Hudson Global Inc (HSON) 2003 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hudson Highland third quarter earnings conference call.

My name is Felicia and I will be your operator for today.

At this time all participants are in a listen only mode.

We will be facilitating a question-and-answer session towards the end of this conference. [Operator Instructions].

I would now like to introduce your hosts for today's call, Mr. Jon Chait, Chairman and CEO, Mr. Rich Pelkhe, Executive Vice President and Chief Financial Officer and Mr. Brendan Flood, Senior Vice President of Finance.

Mr. Chait, you may begin.

Welcome to the third-quarter conference call for Hudson Highland Group.

I'd like to start out by reading the forward-looking statements language.

Please be advised that our remarks that follow including answers to your questions include statements that we believe to the forward-looking within the meaning of the Private Securities Litigation Reform Act.

These forward looking statements are subject to risk and uncertainties and could cause actual results to be materially different from those currently anticipated.

Those risks include among others matters that we have described in our earnings release issued today and in our filings with the Securities and Exchange Commission.

We disclaim any obligations to update these forward looking statements.

With that, I will make a number of brief opening remarks and then I'll turn over to Rich to go through some of the financial details and then we'll take questions.

Before we begin my specific remarks, I'd just like to point out the context in which we're currently operating.

We will not review the financials in great details as we assume all of you have already read them.

They are available at our website.

We will not comment extensively on year-over-year results since the expense base is dramatically different due to this spin that was effective April 1st of 2003 and the restructuring that was completed in 2002.

You should note that Hudson Highland is particularly dependent on permanent employment which accounts for approximately two-thirds of our gross margin compared to temp.

Permanent employment and current fees are always hurt more in a recession than temporary work and in quarter three, particularly in Europe, it is as easily weak period for perm.

You should also that the economic environment in terms of permanent hiring is not rebounding in any of the major geographies in which we operate.

Also note that (indiscernible) 41 percent of Q3 gross margin is attributable to Europe which has been the worst hit in terms of the economic challenges facing the world economy today.

We look at our Q3 results we reported an adjusted EBITDA loss of 18.6 million.

That included the onetime charge of 6.4 million - 3.4 million of which was attributable to bad debts and 3 million for repositioning our subsidiary Highland Partners that you may know is engaged in a [indiscernible].

In terms of the rest of our results, there was very little if any impact in currency on consolidated results.

As you can see from the financial statements, cash at the end of the third quarter stood at approximately 40 million, which was very much -- very little changed from the [indiscernible] Q2 '03.

Rich will cover that in more detail in his presentation.

We continue to manage our cash very carefully.

Our finance staff around the world in my opinion has done an excellent job in terms of cash management.

We continue to see '03 as a year of transition.

We continue to take action so we will bring our expense base in line with current business conditions and to improve the productivity of all of our operations.

This takes the form of consolidating offices in a number of cases including consolidation of Highland and Hudson offices in some geographies.

And in some cases, additional severance as driven by performance metrics.

These actions will continue in quarter 4 as well.

We anticipated that Q3 would be a difficult quarter operationally because of the summer slowdown.

Particularly in the UK in Europe which is a significant part of our business.

As I mentioned accounts for approximately 40 percent are consolidated gross margins.

The UK managed to achieve profitability in the quarter, European operations went from a profit to loss.

We saw rebound in September as we expected.

In fact the UK and Europe on a combined basis was profitable in the month of September but the rebound was not enough to offset the slow July and August [indiscernible].

Looking at the Hudson results first.

We reported adjusted EBITDA loss of approximately 6 million in Q3.

That's a change of about 4.8 million after bad debt charges from Q3 -- in Q3 from Q2.

Net loss was primarily spread between North America and Europe with the UK and Asia-Pacific reporting a profit.

As I mentioned, bad debt accounted for about a 2 million change negative.

Expenses, looking at the North American operations (inaudible), gross margin declined by about 2 million quarter to quarter, most of which most was about two-thirds of which was accountable for (indiscernible) gross margin.

Expenses increased slightly - less than $1 million - and year on year expenses were flat in the North American operations.

So while we have talked extensively about our increased investment in North America, that investment has largely taken the form of energy and commitment rather than cash resources.

Looking at segments within the U.S., gross margin trends flattened in accounting and finance.

And in August and September, [indiscernible] accounting and financing and they flattened in August and September in IT and engineering.

We continue to have a strong year and our healthcare business is growing slowly due to lack of supply.

Continuing with Hudson in the UK.

As I mentioned, we reached profitability on the basis of (indiscernible) gross margin and a reduction in expenses at roughly $2 million.

Representing excellent management and sequential profit improvement each quarter of the fiscal year.

In Europe, as expected, recognized an adjusted EBITDA loss of slightly over $2 million dollars in the quarter compared to break even in the entire quarter.

This was largely expected due to the seasonal impact in Europe both firm and HRC which are the major components of our revenues.

Other profits were achieved in The Netherlands, Italy, and Eastern Europe.

In Asia-Pacific, we had a consistent excellent results in terms of consistent improvement particularly in the Australian market due to improvements in productivity and cost control.

Profits were achieved - in addition - in Australia, New Zealand, China, Japan and Singapore.

Turning to Highland we recognized an adjusted EBITDA loss of 5.4 million in the quarter.

This included repositioning and bad debt provisions of approximately $3 million.

All of our operations reported losses in terms of geography.

A number of these losses also were impacted by the repositioning charges.

Looking at our North American business in Hudson, we saw a rebound in the must of September in terms of bookings that brought backlog back to average levels.

Actions were taken during the quarter to reduce the infrastructure cost [indiscernible] North America, the more appropriate level with a strategy that we're currently pursuing [indiscernible] and our current revenue base.

We also accelerated review of productivity of individual partners and profitability of officers, resulting in a further reduction in the expense structure during the quarter.

We expect to take some further actions in fourth quarter particularly with respect to property [indiscernible].

In Europe, we mentioned in our last call that we were in the process of reviewing operations.

With a view towards reducing the expense infrastructure.

Some of the repositioning was completed in the quarter and that's reflected in our reported financial statements.

Additional changes are on the way which will result in additional charges in the fourth quarter.

I'd like to make one final comment about trends in the marketplace which is that we are seeing for the first time I think several years beginning of what I think it's a quote "arms race" in the executive search market.

A number of our competitors have begun to pay significant finding bonuses in the North American market and begun offering significant guarantees to individual consultants.

We continue to be opposed to that and we think that it's an unhelpful trend in the market.

In summary, as we noted after our second-quarter call, we view the third quarter with caution.

We expected it to be weak for the reasons that I mentioned previously, particularly in the seasonal weakness in Europe, including the UK.

We had some notable pluses in the quarter most particularly the increase in profit in Asia-Pacific which continued a quarterly trend of improving profitability throughout the year.

We also achieved a profit in our Asian operations.

We achieved a profit -- we achieved a profit in the UK business as well.

A number of other things went as we expected including as I mentioned the European weakness and we saw a rebound in September, which encourages us as we go through the remainder of the year.

We continue to have challenges.

North America in the Hudson business is clearly a challenge and in our Highland partners business completing the repositioning in Europe is something that is very definitely on our agenda for the remainder of the year.

Another challenge of course is the general softness in the executive search business in North America and Europe.

Now I'll turn it over to Rich Pehlke for comments on the financial statements.

I will take a few minutes here to make some general observations about a couple of lines in our financial statement and then we will get to your questions.

First of all, just to talk about the impact of currency on the numbers may be asked about that - we've talked about in previous calls, we do have somewhat of a natural hedge in terms of our different geographies across our business and that was no exception this time in terms of the net impact of currency on our results.

We saw higher revenue in gross margin year-over-year, due to the weaker U.S. dollar and that was -- and the impact of that was negated in expenses for a net impact that was virtually nothing in terms of our reported EBITDA.

But in terms of year-over-year, revenue was benefited by 23 million gross margin 8.9 million expenses about 8.6 unfavorably which is about roughly between (indiscernible) percent of each total.

On each total.

When you look at it sequentially in the quarter the impact, the currency variations was slightly just under about a percent in favor for both revenue gross margin and then percent change about the same for expenses.

However, the weaker U.S. dollar - it does have an adverse effect when you consider relative to the fact that Europe is a very large operation for us and is reporting a loss right now.

We didn't miss an opportunity to benefit from that.

Like to talk about cash for a moment.

Jon mentioned it in his comments.

We are extremely pleased with the efforts of our finance team globally as well as the staff here in New York.

We continue to manage our cash very well.

The key contributor to managing to our cash position is was (inaudible) today is the fact that we have made substantial improvements in working capital management across all aspects of our business.

The management of the Accounts Receivable and our accounts payable and accrual process has really helped and substantially improved our float.

The fact that we're also helped by the [indiscernible] receivables coming out of the spin has aided our efforts and the only offset of that was the coming down of the cash - some of the reorg expenses that we accrued for and are funded [indiscernible] actually such as leases of vacant property, etc. where we do have cash expenses.

But overall working capital management contributed about $19 million to our cash.

Our operating loss also contained a number of non-cash items.

And so as you think through and as you get to 10-Q later this month you'll see that in the cash-flow statement one of the things that also helps our position in terms of our cash burn is the fact that the substantial operating loss largely due to things like goodwill impairment and some of our depreciation and Accounts Receivable provisioning are now in cash items and so at the end of the day, that's [indiscernible] big cash impact in the shorter term.

From a financial perspective, I just wanted to give you some color on the comments that Jon mentioned about Highland Partners (indiscernible) specifically the actions we included in our EBITDA comment about actions taken in the third-quarter.

As we mentioned, there was about $3 million of expenses that we recognized in operations.

About a million of this was in the U.S., 2 million in European operations.

Just over two-thirds of the amount related to people and people-related expenses, the balance being for closing offices as we did in the U.S. in a couple of locations and as well as some bad debt expense.

Again that just gives you your perspective on what those charges were related to and should help us move towards the path of getting that operation breakeven profitable as we've discussed a number of times.

I am also going to talk a little about a subject we talked about previously and that we took action with a couple of weeks ago on the Accounts Receivable.

Particularly as it pertains to North America.

More importantly, I think the most important thing related to these actions is that all the P&L risks is gone from our financial statements for items that were on our balance sheet at this spin (indiscernible).

We are taking some pretty aggressive action and a very hard look at this portfolio of receivables that was in place on April 1.

Most of these receivables were at minimum 90 days old and some of them substantially older than that.

They related to everything from billing and invoicing errors to just customers that had gone out of business to just bad experience and bad collection and office procedures on our part.

So as a result we have taken and cleaned that up and it's reflected in the P&L charges in the provisions that we worked through our financial payments.

We continue on a going forward basis to have substantial improvement in our days sales outstanding numbers.

We -- currently for the third-quarter, we're just about under 46 days which is about a 6.8 day improvement from the previous quarter which, again, as I mentioned in my working capital and cash comments earlier, the team is doing an outstanding job worldwide and not only do we need that to continue I expect that to continue and we should be able to keep that successfully at a more reasonable level as we have outlined.

Our biggest challenges in that area are -- continue to be North America in our having partners business but I'm confident we will keep the momentum where it is today.

Let me make a few comments about expense controls.

Again I am extremely pleased at how our operations have responded over a couple of very tough operating quarters from a revenue perspective and a market perspective.

We have addressed expense control in every level of our business, and our people have responded favorably.

In terms of thinking about it, if you look at our financials in the SG&A line, in particular going forward, where we're likely to see improvements over run rates year-over-year, I would expect that our marketing and advertising expenses - while still very important to us - will probably be down compared to the same level of activity at this year as we move forward into next year simply because we've negotiated some contractual productivity with our Monster agreement as well as the fact that a lot of our brand spending related to the spin will be coming off of the P&L.

In addition, I don't expect the level of bad debt expense to continue at the levels we have seen over the last two quarters simply because of the actions that we have taken to clean up the ageing (ph) portfolio and the operating actions we have taken to improve collections and procedures for all of our working capital management across the business, especially in North America.

Our salary and related costs had trended up a touch as we have talked many times because we have invested particularly in the staffing business in North America and we would expect that to level off on a year-over-year basis and continue to see that as a percentage of revenue (indiscernible) people ramp up.

We will have a challenge with our professional services fees as we're no different than anyone else and being a small company we have kicked off our surveys actually internal control process and I expect that that will have an increase in our professional services line which is mostly legal and audit fees across all of our businesses -- we would not expect a lot productivity in that line.

We're going to do our best to try and keep that very well managed and very tight but it is a reality of business today for a publicly held company.

I'd also like to comment on something we talked about earlier which is real estate and what is our progress to date.

Our current run rate is about 10 million a quarter for our (indiscernible) across our business.

We actively have about -- we actively used today about 1.1 million square foot with an average cost ranging around $31, $32 a square foot.

While it certainly isn't necessarily a market of what I could go out and get today for the business if I have the opportunity, we continue to whittle away at both the vacant properties that were reorganized and placed on the balance sheet at the spin date as well as taking on challenges of getting our cost competitiveness in terms of our day-to-day operations working with some of our bigger real estate challenges.

Our people are doing a good job.

We have made some progress, we have been successful in the last quarter getting a few subleases (indiscernible) and every option is on the table and across all of our businesses and we continue to whittle away.

The good news is that for the active properties that we currently run through our P&L, there is less than 10 percent vacancy across all of those properties and we continue to work that down.

So we're possible that we have too much space, we have sublet it and some of that we are to accommodate growth in our business which we still expect.

One other line that I want to comment on that I get asked about frequently in the (indiscernible) of our book tax number.

It shows up in our net income.

We continue to work through the transition services area with Monster, to work through all of our tech [indiscernible] carryforwards and our position is currently in excess of $150 million.

We believe the opportunity across all of our businesses that we could -- should and when we return to profitability be able to utilize.

Very few have been placed as deferred asset on our books and they are in that position largely in the areas where we've already experienced some profitability and that is in the Asia-Pacific region.

So again we have a tremendous cash incentive to return to profitability as well as just meeting our investor obligations.

And we continue to work in that effort but we will not be getting book tax credits as we go forward.

Just until we get closer to profitability because it just doesn't make sense to put that on a balance sheet if we just have to turn around and reserve it anyway.

So that -- for somebody who has been asking about that in terms of your estimates, wanted to give where that flavor is as to where we are.

And with that, Jon, I think we should probably turn to Q&A and address any questions.

[Operator Instructions].

Matt Libdin.

William Blair & Co.

Question, couple of questions here.

One is, looking ahead, should we expect something for depreciation and amortization?

Something on the order of what we saw in the third quarter or with all the balance sheet changes you made to that -- does that fluctuate?

Matt, I think the depreciation going ahead, you may recall that we at the spin we have a group of assets that came over to our books at the end of, I believe, quarter 1 or quarter 2 that we reported where we would do some accelerated depreciation and that will trail off sometime about mid next year I believe.

And so, I think longer-term from the number -- I think I'm at $5 million now.

You might see that trend down by the end (indiscernible) 4 million.

On a run rate basis.

Another question I had on the gross margin.

I wondered, I know you addressed it a bit, if you could flesh out a little more what the differences were between the second quarter where you were in the high 30s vs. this quarter and should we -- I guess the second part of that question is should we expect something in the middle 30s going forward or will we see a quick snap back in high 30s low 40s where you have been in some cases in the past?

I will take a shot at directing that and if John wants to jump in he can.

First of all I think the biggest reason for the near-term results - the first part of your question - is as Jon mentioned in his results is the third-quarter which is the weakest quarter for the Continent and in the UK.

We did see quarter over quarter decline because of the drop-off in that HRC business and the [indiscernible] business associated with Europe.

We continue also to see in the other elements of the staffing business a very aggressive market in terms of margin.

So I guess my guidance and I don't know if guidance is the right word but my caution would be I'm not sure there's a snap back here.

We certainly are going to address margins with -- perspective of try to go out to make sure that we attract and deal in areas were we think there are healthier margins.

And we pursue that business pretty but I think mix is but I also don't think we're going to see a lot of pricing flexibility where we can go out and price margins up.

We're going to have to earn that business.

Certainly from a financial perspective, I can't plan on it.

Right.

One more if I might on SG&A here.

I appreciate the comments that you made in the prepared remarks on that, but I wanted to follow-up with a question.

What is a -- you give some kind of a reasonable estimate of a quarterly run rate on a dollar basis that we should be thinking about as you predicted breaking even by the middle of next year in guidance in the press release.

Is there some corresponding number or even if it's a wide range, is it possible to knock $2 million out of the quarterly run rate or 20?

You broke up a lot, Matt, during your question can I think I am going to rephrase it and if I miss it, please tell me.

I think you're asking about as we consider or pass the profitability try to get breakeven by our guidance of mid next year, if there were some way to adjust the quarterly run rate by a couple of million, but I wasn't sure what I was trying to adjust - that is part of where you cut off.

Basically all I wanted to know was do you have some kind of an estimate that we can be thinking about even if it's a broad range in terms of a quarterly run rate at breakeven since you guided to breaking even by the middle of next year.

I guess I'm wondering is it possible to cut out a couple of million dollars out of that SG&A or is your goal more like 20 as you think about that guidance, could you give us some color there?

I think 20 would be a very aggressive number and it would be -- that would be pretty nuclear from my level today.

Because if you think about my -- just to give you, again, some perspective on it, my non salary related SG&A and let's talk about nonsalary related.

It's only $36 million on the quarter.

As I indicated I think there's a couple of areas where I'm going to be able to take and maybe that number down just to (indiscernible) as they were by maybe a million or so -- a quarter.

Million or two a quarter just from bad debt in the marketing areas as two of the examples.

Rent - which is roughly about a third or 30 percent of that number is a big number - is the biggest number probably the hardest number to move and, frankly, as I've said before even if I cut it in half I don't think in and of itself it does the job.

So we continue and I'm still optimistic that our people have been a good job in managing those expense lines down.

As I look at them through every aspect of the business.

I think the real opportunity here is to get the ratio of the salary and related costs to the level of either gross margin revenue in better alignment and part of that is going to be a combination of growth and part of that is going to be the continued efforts of our people in working their productivity numbers across all the geographies.

We've seen some very positive trends out of our operations.

We continue to address it in a constructive manner that is focused on both maintaining the environment for growth as well as making sure they attack their cost structure.

So I can't give you a hard guidance of how much that number would be but I will tell you that a lot of the issues can go away with a very small level of incremental margin brought through by the growth of the business and so that's the fine balance we constantly walk on a quarter by quarter basis.

So we are attacking every one of these lines to address it.

We are still optimistic about where it takes us.

We still think that a number of the issues that Jon addressed in his comments and actions we're taking strategically across our business are positioning all of our units to rebound well [indiscernible] head into '04.

David Konig (ph) with Robert W. Baird.

John or Rich.

My question, first of all, in the executive search business, you mentioned that North America trends seemed to improve in September and thus far in October.

Are you expecting the same or are you seeing the same things in Europe?

It's difficult to say because we are in the midst of a considerable repositioning in Europe.

So it's a combination of there's a lot of movement in the basic business.

And I don't think any trends that we've seen right at the moment will be reliable.

That's helpful and then, secondly, do you have the temp revenue in gross margin for the quarter?

I think from the standpoint of what we place -- [indiscernible] [inaudible]

And we -- for the quarter the Hudson -- I'd breakout in our segment analysis in 10Q, it's attached to the back of the press release if you don't have a copy.

I do have a copy.

I will find that there.

And then just my final question is, when you do -- when you do reach breakeven, say, in mid '04, what would you expect your incremental margin to be on gross profit?

I'd say it is difficult to say.

One of the problems which Rich carefully laid out is just that our gross margin on a consolidated basis is a function of 3 or 4 moving parts that sometimes move in the opposite direction from each other.

One issue is certainly the level of [indiscernible] replacement fees both in executive search and Hudson that's and, again, that's affected differently in different geographies, third-quarter is seasonally weak in Europe, the first quarter's seasonally weak in Asia-Pacific.

So that's one very important issue that affects us.

Another important issue that affects our margin is the mix of gross margin from the various countries.

We have some countries where we and all of our competitors do as well we have lower margins.

The UK is a lower margin market.

In some respects, Asia-Pacific, and some geographies are a lower margin market.

The U.S. is a higher margin market in particular segments that we're involved in.

So if we get a differential in growth rates [indiscernible] growth rates and revenue in those markets, it changes our consolidated gross margin.

So it's a very hard number to get to because it depends on what assumptions you want to make about growth rates in various markets.

In my notes, I've found the answer to the general answer our temp business was not a significant change in the rough percentages of how much of our business was temp vs. permanent, currently our temp business runs about 70 in 75 percent of our total revenue.

Matt Libdin with William Blair and Company.

Sorry, I jumped back in the queue here but I wondered when you are talking about marketing spending -- got me thinking about question that I had wondered.

As you've been able to put your own stamp on the marketing now over the last six months or so, how are you positioning Hudson Highland in the marketplace from a brand perspective?

Let's (indiscernible) Highland first and that's the easiest one.

We're positioning it as a global (indiscernible) which means we do not feel that our strategy requires us to be all things to all people or in all places, that our focus is on the experience of our consultants.

We feel we have [indiscernible] experience (indiscernible) consultants in our business with good experience not just in executive search business but in industrial positions as well.

And we think we offer a unique proposition to our client base.

So it's a high touch, lower volume higher touch kind of strategy and positioning.

We have run a series of ads in the Wall Street Journal in the career section which we think has positioned us very well.

We also use our subsidiary which is called the Center for High-performance to position ourselves as a thought leader in the industry across both Hudson and Highland.

Looking at Hudson, positioning is rightly different first of all in each of our geographies but in general, we're positioned as [indiscernible] our specialty expertise to our clients and our particular specialties that do vary across our geographies.

So I'd say the broad generalization is that's our position for Hudson.

Evan Stang (ph) with BOS.

Couple of questions.

First of all, financial.

You say you are aiming for breakeven in mid '04.

You also said you continue to make cost cuts in '04 and it looks to me that in regards to dipping into the revolver that that should not be an issue if everything goes according to plan as [indiscernible].

Is that correct?

Yes.

Next question.

Could you address the weakness in America in Hudson and secondly, the strength and continued strength last three quarters in Asia-Pac areas which seems to be offsetting each other?

Yes the history of the Company is - of course - that the businesses were put together during an acquisition program and when we - the current and management team - arrived in the business which came about in various times during the first quarter largely of this year of '03, we undertook not so much a reorganization of it, but of the North American business but certainly a re-evaluation of management and personnel.

And we've made a large number of changes in management.

There's been a very significant change in culture.

This is a much more performance-driven culture.

It's a much more financially-driven culture than the previous culture and it is just a different way of doing things.

I'm not going to say either one is right or wrong, it's just our way of doing things and it's not for everybody.

We have a very good group of people onboard now.

They want to be here.

They're working very hard but we have gone through a period of adjustment as people have gone and people have come to the Company.

And at the same time, like everybody in the industry, we have suffered the softness of the accounting market, the softness of the IT market and to some extent the softness of a portion of the engineering market that we're in.

So that's what accounts for the North American challenges at this point.

We feel that we have a big commitment to North America in terms of our strategy because we're underweight in terms of North America.

So we feel that we're making progress.

We have a good group of people and looked forward to going forward confidently but '03 has been a tough transition year.

Asia-Pacific -- they biggest part of our business in Asia-Pacific is in Australia.

And the biggest part of that business is a single acquisition called Morgan & Banks, which was the number one company in Australia.

It's a wonderful company and a wonderful heritage and it's the core of our Asia-Pacific business.

And while they have gone through their own changes throughout the history of their involvement with TMP, they've done a great job of managing through it and really beginning to see the results of their hard work.

And so that's a part of our business quite different from any of our competitors.

Australia is a very significant part of our business, because we have the number one company there.

Lastly with regard to the executive search, you mentioned people starting to pay signings and bonuses, things like that, that to me would be a signal that the economy is starting to strengthen or that the people who're in that business believe the economy is starting to strengthen and they want to get their ducks in order before the flood of assignments comes in.

And that tells me -- I don't know if that's a leading indicator or not but that certainly gives me confidence that just a general market for temp, perm, executive search is moving forward and getting better.

I wonder if you'd just comment with regards to that statement?

I don't see it that way, I'm afraid to say.

I see it not quite the reverse but there's an element of it and that is that we're in a tough market where it's tough to grow earnings the old-fashioned way.

People look at niches, apparently our competitors are looking at niches in the marketplace where they can buy earnings by buying consultants.

And so for example, if you're an executive search consultant in the health-care segment today, it's not a surprise, this is a great market.

So we think that that's a very unhealthy trend in the market.

One of the things that's gotten the executive search business or industry - and by the way I am an outsider until I took this job - has gotten the industry in trouble is simply by entering into these kinds of arrangements and you only have look back a couple of years where everybody thought the technology boom would just never end and people paid enormous signing bonuses and guarantees and came to regret it.

We think it's a very unhealthy trend.

We do not intend to participate and we are dismayed that a number of our largest competitors in the marketplace seem to be embarking on this course.

I wish -- I would say the one element, one month as they say one month does not a quarter make much less a year.

One element that was and is an important barometer is new bookings and after the summer slowdown, when you're standing there looking at the summer slowdown you're always wondering, is September going to be a rebound or not?

Indeed, September had a nice rebound in our North American executive search business which is our lion's share of our business in executive search.

And it had a nice rebound in our European firm activity as well.

So that's I would say, that's a meaningful barometer that -- I wouldn't call it a recovery but I'm comforted by the fact there was a rebound to pre slowdown activity level.

[Operator Instructions].

Operator, any more questions?

Alex Schnauser (ph) from Brunswig (ph) Capital.

I see you mentioned a rebound in North American executive search and European permanents.

Are you seeing any improvement in the last six weeks or so in North American temporary and permanent and, generally, are you seeing any uptick in temporary placements across your geographies?

Alex, I would say that what we are seeing is a flattening of business.

So I wouldn't call it an upturn, but for the first time in, say, 18 months in the IT business, we at least have stopped declining.

We stopped declining in about the last six weeks of the quarter.

That's just the experience we had in the last six weeks of the quarter and it's continued in -- since the end of the quarter.

That's true in our big segments within our U.S. or our North American Hudson business.

Could you also maybe outline the progression towards breakeven over the next three quarters?

I know Europe is stronger in Q4 than it is in Q3 but you said Australia's a little weaker in Q1.

Like how do you get to breakeven?

Is it just again a rebound in the economy or is more disciplined pricing of your product or how would that work?

This is Rich.

There's still a couple of things that still give us confidence that we can move this thing to the levels that we have outlined.

No. 1, we've spent a lot of times talking about Highland partners.

We think that by the time we're done repositioning this business and really amplify some comments Jon made earlier, we now have a group that we think is a very high performing group and wants to be here.

And is a collegial group that fits into the culture of our Company and understands its role and contribution to our Company.

And as a result, just for example, we've got a business through nine months has lost $13 million in EBITDA that we were expecting to be breakeven or even better.

That's a huge marginal increase year-over-year.

In North America, we've had a lot of expenses related to things like bad debt in the repositioning and investments in the direction of rebuilding the organization.

Again this (indiscernible) outlined earlier and a lot of those expenses won't be repeat expenses.

And we would expect to get the results from the investments in the growth heading into '04.

So we think that can lead in the right direction.

We have seen signs of life in terms of some of the current trends relative to the business.

At this time, we have no more questions.

I would like to turn the call back over to Mr. Pehlke.

Please go ahead.

Thank you and I just want to encourage everyone that you have follow-up questions that you can contact me at the number listed on the press release or Brendan Flood and his extension is 7255.

We do encourage you to visit our investor relations site at www.HHGroup.com.

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Thanks for your attention today.

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