Hudson Global Inc (HSON) 2010 Q4 法說會逐字稿

Good morning.

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

At this time I would like to welcome everyone to the Hudson Highland Group fourth quarter 2010 earnings result conference call.

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

After the speakers remarks, there be a question and answer section.

(Operator Instructions).

thank you.

I would now like to turn the conference over to 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 fourth 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 to review or confirm analysts' 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 in our quarterly slides both posted own our website, hudson.com.

I encourage you to access these documents at this time.

They are posted own our website under Featured Documents and our speaker also reference the slides during their remarks.

With that, I'll 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 talking about some of the themes that were important in the quarter, then I'm going to turn of to our CFO, Mary Jane Raymond, to discuss the financial results in detail.

Yesterday, as I hope you know, at the close of business we released our earnings report and our shareholders letter.

And for the purposes of my remarks, I'm assuming you had had a chance to read those.

We are living through an unprecedented recovery in many respects.

Perhaps it is a function of an unprecedented recession which combined the impact of the global crisis with a cyclical recession.

Normally, contract leads to recovery, but in this recovery, contract has lagged.

Normally perm lags a recovery, and certainly on a macro economic basis, job growth continues to below historic recovery levels.

For example, US levels remain at 9.4% even though as US GDP grew nearly 3% in 2010.

When I say perm lags, just to give you a little historic context, it usually lags by two to three years depending on the strength of the recovery.

But in this recovery, despite widespread economic weaknesses and slow economic growth, permanent recruitment has been the leading segment of the staffing industry.

Most of our competitors in the US and elsewhere have reported large increases in permanent revenues in 2010.

Hudson was up 40% in permanent recruitment in Q4 and up over 30% for the fiscal year 2010.

As I will comment in a minute, there is an important difference.

Perm is our largest business.

Contract was up 17% which in absolute terms sounds fairly good, but it is slow for the initial phase of a recovery.

Within contract, after 10 years of doldrums, IT staffing is leading the recovery.

In fact, pre-recession most analyst were negative about staffing companies with a large exposure to IT contracting.

Accounting contracting was the darling of industry analysts for nearly 20 years and certainly the last 10, but suffered a severe decline in the recession and has lagged in this recovery.

Turning now to some comments about Hudson -- virtually all Hudson operations possessed improved revenues and EBITDA for the quarter compared to the prior year.

Our shareholder letter goes into this data in detail -- accordingly, I won't repeat it here.

While January is a difficult month from which to draw any conclusions, the Q4 trends appear to be continuing.

Q4 was a strong quarter for Hudson.

Perm, our largest business accounting for over 50% of consolidated gross margin, produced the largest increase with a 40% increase.

This is a very meaningful data point that I want to emphasize.

Many of our competitors have reported decent revenue growth, but it's been a combination of slower growth in their core businesses and faster growth in the non-core units.

In our case, it was the reverse.

We did best in our largest business.

Sequential growth was strong at 9% on a consolidated basis.

I'd like to draw your attention for a moment to the sequential growth of our continental European unit at 26%.

Our business is centered in Belgium, the Netherlands and France.

This is the part of Europe that has been the slowest to recover from an economic perspective.

Despite the well-known European economic and fiscal worries, in Q4, for the first time, the strong sequential results signal a strengthening recovery in all three markets, and that trend continued in January.

We expect these trends to continue throughout 2011, notwithstanding the continuing nervousness about European fiscal crisis.

While the UK and ANZ, Arizona (sic) and New Zealand, experienced extensive constant currency declines compared to Q3, these declines were consistent with our seasonal expectations and were smaller than our principal competitors in those markets.

Talent management has lagged the recovery in 2010.

Partly, this is a result of the decline in the outplacement business in Australia, which is down about 50% for the year as we expected, and partly as a result of the later cycle assessment business, in Australia and elsewhere, that is still gathering strength.

Of course, the outplacement portion of this business is designed to be countercyclical, and we got the benefit in 2009, but are suffering the detriment in 2010 since outplacement declines early and assessment improves later.

We believe we're now at a level that is the trough run rate in this cycle for talent management.

We expect the assessment portion of the business will strengthen as the cycle matures, but we are in the very early stages of that process.

On a consolidated basis, our gross margin percentage in Q4, our contract gross margin percentage in Q4, was flat compared to Q3.

I believe that contract gross margins have troughed for this cycle and that over the course of 2011 we will see a gradual increase in contract gross margin percentage.

We're already seeing a trend increase in the contract gross margin percentage in the UK and balance in our business in the Netherlands, and stabilization in the other markets on a sequential basis.

This is consistent with the normal cyclical recovery pattern and therefore an important indicator of the trend for 2011.

It is cycles such as this, of course, we would rather be entirely in permanent recruitment.

That may sound odd for you investors who are used to the contract-centric US staffing market.

However, we believe diversification is a better strategy through the course of the entire cycle than our contract business helps to cushion the voluntarily inherent in permanent recruitment.

Talent management supports our recruitment business, but also expands our client relationships beyond recruitment.

With that, I will now turn over to Mary Jane to discuss the financial results in more detail.

Thanks, Jon.

Good morning.

The slides for our talk are posted on the website, hudson.com.

They start with a comparison of the fourth quarter prior year and then they move into a comparison of the full year results.

As Jon discussed, virtually every country in our Company posted positive top line growth in this quarter with good progress in all of them.

The real story for our Company this year is the progress throughout the year.

Those include things such as revenue growth over prior year grew every quarter, starting with 9% growth in the first quarter and ending the year with 20% growth in the fourth quarter.

Perm was strong in all quarters and in nearly all markets, providing a good foundation for the restoration of earnings.

Perm revenue growth was 40% over prior year in the fourth quarter and 37% for the full year.

As many of you know, the economic signals throughout this year were pretty much all over the board.

They were up and down in every region at some point in the year for a variety of different reasons.

Yet, amid all of that, the management team stayed very focused on the opportunities that were presented by clients and delivered on them very consistently.

We are very proud of them for using 2009 to retool their processes in order to be responsive and flexible to changes in client demand as the recovery got underway.

Our cash plow from operations in the fourth quarter was positive at $5.7 million, capping a year spent improving our liquidity.

Our total liquidity at year end was $73 million, counting the cash and availability under the credit agreements.

We paid down all but $1.3 million of our outstanding debt.

The new banking and credit arrangements that we entered into last summer around the world have transitioned seamlessly and are working very well.

The slower growth in temp, which is slower than we would have expected coming in at 12% for the year and 17% for the fourth quarter, helped meter our cash usage throughout the year from the expectations we had when the year began.

So with all of those things as a foundation, for the total of 2010, we posted 15% revenue and gross margin growth on a reported basis and 10% and 11% respectively in constant currency.

Our total SG&A grew in 2% in constant currency despite a 5% increase in compensation costs related to our 11% gross margin growth in constant currency.

Our expense control resulted in an increase of $22 million in adjusted EBITDA in 2010, on an increase in constant currency gross margin of $29 million or close to 80%, eight-zero, operating leverage.

The 80% also includes the effect of restructuring chargers were which considerable larger in the 2009 year.

For the fourth quarter, the revenue and gross margin grew close to 20% in both reported and constant currency over the prior year.

Our adjusted EBITDA of $2.7 million and EBITDA of $3.6 million are about a net $2 million below a more normalized run rate due to non-recurring items we had in the fourth quarter -- the main part of that was the senior level severance, none of which was related to Jon, payroll tax adjustments, some bonuses that were just more heavily weighed into the fourth quarter rather as opposed to being more even throughout the year based on the way the gross margin pattern developed through the year, and finally, cost to complete the SEC settlement, something we are happy to have behind us.

A few additional pieces of color for you -- the composite income tax of the year was $1.5 million to $2 million or $1.8 million.

Withholding taxes relative to the intercompany loan structure were $800,000 of that $1.8 million.

Our restructuring reserve stands at a total of $3 million, including $900,000 of a true-up in Q4 for our London property.

This compares to a total of $8 million at the end of last year.

We expect this remaining amount to pay out over time.

Frankly, probably over a few years because it's property-related.

And the adjustment we had in the fourth quarter is as I have described before, the intermittent true-ups for properties which as you know in a restructuring charge are subject to a lot of assumptions including length of sub leases, free rent periods, and things like that.

CapEx in the fourth quarter was $900,000.

For the year, CapEx totaled just over $3 million.

In 2011, we expect to continue our discipline in CapEx spending, but would expect it to rise a little bit to being between $5 million and $6 million.

Turning to guidance.

Let's just start with a little bit of context on how we see the 2011 year.

We see a year that continues our progress from 2010.

Speaking just directionally, we believe that the revenue growth we will see will be in the mid to high teens depending on the recovery rate of continental Europe.

A reasonable way to think about EBITDA on this sort of growth is about sort of $28 million to $32 million depending on our mix, assuming that's similar to 2010, and also assuming you all of the regions continue to recover, a good sign we had coming out of Q4.

On a final note, for the full year 2010 -- one area we'll continue to manage is the temp gross margin.

When we examine our ramp to stronger profitability, one major market driven change that is present today compared to the end of 2008 is the lower temp gross margins.

For us, it's down over 250 basis points, and this is true generally speaking across our market that delivers temp services.

If you think about that sort of a difference on our current revenue, it's worth over $15 million.

Jon discussed that we're seeing stabilizing trends, in fact, strengthening trends in the temp gross margin.

Our projection for 2011 on this factor is not enormously higher for 2010.

It's something we've begun to address and analyze, and something we'll continue to work on for the rest of 2011.

Region to region, just directionally, our expectation is that year-over-year growth will probably resemble 2010 to a pretty large extent, though I do expect the UK will be lower when comparatives are brought in pause they have to compete against very, very strong growth in 2010.

So continuing their rate of progress I think would be more difficult.

Similarly on the opposite side, I expect that continental Europe and North America will pick up.

Looking at the first quarter guidance, Q1 is as you know typically a weaker quarter in the year.

You're familiar with a lot of reasons, holidays and vacations on the part of clients and staff, and the resumption of payroll taxes with the beginning of the new fiscal year.

In our Company, we're also mindful of the situation of Queensland, Australia.

That state is about 10% of Australia and New Zealand's revenue and was a strong contributor to the fourth quarter results.

As you know, they're dealing with the aftermath of a tragic flood that covered nearly all of their state.

Bearing in mind that they may not be at full strength for the whole quarter, we expect revenue for the first quarter between $200 million to $210 million with EBITDA at about $1 million to $4 million with the high end likely if the markets continue to recover as they did in Q4.

Even if Queensland has some effect on Q1, we do expect that effect to be temporary.

It's a strong business it our Company with strong leadership and we're sure that they'll recover very well as the year goes on.

This guidance for the first quarter of 2011 compares with revenue of $180.1 million and a EBITDA lost of $1.4 million in the first quarter of 2010.

With that, I'll turn it back to Jon.

Thank you very much, Mary Jane.

I'm going to open up for Q&A in a moment, but first of all I want to address two questions that I'm certain are on your minds.

Let me say that I do not intend to answer any questions about my employment status or future plans during this call.

For now, I'm working full-time as the CEO of Hudson and focus on delivery of the best possible results for Q4 just ended and Q1 of 2011.

Today I want to focus on the main story, which is the good results for Q4 and the positive outlook for 2011.

I know you also are probably going to want to ask about the status for the search for the new CEO.

The board has formed a committee that is handling that search.

They reported to me that they are seeing good candidates and believe the process is on track to be completed by the end of April.

With that, operator, Nicole, I will open up for Q&A, please.

(Operator Instructions).

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

Baird.

Good morning, I was wondering if you could talk a little bit about some of the regions, specifically as we look out towards Q1, how are you thinking about Europe, how that's progressing with a reasonable margin expectation would be there?

And then if you could give us some more color with regards to the potential impact in terms of the austerity measures and your exposure to government and how you think that would end up impacting things?

Thanks.

Sure.

Maybe I'll take a couple of the themes and then I'll ask Mary Jane to comment on some of the numbers to the extent that we can.

I think that when we look at Europe, as I've said in my remarks, we're focused in Belgium, the Netherlands, and France, and notwithstanding the economic forecasts for those areas, we are seeing, we saw in the fourth quarter and we're continuing to see in January a very significant pickup in our business.

As you might recall, our business in France is very much focused on mid-level, what we would call mid-level executive search, permanent recruitment.

Our business in the Netherlands is focused on highly profitable contracting business, and our business in Belgium is a combination of recruitment in talent management, so three very different businesses, which of course is the historic legacy of the Company.

We're seeing, paradoxically, even with the weak economy, we saw strong growth and we're seeing good trends even here in January which is normally a pretty quiet month, so we have a good degree of confidence, as Mary Jane indicated in her remarks, that continental Europe will continue to pick up in terms of growth in 2011 and even in Q1.

We certainly expect Europe to be profitable in Q1.

UK in slide 26, we have a breakdown of our exposure, shall we say, to the public sector in the world and as you can see when you look at that slide our exposure in the UK is down to 9%.

So the austerity measures are certainly having an impact on that part of the business.

And as we look at our competitors and see their reports, we see they're suffering from the same sorts of things.

I think how the austerity plan rolls out for 2011 is a very big question as to which I do not have a specific answer.

And I'm sure you know that the actual measures, the actual things that are being done, the action being taken did not go into effect until October, and so those are rolling through the economy now.

The UK economy, I know you know, Mark, was down 0.5% in the fourth quarter.

The estimation is the unusual snowstorms had an impact of 0.5%, so basically the economy at a run rate would have been at zero for the quarter.

Whether that's an impact of the austerity plan is really a matter of opinion.

Obviously, everybody thinks that it must be related, there must be a cause and effect, but nobody knows.

Now, in the meantime, our business was up in the fourth quarter in the UK 30%.

We also noted that our competitors did well, not as well as we did for the most part, but they did well, too, in the fourth quarter.

So that's, you know at this point, that's an unknown.

The other unknown in the UK is the banking regulation.

And I'm sure you do know and you follow the banking regulation and there's kind of an arm wrestling going on now between the regulators an the government on one hand and the banking industry on the other, particularly in the UK, particularly in London, that runs across a whole range of things, including bonuses, regulation and other things.

And banking is a significant component of our business -- that's a significant component of everybody's business in the UK.

That's another thing that make its difficult to gauge what the impact would be.

At the moment, we're just not seeing a big impact but that doesn't mean there won't be one coming down the road, but those are questions that we all have.

As Mary Jane said, the comparisons in the UK are tough because 2010 was a great year, but in January we saw another, again, difficult to draw any conclusions about January, it's a flaky month for all the reasons you know.

In January, we had another very good month, so not a month -- a month doesn't make a year, but we haven't seen any dramatic signs.

With that, Mary Jane, do you want to comment in more detail in terms on some of the numbers?

Obviously, we don't give regional guidance and we don't give by gross margin, but I will say we exited for Europe the entire year, the entire year of 2010 at roughly at about 42% margin for Europe, and the fourth quarter was a little bit below that, closer to 41.5%.

My expectation as we into the first quarter is that we'll probably continue on to that trend closer to the full year's exit rate -- sorry, sorry, the full year's average, and may well be in the range of kind of 41% to 42.5%.

The mix makes a big difference, as you guys know.

As John says, there's a lot of cross-currents, particularly as we look across continental Europe, but having said that, we are really, really heartened for and really proud of our guys in continental Europe for the good recovery that they had in Q4.

And they're feeling good going into Q1, so my hope is that that will continue to inch the margins up from the 2010 average rate.

One of the things we do look at, our pipeline.

It's a very inexact science because pipeline doesn't always come through in orders, but pipeline is a good indicator from an economic standpoint and we're seeing growth in the pipeline in continental Europe.

The other thing we do look at is contract wins and that's particularly important for our Balance subsidiary, which is the contract business, and has been a very historically pre-recession highly profitable business and we're seeing contract wins.

So those are the things that give us confidence as we talk about the directional arrow that Mary Jane talked in our guidance for the first quarter.

Those are the anecdotal things that back that up.

Great.

In terms of January, is it your sense that whatever austerity measures would be put in place have come to fruition, or is that still to come and we're still to see how that unfolds?

They've put the measures in place, but the question is what's the impact?

They've raised VAT and it was effective in October I believe.

The question is how does that impact not just over Christmas, but how does it impact over the course of the year?

Whatever metaphor you want to say; the $64,000 question that everybody in the UK is asking -- is the economy strong enough to absorb those things?

This is probably the greatest experiment in the world at the moment in terms of fiscal rectitude, so people just don't know.

They see the results but when we look at January, we don't see an impact and we didn't see an impact in the fourth quarter.

We look at the results in January, we don't see an impact either.

Great.

Thank you.

Your next question comes from the line of Jeff Silber with BMO Capital Markets.

Thanks so much.

I just wanted to take a step back for a minute.

In looking at your business the way it is now, if we were trying to forecast going forward, I'm just curious.

What type of incremental EBITDA margins do you think the business can generate based on every dollar increase in gross profit?

I'm glad you asked that, Jeff, and I'll let Mary Jane answer that because she has a better handle on the specific numbers.

Jeff, as we talked about for the fourth quarter, sorry, sorry, for the 2010 year, our incremental delivery was within the range of about 80%.

I think going forward, if forward is relative, one years, three years, whatever, but we do think about it being in the range of at least 40% to 50% and continuing to work to see how much better than that we can do, but I think that's probably the rough range that one can expect from a modeling point of view.

Are there any major discrepancies by region?

Not particularly.

The thing that can tend to manage it, frankly, is the mix of temp and perm on a more normalized basis.

But the thing that can have an effect and really did in the second half of 2010 was as different markets begin to hit the production capacity of their people, they start to add people in, and that can temporarily depress the leverage for a given quarter or a period of time.

But when I think about the 40% to 50% I'm talking about, I think the goal as we talk to the management team together is to try to normalize that hiring a little bit so it doesn't jerk the leverage around too, too much.

Okay, great, that's helpful.

Just to get a little more color on the guidance and just focusing on some of the non-operating items.

Can you give some help on how to model out D&A, interest, and taxes in both the quarter and 2011?

Sure.

So, first of all, let's just talk about taxes for a minute.

We have done in this year as I think we've talked about something that kind of makes the regional results a little bit in need of more explanation.

We've put into place the management charts for 2010, that was higher than previous years primarily because we provided services of a greater level to our region, but that does have the ongoing simple mathematical effect of affecting the tax rate.

For the entire year my sense is that I would expect the tax rate in the range of 25% of where the profits actually land.

In the first quarter, it's maybe frankly a little scarier looking like closer to, you know, 70-ish% or even 80%, and part of that is because we have an intercompany loan structure in place that is also a very effective tax planning method that gives rise to about $200,000 of withholding tax every quarter.

That's more or less a fixed amount that doesn't vary with the income, and we will have that in the first quarter which is a lower income quarter.

So that's the kind of color on the tax rate.

From an interest point of view, we had through the whole of 2010, or a long part of 2010, monies outstanding on our various revolvers for a whole lot of reasons.

As I mentioned, we worked to pay that back at the end of the year and expect to only really draw that down for periods of peak usage, you know as you can sometimes have in the middle of the quarter.

So my sense of of the interest is that we'd like to keep that pretty minimal to even under call it $500,000 a year, something like that.

I would say probably pretty even across the quarters, maybe heavily in January, that tends to be a cash usage month.

But roughly we would expect to see a good improvement on that compared to 2010.

With respect to D&A, our depreciation and amortization in the 2010 year was about $8 million.

It was about $1.7 million in the fourth quarter and I think the fourth quarter run rate is a pretty good guide.

Notwithstanding that, we may see our CapEx go up a little bit in the 2010 year I think for the 2011 year.

In the 2011 year, I still think the D&A will at least come into Q1 at the $1.7 million rate and we'd actually like to hold it there for the rest of the year.

Okay, that's great.

Other income was pretty sizeable this quarter.

Can you tell us what that was and is it something we should be expecting going forward?

We had that conversation in the non-op income on our calls and in the 2010 year we had a lot of positives in that.

I do think it's fair to say at this point that they're not recurring.

What's in Q4 this year is basically about -- first of all, $1.3 million the final payment out on a note that we had for a prior divestiture in which part of the consideration was the seller's note.

That's finished.

We're happy to have that back, it monetized very well, but it's done.

Similarly, we had in our North America business as you may know, they have a business that is focused on recoveries, so monies that may be due to a company that for whatever a number of reasons have not been collected and this service focuses on trying to collect those for companies.

Well frankly, we used it for our own Company in the fourth quarter and we delivered about $550,000 in the fourth quarter.

I don't think that's a steady stream to find where you find a little bit of it at a time.

I think the way the process goes is look for all of it, so we were happy to have that reflected at the end of the fourth quarter, but that's not really a recurring thing.

We did have to the opposite of that, a little bit of FX exposure that can go actually either way.

It's a pretty significant goal from the financial point of view to be managing that FX exposure so it's not any component of the noise of the P&L each quarter.

So notwithstanding that we had a very good amount in the fourth quarter, and we may have an amount in the first quarter, but smaller -- call it about $200,000 for a sale of some small amount of shares we had, generally speaking I don't expect it to continue at the fourth quarter rate or at the rate of the 2010 year.

Okay, appreciate the color.

Thanks so much.

Sure.

(Operator Instructions).

You have a follow-up question from the line of Mark Marcon with Robert W.

Baird.

Could you discuss a little bit about, you know, how sustainable the strong progress that you're seeing in Asia proper is?

Where could those margins ultimately end up going?

Well, you know, Asia is probably the ultimate land grab at the moment in the world, specifically China, but the growth in China drives the other markets, particularly Hong Kong and Singapore, where we are also present.

So every prediction of growth in China that you see, even though it is moderating from its own stratospheric growth rates in the mid teens in terms of GDP growth down to the high single digits, still it's extraordinary growth that I think every analyst of China seems to think will continue for quite some time, and it doesn't matter if our industry or any other industry, so that's an important driver.

For the quarter we were up about 25% I believe.

I'm sure Mary Jane has the exact number.

We certainly see that kind of growth being available through the course of 2011 and beyond.

Also, our EBITDA margin in Asia is, by any normal standard, very high.

We reached I think 16% in the fourth quarter and we would expect actually to grow that rate through next year as we leverage, just as Mary Jane mentioned, as we leverage our increase in GM.

The challenge we have in Asia and, this is something we alluded to in talking about leverage, is hiring.

We're in a strong market in Asia and on one hand we want to hire because that's, in our business, that's how you build the business.

We've absorbed our excess capacity and so for us to continue to grow we need to continue to hire people.

The second thing is we're very conscious of, and Asia is a great example, is competition.

You know, we're not the only ones that think China is a great market and we have competition, we're ahead of the competition.

We have a bigger business.

We think we have a bigger business than any other non-Chinese firm.

And to continue, you know, our competitors are growing, trying to grow fast, they're trying to open new offices with offices and so forth.

And my belief is that we have to match that.

We cannot afford -- we have the lead, we cannot afford to give up our lead, and we have to make sure that we don't get, in the military metaphor, we don't get out-flanked.

We are looking actively at opening additional offices inland in China and that's a question that Mary Jane alluded to.

As we open those offices, it will negatively impact leverage.

On the other hand, it will grow our business over a period of time and in our business, it's a relatively short period of time, the following several quarters or a year, and then compounded by the fact that we have to beat the competition.

We can't afford to let the competition open more offices than we're opening.

So that's how we see Asia unfolding.

And, Mary Jane, I think you have a better handle on the numbers?

Do you want to correct anything I said on the numbers?

Jon, you had it perfectly right.

The Q4 growth on a constant currency basis for Asia proper was 26% and for the full year was 35%.

That came out of the gate, as you know, very, very strong, but they also had a good fourth quarter last year.

Those of you who remember our last year's year end call, Asia was a terrific help in the growth as we exited 2009.

I think the thing to keep in mind as well, as we do start to see clients moving more to RPO in that market, we have a very good RPO business particularly in China, but that also starts to moderate on a, if you think about the activity in the region, the actual amount of growth and the people that have to go to it, over time the speed with which clients are wanting to add people, it's tough for them to do on a transactional basis.

It's always been moved to more RPO.

The composite fees will probably continue to lift very well our gross margin and our earnings, but on a per person basis, we may begin to see that change a little bit as clients as well say you don't hire 150 people the same way you hire 6.

And can you just talk a little bit more about this -- how should we think about the incremental market progression both in Europe and ANZ based on what we ended up seeing during the first or the fourth quarter?

What are some of the differences in the fourth quarter relative to -- what are some of the one-time items that ended up impacting that so that we would think that the incremental margins would be more consistent with the longer plan?

Okay, let me start, then I'll turn it over to Mary Jane to give you more numerical details.

In Australia specifically, in the beginning of the middle of the third quarter we began hiring more aggressively.

Part of that is a function of the fact that the perm market has been growing very, very strongly.

I think we mentioned we grew over 50% in the fourth quarter in permanent recruitment in Australia, so that rate of growth we've exceeded our excess capacity so to speak that was in the system through the recession, and of course Australia had sort of a muted recession.

So we began hiring and that had a negative impact on our leverage in the fourth quarter because as I know you know, Mark, you hire people, the quarter you hire people, they're not productive.

They get productive, in a strong market they get productive quickly, but it's two quarters, three quarters.

We track, our leadership in Australia, when I say we, our leadership in Australia, tracks very, very well the progress of the new hires, and we are extremely pleased with the ramp up of those people.

We think it's very positive, but we're in the mid of midst of a ramp up that started in the middle of Q3, went through the end of Q4 and will continue in January in particular in Q1.

There will then be less hiring for Q2 and Q3 for sure and look at the situation in Q4.

We would expect the Australian business build in terms of absolute dollars, Australian dollars, in increasingly valuable Australian dollars by the way, build through the year and that's one of the things that drives our directional arrow for 2011.

Then we'll reassess at the end of the year exactly where we are.

Maybe I could just pause there and Mary Jane could maybe talk in little more financial details from how you see it.

Yes.

Exactly following along with what Jon said.

For example, the hiring in Australia had about $1 million impact in the quarter.

New people that are good are making very good progress and as Jon said, the guys are tracking at very a good level of detail with the very clear and decent dash board, but nonetheless had about $1 million impact, so obviously the impetus is on the team to then deliver on that hiring in the new year.

In Europe, similarly as we pointed out in the shareholder letter, we had about $1.5 million impact for a variety of things in continental Europe that are both expected not to be recurring, first of all, but also I think particularly with severance.

It's always difficult to lose colleagues, but at some time particularly as we look at the kind of growth we expect to see in 2011, sometimes it's just a good role for a different person and I think some of the progress we saw in the fourth quarter on the top line is showing the benefits of that.

So I think there's no question that we had a dampening of the leverage in the fourth quarter to even a greater extent than even we would have liked, which is part of the reason we pointed it out.

But that's kind of the impact for both of those reasons and I think going forward the Company is very clear about the need to use the 2011 year both to grow the top line as well as to deliver it in profit.

Great.

Thank you, that's very helpful.

There are no further questions at this time.

Mr.

Chait, do you have any closing comments?

Yes, thank you very much, Nicole.

This will probably be my last earnings report after eight years at the helm in Hudson because, as you know, my planned retirement date is April 28, and we probably will record our second quarter in early May.

Please forgive me and bear with me for a short valedictory message.

I continue to believe in the promise of Hudson today as much as I did when I joined eight years ago.

As you can see from our directional arrow for 2011, the Company is positioned for significant revenue growth and EBITDA improvement.

I'm not very comfortable with the word I, because the collective team is responsible for our results.

But hopefully I have helped create an environment, a sense of family, ethics, and values that will sustain the Company through a succession of leadership.

We have a strong senior leadership team in place and we have a brand that continues to build recognition among candidates and clients.

I believe that I have built a strong foundation that my successor will build upon.

I also want to thank our shareholders for their support.

The last two years have been testing as we navigated a wrenching recession that threatened our survival.

I've been singularly focused on the last two years to recovering earnings to pre-recession levels.

I've issued strategy changes, acquisition or expansion that focused the organization on simply recovering profitability by superior execution.

I felt the Company owed that obligation to its shareholders to take that route.

Let me turn to our employees who are always eager listeners to our conference call.

It's been a privilege to work at Hudson and to share the highs and lows of the last eight years with a talented group of people.

It's not very fashionable to say that I have a genuine love and affection for all of you and a deep sense of responsibility to you.

I hope you feel that I've always recognized that your role is the most important contributor to our success, and I hope that I've added some value along the way.

I want to thank all of the Hudson team for their support, their commitment and their energy.

With that, I will turn over to David for the closing.

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

Our call today has been recorded and will be available later today on our website, hudson.com.

Thank you and have a great day.

Thank you for participating in today's conference call.

You may now disconnect.