HUDSON GLOBAL, INC.
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 14 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 value to our stockholders, 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 and
six months ended
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Current Market Conditions
After a partial recovery in 2021, economic conditions in most of the world's major markets are expected to slow down in 2022. Higher than expected inflation in most markets and the continuing impact of the war inUkraine , as well as new variants of the COVID-19 virus, have tempered earlier expectations of continued recovery. Policy measures enacted byU.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 volatility in global currencies. Stronger foreign currencies in other markets compared to theU.S. dollar during a reporting period cause local currency results of the Company's foreign operations to be translated into moreU.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 that 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. The following is a summary of the Company's financial performance highlights for the three and six months endedJune 30, 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.
Summary of Financial Performance Highlights for the Three Months Ended
•Revenue was
•On a constant currency basis, the Company's revenue increased$13.9 million , or 37.4%, primarily due to an increase in RPO recruitment revenue of$12.8 million , or 92.2%, compared to the same period in 2021. Contracting revenue increased$1.1 million , or 4.6%, compared to the same period in 2021, which also contributed to the increase in the Company's revenue. Revenue also included an increase of$2.5 million from the Karani Acquisition (for additional information on the Karani Acquisition, see Note 5 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q).
•Adjusted net revenue was
•On a constant currency basis, adjusted net revenue increased$13.0 million , or 90.6%, primarily due to an increase in RPO recruitment adjusted net revenue of$12.7 million , or 94.9% compared to the same period in 2021. Contracting adjusted net revenue increased by$0.3 million , or 29.5%, compared to the same period in 2021. Adjusted net revenue included an increase of$2.5 million from the Karani Acquisition. •Selling, general and administrative expenses (including salaries and related expenses) and other non-operating income (expense) ("SG&A and Non-Op") was$23.1 million for the three months endedJune 30, 2022 , compared to$14.7 million for the same period in 2021, an increase of$8.3 million , or 56.7%. - 27 -
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•On a constant currency basis, SG&A and Non-Op increased$9.0 million , or 64.1%, as compared to the same period in 2021. SG&A and Non-Op as a percentage of revenue was 45.3% for the three months endedJune 30, 2022 , compared to 37.9% for the same period in 2021. •EBITDA was$4.2 million for the three months endedJune 30, 2022 , compared to EBITDA of$0.4 million for the same period in 2021, an increase in EBITDA of$3.8 million . On a constant currency basis, EBITDA increased$4.0 million . •Net income was$3.1 million for the three months endedJune 30, 2022 , compared to net loss of$0.1 million for the same period in 2021, an increase in net income of$3.2 million . On a constant currency basis, net income increased$3.3 million .
Summary of Financial Performance Highlights for the Six Months Ended
•Revenue was
•On a constant currency basis, the Company's revenue increased$32.9 million , or 47.1%, primarily due to an increase in RPO recruitment revenue of$26.0 million , or 100.4%, while contracting revenue increased by$6.9 million , or 15.7% compared to the same period in 2021. Revenue included an increase of$5.1 million from the Karani Acquisition.
•Adjusted net revenue was
•On a constant currency basis, adjusted net revenue increased$26.2 million , or 98.2%, mainly due to an increase in RPO recruitment adjusted net revenue of$25.6 million , or 102.8%, compared to the same period in 2021. Contracting adjusted net revenue increased$0.6 million , or 33.0%, compared to the same period in 2021, which also contributed to the Company's increase in adjusted net revenue. Adjusted net revenue included an increase of$5.1 million from the Karani Acquisition.
•SG&A and Non-Op was
•On a constant currency basis, SG&A and Non-Op increased$18.4 million or 69.7%, as compared to the same period in 2021. SG&A and Non-Op as a percentage of revenue was 43.5% for the six months endedJune 30, 2022 , compared to 37.7% for the same period in 2021. •EBITDA was$8.1 million for the six months endedJune 30, 2022 , compared to EBITDA of$0.4 million for the same period in 2021, an increase in EBITDA of$7.6 million . On a constant currency basis, EBITDA increased$7.8 million . •Net income was$6.1 million for the six months endedJune 30, 2022 , compared to net loss of$0.3 million for the same period in 2021, an increase in net income of$6.4 million . On a constant currency basis, net income increased$6.6 million .
Constant Currency (Non-GAAP measure)
The Company operates on a global basis, with the majority of its revenue generated outside of theU.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 intoU.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 theU.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 (loss), net income (loss), and EBITDA (loss) include the effect of changes in foreign currency exchange rates. The tables below summarize the impact of - 28 -
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foreign currency exchange adjustments on the Company's operating results for the
three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
As As Currency Constant As As Currency Constant
$ in thousands reported reported translation currency reported reported translation currency
Revenue:
Americas $ 14,415 $ 5,366 $ (10) $ 5,356 $ 29,026 $ 9,927 $ (10) $ 9,917
Asia Pacific 29,944 28,801 (2,018) 26,783 61,077 54,141 (3,475) 50,666
Europe 6,602 5,507 (565) 4,942 12,775 10,067 (707) 9,360
Total $ 50,961 $ 39,674 $ (2,593) $ 37,081 $ 102,878 $ 74,135 $ (4,192) $ 69,943
Adjusted net revenue (a):
Americas $ 13,809 $ 4,993 $ (10) $ 4,983 $ 27,511 $ 9,202 $ (10) $ 9,192
Asia Pacific 9,174 6,880 (438) 6,442 17,387 12,638 (718) 11,920
Europe 4,291 3,218 (333) 2,885 7,949 5,969 (423) 5,546
Total $ 27,274 $ 15,091 $ (781) $ 14,310 $ 52,847 $ 27,809 $ (1,151) $ 26,658
SG&A and Non-Op (b):
Americas $ 11,563 $ 5,151 $ (9) $ 5,142 $ 22,867 $ 9,638 $ (9) $ 9,629
Asia Pacific 6,867 5,892 (370) 5,522 13,045 10,888 (601) 10,287
Europe 3,736 2,742 (286) 2,456 7,239 5,423 (370) 5,053
Corporate 900 935 - 935 1,611 1,414 - 1,414
Total $ 23,066 $ 14,720 $ (665) $ 14,055 $ 44,762 $ 27,363 $ (980) $ 26,383
Operating income (loss):
Americas $ 2,093 $ (168) $ - $ (168) $ 4,414 $ (466) $ - $ (466)
Asia Pacific 2,575 1,338 (97) 1,241 4,849 2,402 (159) 2,243
Europe 681 553 (57) 496 937 753 (67) 686
Corporate (1,469) (1,428) - (1,428) (2,718) (2,376) - (2,376)
Total $ 3,880 $ 295 $ (154) $ 141 $ 7,482 $ 313 $ (226) $ 87
Net income (loss), consolidated $ 3,093 $ (122) $ (79) $ (201) $ 6,112 $ (325) $ (119) $ (444)
EBITDA (loss) (c):
Americas $ 2,291 $ (173) $ (1) $ (174) $ 4,705 $ (451) $ (1) $ (452)
Asia Pacific 2,262 1,003 (69) 934 4,289 1,764 (116) 1,648
Europe 551 476 (47) 429 698 546 (54) 492
Corporate (896) (935) - (935) (1,607) (1,413) (1) (1,414)
Total $ 4,208 $ 371 $ (117) $ 254 $ 8,085 $ 446 $ (172) $ 274 (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 withU.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. - 29 -
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The reconciliation of EBITDA to the most directly comparable GAAP financial measure is provided in the table below:
Three Months Ended Six Months Ended
June 30, June 30,
$ in thousands 2022 2021 2022 2021
Net income (loss) $ 3,093 $ (122) $ 6,112 $ (325)
Adjustments to Net income (loss)
Provision for income taxes 781 389 1,317 567
Interest income, net (3) (9) (5) (19)
Depreciation and amortization expense 337 113 661 223
Total adjustments from net income (loss) to EBITDA 1,115 493 1,973 771
EBITDA $ 4,208 $ 371 $ 8,085 $ 446
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Index Results of OperationsAmericas (reported currency) Revenue Three Months Ended June 30, Six Months Ended June 30, 2022 2021 Change in 2022 2021 Change in $ in millions As reported As reported amount Change in % As reported As reported amount Change in %Americas Revenue$ 14.4 $ 5.4$ 9.0 169 %$ 29.0 $ 9.9$ 19.1 192 % For the three months endedJune 30, 2022 , RPO recruitment revenue increased by$8.8 million or 177%, while contracting revenue increased by$0.3 million , or 62%, as compared to the same period in 2021. The Karani Acquisition contributed 47 percentage points to the revenue growth (for additional information, see Note 5 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q). For the six months endedJune 30, 2022 , RPO recruitment revenue increased by$18.4 million , or 202%, while contracting revenue increased by$0.7 million , or 81%, as compared to the same period in 2021. The Karani Acquisition contributed 52 percentage points to the revenue growth. Adjusted Net Revenue Three Months Ended June 30, Six Months Ended June 30, 2022 2021 Change in 2022 2021 Change in $ in millions As reported As reported amount Change in % As reported As reported amount Change in % Americas Adjusted net revenue$ 13.8 $ 5.0 $ 8.8 177 %$ 27.5 $ 9.2 $ 18.3 199 % Adjusted net revenue as a percentage of revenue 96 % 93 % N/A N/A 95 % 93 % N/A N/A For the three and six months endedJune 30, 2022 , RPO recruitment adjusted net revenue increased by$8.8 million , or 178%, and$18.2 million , or 201%, respectively, compared to 2021. The Karani Acquisition contributed 51 and 56 percentage points to the adjusted net revenue growth for the three and six months endedJune 30, 2022 , respectively. For the three months endedJune 30, 2022 , total adjusted net revenue as a percentage of revenue was 96%, compared to 93% in 2021. The increase in total adjusted net revenue as a percentage of revenue was attributed to the higher mix of RPO recruitment to contracting revenue. For the six months endedJune 30, 2022 , total adjusted net revenue as a percentage of revenue was 95%, compared to 93% for the same period in 2021. The increase in total adjusted net revenue as a percentage of revenue was due to the same factors noted above. - 31 -
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SG&A and Non-Op
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change in 2022 2021 Change in
$ in millions As reported As reported amount Change in % As reported As reported amount Change in %
Americas
SG&A and Non-Op $ 11.6 $ 5.2 $ 6.4 124 % $ 22.9 $ 9.6 $ 13.2 137 %
SG&A and Non-Op as a
percentage of revenue 80 % 96 % N/A N/A 79 % 97 % N/A N/A
For the three months ended
For the six months ended
The decreases in SG&A and Non-Op as a percentage of revenue were primarily due to gains in adjusted net revenue outpacing higher consultant staff costs from investments in the sales team and industry marketing activities.
Operating Income and EBITDA
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change in 2022 2021 Change in
$ in millions As reported As reported amount Change in % As reported As reported amount Change in %
Operating income (loss)$ 2.1 $ (0.2) $ 2.3 N/M$ 4.4 $ (0.5) $ 4.9 N/M EBITDA (loss)$ 2.3 $ (0.2) $ 2.5 N/M$ 4.7 $ (0.5) $ 5.2 N/M EBITDA (loss) as a percentage of revenue 16 % (3) % N/A N/A 16 % (5) % N/A N/A N/M = not meaningful
For the three months ended
For the six months ended
The increases in operating income and EBITDA were primarily due to the stronger adjusted net revenue results and lower SG&A and Non-Op as a percentage of revenue.
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Revenue
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
As Constant Change in As Constant Change in
$ in millions reported currency amount Change in % reported currency amount Change in %
Asia Pacific
Revenue $ 29.9 $ 26.8 $ 3.2 12 % $ 61.1 $ 50.7 $ 10.4 21 %
For the three months ended June 30, 2022 , RPO recruitment revenue increased
$2.5 million , or 42%, and contracting revenue increased by $0.7 million , or 3%,
compared to 2021, as discussed below.
In
InAsia , revenue increased$0.7 million , or 35%, for the three months endedJune 30, 2022 , compared to the same period in 2021. The change for the three months endedJune 30, 2022 was due to new client wins and higher demand from existing clients. For the six months endedJune 30, 2022 , contracting revenue increased by$5.4 million , or 14%, while RPO recruitment revenue increased by$5.0 million , or 46%. InAustralia , revenue increased$8.5 million , or 18%, for the six months endedJune 30, 2022 , compared to the same period in 2021. The increase was primarily in contracting revenue, which increased by$4.4 million , or 12%, while RPO recruitment revenue increased by$4.1 million , or 48%. The increases in contracting and recruitment revenue were primarily due to higher demand from existing clients, as well as the implementation of new client contracts. InAsia , revenue increased$1.5 million , or 38%, for the six months endedJune 30, 2022 compared to 2021, reflecting new client wins and higher demand from existing clients. Adjusted net revenue Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 As Constant Change in As Constant Change in $ in millions reported currency amount Change in % reported currency amount Change in %Asia Pacific Adjusted net revenue$ 9.2 $ 6.4 $ 2.7 42 %$ 17.4 $ 11.9 $ 5.5 46 % Adjusted net revenue as a percentage of revenue 31 % 24 % N/A N/A 28 % 24 % N/A N/A For the three months endedJune 30, 2022 , RPO recruitment adjusted net revenue increased$2.5 million , or 44%, while contracting adjusted net revenue increased$0.2 million , or 29%, compared to the same period in 2021. InAustralia , adjusted net revenue increased by$2.2 million , or 42%, for the three months endedJune 30, 2022 , compared to the same period in 2021. The increase was primarily reflected in RPO recruitment adjusted net revenue, which grew$2.0 million , or 45%, while contracting adjusted net revenue increased by$0.2 million , or 26%, compared to 2021.
In
Total adjusted net revenue as a percentage of revenue was 31% for the three months endedJune 30, 2022 , compared to 24% for the same period in 2021. The increase in total adjusted net revenue as a percentage of revenue was attributed to a greater mix of higher margin RPO recruitment revenue to contracting revenue. - 33 -
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For the six months ended
InAustralia , adjusted net revenue increased by$4.5 million , or 47%, for the six months endedJune 30, 2022 , compared to the same period in 2021. The increase was primarily reflected in RPO recruitment adjusted net revenue, which grew$4.1 million , or 51%, while contracting adjusted net revenue increased by$0.4 million , or 27%, compared to 2021.
In
Total adjusted net revenue as a percentage of revenue was 28% for the six months endedJune 30, 2022 , compared to 24% 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 higher margin RPO recruitment revenue to contracting revenue. SG&A and Non-Op Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 As Constant Change in As Constant Change in $ in millions reported currency amount Change in % reported currency amount Change in %Asia Pacific SG&A and Non-Op$ 6.9 $ 5.5 $ 1.3 24 %$ 13.0 $ 10.3 $ 2.8 27 % SG&A and Non-Op as a percentage of revenue 23 % 21 % N/A
N/A 21 % 20 % N/A N/A
For the three and six months ended June 30, 2022 , SG&A and Non-Op increased $1.3
million or 24%, and $2.8 million or 27%, respectively, compared to the same
periods in 2021. The increases in SG&A and Non-Op were primarily due to higher
consultant staff costs.
For the three and six months ended
For the three and six months endedJune 30, 2022 , the increase in SG&A and Non-Op as a percentage of revenue was principally due to the lower mix of contracting revenue, where the majority of costs are reflected in adjusted net revenue. Operating Income and EBITDA Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 As Constant Change in As Constant Change in $ in millions reported currency amount Change in % reported currency
amount Change in %Asia Pacific Operating income$ 2.6 $ 1.2 $ 1.3 108 %$ 4.8 $ 2.2 $ 2.6 116 % EBITDA$ 2.3 $ 0.9 $ 1.3 142 %$ 4.3 $ 1.6 $ 2.6 160 % EBITDA as a percentage of revenue 8 % 3 % N/A N/A 7 % 3 % N/A N/A For the three months endedJune 30, 2022 , operating income was$2.6 million , compared to operating income of$1.2 million , and EBITDA was$2.3 million or 8% of revenue, compared to EBITDA of$0.9 million or 3% of revenue, compared to the same period in 2021. For the six months endedJune 30, 2022 , operating income was$4.8 million , compared to operating income of$2.2 million , and EBITDA was$4.3 million or 7% of revenue, compared to EBITDA of$1.6 million or 3% of revenue, compared to for the same period in 2021. - 34 -
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The increases in operating income and EBITDA were principally due to the changes in adjusted net revenue, as described above.
Revenue
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
As Constant Change in As Constant Change in
$ in millions reported currency amount Change in % reported currency amount Change in %
Europe
Revenue $ 6.6 $ 4.9 $ 1.7 34 % $ 12.8 $ 9.4 $ 3.4 36 %
For the three months ended
In theU.K. , for the three months endedJune 30, 2022 , revenue increased by$1.7 million , or 38%. The change was driven by increases in RPO recruitment and contracting revenue of$1.5 million and$0.1 million , respectively, due to higher demand from existing clients and the implementation of new client contracts.
In Continental Europe, total revenue decreased to
For the six months endedJune 30, 2022 , RPO recruitment revenue increased by$2.6 million or 44%, while contracting revenue increased by$0.9 million or 24%, compared to the same period in 2021. In theU.K. , for the six months endedJune 30, 2022 , revenue increased by$3.7 million or 45%, compared to the same period in 2021. The increase was driven by higher RPO recruitment revenue of$2.8 million and higher contracting revenue of$0.9 million . In Continental Europe, revenue decreased to$0.8 million for the six months endedJune 30, 2022 , compared to revenue of$1.1 million for the same period in 2021, due to the same factor noted above. Adjusted Net Revenue Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 As Constant Change in As Constant Change in $ in millions reported currency amount Change in % reported currency amount Change in %
Adjusted net revenue$ 4.3 $ 2.9 $ 1.4 49 %$ 7.9 $ 5.5 $ 2.4 43 % Adjusted net revenue as a percentage of revenue 65 % 58 % N/A N/A 62 % 59 % N/A N/A For the three months endedJune 30, 2022 , adjusted net revenue increased by$1.4 million or 49%, driven by an increase in RPO recruitment of$1.4 million , led by theU.K. as discussed below. In theU.K. , total adjusted net revenue for the three months endedJune 30, 2022 increased by$1.4 million or 56%, compared to 2021. The increase was driven by RPO recruitment adjusted net revenue, which also increased by$1.4 million or 58%, compared to 2021. In Continental Europe, total adjusted net revenue was$0.4 million for the three months endedJune 30, 2022 , for an increase of 2% compared to$0.4 million in 2021, due to higher demand from existing clients. For the six months endedJune 30, 2022 , adjusted net revenue increased by$2.4 million or 43%, driven by an increase in RPO recruitment revenue, which also grew$2.4 million or 44%, compared to the same period in 2021. - 35 -
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In theU.K. , total adjusted net revenue for the six months endedJune 30, 2022 increased$2.6 million or 57%, compared to the same period in 2021. The increase in total adjusted net revenue in theU.K. was driven by an increase in RPO recruitment of$2.6 million . In Continental Europe, for the six months endedJune 30, 2022 , total adjusted net revenue decreased by$0.2 million , or 21%, compared to the same period in 2021, due to lower demand from existing clients. SG&A and Non-Op Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 As Constant Change in As Constant Change in $ in millions reported currency amount Change in % reported currency amount Change in %Europe SG&A and Non-Op$ 3.7 $ 2.5 $ 1.3 52 %$ 7.2 $ 5.1 $ 2.2 43 % SG&A and Non-Op as a percentage of revenue 57 % 50 % N/A
N/A 57 % 54 % N/A N/A
For the three and six months ended
For the three and six months endedJune 30, 2022 , SG&A and Non-Op as a percentage of revenue was 57%, compared to 50% and 54%, respectively in 2021. The increases in SG&A and Non-Op as a percentage of revenue were primarily due to the higher consultant staff costs and increased advertising activities outpacing gains in RPO recruitment revenue. Operating Income and EBITDA Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 As Constant Change in As Constant Change in $ in millions reported currency amount Change in % reported currency
amount Change in %Europe Operating income$ 0.7 $ 0.5 $ 0.2 37 %$ 0.9 $ 0.7 $ 0.3 37 % EBITDA$ 0.6 $ 0.4 $ 0.1 29 %$ 0.7 $ 0.5 $ 0.2 42 % EBITDA as a percentage of revenue 8 % 9 % N/A N/A 5 % 5 % N/A N/A For the three months endedJune 30, 2022 , operating income was$0.7 million , compared to operating income of$0.5 million for the same period in 2021, and EBITDA was$0.6 million or 8% of revenue, compared to EBITDA of$0.4 million for the same period in 2021. For the six months endedJune 30, 2022 , operating income was$0.9 million compared to operating income of$0.7 million for the same period in 2021, and EBITDA was$0.7 million or 5% of revenue, compared to EBITDA of$0.5 million or 5% of revenue, for the same period in 2021.
The increases in operating income and EBITDA were principally due to the gains in RPO recruitment revenue noted above.
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The following are discussed in reported currency
Corporate Expenses, Net of Corporate Management Expense Allocations
Corporate expenses were$0.9 million for the three months endedJune 30, 2022 compared to$0.9 million for the three months endedJune 30, 2021 . The slight decrease was primarily due to lower stock compensation expense and an increase in corporate allocations, which were partially offset by higher professional fees. For the six months endedJune 30, 2022 , corporate expenses were$1.6 million compared to$1.4 million for the same period in 2021, for an increase of$0.2 million . The increase was primarily due to higher staff costs, professional fees, and travel and entertainment expenses, which were partially offset by higher corporate allocations.
Depreciation and Amortization Expense
Depreciation and amortization expense was$0.3 million and$0.7 million for the three and six months endedJune 30, 2022 , compared to$0.1 million and$0.2 million for the same periods in 2021, respectively. The increases were driven by amortization expense associated with the acquisitions ofCoit Staffing, Inc andKarani, LLC of$0.3 million and$0.6 million for the three and six months endedJune 30, 2022 , respectively. (See Note 5 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q)
Other Income (expense), Net
Other expense was$0.0 million for each of the three months endedJune 30, 2022 and 2021. For the six months endedJune 30, 2022 , other expense of$0.1 million decreased slightly compared to other expense of$0.1 million in 2021.
Provision for Income Taxes
The provision for income taxes for the six months endedJune 30, 2022 was$1.3 million on$7.4 million of pre-tax income, compared to a provision for income tax of$0.6 million on$0.2 million of pre-tax income for the same period in 2021. The effective tax rates for the six months endedJune 30, 2022 and 2021 were positive 18% and positive 234%, respectively. For the six months endedJune 30, 2022 , the effective tax rate differed from theU.S. Federal statutory rate of 21% primarily due to state income taxes, changes in valuation allowances in theU.S. and certain foreign jurisdictions which reduces or eliminates the effective tax rate on current year profits or losses, foreign tax rate differences, taxes on repatriations or deemed repatriation of foreign profits, and non-deductible expenses.
Net Income (Loss)
Net income was$3.1 million for the three months endedJune 30, 2022 , compared to net loss of$0.1 million for the three months endedJune 30, 2021 . Basic and diluted earnings per share were$1.02 and$0.98 , respectively, for the three months endedJune 30, 2022 , compared to basic and diluted loss per share of$0.04 for the same period in 2021. Net income was$6.1 million for the six months endedJune 30, 2022 , compared to net loss of$0.3 million for the same period in 2021, an increase in net income of$6.4 million . Basic and diluted earnings per share were$2.04 and$1.95 , respectively, for the six months endedJune 30, 2022 , compared to basic and diluted loss per share of$0.11 for the same period in 2021.
Liquidity and Capital Resources
As ofJune 30, 2022 , cash and cash equivalents and restricted cash totaled$26.2 million , compared to$22.1 million as ofDecember 31, 2021 . The following table summarizes the Company's cash flow activities for the six months endedJune 30, 2022 and 2021: - 37 -
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For the Six Months Ended June 30,
$ in millions 2022 2021
Net cash provided by (used in) operating activities $ 5.2 $ (1.4)
Net cash used in by investing activities (0.1) (0.1)
Net cash used in financing activities (0.2) -
Effect of exchange rates on cash, cash equivalents, and restricted cash
(0.7) (0.1)
Net increase (decrease) in cash, cash equivalents,
and restricted cash $ 4.1 $ (1.7)
Cash Flows from Operating Activities
For the six months endedJune 30, 2022 , net cash provided by operating activities was$5.2 million , compared to$1.4 million of net cash used in operating activities in 2021, resulting in an increase in net cash provided by of$6.6 million . The increase in net cash provided resulted principally from higher net income and more favorable working capital comparisons to the prior year.
Cash Flows from Investing Activities
For each of the six months ended
Cash Flows from Financing Activities
For the six months endedJune 30, 2022 , net cash used in financing activities was$0.2 million , compared to net cash used in financing activities of$0.0 million in 2021. The increase in net cash used in financing activities was attributable to the payment of$0.2 million in taxes in connection with the net issuance of common stock upon the vesting of restricted stock units.
Invoice Finance Credit Facility
OnApril 8, 2019 , the Company's Australian subsidiary ("Australian Borrower") entered into an invoice finance credit facility agreement (the "NAB Facility Agreement") with National Australia Bank Limited ("NAB"). The NAB Facility Agreement provides the Australian Borrower with the ability to borrow funds based on a percentage of eligible trade receivables up to a maximum of$4 million Australian dollars. No receivables have terms greater than 90 days, and any risk of loss is retained by the Australian Borrower. The interest rate is calculated as the variable receivable finance indicator rate, plus a margin of 1.60% per annum. Borrowings under this facility are secured by substantially all of the assets of the Australian Borrower. The NAB Facility Agreement does not have a stated maturity date and can be terminated by either the Australian Borrower or NAB upon 90 days written notice. As ofJune 30, 2022 , there were no amounts outstanding under the NAB Facility Agreement. Interest expense and fees incurred on the NAB Facility Agreement were$4 and$9 for the three and six months endedJune 30, 2022 , respectively, and$5 and$10 for the three and six months endedJune 30, 2021 , respectively. The Australian Borrower was in compliance with all financial covenants under the NAB Facility Agreement as ofJune 30, 2022 .
Liquidity Outlook
As ofJune 30, 2022 , the Company had cash and cash equivalents on hand of$25.8 million . The Company also has the capability to borrow an additional4 million Australian dollars under the NAB Facility Agreement. In addition, the Company issued a promissory note of$2.0 million , in connection with the acquisition ofKarani, LLC . Other than as described above, the Company has no financial guarantees, outstanding debt or other lease agreements or arrangements that could trigger a requirement for an early payment or that could change the value of our assets. The Company believes that it has sufficient liquidity to satisfy its needs through at least the next 12 months, based on the Company's financial position as ofJune 30, 2022 . The Company's near-term cash requirements during 2022 are primarily related to the funding of the Company's operations. For the full year 2022, the Company expects to make capital expenditures of less than$1.0 million . As ofJune 30, 2022 ,$10.6 million of the Company's cash and cash equivalents noted above were held in theU.S. and the remainder were held outside theU.S. , primarily inAustralia ($6.1 million ), theU.K. ($4.8 million ),Hong Kong ($1.0 million ),China ($0.6 million ),Singapore ($0.6 million ),Belgium ($0.5 million ),India ($0.5 million ), andSwitzerland - 38 -
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(
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Contingencies
From time to time in the ordinary course of business, the Company is subject to compliance audits byU.S. federal, state, local, and foreign government regulatory, tax, and other authorities relating to a variety of regulations, including wage and hour laws, unemployment taxes, workers' compensation, immigration, and income, value-added, and sales taxes. The Company is also subject to, from time to time in the ordinary course of business, various claims, lawsuits, and other complaints from, for example, clients, candidates, suppliers, landlords for both leased and subleased properties, former and current employees, and regulators or tax authorities. Periodic events and management actions such as business reorganization initiatives can change the number and types of audits, claims, lawsuits, contract disputes, or complaints asserted against the Company. Such events can also change the likelihood of assertion and the behavior of third parties to reach resolution regarding such matters. The economic conditions in the recent past have given rise to many news reports and bulletins from clients, tax authorities, and other parties about changes in their procedures for audits, payment, plans to challenge existing contracts, and other such matters aimed at being more aggressive in the resolution of such matters in their own favor. The Company believes that it has appropriate procedures in place for identifying and communicating any matters of this type, whether asserted or likely to be asserted, and it evaluates its liabilities in light of the prevailing circumstances. Changes in the behavior of third parties could cause the Company to change its view of the likelihood of a claim and what might constitute a trend. Employment laws vary in the markets in which we operate, and in some cases, employees and former employees have extended periods during which they may bring claims against the Company. For matters that reach the threshold of probable and estimable, the Company establishes reserves for legal, regulatory, and other contingent liabilities. The Company did not have any reserves as ofJune 30, 2022 andDecember 31, 2021 . Although the outcome of these matters cannot be determined, the Company believes that none of the currently pending matters, individually or in the aggregate, will have a material adverse effect on the Company's financial condition, results of operations or liquidity.
Recent Accounting Pronouncements
See Note 3 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a full description of relevant recent accounting pronouncements, including the respective expected dates of adoption.
Critical Accounting Policies & Estimates
See "Critical Accounting Policies & Estimates" under Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 filed with theSEC onMarch 11, 2022 and incorporated by reference herein. There were no changes to the Company's critical accounting policies during the three months endedJune 30, 2022 . - 39 -
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FORWARD-LOOKING STATEMENTS
This Form 10-Q contains statements that the Company believes to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Form 10-Q, including statements regarding the Company's future financial condition, results of operations, business operations and business prospects, are forward-looking statements. Words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "predict," "believe," and similar words, expressions, and variations of these words and expressions are intended to identify forward-looking statements. All forward-looking statements are subject to important factors, risks, uncertainties, and assumptions, including industry and economic conditions that could cause actual results to differ materially from those described in the forward-looking statements. Such factors, risks, uncertainties, and assumptions include, but are not limited to, (1) global economic fluctuations, (2) the adverse impacts of the coronavirus, or COVID-19 pandemic, (3) the Company's ability to successfully achieve its strategic initiatives, (4) risks related to potential acquisitions or dispositions of businesses by the Company, (5) the Company's ability to operate successfully as a company focused on its RPO business, (6) risks related to fluctuations in the Company's operating results from quarter to quarter, (7) the loss of or material reduction in our business with any of the Company's largest customers, (8) the ability of clients to terminate their relationship with the Company at any time, (9) competition in the Company's markets, (10) the negative cash flows and operating losses that may recur in the future, (11) risks relating to how future credit facilities may affect or restrict our operating flexibility, (12) risks associated with the Company's investment strategy, (13) risks related to international operations, including foreign currency fluctuations, political events, natural disasters or health crises, including the ongoing COVID-19 pandemic, (14) the Company's dependence on key management personnel, (15) the Company's ability to attract and retain highly skilled professionals, management, and advisors, (16) the Company's ability to collect accounts receivable, (17) the Company's ability to maintain costs at an acceptable level, (18) the Company's heavy reliance on information systems and the impact of potentially losing or failing to develop technology, (19) risks related to providing uninterrupted service to clients, (20) the Company's exposure to employment-related claims from clients, employers and regulatory authorities, current and former employees in connection with the Company's business reorganization initiatives, and limits on related insurance coverage, (21) the Company's ability to utilize net operating loss carry-forwards, (22) volatility of the Company's stock price, (23) the impact of government regulations, (24) restrictions imposed by blocking arrangements, and (25) those risks set forth in "Risk Factors in the Company's Annual Report on From 10-K for the year endedDecember 31, 2021 ." The foregoing list should not be construed to be exhaustive. Actual results could differ materially from the forward-looking statements contained in this Form 10-Q. In view of these uncertainties, you should not place undue reliance on any forward-looking statements, which are based on our current expectations. These forward-looking statements speak only as of the date of this Form 10-Q. The Company assumes no obligation, and expressly disclaims any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise. - 40 -
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