driven by 23 percent growth in Continental Europe on strength in Talent Management in Belgium and France. As compared with the fourth quarter of 2012, gross margin decreased 9 percent in constant currency. Temporary recruitment gross margin declined 15 percent, driven by reduced demand in the Legal sector in the U.K. Permanent recruitment gross margin declined 3 percent, driven by reduced demand in France and Belgium. Adjusted EBITDA of $1.1 million, or 1.5 percent of revenue, was down from $3.5 million, or 4.2 percent of revenue in the fourth quarter of 2012.
Hudson Europe's gross margin decreased 13 percent in 2013 in constant currency compared with 2012. Temporary contracting gross margin decreased 11 percent in constant currency, driven by declines in the UK on weaker results from the higher margin Legal eDiscovery practice. Temporary contracting gross margin decreased to 16.8 percent of revenue from 17.5 percent in 2012. Permanent recruitment gross margin declined 13 percent in 2013 compared with 2012, as a result of reduced client demand in the U.K., particularly in the Legal and IT sectors, and in France in the Industrial sector. SG&A decreased by 9 percent and headcount by 11 percent in 2013 from 2012. Our effort to reduce SG&A offset 62 percent of the decline in gross margin. Adjusted EBITDA of $1.5 million, or 0.5 percent of revenue, was down from $8.0 million, or 2.5 percent of revenue in 2012.
Liquidity and Capital Resources
The company ended the fourth quarter of 2013 with $67.2 million in liquidity, composed of $37.4 million in cash and $29.8 million in availability under its credit facilities. This compares with $38.7 million in cash and $41.7 million in availability under its credit facilities at the end of 2012. The company generated $4.1 million in cash flow from operations during the quarter and$2.5 million in cash flow from operations for the year of 2013. The company had $0.5 million in outstanding borrowings at the end of the fourth quarter of 2013.
Given current economic conditions, business trends, a continuing focus on costs and focused investments in the consultant population in certain markets to drive future top-line growth, the company expects first quarter 2014 revenue of between $145 million and $155 million and adjusted EBITDA of between negative $2.5 million and negative $4.5 million. In the first quarter of 2013, revenue was $165.7 million and adjusted EBITDA was a loss of $4.9 million.