Hudson Global Inc (HSON) 2009 Q2 法說會逐字稿

Good afternoon, my name Nikisha and I will be your conference operator.

At this time, I would like to welcome everyone to the Hudson Highland Group Second Quarter conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session.

(Operator Instructions).

I will now turn the conference over to Mr.

David Kirby, Director of Investor Relations.

Sir, you may begin.

Thank you, Operator, and good morning everyone.

Welcome to the Hudson Highland Group conference call for the Second Quarter of 2009.

Our call this morning will be led by Chairman and Chief Executive Officer, Jon Chait, and Executive Vice President and Chief Financial Officer, Mary Jane Raymond.

At this time, I will read the Safe Harbor statement.

Please be advised that, except for historical information, the statements made during the presentation constitute forward-looking under applicable securities laws.

Such forward-looking statements involve certain risks and uncertainties including statements regarding the Company's strategic direction, prospects, and future results.

Certain factors, including factors outside of our control, may cause actual results to differ materially from those contained in the forward-looking statements, including economic and other conditions in the markets in which we operate, risks associated with competition, seasonality, and the other risks discussed in our filings made with the SEC.

These forward-looking statements speak only as of today.

The Company assumes no obligation and expressly disclaims any obligation to review or confirm analyst's expectations or estimates, or to update any forward-looking statements as a result of new information, future events, or otherwise.

During the course of this conference call, references will be made to non-GAAP terms such as adjusted EBITDA and EBITDA.

A reconciliation of these terms to GAAP is included in our earnings release and on our quarterly slides, both posted on our website, Hudson.Com.

I encourage you to access our Second Quarter earnings call slides at this time.

As I said, they are posted on our website under featured documents.

And our speakers will reference the slides periodically during their remarks.

I will now turn the call over to Jon Chait.

Thank you very much, David, and thanks to all of you for joining us today for our Second Quarter conference call.

As is our normal practice, I'm going to start off with some general remarks, and then I know you're anxious to talk about the financial details and I'm going to turn over to Mary Jane Raymond, our Executive Vice President and Chief Financial Officer to go through those details.

It is often said there is no such thing as a normal recession.

That is surely demonstrated by the current economic cycle, which is a unique mix of cyclical contraction and systemic failures of the financial sector and is of an unusually global nature in its timing and impact.

Data applied between the twin crises makes it difficult to draw lessons from past recessions.

Certainly, the Depression was not only more than 80 years ago, but also, in a completely different regulatory and political environment.

But even the recessions of the 80's, 90's and 2001 are of limited utility in assessing the scope and course of this recession and, more importantly, the ultimate recovery.

According to the Conference Board, in the first quarter of 2009, the developed economies of the world experienced the largest economic contraction since World War II.

Unemployment rose rapidly; consumer spending and confidence fell; and capital spending collapsed.

As we look at the Second Quarter, when all the financial data is in, I believe that we'll show another significant economic contraction in the developed world.

However, as the quarter ends, data indicate that the rate of decline is moderating in many regions and leading indicators are turning up.

For instance, the index of leading indicators of the Conference Board showed increases in France, the first increase in 18 months, the [Euro] area, the U.S.

and Australia.

However, the outlook for economic growth, as distinguished from the end of the decline, is difficult to gauge at this point.

The Conference Board's index of coincident indicators remains mixed in most regions indicating a weak outlook for growth in the near term.

Historically, a sharp recession is followed by a sharp "V" shaped recovery.

As I said before, the twin crises make it difficult to compare past recessions for the same reason it is difficult to draw lessons from past recoveries.

However, in this cycle, the prospects for such a sharp recovery seem low due to the lack of powerful drivers.

What does this mean for Hudson?

The recovery and employment lags the economic cycle and we are only in the earliest stages of the recovery cycle.

While the recession was fairly uniform in its impact on the developed world, I believe the recovery will be more mixed in terms of timing and magnitude.

In general, however, most economists are predicting that the recovery is likely to be weak and slow.

This means that we must expect that, while economic conditions will moderate by the end of the year, we are not likely to see substantial improvement in our gross margin growth in 2009 or the first part of 2010.

We are a smaller company today and we have had to adjust to that reality.

We are not simply relying on a recovery to restore our business to its former size.

As I said about, the recovery may not be fully reflected in Hudson until later in 2010 at the earliest.

That depends on the speed of recovery.

In a slow, no-growth environment, we have to maintain our focus on expense control.

Taking a high level look at our financial results for the quarter, the top line results display the typical contours of a recession with contract revenues down 27% at constant currency, term revenues down more -- down 53% in constant currency, and account management down 7%, also in constant currency.

Gross margin declined $58 million in constant currency in Q2 compared to prior year, but expense management was excellent with expenses down $42 million in the quarter.

Head count was 35% lower than in the prior year.

On a consolidated basis, gross margin in the Second Quarter increased sequentially 4.6% as reported, but decreased 1.9% in constant currency compared to Quarter 1.

While Q2 normally is seasonally bigger than Q1, in almost all markets, the stabilizing trend is welcome after two quarters of sharp declines.

We lost $4.4 million in adjusted EBITDA in Q2 compared to $9.7 million in Q1.

Despite the sequentially flattish top line, excellent cost management contributed to a substantial improvement in the bottom line in Q2 compared to the Q1 levels.

There were two noteworthy contributions in Q2 from our geographic operations.

Our balance unit in the Netherlands was up in adjusted EBITDA over prior year by 16%, and Belgium produced and adjusted EBITDA of nearly 10% of revenue in the quarter.

These are remarkable achievements given the economic context in which they operated.

A number of other operations produced a profit measured in adjusted EBITDA including Australia, New Zealand, the UK, and Singapore.

A number of operations were able to improve adjusted EBITDA results compared to Q1 led by substantial improvements in North America and China, with smaller but meaningful improvements in France, Spain, and Central and Eastern Europe.

Our operational management teams did a commendable job in navigating the economic crises in the quarter.

Let me turn to a couple of comments on our cash position.

In a recession, it is often said that cash is king.

We ended the quarter with over $47 million in cash.

Cash increased by $1 million in Q2 despite significant restructuring expenses.

Cash management continues to be an important focus for our entire management team, and I know it's an important focus for the investment community.

Mary Jane's going to discuss this in more detail during the course of her remarks.

I want to close with just some general comments on our outlook for the second half of the year.

As we look at H2, we see evidence of improvement in economic trends in Asia and signs of stabilization in Australia and the U.S., albeit at low levels.

The course of the economy in Europe, which was the last region to be impacted by the recession, is less certain as we enter the second half.

We expect our Hudson business to generally follow those trends.

With that, I'm going to turn over to Mary Jane to discuss the financial results in more detail.

Mary Jane.

Thanks, John.

Good morning.

How are you all?

The slides for our call today are posted on our website, Hudson.Com.

They, as they have for a few quarters, further illustrate the analysis on the quarter and provide some important reconciliations for your use.

I'll refer to them from time to time.

John summarized for us very well the market conditions we're dealing with and the impact of those conditions on our Company.

That gave rise, as he said, to mixed results, but it's very important to note three key themes in his remarks.

We had good to very good performance in some key markets -- the Netherlands, with our balance unit; Belgium, China, and the U.S.

We have positive cost reductions in every region, all of which have lasting significance.

Stabilization is more or less across the board on sequential basis.

These all resulted in reported revenue and gross margin up sequentially from the First Quarter of 2009 and adjusted EBITDA loss being down 54% from the First Quarter.

Turning to our numbers, our consolidated Second Quarter financial snapshot is on slide three.

The revenue in the Second Quarter was $174 million and gross margin was $65 million, down from last year's Second quarter by 43% and 52%, respectively, but up 6% and 5% from the First Quarter.

As John discussed, we did not experience the typical seasonal gross margin pickup that we normally see, and many of our industry normally see, in the Second Quarter over the First Quarter.

But there are signs of stability after a number of quarters of sharp decline in the top line and that may indicate that we have reached a trough on a consolidated basis.

Currency had a non-trivial effect in this quarter as it did in Q1 since the currencies peaked against the U.S.

Dollar in this six-month period last year.

In constant currency, revenue and gross margin were down 33% and 44% from the Second Quarter of '08, respectively.

We see in some of our regions that the year-over-year decline in the Second Quarter increased versus the First Quarter.

This is the result of not having the seasonal pickup which did occur last year in the Second Quarter.

Temp gross margin in the quarter was 19.3%, down 230 basis points from 21.6% in the prior year.

Our summary of the temp gross margin by region can be seen on slide 15.

Similar to many other people in our industry, we are seeing price pressure across the board and we're actually managing it fairly well.

A significant contributor affecting the gross margin -- the margin percentage in our business is the lesser volume in our key contracting markets which affects the rates of both the contractor utilization and space absorption.

The management continued to aggressively reduce costs in the Second Quarter and we're seeing the benefits of those restructuring actions in every region.

In the Second Quarter, operating expenses were down $54 million, or 44%, from the prior year.

If we annualize those Second Quarter expenses, and we compare them to the 2008 full year actuals for operating expenses, which was about a $434 million number, taken into account discounts for this year, our expenses are down 35%, or about $150 million, on a full year basis.

Our cost initiatives allowed us to offset 77% of the gross margin decline at the consolidated level, up from 73% in the First Quarter.

These combined results in an adjusted EBITDA loss of $4.4 million compared to an adjusted EBITDA loss of $11.4 million in the Second Quarter -- excuse me, adjusted EBITDA of earnings of $11.4 million in the Second Quarter of 2008.

To see our adjusted EBITDA results by quarter, please take a quick look at slide nine.

Talking about our cost management as a general topic, we have approached our restructuring actions as a Company and as a leadership team with two thoughts in mind -- speed of decision making and dignity for our people.

In doing this, we have become a more efficient organization which has been this management team's goal since before this recession.

If you take into account the lesser compensation costs that are associated with our lesser revenue, we have on the order of about $75 million of cost reductions that we consider permanent, based on our estimates today.

Now I'm going to turn to some regional highlights and these are shown on slide four to six.

In North America, the revenue and gross margin were down year-over-year by 40% and 48%, respectively.

But the rates of decline for both moderated from the First Quarter.

In fact, the contracting gross margin was up slightly on a sequential basis by 40 basis points.

Much of the decline is the slower development of large, new, legal projects.

In prior years, we saw projects that ended relatively consistently replaced by other projects within about a quarter or so.

The legal group, however, has done a very good job capturing short term project work as we continue to see slower development of low -- of large projects.

As a result, on a sequential basis in the Second Quarter, North America legal was up 4% in temporary contracting gross margin from Q1.

Adjusted EBITDA in North America was a loss of $500,000 in the 2nd Quarter, a decline from the Second Quarter of '08 of -- from -- of 1.7 -- the adjusted EBITDA in the second quarter of '08 was $1.7 million.

But nonetheless, the adjusted EBITDA loss of $500,000 in the First Quarter (sic) was a substantial improvement over the Q1 '09 loss of $3.2 million.

Q2 results showed the benefit of North America's cost reductions.

They reduced operating expenses by 41% year-over-year and that helped offset 77% of the quarter's gross margin decline.

Turning to Hudson Europe, revenue declined 28% in constant currency and gross margin declined about 40% in constant currency.

The U.K.

had a sequential seasonal pickup -- had a sequential pickup in reported revenue and gross margin from Q1 and Q2, but only the gross margin was up on a local currency basis.

The region benefitted from some apparent improvement in the financial services industry, increases in perm and results that were helped by the strengthening pound.

In Continental Europe, revenue and gross margin declined 28% and 37%, respectively in constant currency representing an acceleration of the decline in Q2 from Q1.

The main driver of this was 50% year-over-year decline in permanent recruitment which was up from last quarter's decline year-over-year of 42%.

Revenue remained relatively in line with Q1.

While we did not have a seasonal pickup, which we did have last year, the level of revenue was relatively stable after last quarter's sharp decline against the Fourth Quarter of 2008.

All of this is not surprising, though, if you think about it.

The recessionary conditions hit Continental Europe relatively late and it's a complex region.

Given all the general concerns we've heard about in the macro econ -- in the macro environment for Europe, sequential flat top line performance is actually pretty good.

And, in fact, we had a few pockets of strength here in Europe that John mentioned.

The U.K.

had a small profit at the adjusted EBITDA level, a nice improvement over their Q1 loss of about $350,000.

We already talked about the relative signs of strength in balance in Belgium, which is a good sign in this difficult environment.

Europe offset 72% of its gross margin decline through expense reduction from both the U.K.

and the Continent.

In Asia Pacific -- Asia Pacific's revenue and gross margin declined 34% and 46% respectively in constant currency from the Second Quarter of last year, an acceleration in the rate of decline in Q1 2008 driven by ANZ.

But revenues and gross margins both increased sequentially from Q1 2009.

While ANZ did generate higher reported revenue and gross margin in Q2 versus Q1, typically ANZ has a much larger seasonal pickup in Q2 and it did last year.

So, while the sequential improved, the year-over-year results look worse for the absence of that seasonal pickup.

ANZ did a good job managing its expenses in the quarter, generating positive adjusted EBITDA that was larger than Q1, but it was lower than prior years.

Asia reported revenue and gross margin both improved over the First Quarter in reported dollars and in percentage decline from the prior year period.

Asia's small adjusted EBITDA loss in Q2 masks actually a really great improvement over Q1.

This indicates both the efficacy of their expense reduction initiatives -- in particular in their case, the speed of them -- as well as the improvement of business activity in the region in general.

Constant currency revenue and gross margin in Asia were up over 20% on a sequential basis.

Consequently, Asia reported an adjusted EBITDA small loss of about $121,000 versus the Q1 loss of over a million.

Some of the increased business activity was our clients taking advantage of a small open window of hiring.

You may remember our discussion last year that quite a few of our clients in Asia are multinationals.

Quite a few of them also had headquarters edicts about head count freezes.

As I say, there was a bit of small opening of that, particularly as business is not as far declined in the Asia region.

We don't necessarily expect to see that small open window until maybe again in the Fourth Quarter, but it's fairly clear that our clients are continuing to look at business opportunities in Asia.

Asia Pacific reduced its operating expenses by 46% in the quarter, over the Second Quarter of 2008, offsetting almost 70% of its year-on-year gross margin decline.

Corporate expenses in the quarter were $5.2 million.

This is down $4 million from the prior year period and back on a run rate closer to where we want it.

We did have about $1 million in legal fees in the quarter.

But, even including that, the annualized run rate for corporate is a full $8 million below prior year, a level we expect we can sustain.

Turning to cash, our summary balance sheet can be seen on slide 11 and the cash flow statement is on slide 12.

Our cash balance at the end of Q2 was $47 million.

We had $11 million of credit facility borrowings; our cash balance increased $1 million from the prior quarter; and, for the first half of the year, is down $2 million from the year end 2008 position.

In the Second Quarter, cash flow of operations was a use of cash of $12 million.

This is basically a function of two things -- our $4.4 million adjusted EBITDA loss in the quarter, and nearly about $6 million cash outflow for the restructuring actions.

I expect Q2 to be the high quarter this year for cash usage on the restructuring actions.

Since we had received the earn out payment on our Highland Partner sale at the high end of the range, we actually accelerated some actions into Q2, in order that the Company could get the benefits of them sooner.

With a lower cost base, reduced restructuring expenses in general, and some stability on the top line, I expect our operating cash use in the second half of the year will improve from what we saw in Q1 and Q2.

All of our regional leaders are very focused on cash management.

They are focused on it both in collections and in reducing their cash costs.

Thanks to their efforts and that of all of their teams, our DSO dropped from 51 days -- excuse me, dropped to 51 days in the Second Quarter down from 55 days a year ago, and down from 54 days in the First Quarter of '09.

This is actually a remarkable achievement by our operating leadership in view of customer pressure on terms and pricing.

Over $20 million of our cash today is located in the United States.

Our cash outside the U.S.

is in our key countries and is accessible to our operations.

We have good access to our cash in the regions and can move it around the globe if we need to.

Let me take a minute to talk to you about two other things on our -- in our financial results for this quarter.

The goodwill on our Tony Keith acquisition in China -- Tony Keith's earn out was driven largely by their strong performance in the first half of the current earn out period.

Their second half of the period, which corresponded to part of the Fourth Quarter, part of the 1st quarter wasn't as strong as the first part, but combined -- the year combined -- they earned the maximum allowable amount.

The best way, maybe for you to think about this, is if they had stayed on the trajectory of their first half performance, they would have well exceeded the maximum amount.

The weaker second half of their earn out period simply brought them back down to the maximum allowable cap.

Let's turn, then, to the question of our impairing that earn out.

When we look at the Tony Keith business, we look at it as part of the entire China business.

The analysis for impairment, as many of you well know now, employs a multi-year cash flow analysis.

Our multi-year cash flow analysis includes recessionary conditions for the 2009 year.

This affects both the cash flows and the discount rates.

From there, the model obviously grows off a lower revenue base.

Taking those factors as a whole in the impairment analysis, we determined that we had insufficient value to support the earn out as goodwill and consequently impaired it.

I'll also talk to you for a minute about the tax provision.

The tax provision looks strange in the quarter.

It's an expense provision of $3 million in a quarter that has a pre-tax loss.

The best way really to explain this to you is to remember that the tax is really calculated on a year-to-date basis.

It's calculated for the full year, as you know, so when you look at the first two quarters of the year, you should think about this on a year-to-date basis.

First of all, we do expect a tax benefit in this year.

This is the first time I think our company has been able to benefit losses.

The Second Quarter expense provision is simply a truing up of the First Quarter tax benefit to account for changes in our full year earnings outlook.

Even thought the number looks weird, it's as simple as that.

Turning to guidance -- despite recent signs of increased stability in many of our regions, visibility is still very low.

As a result, we won't provide formal guidance for the Third Quarter of 2009.

We expect the second half of the year will be stronger than the first half at the adjusted EBITDA level, possibly with some seasonal decrease in the Third Quarter and a stronger Fourth Quarter.

With that, let me turn it back to Jon for his concluding remarks.

Operator, I think we are ready for Q & A.

(Operator Instructions).

We'll pause for just a moment to compile the Q & A roster.

Your first question is from the line of Mark Marcon with R.W.

Baird.

Hi Mark.

Hi Mark.

Mark, your line is open.

(Operator Instructions).

Mark, your line is open, sir.

Okay.

Hi, Mark.

Hi.

Can you just go through what you would expect, just in terms of SG&A?

I mean, you've been taking some restructuring adjustments fairly aggressively.

I imagine that you didn't see the full benefit in Q2 so, even though revenue is hard to predict, can you give us a sense for how expenses should trend through the balance of the year by region?

So, first of all, let's talk about how expenses should trend in general -- so on a consolidated basis.

As we noted, the expenses trended down from the First Quarter to the Second Quarter.

We took, as you may remember, about a composite roughly $6 million restructuring charge counting the benefits -- excuse me, counting the inclusion in discontinued operations.

So, we expect the benefits of that to continue and the knock on effects -- mainly travel, occupancy, et cetera -- and the charge that we took in the second quarter, I expect to have some benefits.

It's a little bit difficult to tell what the magnitude of the decline would be, even in the aggregate for the Third Quarter, and the Second -- and the Fourth Quarter.

But I do expect to see some continual trending down.

Having said that, we believe that the vast majority of the restructuring actions that we had envisioned and wanted to take actually have been taken.

So, on the one hand, I don't expect to see large amounts of charges, though we may have between one and four in the quarter.

And I expect there to be some benefits of that, of course.

But, as a general matter, I would expect we might have a continual trending of a few million dollars for the back half.

When you step back and look at that on regional basis, North America, as you may remember, took significant actions in the beginning of 2008 that were very instrumental to the performance in 2008.

They have taken some additional ones that I think will have some effect, but as a general matter, I think North America's expenses are down with the majority of the benefits realized.

They will probably have some trending down, possibly at the rate Q1 to Q2, but I don't expect them to have significant changes.

With respect to the -- let us just say, the international regions in general -- for many of them, the recessionary conditions hit later.

In their case, we then -- quite a bit of our charge in the First and the Fourth Quarter were for the non-U.S.

Regions.

I would expect to see the fulsome benefit of those for the second half.

So it's on balance, we're expecting it might be in the range of maybe a few million.

I would expect we might see that in the international areas, not so much in North America, but I don't expect we would see, say, [$5 million] a quarter, down more.

Okay.

So just a few million in the international areas and about the same amount that we ended up seeing in North America going from Q1 to Q2 going -- although it looks to me like your operating expenses, just in North America, ended up declining by about $3 million sequentially.

And you're not saying that we would have a $3 million sequential decline going from Q2 to Q3 just in Americas, would you?

I do not.

We did have a decline sequentially in North America because as I said, toward the end of the year, and in Q1 --

Right.

-- they took another set of actions.

But my general sense is that I don't think we will see dramatically more changes in North America for Q3 and Q4 sequentially over Q2.

Okay.

I misinterpreted when you said the same rate of change.

So it looks like Q3, the expense level that we saw in Q2 was something we could probably count on staying and then, in terms of -- and then, a few million, you mean a couple million?

Three million?

Four million?

I think, if we have to get very digital about it, it's probably $2 million to $3 million.

I mean, I don't really think it's $4 million.

I think it might be slightly better than $1 million.

But, generally speaking, I think it's at that low end.

Picking up maybe a question on your mind, for example was -- were the expenses down because there were -- very properly, but nonetheless -- one-time items?

That really isn't what has been driving our expenses down.

Changes in the expenses have been done on actions that are sustainable.

I just don't think that they will necessarily be considerable drops further than that.

Okay.

And can you give us some color in terms of the magnitude of the impact of seasonality in Europe, that you would expect given this weird environment that we're in, in general, whether it magnifies the seasonality or not?

Mark, are you talking about Q3 to Q2 or Q2 to Q1?

Q2 to Q3, just as it related to Europe.

Well I think I'll see if Mary Jane -- well, I'll talk generally then I'll see -- give Mary Jane a chance to look at what our thinking is in numbers.

My experience is that seasonal slowdowns are magnified in a downturn.

So it's a situation where we have a cross current, two offsetting trends, the seasonal August vacation period and I would say that's going to be a greater slowdown.

And then, the other trend, of course, is the moderation and the economic decline stroke recovery.

Now, in Europe, we're much less certain about recovery trends so we think the likelihood is that we would absorb more than the normal seasonal slowdown in the Third Quarter.

So look at -- this is speaking just about gross margin.

So I'll just let Mary Jane talk about it economically -- numerically, because I know she had some numbers to maybe give you an idea of what it was last year, and then, what our thinking is this year.

Yes, I think one of the challenges, as John said, is trying to figure out how to deal with this.

We obviously saw the seasonal uptick muted downward, right?

So then we're into the question of whether or not the seasonal decline would be magnified.

Last year as you may remember, just on a reported basis, consolidated, Europe's gross margins was about $63 million in the Second Quarter and it was $50 million in the Third Quarter.

This year, right now, we don't see a dramatic seasonal magnification.

But, then again, of course, we're starting from somewhat of a low base, right?

So we're not having to anniversary, if you will, the Q2 pickup.

So it's very, very tough for us to call.

It would be tough to say we won't have any.

I wouldn't expect to see it on the order of $5 million, but I think we could see something still declining in the Third Quarter.

Okay.

So when we put everything together, would expect that you'd still have EBITDA loss in the Third Quarter?

I think it is, at this point, unlikely that we will have an EBITDA profit, so let's start there.

So I think it's -- you're probably fairly right.

There are some parts of the world that are seeing some signs of life, obviously have an ability to impact the EBITDA level considerably more than can impact the gross margin.

But the fact remains, at least in our own case, we probably do expect something of an EBITDA loss in the Third Quarter, and then we'll work on it from there.

Okay.

And so what's the lowest level, given your various scenarios, that the cash would drop down to?

What is the lowest level the cash would drop down to?

Yes, over the course of the next six months, do you think?

Well, I think if we think about the cash balance at this point, I would expect it to be less than the first half.

So, if we used round numbers, 17ish, 19ish million dollars, I would expect it to be less than that with fairly reasonable confidence.

So, I don't know.

Call it 15ish, as a -- that's not a specific number.

That's not cash guidance, but in general, I don't expect it to be -- if we use 19 in the first half for it to be only ten or five -- so somewhere in the range, but less than the first half.

So, continuing a use but basically not as much as what you used over the first half?

Yes.

Yes.

Yes, Mark.

It's driven by two things.

One is that -- Mary Jane said in her quote, in our press release -- that we expected, first of all, to lose less EBITDA in the second half than we did in the first half.

Sure.

And that's one component where we'd use less cash because the principal driver of our cash use is our loss.

Right.

And then, the second thing she said, just to underscore, was that, in restructuring cash, our biggest payments are behind us, so to speak.

The Q2 was our peak in terms of use of restructuring cash.

So you're trying to -- the difficulty with putting a number on it is we're trying to get -- you can -- if you have -- you may not have had a chance to look at our cash flow, but change of working capital generated the cash.

Oh, sure.

Yes, which is typical for the industry.

So you have three movements that we're trying to calibrate -- some continuing restructuring payments, not a giant amount.

I think Mary Jane mentioned one to four in the third quarter.

And we also mentioned the loss, the adjusted EBITDA loss, basically.

Yes.

So that's what -- try to add up those components --

Right.

-- tells you that our use of cash would be -- I would -- depends on what adverb you want to say -- well under the first half -- under the first half.

The thought that was underlying my question was essentially that, given that -- it sounds like most of your restructuring actions have been accomplished thus far.

I was just wondering if you were -- if at a certain point from a cash level perspective you'd say, you know what?

We have to be even more dramatic in terms of reducing expenses because we don't want to go below X level?

Well, I mean the way we think about the world right now is, the world is moderating.

And as a result our -- what we're always balancing is restructuring versus recovering and I know you've heard that from many other of your companies that you're following.

So I think we've crossed the line now where we think the restructuring -- the big restructuring moves are now behind us and we're turning in the balance.

These are always balances.

They're not absolutes.

In the balance, we're turning now more to retaining our people and preparing for the recovery.

So what that means is -- and again, just put the number on it -- Mary Jane said -- I just underscore what she said -- was one to four in the Third Quarter of restructuring expense, which is quite a bit under the rate that we spent in the first -- in the Second Quarter in the first half.

Thank you.

(Operator Instructions) There are no further questions.

Okay.

I know there are a number of calls today so thank you all for attending.

We are going to be available throughout the day and David will close.

Let me just add a couple of closing remarks and then I'll turn it over to David to give you the details on how to catch up with us through the rest of the day.

In the second half, we expect economic contraction to moderate in most of the economies of the developed world with an upturn in China and other parts of Asia.

The speed and strength of the recovery remains to be seen.

As is usually the case, we expect employment demand will lag the economic cycle.

Our operational management has done a commendable job in expense and cash management to mitigate the impact of the worst economic period since World War II.

We are very focused on reaching break even and cash neutral.

In a stabilizing environment we will continue to manage costs.

We are also focused on retaining our people to be ready for the upturn, which eventually will come.

With that, I'll turn it over to David.

Thank you very much, John.

Thank you all for joining the Hudson Highland Group call for the Second Quarter.

Our call today has been recorded and will be available later today by calling the number 1-800-642-1687 followed by the pass code 19999263.

For calls outside the U.S., please dial 1-706-645-9291 followed by the same pass code.

The archived call will remain available for the next seven days.

Our webcast will also be available on the investor section of our website, Hudson.Com.

Thank you, and have a good day.

This concludes today's conference.

You may now disconnect.