Filing summary
Entity discrepancy: The supplied filing is Hudson Global, Inc. (NASDAQ: HSON), not Star Equity Holdings, Inc. It is a Form 10-Q for the quarter ended September 30, 2020, filed November 5, 2020. The financial statements are unaudited.
Business context and reporting period
Hudson provides recruitment process outsourcing (RPO), permanent recruitment, and contracting services through its Americas, Asia Pacific, and Europe segments. Results reflect continuing operations; the previously sold Recruitment and Talent Management businesses are reported as discontinued operations.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $25.4 million | $25.8 million | $74.1 million | $68.4 million |
| Operating income (loss) | ($1.1 million) | $0.5 million | ($2.5 million) | ($2.3 million) |
| Net income (loss) | ($1.2 million) | $0.4 million | ($2.4 million) | ($2.4 million) |
| Diluted earnings (loss) per share | ($0.41) | $0.12 | ($0.84) | ($0.77) |
| Adjusted net revenue | $9.1 million | $11.4 million | $27.8 million | $32.5 million |
| EBITDA from continuing operations | ($1.0 million) | $0.4 million | ($2.0 million) | ($2.4 million) |
Adjusted net revenue is revenue less direct contracting costs and reimbursed expenses; it is a company-defined measure, not GAAP revenue. Q3 reported revenue decreased 1.4%, while adjusted net revenue fell 20.4%. For the first nine months, revenue rose 8.4%, but adjusted net revenue declined 14.3%. Contracting revenue growth drove the year-to-date revenue increase, while higher-margin RPO recruitment weakened.
Cash and cash equivalents were $29.3 million at September 30, 2020; restricted cash was an additional $0.4 million. Total current assets were $42.6 million and current liabilities were $10.4 million. Debt was $1.3 million, consisting of the PPP loan ($0.8 million current and $0.5 million long-term). Stockholders’ equity was $32.1 million.
For the nine months, operating cash use was $1.4 million, investing cash use was $0.02 million, and financing cash use was $0.9 million. Cash, cash equivalents, and restricted cash declined $2.0 million. The company attributed lower operating cash use versus 2019 mainly to more favorable working-capital movements.
Material changes versus prior periods
- Q3 revenue was approximately flat as reported, but constant-currency revenue declined 4.7%. RPO recruitment revenue fell 25.8% on a constant-currency basis; contracting revenue increased 12.1%.
- For the nine months, contracting revenue increased 33.0% on a constant-currency basis, offsetting a 15.4% decline in RPO recruitment revenue.
- Asia Pacific was the principal growth area: nine-month reported revenue increased to $55.7 million from $43.6 million, reflecting contracting growth, including a new Australian contract. Europe and the Americas declined.
- Q3 EBITDA moved from $0.4 million of income to a $1.0 million loss, primarily amid lower adjusted net revenue. Nine-month EBITDA loss narrowed by about $0.5 million, with lower overhead contributing.
- At quarter-end, cash was down from $31.2 million at December 31, 2019. The company repurchased $2.2 million of shares in March; no shares were repurchased under its public authorization during Q3.
Outlook, commentary, risks, and unusual items
- Management said COVID-19 continued to affect demand: some clients froze hiring, in-person interview limits disrupted business, and the duration and full financial impact remained uncertain. Management cautioned that interim results may not indicate full-year results.
- Management believed available liquidity, the PPP loan, and access to an Australian receivables facility were sufficient for at least the next 12 months. It expected 2020 capital expenditures below $0.5 million. This assessment preceded the October acquisition and its cash payment.
- On October 1, 2020, Hudson acquired substantially all assets of Coit Staffing. Consideration included $4.0 million cash, a $1.35 million installment note, $0.5 million of shares issued over time, and potential earn-outs up to $3.53 million. The company also disclosed a subsequent $4.0 million cash payment and a grant of 52,226 shares related to the acquisition.
- The company received $1.3 million under the Paycheck Protection Program and applied for forgiveness after quarter-end. Forgiveness was not assured. It also recognized $0.464 million of foreign government assistance in the first nine months, including $0.199 million in Q3.
- Other risks include continuing operating losses, foreign exchange exposure (about 90% of nine-month revenue was generated outside the U.S.), client termination rights, recruiting and retention challenges, and the ability to collect receivables. The company reported no legal reserves and stated pending matters were not expected to have a material adverse effect.
- No specific earnings or revenue guidance was provided. Management said it continued to assess strategic alternatives, including organic initiatives and potential acquisitions.
Important facts for investors to verify
- Confirm the filing is for Hudson Global, not Star Equity Holdings, before associating these results with the requested company.
- Assess whether the contracting-led revenue growth can sustain margins, given the sharp decline in adjusted net revenue and RPO recruitment activity.
- Review the post-quarter Coit acquisition’s cash impact, earn-out conditions, integration performance, and effect on liquidity.
- Track PPP loan forgiveness and any repayment obligation, alongside cash flow and operating losses.
- Evaluate COVID-19 demand exposure, foreign-currency effects, and the concentration of revenue in Australia and other international markets.