Hudson Global(US:HSON)2023-05-11 20:28PART I – FINANCIAL INFORMATION Financial Statements (Unaudited) Q1 2023 saw a significant financial downturn, with revenue decreasing to $43.1 million and net income sharply dropping to $0.4 million Condensed Consolidated Statements of Operations Q1 2023 revenue decreased 17% to $43.1 million, with operating income plummeting to $18 thousand and net income to $0.35 million Q1 2023 vs Q1 2022 Financial Performance (in thousands, except per share) | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $43,072 | $51,917 | -17.0% | | Operating Income | $18 | $3,602 | -99.5% | | Net Income | $354 | $3,019 | -88.3% | | Diluted EPS | $0.11 | $0.97 | -88.7% | Condensed Consolidated Balance Sheets As of March 31, 2023, total assets slightly decreased to $65.5 million, while total liabilities reduced to $19.1 million Balance Sheet Summary (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $21,929 | $27,123 | | Total current assets | $52,352 | $55,512 | | Total assets | $65,469 | $67,942 | | Total current liabilities | $17,735 | $21,122 | | Total liabilities | $19,074 | $22,150 | | Total stockholders' equity | $46,395 | $45,792 | Condensed Consolidated Statements of Cash Flows Q1 2023 net cash used in operating activities increased to $5.0 million, leading to a $5.2 million decrease in total cash Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash used by operating activities | $(4,954) | $(2,386) | | Net cash used in investing activities | $(38) | $(93) | | Net cash used in financing activities | $(164) | $(226) | | Net increase in cash, cash equivalents, and restricted cash | $(5,191) | $(2,591) | Notes to Condensed Consolidated Financial Statements Notes detail RPO business, recent acquisitions, disaggregated revenue, tax benefits, and the stockholder rights plan - The company is a global provider of Recruitment Process Outsourcing (RPO) services, operating in three segments: Americas, Asia Pacific, and Europe, and has recently expanded through acquisitions in India (HnB, Karani) and the U.S. (Coit)232425 Disaggregated Revenue by Source (in thousands) | Revenue Source | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | RPO Recruitment | $21,521 | $25,260 | | Contracting | $21,551 | $26,657 | | Total Revenue | $43,072 | $51,917 | - In Q1 2023, the company recognized a discrete tax benefit of approximately $408 thousand following the lapse of the statute of limitations for capital gains taxes in Spain, which contributed to a negative effective tax rate9598 - The company maintains a Stockholder Rights Plan, extended through October 2024, to preserve its significant U.S. Net Operating Losses (NOLs) by deterring stock transfers that could trigger an "ownership change" under Section 382 of the tax code139141146 Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2023 revenue declined 17% due to challenging market conditions, with Americas and Asia Pacific segments down, while Europe showed growth Executive Overview and Current Market Conditions Challenging Q1 2023 market conditions, including inflation and decreased labor demand, impacted performance, while strategic alternatives are explored - The company's performance is being impacted by challenging market conditions, including high inflation, rising interest rates, and decreased demand for labor, which are expected to continue into Q2 2023156157 - Strategic initiatives include growing the RPO business through investments, differentiating the brand, improving cost structures, and exploring acquisitions or share repurchases to maximize stockholder value153155 Results of Operations Q1 2023 consolidated revenue decreased 17% to $43.1 million, driven by declines in Americas and Asia Pacific, offset by Europe's growth Segment Revenue Performance - Q1 2023 vs Q1 2022 (in millions) | Region | Q1 2023 Revenue (As Reported) | Q1 2022 Revenue (As Reported) | % Change (Reported) | | :--- | :--- | :--- | :--- | | Americas | $9.3 | $14.6 | (37)% | | Asia Pacific | $27.3 | $31.1 | (12)% | | Europe | $6.5 | $6.2 | 5% | - The Americas segment experienced a 37% revenue decrease to $9.3 million, primarily due to lower demand from existing RPO recruitment and contracting clients172 - In Asia Pacific, a constant currency revenue decrease of 8% was driven by a $3.4 million decline in Australian contracting revenue from the loss of a significant customer in Q1 2022, though RPO recruitment revenue grew178179 - The Europe segment showed strong growth, with constant currency revenue increasing 16%, driven by a $1.0 million (28%) increase in RPO recruitment revenue in the U.K. from new client wins and higher demand189190 Liquidity and Capital Resources Cash and equivalents decreased to $22.3 million due to operating cash usage, but liquidity is deemed sufficient for the next 12 months Cash and Liquidity (in millions) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash, cash equivalents, and restricted cash | $22.3 | $27.5 | | Cash held in U.S. | $10.1 | N/A | | Cash held outside U.S. | $11.8 | N/A | - Net cash used in operating activities increased to $5.0 million in Q1 2023 from $2.4 million in Q1 2022, primarily due to lower net income203 - The company has an invoice finance credit facility in Australia for up to 4 million AUD, with no amounts outstanding as of March 31, 2023206 Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the company is exempt from providing market risk disclosures - As a smaller reporting company, Hudson Global, Inc. is not required to provide quantitative and qualitative disclosures about market risk218 Controls and Procedures Disclosure controls and procedures were deemed ineffective due to a material weakness in revenue recognition for a non-routine transaction - A material weakness was identified in the internal controls over the revenue recognition process concerning the principal vs. agent assessment for a non-routine transaction220 - Due to this material weakness, the CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of March 31, 2023219 PART II – OTHER INFORMATION Legal Proceedings The company is not involved in any legal proceedings expected to materially adversely affect its financial condition or operations - The company is not currently involved in any legal proceedings that are reasonably expected to have a material adverse effect on its financials225 Risk Factors For a comprehensive discussion of potential risks, readers are directed to the company's Annual Report on Form 10-K - For a detailed discussion of risk factors, the report directs investors to the company's Annual Report on Form 10-K for the year ended December 31, 2022226 Unregistered Sales of Equity Securities and Use of Proceeds No common stock was repurchased in Q1 2023, with approximately $0.6 million remaining under the existing authorization - No shares of common stock were repurchased by the company during the three months ended March 31, 2023228 - As of March 31, 2023, approximately $572,226 remained available for share repurchases under the board's 2015 authorization228 Other Items (Items 3, 4, 5, 6) Items 3, 4, and 5 report no material disclosures, while Item 6 lists the exhibits filed with the report - Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information) are reported as 'None' or 'Not applicable'229230231