Hudson Global Inc (HSON) 2010 Q3 法說會逐字稿

Good morning.

My name is Janet, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Hudson Highland Group third quarter 2010 earnings results 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).

Thank you.

I would now like to turn the call over to Mr.

David Kirby, Director of Investor Relations.

Sir, you may begin your conference.

Thank you, operator, and good morning, everyone.

Welcome to the Hudson Highland Group conference call for the third quarter of 2010.

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 statements 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 through new or confirmed analyst expectations or estimates or to update any forward-looking statements, whether 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 EBITDA.

An EBITDA reconciliation is included in our earnings release and on our quarterly slides, both posted on our website, hudson.com.

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

They are posted on the website under Featured Documents, and our speakers will reference the slides periodically.

With that, I will turn the call over to Jon Chait.

Thank you very much, David, and thank you for joining us today.

As is our usual custom, I'm going to start off with some introductory thematic remarks, and then I'm going to turn it over to our Executive Vice President and Chief Financial Officer, Mary Jane Raymond, who will go through the financial statements in more detail.

We continued to see the broad outlines of economic recovery in most of our markets in Q3, with a continuing variance in speed and magnitude.

We have a broad mix of markets, some still barely climbing out of the recession, such as the Netherlands, some still in early recovery, such as New Zealand, and some now growing rapidly, such as Asia, the UK and Australia.

As a majority of our GM, gross margin, is attributable to permanent recruitment fees, the seasonal impact of summer holidays in the Northern Hemisphere is a significant and normal event.

Generally, summer has a negative impact on GM, particularly in Europe, where there is less flex in our expenses to offset the GM decline and, therefore, results in lower EBITDA.

Mary Jane will explain the mix impact in more detail during her remarks.

In addition to the negative impact of the summer holidays, some of our markets are not yet fully in the recovery cycle.

In addition, our results were affected in the quarter by the addition of headcount in the rapidly growing markets in line with the recovery.

While the combination of seasonal factors, slow recoveries and investment in headcount is not entirely satisfactory in respect of reported financial results, it is critical to build our business for the future, especially in light of over 100% leverage of the increased GM in the first half.

I want to also draw your attention to some highlights in the quarter.

And as I explained before, Mary Jane will comment on these in much more detail.

Australia permanent recruitment gross margin fees were up 56% over prior year in the quarter, and we've added headcount to take advantage of that surge in demand in a strong economic environment.

Australian EBITDA was impacted adversely due to stagnant demand for temporary contractors and assessment services and the continuing run-off of outplacement.

New Zealand had an outstanding quarter, with gross margin up 38% fueled by perm growth of over 100% in the quarter, and resulting in more than a tripling of EBITDA.

They were truly the stars of the quarter.

In the UK, revenues and GM continued to increase in Q3, with GM up 47% over prior year, led by continuing demand in IT, banking and HR.

We added headcount in the UK in Q3, as well, to grow and diversify our business away from banking and public sector as a hedge against a change in demand.

Speaking of public sector, the news about the austerity plan adopted by the new coalition government on October 20 is now well understood throughout the business community.

Our public sector business continued to decline, as expected, down 25% in Q3 and now amounting to approximately 10% of revenue of our UK business.

In continental Europe, summer holidays impacted our main markets in Belgium and France.

Again, this is an entirely normal phenomena.

We would expect it to reverse in the fourth quarter.

I want to briefly mention our Netherlands business, Balance, which specializes in technical experts in the public sector in engineering, finance and law.

After an excellent 2009 in the teeth of the worst recession since the 1930s, Balance has been impacted this year by weak economic conditions in the Netherlands and a reduction in public sector spending.

But we are seeing the first modest signs of improvement in demand trends at the end of Q3.

Asia reported a solid quarter, with GM up 28% in constant currency, in line with our already high expectations due to the strong economic factors and a strong trend in results over the last five quarters.

Again, we've begun to add headcount and expect to do so more aggressively in the fourth quarter.

With that, I'm going to turn it over to Mary Jane, and then I will be back to participate with Mary Jane in the Q&A.

Mary Jane?

Thanks, Jon.

Good morning.

The slides for our earnings call this morning are posted on our website, hudson.com.

They start with a sequential comparison and then move on to the comparison to prior year.

As Jon discussed, every region in our Company posted positive top-line growth this quarter.

Some key points for the quarter in terms of year-over-year earnings delivery are that the Q3 revenue was equivalent to the second quarter.

This is a combination of growth in some regions and the summer slowdown in others.

That said, this overall is generally good, because normally going into the third quarter, we experience something of a dip.

The revenue grew sequentially 3% in reported dollars and was flat to Q2 in constant currency.

The gross margin was up 1% on a reported basis and down 2% in constant currency.

Perm growth continues to dominate this mix with growth of 41% over prior year.

Our temp gross margin was 17.4%, down 230 basis points compared to Q3 '09.

This continues to reflect negative mix variance, pricing pressure from our larger, more procurement-driven clients, and lesser high-margin accounting.

The overall gross margin was 37.4%, down 40 basis points year-on-year.

Compared to last year, earnings were up $3.8 million on an adjusted EBITDA basis and $7.2 million on an EBITDA basis.

The $7.2 million improvement includes the nonrepeat of $2.9 million of restructuring charges.

The comparison, however, that needs more discussion is the earnings change from Q2.

On roughly the same reported gross margin, earnings were lower than Q2 by about $2 million for a few reasons.

The two primary reasons were the addition of revenue-producing headcount and the seasonal mix.

On the headcount, we added in places where orders were outpacing our capacity.

This includes the UK, China and Australia.

Headcount is up about 5% over the second quarter, but still below the level at this time last year.

As John said, on the seasonal mix, this might seem odd to you because the gross margin is not lower than Q3, the effect one might expect when talking about a seasonal decline.

The answer is actually that the gross margin is less in areas where it is hard to flex expenses down, mainly Continental Europe, and higher in growing areas, which means that while the gross margin is generally flat, the higher gross margin comes with higher variable comp expenses not offset by a flex down in the markets that had slower summer growth.

The other reasons are that we had some key client marketing events to support the increase in revenue demand around the world.

We trued up the bonus accrual for the full year's outlook given that our year-to-date earnings improvement is $19 million on $25 million of gross margin growth, and we have a reserve of $200,000 in connection with the possible settlement of the SEC matters.

These factors combined resulted in less than 50% quarterly operating leverage year over year when measured before the effect of the restructuring charge.

That said, for the whole year, I still expect the leverage to exceed 70% for our company.

A few additional pieces of color for you.

Jon mentioned that we're seeing a decline in our public sector business in the UK.

You all as well would have seen this widely reported by other companies as well as the media.

Right now, that's being offset by other business, but we do worry about the impact of these austerity programs in a variety of countries and what that could have on the general economy as well as hiring in 2011.

Our composite tax expense for the quarter was $599,000.

Our outlook for the full year on the tax provision is unchanged.

Last quarter, we said we expected it to be $1.5 million to $2 million, and I still expect it to be that.

The drivers of our tax expense are actually fairly consistent -- paying tax in tax-paying entities that are profitable, the inability to benefit certain losses, some standard withholding taxes on the FIN 48 reserves.

We finished our work on the corporate management allocation to the region to reflect the increased time spent by corporate resources on regional matters.

The final allocation will be $15 million.

Because this obscures some comparison in the region's prior year, we've used adjusted EBITDA, as you will see in the shareholders' letter.

This line is above the internal allocation and allows for a fairer comparison at the operating level.

Regard non-op expense, it's positive again this quarter.

Unlike the second quarter, the third quarter net foreign exchange amounts included in non-op, were actually not very significant.

The source of the income here in the third quarter was actually the redemption of warrants that we were holding offset by the fees incurred to change the credit facility.

Cash flow from operators was breakeven, in line with our expectations.

DSO deteriorated about two days in the quarter, generally for the same seasonal effects, which is simply slower collections in the summer months.

We paid down $1.3 million of our restructuring reserve during the quarter.

The balance of the restructuring reserve at this point is now under $3 million.

The way we expect this remainder to play out is about $1.5 million paid out in the fourth quarter, with the remainder of just above $1 million being then mostly for leases.

Those lease payments will pay out in small uses of cash over the quarters of 2011 and '12.

So, basically, at the end of the fourth quarter, the majority of the reserve will be gone.

Availability under our credit facilities is $32.8 million.

$26.9 million of this is from the largest two facilities encompassing the US, the UK and Australia.

Another $5.8 million is from our various other local facilities.

$2.5 million of additional availability comes from the fact that we've changed the security on the letters of credit in Australia, and those are now cash collateralized.

Turning to our guidance, for the fourth quarter, our revenue guidance is $210 million to $220 million, with EBITDA of about $3 million to $5 million.

This compares to revenue of $182.5 million and an EBITDA loss of $5 million last year.

Now, the Q4 EBITDA loss last year included $5.9 million of restructuring charges and non-op income of about $700,000.

So, borderline, what you may remember is that last year's fourth quarter at sort of the working training level was about breakeven.

We will then be above that, with guidance of about $3 million to $5 million for the fourth quarter of 2010.

The revenue outlook is 15% to 20% above prior year and 5% to 10% above the third quarter.

At this point, with the fourth quarter of 2010, we will anniversary some very good gains posted by our key markets last year in the fourth quarter.

In terms of how this might play out regionally, just as a general direction, we expect the revenue growth compared to prior year to be somewhere along the lines of 20% to 25% in Europe and the UK, 15% to 20% in Asia, and up to about 5% positive in North America.

These comments may vary as the quarter actually unfolds, and as we've said before, we don't plan to update them.

As to the EBITDA -- as you know, we don't give EBITDA guidance by region.

Generally speaking, what I expect in the fourth quarter is that the improvement in Q4 will be largely delivered by those markets which were impacted the most by the summer seasonal slowdown, namely Continental Europe and, to a lesser extent, North America.

Our other key markets should be broadly in line with the third quarter.

In Q4, we expect the cash to be positive.

How positive a little bit depends on whether we see greater a contracting recovery in ANZ and The Netherlands.

I just wanted to mention for a minute that some of you are already asking us about 2011.

Actually, we've just commenced, like a lot of companies, our planning cycle for 2011, so we're obviously not in any position at this point to give region-by-region, quarter-by-quarter guidance for 2011, and I'm not actually sure we ever will at that level.

But I will say, from a revenue perspective, generally our goal is to be in the high single to low double-digit revenue growth, obviously depending on how various macroeconomic factors work out, and leverage of not less than 50%.

The world's a changing place.

Having said that, even amid all of the change we could expect next year, we are still very committed to our goal of markedly moving the earnings, and we'll give you more color on that as we get into the beginning of 2011.

So, with that, I'll turn it back to Jon.

Thank you very much, Mary Jane.

Operator, we're ready for Q&A now.

(Operator instructions).

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

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

W.

Baird.

Good morning.

I was wondering if --

Hi, Mark.

Could you talk a little bit about Europe in terms of the results that we saw and a little bit about the outlook?

I wasn't quite sure what was going into the SG&A that led to the adjusted EBITDA decline, and so I was just wondering if you could give a little bit more color there and what's being included.

So, with respect to Europe in general, I think two things to keep in mind.

First of all, the seasonal slowdown tends to affect Continental Europe more, so what tends to happen is that our, if you will, richer perm mix gross margin is lesser in the quarter, while the expenses are not necessarily flexing down at a proportionate rate, so that creates a bit of a mix effect.

Secondly, we're seeing hiring in the UK.

It [fell] up about 5%.

As we've reported now, this I think is literally the fifth quarter of seeing improvement in the UK.

They're starting to see some of the demand outpacing the capacity they have.

Those are probably the main two factors.

As to the outlook --

I think as we look out to the fourth quarter, we would expect revenues in Continental Europe, so the Continental Europe portion of Europe, to rebound, which is typical, completely normal, as you know.

And we would expect the UK broadly to continue on the trend that they're on.

We have, as Mary Jane mentioned, after five quarters of very significant growth in the UK, and particularly in the banking business.

I would say we're a little nervous about how that continues to unfold, particularly given all the issues within the banking industry at the moment in terms of (inaudible) three and other regulatory initiatives.

One of the things we did in Q3 in the UK was add some headcount to begin to diversify away from that business and build up our other businesses.

So we would, to some extent, continue to do that in the fourth quarter.

There weren't any one-time charges of any nature in Q3, or any unusual charges?

In Europe?

Yes, or the UK.

No.

We are truing up bonus accrual, as we said, but no certain one-time things that would simply not repeat.

What wouldn't repeat?

There are no one-time charges.

Okay.

And then as you're adding people in the UK, is there the potential to transition some of the people in the government practice away from government and just utilize that capacity elsewhere, or is that too simplistic?

It depends.

Some people, yes, we have the opportunity in some individual cases to move people to other practices.

But we also have a lot of people that are specialists in government and government procurement practices and networked into relationships in important government departments and so forth.

And so that's -- it's not perfect, so there's a little bit of opportunity, but not a huge amount.

Okay.

So is it your expectation that that 10% of revenue that's in the government -- what's that going to shrink to?

Because, I mean, it sounds like the -- I mean, from everything that we've read -- the austerity programs are really going to kick in in a major way next year.

That's right.

We've seen an impact this year, even, immediately before the election.

There was an impact because of the platform of what people expected to be the winning party, the Conservative party, and of course, they ended up in a coalition.

The coalition has largely adopted, seemingly to us outsiders, largely adopted the conservative viewpoint of the austerity program.

So we've been living with the impact, even though the cuts are announced over the next four years.

We've already seen effectively hiring freezes and so forth.

I would say I don't have good data.

I don't have anything hard, Mark, to offer you to say it -- but in my mind, I think -- when I ask myself how bad could it be, I would say, "Well, maybe we could lose another half of our business over the next couple of quarters." But I think there is still going to be a public sector business, and there are parts of the public sector that will have greater investment and so forth.

And we want to remain in the public sector.

We were -- historically, we were not very focused on the public sector in (inaudible) and UK.

And in 2009, we kind of learned our lesson, because when things went very weak in the economy, we went strongly into the public sector, rotating like everybody does into a sector where there was continued spending.

Our guys did a fantastic job, but it was a little more luck and fantastic effort than it should have been.

We should have had an ongoing commitment to the public sector through ups and downs, because when you hit a bad spot, historically, every session I've been involved in, the public sector remains -- they're still fine.

So, we are going to maintain a presence.

We are going to be disciplined about it, and we are going to look for niches where there is opportunity.

But I think that's the reason we mention it and we call it out.

We -- our expectation is it's certainly going to slow it down.

And we mentioned it in our shareholders' letter.

Mary Jane mentioned it in passing in her remarks.

We are seeing a slowdown in public sector broadly in all the markets in Continental Europe, and broadly, pending the election in Australia, also a slowdown there in light of the election in Australia.

So, public sector in 2010 is simply a tough place to be.

I think maybe one point let me just add I think to underscore something Jon said so the kind of public sector story is quite clear.

Year to date in the UK, the gross margin is up 30%.

So year to date, Mark, as we've looked at, as Jon said -- in 2009, we shifted more business into the public sector in a very good way.

And then as 2010 has unfolded, we've actually, indeed successfully, shifted it away.

Because I think it's probably fair to say the business was probably twice as high as it is today.

So, to your question of could we shift people, in fact, I think the organization in the UK has done a very good job of that.

I think the reason for pointing it out now is that year to date, we've had a very, very good offset and kind of seamless shifting in the absorption of this movement away from public sector and back tackling the rise in the private sector employment.

The question really is how much that would continue to be offset at the same level.

The austerity programs I think are starting to come on with somewhat more teeth.

And there's also a lot sort of being written about whether or not we've already peaked the growth rate of the uptick from last year in the market, particularly in the UK.

So that's basically the story.

I think the organization has done a wonderful job actually accommodating a very good shift so far, so there's a lot of good experience doing it.

The question is what will happen going forward.

So we're very happy that they've clocked some very good gains so far.

And the question is just whether it continues at that rate.

How big is the public sector for outside of the UK within Europe?

I don't think --we don't have a good number on that because we don't keep it in that fashion.

But we see a decline in Belgium.

Our Belgium -- if you look at our Continental European business, we have three countries that account for 80% to 90% of our business -- Belgium, France and The Netherlands.

The Netherlands and Belgium have a big exposure to the UK.

The Netherlands is basically -- I'm sorry -- a big exposure to the public sector.

The Netherlands is basically entirely in the public sector and has struggled this year with both that issue and the general weak Dutch economy.

But you're seeing improvement at Balance?

We saw a nice little uptick at the end of the third quarter.

And as we look out to the fourth quarter and beyond, we're becoming a little more optimistic that we're seeing the signs of a turn.

We're not seeing the signs of a quick turn, but we're seeing the signs of a turn for the first time in three quarters.

To give them credit -- and I think our competitors are reporting the same phenomena -- 2009 in the Netherlands was actually, compared to everything else going on around it, was actually a pretty good year, and our guys did very well.

This year has been -- they've had their recession in 2010.

But we're seeing an uptick.

And we don't have good stats, but in Belgium also we see a decline in the public sector.

And again, just to alert you, those are the negative streams.

And as Mary Jane said, there are positive streams as well, but those are the negative streams.

Great.

I'll jump off and jump back on.

Thank you.

Okay.

Thanks, Mark.

Your next question comes from the line of Paul Condra.

Great.

Thank you.

I just wanted to actually switch over to this comment and just ask about -- you mentioned this shift over to legal in place of IT, and I wondered if you could talk about what's driving that.

Does that suggest any kind of slowdown in IT, or is it just an increase in legal?

Thanks.

Well, Paul, I think the way we would look at it, I'll give you some high-level view and then I'll let Mary Jane tell you -- go through the numbers.

The way we look at it is our IT business, which has trailed the market, frankly, trailed the North American market over the last several quarters, showed better pickup in the third quarter, recently completed third quarter.

The place we continue to struggle is in financial solutions.

Legal also had a bit of a pickup in the third quarter.

Legal had a bit of an unusual third quarter in that the first two months were pretty slow, and then we saw a nice pickup in September.

So as we look out, we're more optimistic about -- it's reflected in Mary Jane's guidance -- we're more optimistic about the fourth quarter in North America.

We did make a profit.

To give that credit, we did make a profit for the first time this year in North America, the adjusted EBITDA line.

Mary Jane, any comments further on the financial results?

Yes.

I think, Paul, all along this year, we've seen a recently good pickup in legal.

So I think that the juxtaposition of the two points are in the third quarter, we saw IT picking up, which was good.

It's just that where our IT business has been strong is in the small and medium size markets that themselves in the economy are not showing a strong recovery yet.

Therefore, while we're seeing IT recovering, we are still, in our company, seeing it recovering at a lesser rate than our competitors have historically seen it.

I think our financial solutions business in the finance and accounting practice is, while also still a bit dragging, is not really all that different than I think what most of the competitors are seeing in that general practice space.

Okay, great.

Thank you.

And I wondered if you could maybe -- the way you kind of gave us the directional 4Q guidance for EBITDA, can you do that with gross margins by segment?

I gave it to you for revenue.

I don't see a reason why the gross margin mix by country would change markedly from where it's been all year.

So just to reiterate maybe for you --

Well, I (inaudible) like to see from sequential perspective going from the third quarter to the fourth quarter.

Going from the third to the fourth?

Well, I think that we would have the same sort of pickup in the third quarter for Europe, Continental Europe in particular, that we normally see between the third and the fourth.

And generally speaking, I would expect that sequentially -- I mean, North America also, which was down, as Jon was saying, a little bit more in the third quarter will probably pick up.

That will be one of the major drivers of them contributing also more to the EBITDA.

I would expect to see that in Europe, as I just said.

I think as far as the ANZ market, it's probably going to be on par with about the third quarter.

And in Asia-Pacific, they tend to have a little bit more of a December effect than they do a summer effect, so we probably would actually see a lesser growth rate.

But having said that, we're also anniversarying what was actually a fairly terrific quarter in the fourth quarter last year.

So if you think about the earnings can -- improving, as I said, over the fourth -- over the third quarter, that's probably going to come largely from the gross margin.

Okay, great.

Thanks.

And what were the UK revenues in the quarter?

Revenue for the UK in the third quarter was about GBP 80 million.

I'm sorry, wait.

Hang on a second.

It's about $57 million.

All right.

Thanks for making that adjustment.

Great.

That's all my questions.

(Operator instructions).

We have a follow-up question from Mark Marcon.

I was wondering if you could talk a little bit more about Asia.

Obviously, seeing very strong growth there.

How should we think about the margins longer term?

In the second quarter, it was quite impressive.

It's still very good here in the third quarter, but how should we think about it longer term and what's sustainable?

What (inaudible) margins?

Are you talking about EBITDA as a percentage of revenue?

Yes, EBITDA as a percentage of revenue.

Yes.

We would expect to grow it incrementally over the next year.

It's always hard to, in our business, particularly in Asia, which is completely perm -- nearly completely perm.

It's very hard to go for any particular quarter and say what it's going to be.

But I think if you look over the next -- the next five quarters, I would expect to see it incrementally grow.

We haven't topped out yet in margin.

We can continue to leverage our increase in gross margins.

And can we get to the 2006, 2007 levels?

I have to confess, I don't remember them off the top of my head.

What was that, Mark?

What do you have?

You were running them at 19.5%.

Yes, we do believe that.

I mean, in our mind, we have 20% as our target, but that doesn't mean it's a ceiling.

It means we feel we can still incrementally add to it.

Are you seeing any signs of a slowdown in terms of demand out of Asia and particularly in terms of China?

No.

No, we're not seeing a slowdown.

In fact, we're seeing opportunity that we're struggling to accommodate, so at the moment, things look good.

Great.

And then can you talk a little bit more about ANZ?

I mean, we keep getting reports that the Australian economy is quite strong, but you're not seeing the pickup in terms of temp help over there to the same extent that you might expect with the headlines.

Yes.

Right.

How would you characterize that?

Yes, you're absolutely right, Mark.

The first thing, again, as in virtually every market in the world and virtually all of our competitors, particularly if we look at the non-US competitors, perm is outstripping contract.

And you know, this is the first time ever, unprecedented, paradoxical, whatever you want to say.

And so we saw gigantic perm numbers -- I think you have to say gigantic -- coming out of Australia this quarter, 56% up in perm, as we highlighted in our shareholder letter.

And at the same time, not seeing increase in demand in our business and, of what we see of competitors.

We're just not seeing tremendous demand in contracts.

It's just the way this economy has unfolded.

Everybody always said, "Gee, you want to be careful about being in perm.

It's very volatile.

Let's diversify into contract." And of course, like the world sometimes acts, best laid plans, it turns out that if you had a pure perm business, you'd be flying.

And all the things that were meant to diversify have been negatives -- account management, obviously outplacement, and account management and contract.

We certainly think that that's going to come around at some point, and we believe in contract, and we're investing in contract to grow the business.

But the only thing I can offer to you is two observations.

One is this is really the first quarter, the third quarter -- not withstanding the great Australian economy that we've all seen and marveled at -- this is really the first quarter where you've seen a breakout in terms of perm growth for our company and, frankly, for our competition.

So, that's one factor.

And the second factor is that it is a bit of a two-tier market.

The mining sector is doing very well.

We have made a pretty big commitment to the mining sector, which is a change from our historic posture.

We've invested much more in trying to build our mining business.

But the nature of the mining business is that those are the kinds of businesses that don't have huge numbers of middle managers, where we specialize.

The businesses that do have huge numbers of middle managers, that are in New South Wales and Victoria, particularly in financial services, up to now have been slower growing.

So it has been a kind of two-tier economy.

The headline numbers are fantastic, but a lot of it's driven by natural resources, and that hasn't, until perhaps very recently, hasn't filtered down into other parts of the economy.

Has the outplacement portion of the business hit kind of a sustained level, or should we anticipate additional declines there?

Mary Jane had -- I just recalled her comment in the last quarter because it was a very accurate comment, which was that the negative is diminishing.

She said it would diminish by 50% in the third quarter, and it did diminish by 50%.

And that still leaves a negative in the third quarter.

We would expect -- maybe Mary Jane has the number -- we would expect a further diminution of the negative impact, but we're not at sustainable levels with outplacement.

How much -- where is outplacement now in terms of revenue run rate, and how much could it go down to?

Mary Jane may have that.

Yes, it's fairly low at this point.

I mean, it's probably under $1 million.

Okay.

I think the thing we're also a little bit watching for is now, having clocked here the fourth quarter of perm growth, not as marked in prior quarters as it is now, but good perm growth in Australia.

It's whether or not we'll begin to see an uptick in the assessment area of talent management.

And so we're sort of on the lookout for how that part of the talent management business is coming back, because that's also been a strong contributor in the quarters when outplacement wasn't a strong competitor -- contributor.

Great.

Thank you.

I'll follow up some more offline.

Thank you.

Okay.

Thanks, Mark.

(Operator instructions).

There are no further questions at this time.

Thank you all for attending.

Before I turn it over to David for the close, let me just add my closing comments.

That is, despite the mix of economic conditions which we confronted in the third quarter, and the seasonal impact, we produced a profit, as we had guided you to.

As you can see from our guidance, we expect Q4 to be the highest of the year, in line with the continuing economic recovery.

We continue to see good results in those markets that are in the midst of recovery, which I think is an important indicator for our investors.

Year to date, we're up approximately $19 million in EBITDA compared to prior year.

We're looking forward to a strong conclusion of the year.

With that, I'll turn it over to David for the concluding remarks.

Thank you, Jon, and thank you all for joining the Hudson Highland Group conference call for the third quarter.

Our call today has been recorded, and it will be available later today on the Investor's section of our website at hudson.com.

Thank you, and have a great day.

This concludes today's conference.

You may now disconnect.