Analyst Summary
- Total revenue decreased by 13% year-over-year, driven by lower demand in Australia and the Americas.
- The company reported a net loss of $4.8 million in 2024, compared to a net income of $2.2 million in 2023.
- EBITDA shifted from a profit of $3.7 million in 2023 to a loss of $2.5 million in 2024.
- Management acknowledges challenging market conditions due to inflation, higher interest rates, and decreased labor demand, anticipating these conditions will continue into 2025.
- Gross Profit Margin is not directly calculable from the provided data.
- Operating Profit Margin decreased from 0.86% to -2.72%, a significant decline.
- Net Profit Margin decreased from 1.36% to -3.41%, a substantial decrease.
- Return on Assets (ROA) decreased from 3.61% to -9.07%.
- Return on Equity (ROE) decreased from 4.53% to -11.80%.
- Basic EPS decreased significantly from 2023 to 2024, with 2024 at -1.59 and 2023 at 0.72.
- Current Ratio decreased from 4.09 to 3.58.
- Quick Ratio decreased from 4.09 to 3.58.
- Cash Ratio decreased from 2.02 to 1.52.
- Debt-to-Equity Ratio increased from 0.26 to 0.30.
- Debt-to-Assets Ratio increased from 0.20 to 0.23.
- Interest Coverage Ratio decreased from 2.72 to -9.58.
- Days Sales Outstanding (DSO) increased from 44.5 days to 52.3 days.
- Days Payable Outstanding (DPO) increased from 1.96 days to 4.66 days.
- Asset Turnover increased slightly from 2.65 to 2.66.
- Price-to-Earnings Ratio (P/E) is not meaningful for 2024 due to negative earnings.
- Price-to-Book Ratio (P/B) increased from 0.59 to 0.72.
- Price-to-Sales Ratio (P/S) increased from 0.18 to 0.21.
- Enterprise Value to EBITDA (EV/EBITDA) is not meaningful for 2024 due to negative EBITDA.
- Revenue decreased by 13.2%.
- Net income decreased significantly by -317.0%.
- EPS decreased significantly by -320.8%.
- Adjusted Net Revenue decreased from $80,267 to $70,152, a decrease of 12.6%.
- EBITDA decreased from $3,663 to $(2,469), a significant decrease.
- Remaining Performance Obligation (RPO) decreased from $78,468 to $67,993, a decrease of 13.3%.
Opportunities and Risks
- Global Economic Fluctuations: Demand for services is highly sensitive to economic conditions.
- Client Concentration: A significant portion of revenue is derived from a small number of clients.
- Competition: The market for RPO services is highly competitive.
- International Operations: Currency fluctuations and political events can adversely affect results.
- Cybersecurity Risks: The company faces increasing cybersecurity threats.
Potential Implications
Company Performance
- Continued challenging market conditions are expected to persist into 2025, potentially impacting revenue and profitability.
- The shift in revenue mix towards contracting, which typically has lower margins, could further pressure profitability.
- The company’s ability to navigate the current economic environment, diversify its client base, and improve profitability will be crucial for future performance.
Stock Price
- Negative financial results, including revenue decline and net loss, could negatively impact investor sentiment and stock price.
- The company’s ability to execute its strategic initiatives and improve financial performance will be key to regaining investor confidence.
- Uncertainty regarding future realization of deferred tax assets could also weigh on the stock price.
Hudson Global, Inc. (HSON) – 10-K Filing Analysis – FY 2024
Executive Summary
This report analyzes Hudson Global, Inc.’s (HSON) 10-K filing for the fiscal year ended December 31, 2024. The company, operating under the Hudson RPO brand, provides recruitment outsourcing and total talent solutions. Key findings include a revenue decrease driven by challenging market conditions, a shift in revenue mix between RPO and Contracting, and a net loss compared to the previous year’s net income. The company faces significant risks related to economic fluctuations, client concentration, and competition. A hold rating is suggested, pending improvements in market conditions and execution of strategic initiatives.
Company Overview
Hudson Global, Inc. is a global total talent solutions provider specializing in Recruitment Process Outsourcing (RPO). The company operates in three reportable segments: Americas, Asia Pacific, and EMEA. 2024 saw strategic agreements to expand into the Middle East and the acquisition of Hudson Singapore. The company is investing in technology and expanding its service offerings to include executive search.
Detailed Analysis
Revenue Analysis
Total revenue decreased by 13% year-over-year, from $161.3 million in 2023 to $140.1 million in 2024. This decline was primarily driven by lower demand in Australia and the Americas.
- Americas: Revenue decreased by 11%, with a decline in RPO revenue partially offset by an increase in contracting revenue.
- Asia Pacific: Revenue decreased by 16%, primarily due to lower demand in Australia. The Singapore acquisition partially offset this decline.
- EMEA: Revenue decreased by 5%, driven by lower RPO revenue in the UK.
Profitability Analysis
The company reported a net loss of $4.8 million in 2024, compared to a net income of $2.2 million in 2023. EBITDA also decreased significantly.
- Gross Margin: Direct contracting costs and reimbursed expenses remained a significant portion of revenue.
- SG&A Expenses: Decreased by 5%, but increased as a percentage of revenue, indicating a lack of operating leverage.
- EBITDA: Shifted from a profit of $3.7 million in 2023 to a loss of $2.5 million in 2024.
Balance Sheet Analysis
Cash and cash equivalents decreased from $23.2 million in 2023 to $17.7 million in 2024.
- Liquidity: The company has access to a credit facility, but its ability to borrow is limited by eligible receivables.
- Deferred Tax Assets: A significant portion of deferred tax assets is offset by a valuation allowance, indicating uncertainty regarding future realization.
Cash Flow Analysis
Net cash used in operating activities was $2.8 million in 2024, compared to net cash provided by operating activities of $0.3 million in 2023.
- Operating Activities: The decrease in net cash provided by operating activities was primarily due to lower net income.
- Investing Activities: Net cash provided by investing activities in 2024 reflects cash received from benefit payouts, while net cash used in investing activities in 2023 primarily reflects cash paid for the acquisition of Singapore.
- Financing Activities: Net cash used in financing activities increased due to repurchases of shares of common stock.
Management’s Discussion and Analysis (MD&A) Insights
Management acknowledges challenging market conditions due to inflation, higher interest rates, and decreased labor demand. They anticipate these conditions will continue into 2025. The MD&A emphasizes strategic initiatives to maximize stockholder value, including organic growth, acquisitions, and cost reduction.
Risk Factors
The 10-K highlights several key risk factors:
- Global Economic Fluctuations: Demand for services is highly sensitive to economic conditions.
- Client Concentration: A significant portion of revenue is derived from a small number of clients.
- Competition: The market for RPO services is highly competitive.
- International Operations: Currency fluctuations and political events can adversely affect results.
- Cybersecurity Risks: The company faces increasing cybersecurity threats.
Uncommon Metrics
The filing highlights the importance of top 25 clients, with over 85% of revenue generated from this group. The concentration of revenue among the top three clients (46% in 2024) is a key metric to monitor.
Conclusion and Actionable Insights
Hudson Global faces significant headwinds due to challenging market conditions and client concentration. While strategic initiatives and investments in technology are positive, their impact remains to be seen. The shift in revenue mix towards contracting, which typically has lower margins, is a concern. Given these factors, a hold rating is suggested. Investors should monitor the company’s ability to navigate the current economic environment, diversify its client base, and improve profitability.
Recommendations
- Monitor Key Clients: Closely track the performance and retention of the top clients.
- Diversify Revenue Streams: Focus on expanding the client base and reducing reliance on a few key accounts.
- Improve Profitability: Implement cost-cutting measures and focus on higher-margin RPO services.
- Assess Acquisition Strategy: Evaluate the success of the Singapore acquisition and future acquisition opportunities.
- Manage Cybersecurity Risks: Continue to invest in cybersecurity measures to protect sensitive data.
1. Commentary
Hudson Global experienced a challenging year in 2024, marked by a revenue decline and a net loss, a stark contrast to the net income reported in the previous year. The company’s revenue decreased across all geographical regions, with Asia Pacific experiencing the most significant drop. Operating expenses remained high, contributing to an overall operating loss. Despite cost-cutting efforts, profitability metrics deteriorated, raising concerns about the company’s financial health.
2. Financial Ratio and Metric Analysis
Profitability
Gross Profit Margin
Metric: Not directly calculable from the provided data. The data provides revenue and operating expenses, but not the cost of goods sold (COGS) which is needed to calculate gross profit.
Operating Profit Margin
Metric: (Operating Income / Revenue)
2024: (-3,809 / 140,056) = -2.72%
2023: (1,383 / 161,338) = 0.86%
Trend: Decreased from 0.86% to -2.72%, a significant decline.
Industry: The staffing industry generally has operating margins in the 3-7% range for established players. A negative margin indicates underperformance.
Net Profit Margin
Metric: (Net Income / Revenue)
2024: (-4,770 / 140,056) = -3.41%
2023: (2,198 / 161,338) = 1.36%
Trend: Decreased from 1.36% to -3.41%, a substantial decrease.
Industry: Average net profit margins for staffing companies are typically between 2% and 5%.
Return on Assets (ROA)
Metric: (Net Income / Total Assets)
2024: (-4,770 / 52,583) = -9.07%
2023: (2,198 / 60,958) = 3.61%
Trend: Decreased from 3.61% to -9.07%.
Industry: The industry average ROA is around 5-10%.
Return on Equity (ROE)
Metric: (Net Income / Total Stockholders’ Equity)
2024: (-4,770 / 40,428) = -11.80%
2023: (2,198 / 48,554) = 4.53%
Trend: Decreased from 4.53% to -11.80%.
Industry: Typical ROE for staffing companies ranges from 10% to 15%.
Earnings Per Share (EPS) – Basic and Diluted
Metric:
Basic EPS 2024: -1.59
Basic EPS 2023: 0.72
Diluted EPS 2024: -1.59
Diluted EPS 2023: 0.70
Trend: EPS decreased significantly from 2023 to 2024.
Industry: EPS varies widely, but positive and growing EPS is generally expected.
Liquidity
Current Ratio
Metric: (Total Current Assets / Total Current Liabilities)
2024: (40,140 / 11,222) = 3.58
2023: (45,847 / 11,210) = 4.09
Trend: Decreased from 4.09 to 3.58.
Industry: A current ratio between 1.5 and 2.0 is generally considered healthy. HSON is above this range.
Quick Ratio (Acid-Test Ratio)
Metric: ((Total Current Assets – Inventory) / Total Current Liabilities)
Since inventory is not listed as an asset, we will assume it is 0.
2024: (40,140 / 11,222) = 3.58
2023: (45,847 / 11,210) = 4.09
Trend: Decreased from 4.09 to 3.58.
Industry: A quick ratio of 1 or greater is generally considered acceptable.
Cash Ratio
Metric: (Cash and Cash Equivalents / Total Current Liabilities)
2024: (17,011 / 11,222) = 1.52
2023: (22,611 / 11,210) = 2.02
Trend: Decreased from 2.02 to 1.52.
Industry: A cash ratio of 0.5 to 1 is often considered adequate.
Solvency/Leverage
Debt-to-Equity Ratio
Metric: (Total Liabilities / Total Stockholders’ Equity)
2024: (12,155 / 40,428) = 0.30
2023: (12,404 / 48,554) = 0.26
Trend: Increased from 0.26 to 0.30.
Industry: A debt-to-equity ratio of 1 or less is generally considered healthy.
Debt-to-Assets Ratio
Metric: (Total Liabilities / Total Assets)
2024: (12,155 / 52,583) = 0.23
2023: (12,404 / 60,958) = 0.20
Trend: Increased from 0.20 to 0.23.
Industry: A debt-to-assets ratio below 0.5 is generally considered good.
Interest Coverage Ratio (Times Interest Earned)
Metric: (Operating Income + Interest Expense) / Interest Expense
Operating Loss: (3,809)
Interest Income, net: 360
Interest Expense: -360
(Operating Loss + Interest Expense) / Interest Expense
((-3,809) + (-(-360))) / -(-360) = -9.58
2023: (1,383 + (-372)) / -(-372) = 2.72
Trend: Decreased from 2.72 to -9.58.
Industry: A ratio of 1.5 or higher is generally preferred.
Activity/Efficiency
Inventory Turnover
Metric: Not applicable, as the company does not appear to hold significant inventory.
Days Sales Outstanding (DSO)
Metric: (Accounts Receivable / Revenue) * 365
2024: (20,093 / 140,056) * 365 = 52.3 days
2023: (19,710 / 161,338) * 365 = 44.5 days
Trend: Increased from 44.5 days to 52.3 days.
Industry: The average DSO for staffing firms is typically between 40 and 50 days.
Days Payable Outstanding (DPO)
Metric: (Accounts Payable / Revenue) * 365
2024: (1,789 / 140,056) * 365 = 4.66 days
2023: (868 / 161,338) * 365 = 1.96 days
Trend: Increased from 1.96 days to 4.66 days.
Industry: DPO varies, but a longer DPO can indicate better cash management.
Asset Turnover
Metric: (Revenue / Total Assets)
2024: (140,056 / 52,583) = 2.66
2023: (161,338 / 60,958) = 2.65
Trend: Increased slightly from 2.65 to 2.66.
Industry: An asset turnover ratio between 1 and 2 is generally considered good.
Valuation
Price-to-Earnings Ratio (P/E)
Metric: (Stock Price / EPS)
Stock Price: $10.50
2024: Since EPS is negative, the P/E ratio is not meaningful.
2023: 10.50 / 0.72 = 14.58
Trend: Not meaningful for 2024 due to negative earnings.
Industry: The average P/E ratio for the staffing industry is around 15-20.
Price-to-Book Ratio (P/B)
Metric: (Market Cap / Total Stockholders’ Equity)
Market Cap = Shares Outstanding * Stock Price = 2,750,735 * $10.50 = $28,882,717.50
2024: (28,882,717.50 / 40,428,000) = 0.72
2023: (28,882,717.50 / 48,554,000) = 0.59
Trend: Increased from 0.59 to 0.72.
Industry: A P/B ratio of 1 to 3 is considered normal.
Price-to-Sales Ratio (P/S)
Metric: (Market Cap / Revenue)
Market Cap = Shares Outstanding * Stock Price = 2,750,735 * $10.50 = $28,882,717.50
2024: (28,882,717.50 / 140,056,000) = 0.21
2023: (28,882,717.50 / 161,338,000) = 0.18
Trend: Increased from 0.18 to 0.21.
Industry: A P/S ratio of less than 1 is generally considered good.
Enterprise Value to EBITDA (EV/EBITDA)
Metric: (Enterprise Value / EBITDA)
Market Cap = Shares Outstanding * Stock Price = 2,750,735 * $10.50 = $28,882,717.50
Debt: 12,155,000
Cash: 17,667,000
Enterprise Value = Market Cap + Debt – Cash = 28,882,717.50 + 12,155,000 – 17,667,000 = $23,370,717.50
2024: (23,370,717.50 / (-2,469,000)) = -9.47
2023: (23,370,717.50 / 3,663,000) = 6.38
Trend: Not meaningful for 2024 due to negative EBITDA.
Industry: A typical EV/EBITDA multiple is between 10 and 15.
Growth Rates
Revenue Growth
Metric: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue
(140,056 – 161,338) / 161,338 = -13.2%
Trend: Revenue decreased by 13.2%.
Industry: The staffing industry is cyclical, but a negative growth rate is concerning.
Net Income Growth
Metric: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income
(-4,770 – 2,198) / 2,198 = -317.0%
Trend: Net income decreased significantly.
Industry: Net income growth is a key indicator of financial health.
EPS Growth
Metric: (Current Year EPS – Previous Year EPS) / Previous Year EPS
(-1.59 – 0.72) / 0.72 = -320.8%
Trend: EPS decreased significantly.
Industry: EPS growth is a key indicator of financial health.
Other Relevant Metrics
Adjusted Net Revenue
Metric: A non-GAAP measure that excludes certain direct contracting costs and reimbursed expenses. It is calculated by subtracting SG&A and Non-Op from Revenue.
2024: $70,152 (in thousands)
2023: $80,267 (in thousands)
Trend: Decreased from $80,267 to $70,152, a decrease of 12.6%.
Significance: The company presents this metric to provide a clearer view of its core revenue-generating activities. However, it is important to consider why these costs are being excluded and whether this provides a truly representative picture of the company’s performance.
EBITDA (Loss)
Metric: Earnings Before Interest, Taxes, Depreciation, and Amortization.
2024: $(2,469) (in thousands)
2023: $3,663 (in thousands)
Trend: Decreased from $3,663 to $(2,469), a significant decrease.
Significance: EBITDA is used as a measure of operational profitability. The shift from positive EBITDA to a loss indicates a deterioration in the company’s operating performance.
Remaining Performance Obligation (RPO)
Metric: Represents the amount of contracted future revenue that has not yet been recognized.
2024: $67,993 (in thousands)
2023: $78,468 (in thousands)
Trend: Decreased from $78,468 to $67,993, a decrease of 13.3%.
Significance: A decreasing RPO suggests a potential decline in future revenue.
⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️