Hudson Highland Group
Investor Presentation
RW Baird Conference
February 28, 2007
Forward Looking Statements
Please be advised that except for historical information, the statements
made during this presentation and in these slides constitute
forward-looking statements under applicable securities laws. Such forward-forward-looking
statements involve certain risks and uncertainties, including statements
regarding the company's strategic direction, prospects and future results.
Certain factors, including factors outside of our control, may cause actual
results to differ materially from those contained in the forward-looking
statements, including economic and other conditions in the markets in
which we operate, risks associated with acquisitions, dispositions of
non-strategic assets, competition, seasonality and the other risks discussed in
our filings made with the Securities and Exchange Commission. These
forward-looking statements speak only as of the date of this presentation.
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
Hudson Highland Group
•
2006 was a year that tested our resilience
•
Consolidated EBITDA improved 21% from 2005
•
Good, but not good enough
Our strategic focus is simple
Specialized Professional Recruitment
Specialized Professional Recruitment
Defining our market opportunity
•
Specialized
–
Defined as service with knowledge and insight as to candidate skills and/or
client sectors
–
Meaningful brand positioning as an “expert”
–
Focused on those specializations with higher margins due to scarcity of
resources
•
Professional
–
Candidates with degrees (accounting, law, IT) or specific skills
–
Excludes industrial, clerical and general technical
•
Recruitment
–
Both permanent placement and temporary contracting and also services
that enhance recruitment
Keys to unlocking profitability & value
•
We will expand high margin professional contracting as a greater
proportion of revenue
•
We will expand the North America business unit
•
We will create a Global Identity with clients and candidates through brand
positioning
–
Global and Local specializations
–
Talent management
–
Candidate focus
•
We will narrow our scope – we can’t win in everything we are in
–
Focus on a few large specializations where we can establish meaningful
size, scale and share
Narrowing our focus
Hudson Highland Gross Margin
2005
Projected*
Core
90%
Non-Core
10%
Core
63%
Non-Core
37%
* Projected data assumes the company is able to divest the non-core assets referenced in our February 7,
2007 shareholder letter, and later in this presentation.
Key Financial Messages
•
Earnings
Revenue and EBITDA progress since spin
$US in Millions
Revenue
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP measure defined as earnings before interest, income taxes, depreciation,
$-$200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2003 2004 2005 2006
$(60)
$(45)
$(30)
$(15)
$-$15
$30
$45
2003
2004
2005
2006
Quarterly Comparison, 2006 vs. 2005
$US in Millions
Revenue
EBITDA
Guidance as presented February 7, 2007 in the Q4 2006 earnings release.
Q1 2007 Guidance:
Revenue of $330 – 345M, given prevailing exchange rates
Adjusted EBITDA of $3M including $3-4M of restructuring charges
2006
2005
$338
$341
$349
$337
$327
$351
$353
$342
$320
$330
$340
$350
$360
Q1
Q2
Q3
Q4
$4.5
$9.0
$6.0
$1.4
$12.0
$10.0
$7.0
$(3.6)
-$4
$0
$4
$8
$12
Q1
Q2
Q3
Q4
2006
2005
Adjusted EBITDA is a non-GAAP measure defined as earnings before interest, income taxes, depreciation,
amortization, and also excludes merger and integration costs, business reorganization, and impaired goodwill.
2006 Review
•
Hudson Americas had a poor first half of 2006
•
We restated our first quarter for issues related to staff turnover in North
America
•
All our international regions delivered improved EBITDA for the year
•
We reduced expenses through a restructuring program coincident with the
sale of Highland Partners
•
Hudson Americas returned to profitability in the second half
•
We delivered EBITDA of $25.6 million, 21% ahead of 2005
•
Announced restructuring charge in August to lower our cost structure:
1) Consolidating support functions
2) Reducing redundant sales functions and unprofitable offices
3) Moving to more economical properties
•
Incurred restructuring costs of $6.4M in 2006, and expect $3-4M in Q1 07
•
Expect total cost of approximately $10M, annualized cost savings of
$12-14M
Divestiture Economics
•
We continue to divest non-core elements of our portfolio
•
Multiples may be lower than our trading multiple
–
2-6x on proceeds
–
4-6x on total cash realized
•
Divestitures allow us to unlock the cost structure
•
We have additional non-core businesses, approximately 10% of revenue
at 4–5% EBITDA margins, that we may sell over the next year
•
We will continue to operate these businesses until this process is
completed
Cash Flow
•
2006 cash flow from operations significantly improved at $36M
–
Up from 2005 cash flow from operations of ($26M)
–
Net cash was $44.6M
•
We consider cash flow as important as earnings – main drivers are focus
on DSO and overall working capital management
Our long term EBITDA margin goal remains 7-10%
Long Term
2006
2005
2004
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Hudson North
Am erica
Hudson Europe
Hudson Asia
Pacific
HHGP
Selected Financials, Q4
$US in Millions
(1)
Adjusted EBITDA is a non-GAAP measure defined as earnings before interest, income taxes, depreciation,
Q4 06
Q4 05
Var ($)
Var (%)
Revenue
342
337
4
1.2%
Gross Margin
128
116
11
9.6%
SG&A
112
112
0
0.1%
ADJ EBITDA
(1)
16
5
11
243.6%
EBITDA
(1)
12
4
7
167.1%
Gross Margin %
37.4%
34.5%
Temp GM %
18.8%
18.7%
Selected Financials, Full Year
(1)
EBITDA is a non-GAAP measure defined as earnings before interest, income taxes, depreciation
and amortization. A reconciliation of EBITDA to operating income (loss) follows.
$US in Millions
2006
2005
Var ($)
Var (%)
Revenue
1,372
1,365
6
0.5%
Gross Margin
493
477
16
3.3%
SG&A
461
456
5
1.2%
Adj EBITDA
(1)
32
21
10
48.4%
EBITDA
(1)
25
21
4
20.9%
Gross Margin %
35.9%
34.9%
Temp GM %
17.9%
18.0%
EBITDA Reconciliation, Q4
$US in Millions
(1)
Adjusted EBITDA is a non-GAAP measure defined as earnings before interest, income taxes, depreciation, amortization,
Q4 2006
Americas Europe Asia Pac Corp Total
Adjusted EBITDA (1) 4 9 8 (6) 16
Reorg expense 0 2 1 0 3
M&I expense 0 - (0) - 0
EBITDA (1) 4 7 7 (6) 12
D&A 3 2 1 3 8
Operating income (loss) 1 5 7 (9) 4
Q4 2005 Americas Europe Asia Pac Corp Total Adjusted EBITDA (1) 5 3 5 (8) 5
Reorg expense - 0 0 - 0
M&I expense - - (0) - (0)
EBITDA (1) 5 3 5 (8) 4
D&A 1 2 1 0 4
Operating income (loss) 3 2 4 (8) 0 Hudson
EBITDA Reconciliation, Full Year
$US in Millions
(1)
Adjusted EBITDA is a non-GAAP measure defined as earnings before interest, income taxes, depreciation, amortization,
and also excludes merger and integration costs, business reorganization, and impaired goodwill. EBITDA is a non-GAAP
2006
Americas Europe Asia Pac Corp Total
Adjusted EBITDA (1) (1) 27 33 (28) 32
Reorg expense 2 3 1 1 6
M&I expense 0 0 (0) - 0
EBITDA (1) (3) 25 32 (28) 25
D&A 6 7 3 3 20
Operating income (loss) (10) 17 29 (32) 5
2005 Americas Europe Asia Pac Corp Total Adjusted EBITDA (1) 14 16 30 (37) 21
Reorg expense 1 (0) 0 - 1
M&I expense (0) - (0) - (0)
EBITDA (1) 13 16 30 (37) 21
D&A 5 5 7 1 17
Operating income (loss) 8 11 23 (38) 4
Hudson Hudson 2004 Americas Europe Asia Pac Corp Total Adjusted EBITDA (1) 5 0 23 (33) (5)
Reorg expense 1 0 (0) - 1
M&I expense (0) 0 (0) - 0
EBITDA(1) 4 (0) 23 (33) (6)
D&A 5 5 6 2 18
Operating income (loss) (2) (5) 17 (35) (25)
2003 Americas Europe Asia Pac Corp Total Adjusted EBITDA (1) (13) (13) 6 (31) (51) Goodwill impairment 55 129 11 - 195 Reorg expense 2 10 4 0 16 M&I expense (0) 3 (0) - 3 EBITDA(1) (70) (154) (9) (31) (265) D&A 4 4 6 3 17
Operating income (loss) (74) (159) (15) (34) (282) Hudson
