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World – Hudson incurs losses as revenue continues to fall

01 August 2013

Global talent solutions company Hudson Global Inc. (HSON: NASD) reported falls in revenue and gross margin during the second quarter of 2013. Revenue fell during the period by -16.3% from USD 204.8 million in Q2 2012 to USD 171.4 million in 2013, a drop of 15.5% in constant currency. Gross margin dropped by -21.5% from USD 77 million to USD 60.5 million quarter-on-quarter, a fall of -21.1% in constant currency.

An adjusted EBITDA loss of USD 2.5 million, including USD 700,000 in costs related to the CFO transition, compared poorly with EBITDA gains of USD 3.7 million for the same period last year. A net loss of USD 5.8 million during the period was a significant fall from the net profit of USD 400,000 a year ago.

Restructuring charges, however, recorded an improvement, dropping from USD 5.1 million during Q2 2012 to only USD 1.2 million for Q2 2013.   

Manuel Marquez, chairman and CEO at Hudson commented: “Our results this quarter remained below that of a year ago, reflecting the challenges of implementing a transformation plan in a difficult macroeconomic environment. However, we believe that we are turning the corner.”

Stephen Nolan, CFO at Hudson added: “Our priorities are identifying opportunities to increase our top-line, improve our operating margin, and drive more effective execution. We were pleased to unlock USD 2 million in annual cost savings in our European operations. We are assessing the company’s plan to put Hudson on the right path to profitability.”

Revenue for Europe fell during the period from USD 82.4 million during the second quarter of 2012, to USD 71.1 million during the second quarter of this year, equating to a fall of -13.7% for the region. Gross margin also declined during the period, from USD 32.8 million last year to USD 26.9 million this year, a drop of -17.8%.

European operations represent the largest business segment of Hudson Global and performed below expectations. Gross margin in the UK experienced declines compared with the same quarter last year in both temporary and permanent recruitment. The Netherlands and Spain delivered profitable EBITDA amidst a difficult economic backdrop. The company executed restructuring and negotiated its major lease agreement in France, which resulted in the aforementioned USD 2 million in annual cost savings. Actions taken to address costs across Europe resulted in sales, general, and administrative expenses (SG&A) and headcount reductions of -11% and -16% respectively compared with Q2 2012, offsetting 59% of the gross margin decline.      

Asia-Pacific revenues fell most sharply during the second quarter, from USD 76.9 million last year to USD 62.9 million this year, equating to a drop of -18.3%. Gross margin fell by -23.9% to USD 24.3 million this year compared with USD 31.9 million a year ago.

Continuing uncertainties and reduced hiring in Australia, along with lower demand from and within China contributed to a gross margin decline of -23% in constant currency across Asia-Pacific compared with last year. Compared with Q1 2013, gross margin during the second quarter grew +17% in constant currency, led by growth in permanent recruitment and a strong quarter in RPO. Actions taken to reduce costs resulted in SG&A decline of -16% and headcount decline of -13%, offsetting 62% of the gross margin decline.

The Americas, Hudson’s smallest business segment, performed much worse than expected with revenue falling by -17.9% from USD 45.5 million during Q2 2012 to USD 37.3 million during Q2 2013. Gross margin in the Americas recorded the biggest drop during the quarter of -25.2%, falling to USD 9.2 million from USD 12.4 million a year ago.  

The quarterly decline was driven primarily by a -32% reduction in eDiscovery (legal solutions) gross margin versus prior year. RPO gross margin decreased -30% compared with the second quarter of 2012, which included revenue from a large client lost during that quarter, which is expected to be offset going forward by several recent new business wins. Actions taken to reduce costs delivered SG&A and headcount reductions of -18% and -22%, respectively, from the same period a year ago, offsetting a significant portion of the gross margin decline from the same quarter a year earlier.

Looking forward, given the slower seasonal period of the third quarter and current economic conditions, the company expects third quarter 2013 revenue of between USD 165 million to USD 175 million. Adjusted EBITDA is expected to produce a loss of between USD 3 million and USD 5 million at prevailing exchange rates before restructuring charges. The company anticipates the remaining USD 800,000 of board approved restructuring charges to be incurred in the second half of 2013. In the third quarter of 2012, revenue was USD 187.9 million and adjusted EBITDA was USD 1.5 million.

The company’s losses were higher than analysts were expecting and trading yesterday closed with the share price falling sharply by -7.06% to USD 2.37, a fall of -43.84% compared with a year ago. Based on its current share price, the company has a market value of USD 78.49 million.


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