Hudson Highland Group Reports 2005 Fourth Quarter and Full-Year Financial Results

    NEW YORK, Feb. 16 /PRNewswire-FirstCall/ -- Hudson Highland Group, Inc.
 (Nasdaq:   HHGP), one of the world's leading providers of specialized
 professional staffing, retained executive search and human capital solutions,
 today announced financial results for the fourth quarter and full year ended
 December 31, 2005.
 
     2005 Fourth Quarter Summary
 
     * Revenue of $354.0 million, an increase of 2.9 percent from $344.1
       million for the fourth quarter of 2004
 
     * Gross margin of $132.4 million, or 37.4 percent of revenue, up 2.7
       percent from $128.9 million, or 37.5 percent of revenue, for the same
       year ago period
 
     * EBITDA of $7.1 million, or 2.0 percent of revenue, an increase of 44.7
       percent compared with $4.9 million, or 1.4 percent of revenue, for the
       fourth quarter of 2004
 
     * Net income of $2.8 million, or $0.12 per basic and $0.11 per diluted
       share, compared with a net loss of $1.3 million, or $0.07 per basic and
       diluted share for the fourth quarter of 2004
 
     2005 Full-Year Summary
 
     * Revenue of $1.428 billion, an increase of 13.7 percent from $1.256
       billion for 2004
 
     * Gross margin of $536.9 million, or 37.6 percent of revenue, up 14.2
       percent from $470.2 million, or 37.4 percent of revenue, for 2004
 
     * EBITDA of $29.6 million, or 2.1 percent of revenue, compared with a loss
       of $3.1 million for 2004
 
     * Net income of $5.3 million, or $0.24 per basic and $0.22 per diluted
       share, compared to a net loss of $26.8 million, or $1.38 per basic and
       diluted share for 2004
 
     "Hudson Highland Group made solid progress during 2005 toward strategic
 business segment growth and improved profitability, despite some hiring demand
 softness that surfaced during the fourth quarter in the Australia/New Zealand
 market," said Jon Chait, chairman and chief executive officer of Hudson
 Highland Group.  "We remain confident about our overall prospects and firmly
 committed to our long-term goal of sustainable EBITDA margins in the 7 to 10
 percent range."
     Mary Jane Raymond, executive vice president and chief financial officer of
 Hudson Highland Group commented, "For 2006, the company will maintain its
 focus on continuing to shift its business portfolio to high-value, high-margin
 segments and achieving further profitability improvement."
 
     Guidance
     Given the current economic environment, the company expects 2006 EBITDA as
 a percent of revenue to be 2.5 to 3.5 percent, constant currency revenue
 growth of 1 to 5 percent and constant currency gross margin growth of 5 to 10
 percent.  This guidance is based on expectations of constant currency revenue
 growth of 7 to 12 percent for Hudson North America, 0 to 5 percent for Hudson
 Europe and Highland Partners, and -5 to 5 percent in Hudson Asia Pacific.
 This guidance does not reflect the impact of any acquisitions or divestitures
 that the company may consider in the future.
     For the first quarter of 2006, historically the smallest profit generating
 quarter of the year, the company expects lower revenue and EBITDA than the
 prior year period due to business conditions in the Asia Pacific region.
     Beginning in the first quarter of 2006, the company will record
 compensation expense related to outstanding employee stock options in
 accordance with FAS 123R.  Based on current information, the company
 anticipates the impact of this to be $4.9 million for the full year 2006.
 Corresponding costs in 2005 would have been $4.5 million.
 
     Conference Call / Webcast
     Hudson Highland Group will conduct a conference call Friday, February 17,
 2006 at 9:00 AM ET to discuss this announcement.  Investors wishing to
 participate can join the conference call by dialing 1-800-374-1532 followed by
 the participant passcode 4778139 at 8:50 AM ET.  For those outside the United
 States, please call in on 1-706-634-5594 followed by the participant passcode
 4778139.  Hudson Highland Group's quarterly conference call can also be
 accessed online through Yahoo! Finance at http://www.yahoo.com and the
 investor information section of the company's website at
 http://www.hhgroup.com.
 
     Additional Information
     Please find additional information about the company's quarterly results
 in our shareholder letter in the investor information section of the company's
 website at http://www.hhgroup.com.
 
     Hudson Highland Group
     Hudson Highland Group is one of the world's leading professional staffing,
 retained executive search and human capital solution providers.  We help our
 clients achieve greater organizational performance by attracting, selecting
 and developing the best and brightest people for their businesses.  Our
 approximately 3,800 employees in more than 20 countries are dedicated to
 providing unparalleled service and value to our clients.  More information
 about Hudson Highland Group is available at http://www.hhgroup.com.
 
     Safe Harbor Statement
     This press release contains statements that the company believes to be
 "forward-looking statements" within the meaning of the Private Securities
 Litigation Reform Act of 1995.  All statements other than statements of
 historical fact included in this press release, including those under the
 caption "Guidance" and other statements regarding the company's future
 financial condition, results of operations, business operations and business
 prospects, are forward-looking statements.  Words such as "anticipate,"
 "estimate," "expect," "project," "intend," "plan," "predict," "believe" and
 similar words, expressions and variations of these words and expressions are
 intended to identify forward-looking statements.  All forward-looking
 statements are subject to risks and uncertainties that could cause actual
 results to differ materially from those described in the forward-looking
 statements.  These factors include, but are not limited to, the impact of
 global economic fluctuations on temporary contracting operations; the cyclical
 nature of the company's executive search and mid-market professional staffing
 businesses; the company's ability to manage its growth; risks associated with
 expansion; risks and financial impact associated with disposition of non-
 strategic assets; the company's reliance on information systems and
 technology; competition; fluctuations in operating results; risks relating to
 foreign operations, including foreign currency fluctuations; dependence on
 highly skilled professionals and key management personnel; the impact of
 employees departing with existing executive search clients; risks maintaining
 professional reputation and brand name; restrictions imposed by blocking
 arrangements; exposure to employment-related claims, and limits on insurance
 coverage related thereto; government regulations; and restrictions on the
 company's operating flexibility due to the terms of its credit facility.
 Additional information concerning these and other factors is contained in the
 company's filings with the Securities and Exchange Commission.  These forward-
 looking statements speak only as of the date of this press release.  The
 company assumes no obligation, and expressly disclaims any obligation, to
 review or confirm analysts' expectations or estimates or to update any
 forward-looking statements, whether as a result of new information, future
 events or otherwise.
 
     Financial Tables Follow, Presented in Refined Segment Information Format
 
 
 
                          HUDSON HIGHLAND GROUP, INC.
                CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
               (in thousands, except share and per share amounts)
                                  (unaudited)
 
 
                                   Three Months Ended        Year Ended
                                       December 31,          December 31,
                                     2005      2004        2005        2004
 
     Revenue                      $353,969   $344,090  $1,428,276  $1,256,354
 
         Direct costs              221,580    215,164     891,345     786,134
           Gross margin            132,389    128,926     536,931     470,220
 
     Operating expenses:
       Selling, general and
        administrative             125,210    123,003     507,184     469,214
       Depreciation and
        amortization                 4,711      5,746      18,412      20,108
       Business reorganization
        expenses (recoveries)           90        (89)        233       3,361
       Merger and integration
       (recoveries) expenses           (35)     1,090         (70)        736
               Total operating
                expenses           129,976    129,750     525,759     493,419
 
       Operating income (loss)       2,413       (824)     11,172     (23,199)
 
 
     Other income (expense):
       Interest, net                  (600)       (51)     (1,852)       (104)
       Other, net                      654        (75)      1,029      (1,834)
 
     Income (loss) before
      provision for (benefit)
      for income taxes               2,467       (950)     10,349     (25,137)
 
     Provision (benefit) for
      income taxes                    (323)       387       5,036       1,638
 
     Net income (loss)              $2,790    $(1,337)     $5,313    $(26,775)
 
     Income (loss) per share:
        Basic income (loss)           $.12     $(0.07)       $.24      $(1.38)
        Diluted income (loss)         $.11     $(0.07)       $.22      $(1.38)
 
     Weighted average shares
      outstanding:
        Basic                   24,103,000 20,371,000  22,295,000  19,457,000
        Diluted                 25,823,000 20,371,000  23,674,000  19,457,000
 
 
 
                          HUDSON HIGHLAND GROUP, INC.
                     CONSOLIDATED CONDENSED BALANCE SHEETS
               (in thousands, except share and per share amounts)
 
 
                                                          December   December
                                                             31,        31,
                                                            2005       2004
                           ASSETS                        (unaudited)
 
     Current assets:
     Cash and cash equivalents                             $34,108    $21,064
     Accounts receivable, net                              232,081    197,582
     Other current assets                                   14,330     14,187
             Total current assets                          280,519    232,833
 
     Property and equipment, net                            31,438     36,360
     Intangibles, net                                       31,100      6,104
     Other assets                                            5,359      6,081
             Total assets                                 $348,416   $281,378
 
 
            LIABILITIES AND STOCKHOLDERS' EQUITY
 
     Current liabilities:
     Accounts payable                                      $24,718    $27,023
     Accrued expenses and other current liabilities        140,036    140,903
     Short-term borrowings and current portion of
      long-term debt                                        32,544      4,066
     Accrued business reorganization expenses                4,223      8,930
     Accrued merger and integration expenses                 1,239      1,872
         Total current liabilities                         202,760    182,794
 
     Accrued business reorganization expenses,
      non-current                                            4,095      6,832
     Accrued merger and integration expenses,
      non-current                                            2,038      3,329
     Other non-current liabilities                           5,948      2,648
     Long-term debt, less current portion                      478      2,041
         Total liabilities                                 215,319    197,644
 
     Commitments and contingencies
 
     Stockholders' equity:
     Preferred stock, $0.001 par value, 10,000,000
      shares authorized; none issued or outstanding              -          -
     Common stock, $0.001 par value, 100,000,000
      shares authorized; issued: 24,341,907 and
      20,612,966 shares, respectively                           24         21
     Additional paid-in capital                            404,755    353,825
     Accumulated deficit                                  (306,263)  (311,576)
     Accumulated other comprehensive income --
      translation adjustments                               34,811     41,694
     Treasury stock, 15,798 shares
                                                              (230)      (230)
             Total stockholders' equity                    133,097     83,734
                                                          $348,416   $281,378
 
 
 
                            HUDSON HIGHLAND GROUP, INC.
                                  SEGMENT ANALYSIS
                                   (in thousands)
                                    (unaudited)
 
     For the Three Months                   Hudson
      Ended December   Hudson     Hudson     Asia   Highland
      31, 2005        Americas(2) Europe   Pacific  Partners Corporate  Total
 
     Revenue          $117,472   $117,282  $102,641  $16,574      $-  $353,969
 
     Gross margin      $30,262    $49,917   $36,288  $15,922      $-  $132,389
 
     Adjusted EBITDA(1) $4,768     $3,597    $4,905   $1,740 $(7,831)   $7,179
 
     Business
      reorganization
      expenses               1         37        43        9       -        90
     Merger and integration
      (recoveries)           -          -       (35)       -       -       (35)
 
     EBITDA(1)           4,767      3,560     4,897    1,731  (7,831)    7,124
 
     Depreciation and
      amortization       1,471      1,828       926      331     155     4,711
 
     Operating income
      (loss)            $3,296     $1,732    $3,971   $1,400 $(7,986)   $2,413
 
 
 
     For the Three Months                   Hudson
      Ended December   Hudson     Hudson     Asia   Highland
      31, 2004        Americas(2) Europe   Pacific  Partners Corporate  Total
 
 
     Revenue           $98,259   $120,250  $109,622  $15,959      $-  $344,090
 
     Gross margin      $25,597    $49,687   $38,519  $15,123      $-  $128,926
 
     Adjusted EBITDA(1) $3,680     $1,427    $7,391     $939 $(7,514)   $5,923
 
     Business
      reorganization
      expenses
      (recoveries)        (150)       275         -     (214)      -       (89)
     Merger and
      integration
      expenses
      (recoveries)         139        447       (91)     595       -     1,090
 
     EBITDA(1)           3,691        705     7,482      558  (7,514)    4,922
 
     Depreciation and
      amortization       1,622      1,114     2,315      500     195     5,746
 
     Operating income
      (loss)            $2,069      $(409)   $5,167      $58 $(7,709)    $(824)
 
 
     (1) Non-GAAP earnings before interest, income taxes, special charges,
         other non-operating expense, and depreciation and amortization
         ("Adjusted EBITDA") and non-GAAP earnings before interest, income
         taxes, other non-operating expense, and depreciation and amortization
         ("EBITDA") are presented to provide additional information about the
         company's operations on a basis consistent with the measures which the
         company uses to manage its operations and evaluate its performance.
         Management also uses these measurements to evaluate capital needs and
         working capital requirements. Adjusted EBITDA and EBITDA should not be
         considered in isolation or as a substitute for operating income, cash
         flows from operating activities, and other income or cash flow
         statement data prepared in accordance with generally accepted
         accounting principles or as a measure of the company's profitability
         or liquidity.  Furthermore, adjusted EBITDA and EBITDA as presented
         above may not be comparable with similarly titled measures reported by
         other companies.
 
     (2) See attached Hudson Americas Segment Analysis for further details.
 
 
 
                            HUDSON HIGHLAND GROUP, INC.
                                  SEGMENT ANALYSIS
                                   (in thousands)
                                    (unaudited)
 
     For the Year                          Hudson
      Ended December   Hudson     Hudson     Asia   Highland
      31, 2005        Americas(2) Europe   Pacific  Partners Corporate  Total
 
 
     Revenue          $446,949   $481,623  $436,877  $62,827    $-  $1,428,276
 
     Gross margin     $114,414   $204,439  $158,345  $59,733    $-    $536,931
 
 
     Adjusted
      EBITDA(1)        $14,385    $16,164   $30,563   $4,174 $(35,539) $29,747
 
     Business
      reorganization
      expenses
      (recoveries)         510        (42)       43     (278)       -      233
     Merger and
      integration
      (recoveries)         (35)         -       (35)       -        -      (70)
 
     EBITDA(1)          13,910     16,206    30,555    4,452  (35,539)  29,584
 
     Depreciation and
      amortization       5,217      4,771     6,501    1,354      569   18,412
 
     Operating income
      (loss)            $8,693    $11,435   $24,054   $3,098 $(36,108) $11,172
 
 
 
 
     For the Year                          Hudson
      Ended December   Hudson     Hudson     Asia   Highland
      31, 2004        Americas(2) Europe   Pacific  Partners Corporate  Total
 
 
     Revenue          $334,765 $447,483  $412,427  $61,679     $-   $1,256,354
 
     Gross margin      $86,662 $182,069  $143,360  $58,129     $-     $470,220
 
 
     Adjusted EBITDA(1) $5,281     $969   $23,358   $2,871  $(31,473)   $1,006
 
     Business
      reorganization
      expenses
      (recoveries)       1,051      225      (260)   2,345         -     3,361
     Merger and
      integration
      expenses
      (recoveries)        (113)     447      (193)     595         -       736
 
     EBITDA(1)           4,343      297    23,811      (69)  (31,473)   (3,091)
 
     Depreciation and
      amortization       5,307    4,773     6,163    1,805     2,060    20,108
 
     Operating income
      (loss)             $(964) $(4,476)  $17,648  $(1,874) $(33,533) $(23,199)
 
 
     (1) Non-GAAP earnings before interest, income taxes, special charges,
         other non-operating expense, and depreciation and amortization
         ("Adjusted EBITDA") and non-GAAP earnings before interest, income
         taxes, other non-operating expense, and depreciation and amortization
         ("EBITDA") are presented to provide additional information about the
         company's operations on a basis consistent with the measures which the
         company uses to manage its operations and evaluate its performance.
         Management also uses these measurements to evaluate capital needs and
         working capital requirements.  Adjusted EBITDA and EBITDA should not
         be considered in isolation or as a substitute for operating income,
         cash flows from operating activities, and other income or cash flow
         statement data prepared in accordance with generally accepted
         accounting principles or as a measure of the company's profitability
         or liquidity.  Furthermore, adjusted EBITDA and EBITDA as presented
         above may not be comparable with similarly titled measures reported by
         other companies.
 
     (2) See attached Hudson Americas Segment Analysis for further details.
 
 
 
                            HUDSON HIGHLAND GROUP, INC.
                          HUDSON AMERICAS SEGMENT ANALYSIS
                                   (in thousands)
                                    (unaudited)
 
 
                             For the Three Months      For the Three Months
                                     Ended                     Ended
                               December 31, 2005         December 31, 2004
 
                              N.   Develop-  Total       N.    Develop-  Total
                           America   ment             America    ment
 
 
     Revenue              $117,062   $410  $117,472   $97,818    $441  $98,259
 
 
     Gross margin          $29,919   $343   $30,262   $25,155    $442  $25,597
 
     Adjusted EBITDA(1)     $5,044  $(276)   $4,768    $4,653   $(973)  $3,680
 
     Business
      reorganization
      (recoveries)
      expenses                   1      -         1      (150)      -     (150)
     Merger and
      integration
      expenses                   -      -         -       139       -      139
 
 
     EBITDA(1)               5,043   (276)    4,767     4,664    (973)   3,691
 
     Depreciation and
      amortization           1,395     76     1,471     1,542      80    1,622
 
     Operating income
      (loss)                $3,648  $(352)   $3,296    $3,122 $(1,053)  $2,069
 
 
 
 
                             For the Three Months      For the Three Months
                                     Ended                     Ended
                               December 31, 2005         December 31, 2004
 
                              N.   Develop-  Total       N.    Develop-  Total
                           America   ment             America    ment
 
 
     Revenue             $444,877  $2,072  $446,949  $333,061  $1,704 $334,765
 
 
     Gross margin        $112,889  $1,525  $114,414   $85,054  $1,608  $86,662
 
 
     Adjusted EBITDA(1)   $18,001 $(3,616)  $14,385   $10,707 $(5,426)  $5,281
 
     Business
      reorganization
      expenses                510       -       510     1,051       -    1,051
     Merger and
      integration
      (recoveries)            (35)      -       (35)     (113)      -     (113)
 
 
     EBITDA(1)             17,526  (3,616)   13,910     9,769  (5,426)   4,343
 
     Depreciation and
      amortization          4,908     309     5,217     5,040     267    5,307
 
     Operating income
      (loss)              $12,618 $(3,925)   $8,693    $4,729 $(5,693)   $(964)
 
 
     (1) Non-GAAP earnings before interest, income taxes, special charges,
         other non-operating expense, and depreciation and amortization
         ("Adjusted EBITDA") and non-GAAP earnings before interest, income
         taxes, other non-operating expense, and depreciation and amortization
         ("EBITDA") are presented to provide additional information about the
         company's operations on a basis consistent with the measures which the
         company uses to manage its operations and evaluate its performance.
         Management also uses these measurements to evaluate capital needs and
         working capital requirements. Adjusted EBITDA and EBITDA should not be
         considered in isolation or as a substitute for operating income, cash
         flows from operating activities, and other income or cash flow
         statement data prepared in accordance with generally accepted
         accounting principles or as a measure of the company's profitability
         or liquidity.  Furthermore, adjusted EBITDA and EBITDA as presented
         above may not be comparable with similarly titled measures reported by
         other companies.
 
 

SOURCE Hudson Highland Group, Inc.

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