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10-K: HUDSON GLOBAL, INC.

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(EDGAR Online via COMTEX) -- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the Consolidated Financial Statements and the notes thereto, included in Item 8 of this Form 10-K. This MD&A contains forward-looking statements. Please see "FORWARD-LOOKING STATEMENTS" for a discussion of the uncertainties, risks, and assumptions associated with these statements. This MD&A also uses the non-generally accepted accounting principle measure of earnings before interest, taxes, depreciation and amortization ("EBITDA"). See Note 14 to the Consolidated Financial Statements in Item 8 for EBITDA segment reconciliation information. Note that amounts within this Item shown in millions may not recalculate due to rounding.

This MD&A includes the following sections:

Executive Overview

Results of Operations

Liquidity and Capital Resources

Contingencies

Critical Accounting Policies

Recent Accounting Pronouncements

Forward-Looking Statements

Executive Overview

The Company's strategy is to provide global RPO solutions to customers. With direct operations in fourteen countries and relationships with specialized professionals and organizations around the globe, the Company brings a strong ability to match talent with opportunities by assessing, recruiting, developing, and engaging highly successful people for the Company's clients. The Company combines broad geographic presence, world-class talent solutions and a tailored, consultative approach to help businesses and professionals achieve maximum performance. The Company's focus is to continually upgrade its service offerings and delivery capability tools to make candidates more successful in achieving its clients' business requirements.

The Company's proprietary frameworks, assessment tools, and leadership development programs, coupled with its broad geographic footprint, allow the Company to design and implement regional and global outsourced recruitment solutions that the Company believes greatly enhance the quality and efficiency of its clients' hiring.

To accelerate the implementation of the Company's strategy, the Company engages in the following initiatives:

Building and differentiating the Company's brand through its unique outsourcing solutions offerings; and

Improving the Company's cost structure and efficiency of its support functions and infrastructure.

We continue to explore all strategic alternatives to maximize value for shareholders, including without limitation, improving the market position and profitability of our services in the marketplace, and enhancing our valuation. We may pursue our goals through organic growth, strategic initiatives, or other alternatives. Additionally, we will continue to monitor capital markets for opportunities to repurchase shares, and consider other actions designed to enhance shareholder value, as well as review information regarding potential acquisitions and provide information to third parties, from time to time.

This MD&A discusses the results of the Company's RPO business for the years ended December 31, 2021 and 2020.

- 12 -

Current Market Conditions

After another challenging year in 2021, economic conditions in most of the world's major markets are expected to rebound in 2022, although activity is expected to remain below pre-COVID levels. Some markets are beginning to see a potential path forward for improved economic conditions, however expectations for recovery may be hampered by new variants of the virus. Policy measures enacted by U.S. and foreign governments to combat the economic impact of the virus provided support to local economies, but many of these measures have since been discontinued. In addition, the continued uncertainty has resulted in increased inflation and volatility in global currencies. Stronger foreign currencies in other markets compared to the U.S. dollar during a reporting period cause local currency results of the Company's foreign operations to be translated into more U.S. dollars. The Company closely monitors the economic environment and business climate in its markets and responds accordingly.

COVID-19 Pandemic

The continuing impact of COVID-19 and its variants around the world presents significant risks to the Company, which the Company is unable to fully evaluate or even to foresee at the current time. In 2021, some of our customers instituted hiring freezes, while other customers operating in the banking, pharmaceutical and technology industries, which may be considered as essential businesses in different jurisdictions, or customers that were more capable of working remotely than other industries, have been allowed to operate as usual. The inability to conduct in-person interviews also impacted our business. In addition, the COVID-19 pandemic negatively impacted certain currencies compared to the U.S. dollar in several countries where we operate, including Australia.

The COVID-19 pandemic affected the Company's operations in 2021 and may continue to do so in the future. The COVID-19 pandemic may impact the Company's business, operations, and financial results and conditions, directly and indirectly, including without limitation impacts on the health of the Company's management and employees, marketing and sales operations, customer and consumer behaviors, as well as the overall economy. The scope and nature of these impacts, most of which are beyond the Company's control, continue to evolve and the outcomes are uncertain.

Due to the above circumstances and as described generally in this Form 10-K, the Company's results of operations for the years ended December 31, 2021 and 2020 are not necessarily indicative of the results to be expected in future years. Management cannot predict the continued impact the COVID-19 pandemic may continue to have on the Company's sales or on economic conditions generally. The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end.

Financial Performance

Constant Currency (Non-GAAP measure)

The Company operates on a global basis, with the majority of its revenue generated outside of the U.S. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations. For the discussion of reportable segment results of operations, the Company uses constant currency information. Constant currency compares financial results between periods as if exchange rates had remained constant period-over-period. The Company defines the term "constant currency" to mean that financial data for previously reported periods are translated into U.S. dollars using the same foreign currency exchange rates that were used to translate financial data for the current period. Constant currency metrics should not be considered in isolation or as a substitute for reported results prepared in accordance with generally accepted accounting principles ("GAAP") in the U.S. The Company's management reviews and analyzes business results in constant currency because it believes these results better represent the Company's underlying business trends.

The following is a summary of the highlights for the years ended December 31, 2021 and 2020. These should be considered in the context of the additional disclosures in this MD&A.

Revenue was $169.2 million for the year ended December 31, 2021, compared to $101.4 million for 2020, an increase of $67.8 million, or 67%. The increase in revenue was driven by growth in Australia, Americas and the UK.

On a constant currency basis, revenue increased $60.4 million, or 55%. Contracting revenue increased $34.5 million (up 51% compared to 2020) and RPO recruitment revenue increased $25.9 million (up 64% compared to 2020). Revenue included an increase of $9.9 million from the acquisition of Coit Staffing, Inc. - 13 -

(see Note 4 to the Consolidated Financial Statements in Item 8), which contributed 10 percentage points to the revenue growth.

Selling, general and administrative expenses, and other non-operating income (expense) ("SG&A and Non-Op") was $63.2 million for the year ended December 31, 2021, compared to $39.8 million for 2020, for an increase of $23.5 million, or 59%.

On a constant currency basis, SG&A and Non-Op increased $21.7 million or 52%. SG&A and Non-Op, as a percentage of revenue, was 37% for the year ended December 31, 2021, compared to 38% for 2020. The increase was principally due to higher staff costs of $17.4 million, prior year Paycheck Protection Program ("PPP") debt extinguishment (see Note 2 to the Consolidated Financial Statements in Item 8 for further information) of $1.3 million, higher marketing and advertising expenses of $1.0 million, higher travel and entertainment costs of $0.4 million, and 2020 COVID-19 foreign government assistance credits of $0.5 million.

EBITDA was $4.9 million for the year ended December 31, 2021, compared to EBITDA loss of $0.7 million for 2020. On a constant currency basis, EBITDA increased $5.3 million in 2021 compared to 2020. The acquisition of Coit Staffing, Inc. positively contributed EBITDA of $430.

Net income was $3.2 million for the year ended December 31, 2021, compared to a net loss of $1.2 million for 2020. On a constant currency basis, net income increased $4.3 million in 2021. - 14 -

Changes in revenue, adjusted net revenue, SG&A and Non-Op, operating income







                                                               Year Ended December 31,
                                                2021                            2020
                                                 As             As            Currency        Constant
        $ in thousands                        reported       reported       translation       currency
        Revenue:
        Americas                             $  28,797      $  10,866      $         89      $  10,955
        Asia Pacific                           118,597         75,633             6,314         81,947
        Europe                                  21,813         14,949               996         15,945
        Total                                $ 169,207      $ 101,448      $      7,399      $ 108,847
        Adjusted net revenue (a):
        Americas                             $  27,087      $   9,598      $         82      $   9,680
        Asia Pacific                            28,561         19,814             1,442         21,256
        Europe                                  12,509          9,669               603         10,272
        Total                                $  68,157      $  39,081      $      2,127      $  41,208
        SG&A and Non-Op (b):
        Americas                             $  25,294      $  10,738      $         96      $  10,834
        Asia Pacific                            23,104         16,943             1,175         18,118
        Europe                                  11,500          9,086               547          9,633
        Corporate                                3,351          2,992                 -          2,992
        Total                                $  63,249      $  39,759      $      1,818      $  41,577
        Operating income (loss):
        Americas                             $   1,689      $  (2,218)     $        (14)     $  (2,232)
        Asia Pacific                             6,785          3,827               235          4,062
        Europe                                   1,309            383                27            410
        Corporate                               (5,389)        (4,638)                -         (4,638)
        Total                                $   4,394      $  (2,646)     $        248      $  (2,398)
        Net income (loss), consolidated      $   3,227      $  (1,243)     $        211      $  (1,032)
        EBITDA (loss)(c):
        Americas                             $   1,801      $  (1,044)     $        (12)     $  (1,056)
        Asia Pacific                             5,452          2,877               241          3,118
        Europe                                   1,007            481                52            533
        Corporate                               (3,352)        (2,992)                -         (2,992)
        Total                                $   4,908      $    (678)     $        281      $    (397)
        


(a)Represents Revenue less the Direct contracting costs and reimbursed expenses caption on the Consolidated Statements of Operations.

(c)See EBITDA reconciliation in the following section.

- 15 -

Use of EBITDA (Non-GAAP measure)

Management believes EBITDA is a meaningful indicator of the Company's performance that provides useful information to investors regarding the Company's financial condition and results of operations. EBITDA is also considered by management as an indicator of operating performance and the most comparable measure across the regions in which we operate. Management also uses this measurement to evaluate capital needs and working capital requirements. Similar to constant currency, EBITDA should not be considered in isolation or as a substitute for operating income or net income prepared in accordance with GAAP or as a measure of the Company's profitability. EBITDA is derived from net income (loss) adjusted for the provision for (benefit from) income taxes, interest expense (income), and depreciation and amortization.

The reconciliation of EBITDA to the most directly comparable GAAP financial measure is provided in the table below:







                                                                      Year Ended December 31,
        $ in thousands                                                   2021                2020
        Net income (loss)                                       $      3,227              $ (1,243)
        Adjustments to net income (loss)
        Provision for income taxes                                     1,117                   535
        Interest income, net                                             (33)                 (149)
        Depreciation and amortization expense                            597                   179
        Total adjustments from net income to EBITDA (loss)             1,681                   565
        EBITDA (loss)                                           $      4,908              $   (678)
        


- 16 -

Results of Operations:







        Americas (reported currency)
        Revenue
                                                    Year Ended December 31,
                                2021               2020
        $ in millions        As reported        As reported      Change in amount       Change in %
        Americas
        Revenue            $    28.8          $       10.9      $            17.9             165  %
        


For the year ended December 31, 2021, RPO recruitment revenue increased by $17.5 million, or 185%, while contracting revenue increased by $0.5 million, or 33%. The acquisitions of Coit Staffing, Inc. and Karani, LLC (see Note 4 to the Consolidated Financial Statements in Item 8) contributed 91 percentage points and 15 percentage points, respectively, to the revenue growth.







        Adjusted net revenue
                                                                                              Year Ended December 31,
                                                                     2021                  2020              Change in
        $ in millions                                             As reported           As reported           amount               Change in %
        Americas
        Adjusted net revenue                                    $      27.1           $      9.6           $     17.5                        182  %
        Adjusted net revenue as a percentage of revenue                  94   %               88   %                 N/A                        N/A
        


For the year ended December 31, 2021, RPO recruitment adjusted net revenue increased $17.5 million, or 190%, while contracting adjusted net revenue decreased slightly by 3% compared to 2020. The acquisitions of Coit Staffing, Inc. and Karani, LLC (see Note 4 to the Consolidated Financial Statements in Item 8) contributed 104 percentage points and 17 percentage points, respectively, to the adjusted net revenue growth.

Total adjusted net revenue, as a percentage of revenue, increased to 94% for 2021, compared to 88% for 2020, primarily attributable to the higher mix of RPO recruitment to contracting revenue in 2021 compared to 2020.







        SG&A and Non-Op
                                                                                          Year Ended December 31,
                                                                  2021                 2020              Change in
         $ in millions                                         As reported          As reported           amount               Change in %
        Americas
        SG&A and Non-Op                                      $      25.3          $      10.7          $     14.6                        136  %
        SG&A and Non-Op as a percentage of revenue                    88  %                99  %                 N/A                        N/A
        


For the year ended December 31, 2021, SG&A and Non-Op increased $14.6 million or 136% compared to 2020, primarily due to the acquisitions of Coit Staffing, Inc. and Karani, LLC, as well as higher staff consultant costs. The prior year PPP debt extinguishment of $1.3 million also contributed to the increase (see Note 10 to Consolidated Financial Statements in Item 8 for further details).

- 17 -







        Operating Income and EBITDA
                                                                                               Year Ended December 31,
                                                                     2021                    2020              Change in
        $ in millions                                             As reported             As reported            amount               Change in %
        Americas
        Operating income (loss)                                 $      1.7              $      (2.2)         $       3.9                        176  %
        EBITDA (loss)                                           $      1.8              $      (1.0)         $       2.8                        273  %
        EBITDA (loss) as a percentage of revenue                         6   %                  (10) %                  N/A                        N/A
        


The operating income growth of $3.9 million was primarily due to the stronger adjusted net revenue results and lower SG&A and Non-Op as a percentage of revenue, partially offset by amortization expense of $0.4 million associated with the acquisitions of Coit Staffing, Inc. and Karani, LLC.

For the year ended December 31, 2021, EBITDA was $1.8 million, or 6% of revenue, compared to EBITDA loss of $1.0 million in 2020. The increase in EBITDA was due to the same factors noted above.

The difference between operating income (loss) and EBITDA (loss) for the year ended December 31, 2020 was primarily due to the PPP debt extinguishment of $1.3 million.







        Asia Pacific (constant currency)
        Revenue
                                                  Year Ended December 31,
                                2021            2020
                                 As           Constant
        $ in millions         reported        currency       Change in amount       Change in %
        Asia Pacific
        Revenue            $   118.6         $    81.9      $            36.7              45  %
        


For the year ended December 31, 2021, contracting revenue increased by $30.5 million, or 50%, and RPO recruitment revenue increased by of $6.2 million, or 30%, compared to 2020.

In Australia, for the year ended December 31, 2021, revenue increased $35.3 million, or 48%, compared to 2020. The increase was primarily in contracting revenue, which increased by $30.0 million, or 51%, while RPO recruitment revenue increased by $5.3 million, or 35%. The increase in contracting revenue primarily reflected the implementation of a new contract win, while the increase in RPO recruitment revenue was due to higher volume from existing clients.

In Asia, revenue increased $1.2 million, or 16%, for the year ended December 31, 2021, compared to 2020. The increase in revenue was due to higher demand from existing clients.







        Adjusted net revenue
                                                                                            Year Ended December 31,
                                                                    2021                2020
                                                                     As               Constant           Change in
        $ in millions                                             reported            currency             amount               Change in %
        Asia Pacific
        Adjusted net revenue                                    $    28.6           $    21.3          $       7.3                         34  %
        Adjusted net revenue as a percentage of revenue                24   %              26  %                  N/A                        N/A
        


For the year ended December 31, 2021, RPO recruitment adjusted net revenue increased by $6.1 million, or 32%, while contracting adjusted net revenue increased by $1.2 million, or 59%, compared to the same period in 2020.

- 18 -

In Australia, adjusted net revenue increased by $6.1 million, or 37%, for the year ended December 31, 2021, compared to the same period in 2020. The increase was primarily reflected in RPO recruitment adjusted net revenue, which grew $5.0 million, or 34%, while contracting adjusted net revenue increase by $1.2 million, or 60%.

In Asia, adjusted net revenue increased $1.1 million, or 23%, for the year ended December 31, 2021, compared to 2020. The increase in Asia was primarily driven by Singapore.

Adjusted net revenue as a percentage of revenue, for the year ended December 31, 2021, was 24%, compared to 26% for 2020. The decrease in total adjusted net revenue as a percentage of revenue was attributed to the higher mix of contracting, to RPO recruitment revenue in 2021 (as contracting is generally a lower margin service offering), compared to 2020.







        SG&A and Non-Op
                                                                                         Year Ended December 31,
                                                                 2021                2020
                                                                  As               Constant           Change in
        $ in millions                                          reported            currency             amount               Change in %
        Asia Pacific
        SG&A and Non-Op                                      $    23.1           $    18.1          $       5.0                         28  %
        SG&A and Non-Op as a percentage of revenue                  19   %              22  %                  N/A                        N/A
        


For the year ended December 31, 2021, SG&A and Non-Op increased $5.0 million, or 28%, compared to 2020. The increase was primarily due to higher consultant staff costs. SG&A and Non-Op, as a percentage of revenue, was 19% in 2021, compared to 22% in 2020. The decrease was principally due to the higher mix of contracting revenue, where the majority of costs are reflected in adjusted net revenue.







        Operating Income and EBITDA
                                                                                           Year Ended December 31,
                                                                 2021                    2020
                                                                  As                   Constant           Change in
        $ in millions                                          reported                currency             amount               Change in %
        Asia Pacific
        Operating income                                     $     6.8               $     4.1          $       2.7                         67  %
        EBITDA                                               $     5.5               $     3.1          $       2.3                         75  %
        EBITDA as a percentage of revenue                            5   %                   4  %                  N/A                        N/A
        


Operating income was $6.8 million for the year ended December 31, 2021, compared to $4.1 million for 2020. The increase in operating income was principally due to the change in adjusted net revenue, as well as lower SG&A and Non-Op as a percentage of revenue, as described above.

For the year ended December 31, 2021, EBITDA was $5.5 million, or 5% of revenue, compared to EBITDA of $3.1 million, or 4% of revenue, in 2020. The increase in EBITDA for the year ended December 31, 2021 was principally due to the factors noted above.

The difference between operating income and EBITDA for the years ended December 31, 2021 and 2020 was principally due to corporate management expenses.

- 19 -







        Europe (constant currency)
        Revenue
                                                   Year Ended December 31,
                                 2021             2020
                                  As            Constant
        $ in millions          reported         currency       Change in amount       Change in %
        Europe
        Revenue            $    21.8           $    15.9      $             5.9              37  %
        


For the year ended December 31, 2021, contracting and RPO recruitment revenue increased by $3.6 million and $2.3 million, or 68% and 22%, respectively, compared to 2020.

In the U.K., for the year ended December 31, 2021, revenue increased by $5.8 million, or 42%, to $19.7 million from $13.9 million in 2020. The change was driven by increases in contracting and RPO recruitment revenue of $3.6 million or 68%, and $2.3 million or 26%, respectively. The increases were due to higher demand from existing clients and the implementation of new client contracts.

In Continental Europe, for the year ended December 31, 2021, total revenue . . .

Mar 11, 2022

COMTEX_403966576/2041/2022-03-11T16:21:48

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