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May 10, 2022, 4:57 p.m. EDT

10-Q: HUDSON GLOBAL, INC.

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(EDGAR Online via COMTEX) -- ITEM 2. 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 Condensed Consolidated Financial Statements and the notes thereto, included in Part I of this Form 10-Q. The reader should also refer to the Condensed Consolidated Financial Statements and notes of Hudson Global, Inc. and its subsidiaries (the "Company") filed in its Annual Report on Form 10-K for the year ended December 31, 2021. 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 13 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for EBITDA segment reconciliation information. The tables and information in this MD&A were derived from exact numbers and may have immaterial rounding differences.

This MD&A includes the following sections:

Executive Overview

Results of Operations

Liquidity and Capital Resources

Contingencies

Recent Accounting Pronouncements

Critical Accounting Policies

Forward-Looking Statements

Executive Overview

The Company's objective is to increase value to the Company's stockholders by providing global Recruitment Process Outsourcing ("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 seeks 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 global 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 meet the Company's objective, the Company engages in the following initiatives:

Facilitating growth and development of the global RPO business through strategic investments in people, innovation, and technology;

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 stockholders. We may pursue our goals through organic growth, strategic initiatives, or other alternatives. Additionally, we will also continue to monitor capital markets for opportunities to repurchase shares, and consider other actions designed to enhance stockholders value, including to review information regarding potential acquisitions, as well as to provide information about our business to third parties, from time to time.

This MD&A discusses the results of the Company's business for the three months ended March 31, 2022 and 2021.







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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. 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. However, the Company is vigilantly monitoring the business environment surrounding COVID-19 and continues to proactively address this situation as it evolves. The Company believes it can continue to take appropriate actions to manage the business in this challenging environment due to the flexibility of its workforce and the strength of its balance sheet.

The COVID-19 pandemic affected the Company's operations in prior years 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.

Management cannot predict the continued impact of 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 ends.

Financial Performance

The following is a summary of the Company's financial performance highlights for the three months ended March 31, 2022 and 2021. This summary should be considered in the context of the additional disclosures in this MD&A which further highlight Company results by segment.

Revenue was $51.9 million for the three months ended March 31, 2022, compared to $34.5 million for the first quarter of 2021, an increase of $17.5 million, or 50.7%. The increase in revenue was driven by growth in the Americas, Australia and the UK.

On a constant currency basis, the Compan's revenue increased $19.1 million, or 58.0%. RPO recruitment revenue increased $13.2 million, or 109.9%, while contracting revenue increased $5.8 million, or 28.0%, compared to the first quarter of 2021. Revenue included an increase of $2.6 million from the acquisition of Karani, LLC. (see Note 5 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q)

Adjusted net revenue was $25.6 million for the three months ended March 31, 2022, compared to $12.7 million for the first quarter of 2021, an increase of $12.9 million, or 101.1%.

On a constant currency basis, adjusted net revenue increased $13.2 million, or 107.1%, mainly due to an increase in RPO recruitment adjusted net revenue of $12.9 million, or 112.0%, compared to the first quarter of 2021. Contracting adjusted net revenue increased by $0.3 million, or 37.0%, compared to the same period in 2021. Adjusted net revenue included an increase of $2.6 million from the acquisition of Karani, LLC.

Selling, general and administrative expenses (including salaries and related expenses) and other non-operating income (expense) ("SG&A and Non-Op") was $21.7 million for the three months ended March 31, 2022, compared to $12.6 million for the same period in 2021, an increase of $9.0 million, or 71.4%. - 25 - Index

On a constant currency basis, SG&A and Non-Op increased $9.3 million, or 75.7%. SG&A and Non-Op as a percentage of revenue was 41.7% for the three months ended March 31, 2022, compared to 37.5% for the same period in 2021.

EBITDA was $3.9 million for the three months ended March 31, 2022, compared to EBITDA of $0.1 million for the same period in 2021, an increase in EBITDA of $3.8 million. On a constant currency basis, EBITDA increased $3.9 million.

Net income was $3.0 million for the three months ended March 31, 2022, compared to net loss of $0.2 million for the same period in 2021, an increase in net income of $3.3 million. On a constant currency basis, net income also increased $3.3 million.

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 the Company's 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 a previously reported period is 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 and believes these results better represent the Company's underlying business trends. Changes in foreign currency exchange rates generally impact only reported earnings.

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







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                                                                       Three Months Ended March 31,
                                                                           2022                      2021
                                                                                                As                As               Currency            Constant
        $ in thousands                                                                       reported          reported           translation          currency
        Revenue:
        Americas                                                                            $ 14,611          $  4,561          $          -          $  4,561
        Asia Pacific                                                                          31,133            25,340                (1,456)           23,884
        Europe                                                                                 6,173             4,560                  (142)            4,418
        Total                                                                               $ 51,917          $ 34,461          $     (1,598)         $ 32,863
        Adjusted net revenue (a):
        Americas                                                                            $ 13,702          $  4,209          $          -          $  4,209
        Asia Pacific                                                                           8,213             5,758                  (280)            5,478
        Europe                                                                                 3,658             2,751                   (90)            2,661
        Total                                                                               $ 25,573          $ 12,718          $       (370)         $ 12,348
        SG&A and Non-Op (b):
        Americas                                                                            $ 11,304          $  4,487          $          -          $  4,487
        Asia Pacific                                                                           6,178             4,996                  (231)            4,765
        Europe                                                                                 3,503             2,681                   (84)            2,597
        Corporate                                                                                680               479                     -               479
        Total                                                                               $ 21,665          $ 12,643          $       (315)         $ 12,328
        Operating income (loss):
        Americas                                                                            $  2,321          $   (298)         $          -          $   (298)
        Asia Pacific                                                                           2,274             1,063                   (62)            1,001
        Europe                                                                                   256               200                   (10)              190
        Corporate                                                                             (1,249)             (947)                    -              (947)
        Total                                                                               $  3,602          $     18          $        (72)         $    (54)
        Net income (loss), consolidated                                                     $  3,019          $   (203)         $        (40)         $   (243)
        EBITDA (loss) (c):
        Americas                                                                            $  2,414          $   (278)         $          -          $   (278)
        Asia Pacific                                                                           2,027               762                   (49)              713
        Europe                                                                                   147                70                    (6)               64
        Corporate                                                                               (711)             (479)                    -              (479)
        Total                                                                               $  3,877          $     75          $        (55)         $     20
        


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

(b)SG&A and Non-Op is a measure that management uses to evaluate the segments' expenses, which include the following captions on the Condensed Consolidated Statements of Operations: Salaries and related, other selling, general and administrative, and Other expense, net. Corporate management service allocations are included in the segments' other income (expense).

(c)See EBITDA reconciliation in the following section.

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. Management considers EBITDA to be the best indicator of operating performance and most comparable measure across the regions in which the Company operates. Management uses this measure to evaluate capital needs and working capital requirements. EBITDA should not be considered in isolation or as a substitute for operating income, or net income prepared in accordance with U.S. 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.

- 27 - Index







                                                                            Three Months Ended
                                                                                March 31,
        $ in thousands                                                                     2022         2021
        Net income (loss)                                                                $ 3,019      $ (203)
        Adjustments to Net income (loss)
        Provision for income taxes                                                           536         178
        Interest income, net                                                                  (2)        (10)
        Depreciation and amortization expense                                                324         110
          Total adjustments from net income (loss) to EBITDA                                 858         278
        EBITDA                                                                           $ 3,877      $   75
        


- 28 - Index







        Results of Operations
        Americas (reported currency)
        Revenue
                                                                            Three Months Ended March 31,
                                                                                                       2022               2021           Change in
        $ in millions                                                             As reported       As reported                     amount       Change in %
        Americas
        Revenue                                                                                   $       14.6          $  4.6          $   10.1                      220  %
        


For the three months ended March 31, 2022, RPO recruitment revenue increased by $9.6 million, or 232%, while contracting revenue increased by $0.4 million, or 101%. The acquisition of Karani, LLC contributed 56 percentage points to the revenue growth. (see Note 5 to the Condensed Consolidated Financial Statements







        in Part I, Item 1 of this Form 10-Q)
        Adjusted net revenue
                                                                     Three Months Ended March 31,
                                                                                                2022              2021           Change in
        $ in millions                                                      As reported       As reported                     amount       Change in %
        Americas
        Adjusted net revenue                                                               $      13.7          $  4.2          $     9.5                      226  %
        Adjusted net revenue as a percentage of
        


For the three months ended March 31, 2022, RPO recruitment adjusted net revenue increased by $9.4 million, or 229%, compared to the same period in 2021. The acquisition of Karani, LLC contributed 61 percentage points to the adjusted net revenue growth. The increase in RPO recruitment adjusted net revenue was driven by the revenue growth.

For the three months ended March 31, 2022, total adjusted net revenue as a percentage of revenue was 94%, compared to 92% for the same period in 2021. The increase in total adjusted net revenue as a percentage of revenue was attributed to the higher mix of RPO recruitment revenue to contracting revenue.







        SG&A and Non-Op
                                                                         Three Months Ended March 31,
                                                                                                    2022              2021           Change in
         $ in millions                                                         As reported       As reported                     amount       Change in %
        Americas
        SG&A and Non-Op                                                                        $      11.3          $  4.5          $     6.8                      152  %
        


For the three months ended March 31, 2022, SG&A and Non-Op increased $6.8 million, or 152%, compared to the same period in 2021, while SG&A and Non-Op as a percentage of revenue decreased from 98% to 77%. The decrease of SG&A and Non-op as a percentage of revenue is primarily due to gains in adjusted net revenue outpacing the higher consultant staff cost from investments in the sales team and industry marketing activities.

- 29 - Index







        Operating Income and EBITDA
                                                                            Three Months Ended March 31,
                                                                                                       2022              2021           Change in
        $ in millions                                                             As reported       As reported                     amount      Change in %
        Americas
        Operating income (loss)                                                                   $      2.3           $ (0.3)         $     2.6                      N/M
        EBITDA (loss)                                                                             $      2.4           $ (0.3)         $     2.7                      N/M
        EBITDA (loss) as a percentage of revenue                                                          17   %           (6) %                N/A                   N/A
        


N/M = not meaningful

For the three months ended March 31, 2022, operating income was $2.3 million, compared to operating loss of $0.3 million in the same period in 2021. The operating income growth was primarily due to the stronger adjusted net revenue results and lower SG&A and Non-Op as a percentage of revenue.

For the three months ended March 31, 2022, EBITDA was $2.4 million, or 17% of revenue, compared to EBITDA loss of $0.3 million in the same period in 2021. The increase in EBITDA was due to the same factors noted above.







        Asia Pacific (constant currency)
        Revenue
                                                                         Three Months Ended March 31,
                                                                                                   2022             2021
                                                                                    As           Constant                    Change in
        $ in millions                                                            reported        currency                      amount        Change in %
        Asia Pacific
        Revenue                                                                                $    31.1          $ 23.9          $     7.2                        30  %
        


For the three months ended March 31, 2022, contracting revenue increased $4.7 million, or 25%, and RPO recruitment revenue increased by $2.5 million, or 50%, compared to the same period in 2021.

In Australia, revenue increased $6.4 million, or 29%, for the three months ended March 31, 2022, compared to the same period in 2021. The increase was primarily in contracting revenue of $4.2 million, which increased 23%, and RPO recruitment revenue which increased by $2.1 million, or 55%. The increases in contracting and recruitment revenue were primarily due to higher volume from existing clients.

In Asia, revenue increased $0.7 million, or 41%, for the three months ended March 31, 2022 compared to the same period in 2021. The increase for the three months ended March 31, 2022 was due to higher demand from existing clients.







        Adjusted net revenue
                                                                          Three Months Ended March 31,
                                                                                                   2022             2021
                                                                                     As          Constant                    Change in
         $ in millions                                                            reported       currency                      amount       Change in %
        Asia Pacific
        Adjusted net revenue                                                                    $    8.2          $  5.5          $     2.7                       50  %
        Adjusted net revenue as a percentage of revenue                                               26  %           23  %                N/A                      N/A
        


For the three months ended March 31, 2022, RPO recruitment adjusted net revenue increased $2.5 million, or 52%, while contracting adjusted net revenue increased $0.2 million, or 31%, compared to the same period in 2021.

In Australia, adjusted net revenue increased by $2.3 million, or 54%, for the three months ended March 31, 2022, compared to the same period in 2021. The increase was primarily reflected in RPO recruitment adjusted net revenue, which grew $2.1 million, or 58%, while contracting adjusted net revenue increased by $0.2 million, or 29%.







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In Asia, adjusted net revenue increased by $0.4 million, or 37%, for the three months ended March 31, 2022, compared to the same period in 2021.

Total adjusted net revenue as a percentage of revenue was 26% for the three months ended March 31, 2022, and 2021, compared to 23% for the same period in 2021. The increase in total adjusted net revenue as a percentage of revenue was attributed to the higher mix of RPO recruitment revenue to contracting revenue.







        SG&A and Non-Op
                                                                       Three Months Ended March 31,
                                                                                                2022             2021
                                                                                  As          Constant                    Change in
        $ in millions                                                          reported       currency                      amount       Change in %
        Asia Pacific
        SG&A and Non-Op                                                                      $    6.2          $  4.8          $     1.4                       30  %
        SG&A and Non-Op as a percentage of revenue                                                 20  %           20  %                N/A                      N/A
        


For the three months ended March 31, 2022, SG&A and Non-Op increased $1.4 million, or 30%. The increase was primarily due to higher consultant staff costs.







        Operating Income and EBITDA
                                                                      Three Months Ended March 31,
                                                                                               2022             2021
        . . .
        


May 10, 2022

COMTEX_406991478/2041/2022-05-10T16:57:08

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