Hudson Global Q2 results disappointing
On a retained** basis, excluding Americas IT and the Netherlands which were sold during the quarter, revenue of$113.4 million declined 12.0 percent in reported currency but increased 1.1 percent in constant currency from the prior year period. There was a Gross margin of $50.2 million or 40.9 percent of revenue, a decrease of 16.1 percent from the same period in 2014, or 4.2 percent in constant currency. On a retained basis, excluding Americas IT and the Netherlands which were sold during the quarter, gross margin of $48.0 million declined 11.7 percent in reported currency but increased 1.0 percent in constant currency from the prior year period. There was anadjusted EBITDA* loss of $0.8 million, compared with adjusted EBITDA loss of $0.3 million in the second quarter of 2014. The EBITDA* of $14.6 million, includded a $20.0 million gain on sale of assets, compared with EBITDA loss of $1.8 millionin the second quarter of 2014. The net income of $13.9 million, or $0.41 per basic and diluted share, compared with net loss of $4.4 million, or $0.13 per basic and diluted share, for the second quarter of 2014.
“We completed the divestitures of our Americas IT staffing business and Netherlands business in the second quarter, as we continued to implement our strategy to narrow our focus on core businesses,” said Stephen Nolan, chief executive officer at Hudson. “We delivered constant currency gross margin growth in key markets and practices, including Asia Pacific and RPO. We remain focused on returning to profitability by reducing costs while selectively investing in key markets and practices.”
During the second quarter, the company continued to execute on strategic actions in its previously announced efforts to focus on its core business lines and growth opportunities. These completed actions included:
Completed the divestiture of the company's Netherlands operations to InterBalance Group B.V. for &euro8.1 million in cash, effective on April 30, 2015.
Completed the divestiture of the company's Americas IT staffing business to Mastech, Inc. for $17.0 million in cash as well as retained working capital, effective June 15, 2015.
Substantially completed the exit of the company's non-profitable operations in countries in Central and Eastern Europe(Ukraine, Czech Republic and Slovakia). The company also approved the exit of operations in Luxembourg, which is expected to cease operations during the course of 2015. For the full year 2014, operations in these countries generated a total of $2.9 million, $2.3 million and $0.5 million in Revenue, Gross Margin and EBITDA loss respectively.
With these strategic divestitures complete, the company is now a more streamlined organization that is focused on delivering sustainable profitability in its core businesses, RPO, Talent Management and Recruitment, where we continue to invest in fee earners to drive growth.
During the second quarter, the company incurred $2 million in restructuring charges for headcount and real estate actions in corporate and Europe. These actions will allow the company to continue to lower its corporate support cost structure. The company will take further actions in the second half of 2015 to reduce stranded support costs, particularly in the Americasfollowing the sale of non-core businesses.
The company ended the quarter with $34.8 million in cash, including divestiture proceeds, and considering the company’s current stock price, the board of directors has authorized a share repurchase program, initially for up to $10 million of the company’s common stock. The company will commence purchases promptly during the third quarter.
In the second quarter, Hudson Americas' gross margin decreased 5 percent in constant currency on a reported basis and increased 18 percent on a retained** basis as compared with the second quarter in 2014. This was driven by growth in RPO, from continued demand from new and existing clients. Adjusted EBITDA was a loss of $0.3 million, compared with adjusted EBITDA of $0.8 million for the same period a year ago.
Hudson Asia Pacific's gross margin increased 11 percent in constant currency in the second quarter of 2015 from the same period in 2014. This was the sixth consecutive quarter of year-over-year constant currency gross margin growth. Results were fueled by permanent recruitment, up 22 percent, and temporary contracting, up 11 percent, against the second quarter of 2014. This growth in recruitment was realized in both of the company’s major Asia Pacific markets, China and Australia, with gross margin increasing 51 percent and 9 percent, respectively, against the prior year period. Asia Pacific delivered adjusted EBITDA of $1.9 million, or 3.4 percent of revenue, improving from adjusted EBITDA of $1.0 million in the second quarter of 2014.
During the second quarter of 2015, Hudson Europe's gross margin decreased 17 percent in constant currency from the second quarter of 2014 on a reported basis, and 11 percent on a retained** basis. Excluding the impact of the Netherlands sale, Continental Europe gross margin declined 1 percent in constant currency in the quarter. Belgium and Spain continued to deliver gross margin growth, up 2 percent and 40 percent respectively. In the UK, 18 percent growth in RPO was offset by 24 percent declines in recruitment, which was particularly strong a year ago. Adjusted EBITDA of $1.0 million, or 1.8 percent of revenue, was down from $2.7 million, or 3.7 percent of revenue, in the second quarter of 2014.
Liquidity and Capital Resources
The company ended the second quarter of 2015 with $57.1 million in liquidity, composed of $34.8 million in cash and $22.3 million in availability under its credit facilities. This compares with $13.9 million in cash and $26.0 million in availability under its credit facilities at the end of the first quarter of 2015. The change in cash was driven primarily by gains from the second quarter sales of the Americas IT business and the Netherlands business, generating $25.9 million in cash during the quarter. The company used $4.6 million in cash flow from operations during the second quarter, unchanged from the second quarter of 2014. The company had $1.3 million in outstanding borrowings at the end of the second quarter of 2015.
Given current economic conditions, the company expects third quarter 2015 revenue of between $105 million and $115 millionand an adjusted EBITDA loss of between breakeven and $2 million at prevailing exchange rates. This outlook assumes an average exchange rate of 1.56 US Dollars to the British Pound, 1.11 US Dollars to the Euro and 0.73 US Dollars to the Australian Dollar. In the third quarter of 2014, revenue was $149.3 million and adjusted EBITDA was a loss of $2.9 million. Third quarter 2014 revenue would have been $38 million lower including the impact of prevailing exchange rates cited above and excluding revenue attributable to businesses divested in the second quarter of 2015. The company expects to deliver positive adjusted EBITDA in the second half of 2015.