Business context and reporting period
This is Hudson Global, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2020, filed August 5, 2020. The filing describes a global recruitment process outsourcing business operating in the Americas, Asia Pacific, and Europe. The request metadata names Star Equity Holdings, Inc.; that does not match the registrant identified in the filing and should be verified.
Financial performance and liquidity
Amounts below are in U.S. dollars; financial statement figures are rounded to millions unless otherwise noted.
- Quarter revenue: $24.6 million, down 7.0% from $26.4 million. Management said the decline was 3.0% on a constant-currency basis. RPO recruitment revenue fell 22.2% to $8.9 million, while contracting revenue rose 6.8% to $15.7 million.
- Quarter earnings: Operating loss was $0.9 million versus $0.8 million; net loss was $0.8 million versus $0.9 million. Loss per share was $0.27 versus $0.29. Adjusted net revenue, a company-defined measure net of direct contracting costs and reimbursed expenses, fell 23.4% to $8.9 million.
- First-half revenue: $48.7 million, up 14.3% from $42.6 million; management reported 19.2% growth on a constant-currency basis. Contracting revenue increased to $30.0 million from $21.3 million, while RPO recruitment revenue decreased to $18.7 million from $21.3 million.
- First-half earnings: Operating loss was $1.4 million versus $2.8 million; net loss was $1.3 million versus $2.8 million, including a $0.1 million discontinued-operations loss in 2019. Loss per share was $0.43 versus $0.88. Adjusted net revenue decreased 11.1% to $18.7 million.
- Cash flow: First-half operating cash use was $0.9 million, compared with $7.7 million in 2019. Investing cash use was $0.01 million; financing cash use was $0.9 million. Cash, cash equivalents, and restricted cash declined $1.8 million to $29.9 million.
- Balance sheet and debt: At June 30, cash and cash equivalents were $29.5 million, current assets $43.3 million, current liabilities $10.5 million, and total assets $44.7 million. The company recorded a $1.3 million PPP loan as debt ($0.6 million short-term and $0.7 million long-term). No amounts were drawn on its Australian invoice-finance facility.
- Other metrics: Consolidated EBITDA loss, a non-GAAP measure, was $0.5 million for Q2 and $1.0 million for the first half, improving from $0.9 million and $2.9 million, respectively. First-half income tax expense was $0.4 million despite a pre-tax loss of $0.9 million.
Material changes versus prior comparable periods
- Q2 reported revenue declined, principally as lower RPO recruitment revenue in the U.S. and U.K. outweighed growth in Australian contracting. First-half revenue rose because of contracting growth, particularly a new Australian contract, while adjusted net revenue fell.
- Asia Pacific revenue growth was strong, but its adjusted net revenue as a percentage of revenue declined to 26% from 31% in Q2 and to 26% from 39% for the first half, reflecting a higher mix of lower-margin contracting work.
- SG&A and non-operating expenses decreased, supported by cost reductions and lower corporate costs. The prior-year comparison also included $0.5 million of former CFO severance expense.
- In March 2020, the company repurchased 259,331 shares for approximately $2.2 million. Total stockholders’ equity declined to $32.4 million from $36.0 million at year-end 2019.
Outlook, risks, contingencies, and unusual items
- Management said COVID-19’s effects remained uncertain: some clients instituted hiring freezes, in-person interview limitations affected business, and currency weakness reduced reported results. The company cautioned that interim results may not indicate full-year performance.
- The company received a $1.3 million PPP loan and intended to apply for forgiveness in Q3 2020; forgiveness was not assured. It also reported $0.3 million of foreign government assistance in Q2, included in other income.
- Management believed available liquidity was sufficient for at least the next 12 months and expected 2020 capital expenditures below $0.5 million. It reported access to an additional A$4 million under the Australian facility.
- Ordinary-course legal and regulatory matters were disclosed; reserves were zero, and management did not expect pending matters to have a material adverse effect. Unrecognized tax benefits were $0.6 million, with a possible reduction of up to $0.2 million over the next 12 months.
- Approximately 90% of first-half revenue came from outside the U.S., exposing results to foreign-currency movements. The company also cited risks including economic conditions, client termination rights, recurring operating losses and negative cash flows, collections, and retention of key personnel.
- A stockholder rights plan intended to protect tax attributes generally restricts unapproved ownership of 4.99% or more. It was scheduled to expire October 15, 2021, subject to earlier termination provisions.
Most important facts to verify
- Confirm the intended issuer: the filing is for Hudson Global, Inc. (HSON), not Star Equity Holdings, Inc.
- Review subsequent developments in COVID-19 impacts, hiring demand, and the Australian contracting engagement.
- Check the status and outcome of the PPP loan forgiveness application and related loan balance.
- Assess whether operating cash flow, losses, and the company’s liquidity outlook changed after June 30, 2020.
- Verify currency exposure, tax-contingency developments, and the continued status of the rights plan and share repurchase authorization.