Hudson Global Inc (HSON) 2011 Q2 法說會逐字稿

Good morning. My name is Tiffany, and I will be your conference operator, today. At this time, I'd like to welcome everyone to the Hudson Highland Group Q2 2011 Earnings 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.

If you would like to ask a question during that time, simply press *, then the number 1, on your telephone keypad. If you would like to withdraw your question, press the # key.

I will now turn the conference over to David Kirby, Director of Investor Relations. Please go ahead.

Thank you Tiffany, and good morning, everyone. Welcome to the Hudson Highland Group conference call for the second quarter of 2011. Our call this morning will be led by Chairman and Chief Executive Officer, Manolo Marquez, 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 obligations to review or confirm 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 call, references will be made to non-GAAP terms such as EBITDA. An EBITDA reconciliation is included in our earnings release and 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."

At this time, I will turn the call over to Manolo Marquez.

Thank you very much David, and good morning, everyone. I'm glad to now be officially onboard at Hudson, and address you for the first time.

We have publicly issued our second-quarter financial results earlier this morning. I would like to share with you now a few highlights and our directional focus, looking forward.

Later on in a few minutes, Mary Jane will give you a more detailed review of our operational results and trendlines, by region and business.

Our headline on a reported basis is that we finished the question with $247 million in revenue, and $95 million in gross margin. We delivered revenue, and gross-margin growth of 27% and 29%, respectively.

Although we have the benefit of a strong currency tailwind, this is still translated to 14% and 15% growth, respectively, in constant currency.

All our regions delivered solid growth, compared with prior year.

It was no minor accomplishment from our team. The economic uncertainties in certain areas of the world -- and in particular, in Europe -- are delaying hiring decisions by many clients.

Hudson's balanced portfolio of geographies, business lines and practices certainly helped us. We also benefited from the restructuring program carried out over the past couple of years, especially in the North American market.

However, more than anything else, I feel we owe our success to the excellent team that Hudson has across our 5 operating regions. We are all fully committed to deliver on our goals.

I have had already the opportunity to personally meet more than 600 employees across half of the key markets, all around the world. I was very impressed by the quality of the talent we have in the Company.

Hudson also shares, with amazing consistency, strong culture and values across all the regions we operate. Our consultants serve world-class clients who express a high level of satisfaction with the value we deliver to them.

In my opinion, these are the main ingredients that comprise an excellent professional-services organization. My initial meetings with our people have underscored the tremendous potential of Hudson.

Our second-quarter EBITDA was $7.7 million, and net income reached $4.2 million. Both represent a major improvement from our second quarter last year, which delivered $3.1 million in EBITDA, and net income of just $229,000.

Our EBITDA-over-revenue ratio more than doubled from last year, to reach 3.1%. But that result is still far from our stated long-term margin goal of 7 to 10%. We are conscious that much remains for us to do.

Clearly, from the Company's challenges in the past -- and the realities of the business cycle -- those are not easy targets to reach. Only by maximizing the Organization's potential, better aligning our business units globally, and capitalizing on best practices across borders, will we reach those goals.

And achieving anything like this takes time. However, I expect to see progress faster, simply because I am certain that our people are ready, willing and engaged to make it happen!

Furthermore, we are finding that our global platform and experience can help us ramp up quickly.

We have already embarked on a series of key initiatives that we believe will steadily improve the quality of our earnings. Let me share with you four of those.

First, we are leveraging on our existing market-leading practices across our network, to better serve our global clients. For example, we recently launched Legal e-Discovery as a global practice. Already, we have 70 contractors on billing in London. We have also combined our regional RPO businesses into a global practice. Our client-demand for RPO solutions is becoming more global, and this provides us with an opportunity to fully benefit from Hudson's broad international platform, and intellectual property.

Our global RPO business has contributed almost one-fourth of the Company's overall constant currency growth in the quarter.

Second, as mentioned before, we have great talent. We will continue attracting the best professionals in the market, develop and retain them. We need to stop thinking that turnover at the high rate of our industry is inevitable.

The engagement, of course, on our employees is good. But not enough. We will strengthen our employee value proposition, ensuring a culture geared to global-team collaboration and results.

To assist in our global people strategies, we have appointed our Australia New Zealand People Director, Tracy Noon, to the role of Chief People Officer.

Third, we will focus more on selected clients who need to fill critical jobs. Those where fit and potential need to be thoroughly assessed. This will help us avoid lower-margin commoditized business.

In some of our regions, we are already deploying our proprietary talent-management tools, coupled with our regular services, with increasing success. We will be rolling out these tools globally to further leverage on our consultant capabilities, and deliver even-better candidates for each of our different client roles.

And fourth, we will be upgrading our digital presence through the Web and social networks, to fully leverage the possibilities that these channels offer today. This will help us attract more passive candidates and deploy more targeted sales efforts.

We have already invested globally in a SalesForce.com CRM and Microsoft SharePoint Intranet platform. And both support today our business-development and knowledge-sharing efforts.

And of course in addition to all that, we will continue working to improve our leverage, and realize more operational synergies across our business.

While we improve our act on all these fronts, we remain fully committed to delivering on our earnings trajectory. We don't want our efforts to enhance our business platform to delay current earnings potential.

I strongly believe that we can make progress quickly, simply by deploying our existing regional and corporate capabilities across the Company. And there is no more important objective to us than honoring the confidence that our investors, employees, clients and candidates have placed in our Company.

I would like to finally take this opportunity to thank you once more for your trust in Hudson, and turn it over to Mary Jane, who will offer to you a more-detailed account of our quarter.

Good morning. Thank you for joining our call. I'm happy to be here today with Manolo.

As David said, the earnings slides for our call are posted on the website, Hudson.com. They primarily show the second-quarter 2011 results compared to the prior year.

As Manolo said, we had a good quarter, with growth coming from all regions and all business lines. Our revenue was $247 million. Temporary contracting contributed over 27% growth on a reported basis, and for the second quarter in a row, grew 15% on a constant-currency basis.

Perm grew at 28% on a reported basis. 13% in constant currency. This is a slower level than we've seen over the past several quarters; particularly in the UK, and is reflective of both strong comparables and recent conditions.

Talent management grew 22% reported, and 6% in constant currency, with good contributions from Europe. Our gross margin of $95 million was 38.6% of the revenue; up 50 bps on a reported basis, and 30 bps in constant currency.

Our temp gross margin was 18.3%, increasing 80 bps in constant currency, our largest temp gross-margin expansion since 2008.

EBITDA was at the top end of our range, at $7.7 million. While we are still seeing margin pressure in some markets, others are starting to recover.

North America delivered a better-than-expected quarter, and our China business is growing well. While on the other hand, Europe is seeing the beginnings of some softening.

The two countries that contributed the most to our EBITDA this quarter were the UK and Australia. The UK contracting business had a good lift from one of our cross-border legal projects.

As Manolo mentioned, the US and the UK teams have worked very hard to develop this cross-border legal capability for our clients who need it. And that's paying off now.

A better temp gross margin this quarter, and some growth in talent management, combined to offset the slowdown in perm.

In ANZ, perm remained very strong, at 28% constant-currency growth; largely led by our RPO business. A portion of this growth was driven by some clients of ours who had June 30th year-ends. That caused something of a push to hire at their year-end. This produced a positive mix effect, and drove a 200-bps increase in their gross margin.

The market perhaps most worthy of note, though, was North America. Revenue grew 25%, and gross margin grew 30%, helped also by good RPO growth. North America's adjusted EBITDA of $1.8 million improved to 3.6% of revenue, and strongly contributed to the Company's positive net income and improved tax rate this quarter.

Other points of note include our net income, with $4.2 million in the quarter. This includes $1.2 million of stock compensation.

Including the recent February 2011 grant and our new CEO, this is an increase of $700,000 compared to last year's recorded amount of $500,000.

There are two drivers of this increase, particularly related to the February 2011 grant. The first one is, for that grant, the stock price was 35% higher on the date of the grant than it was on the date that the 2010 shares were granted.

The second driver is that we had 25% more shares issued -- largely for retention at that time. For the full year, our stock-comp cost is expected to be about $4 million.

Our tax rate was 25%. This was helped, as I mentioned, from positive overall income in the United States. Our cash flow from operations was $10 million positive, bringing the year-to-date cash flow to nearly breakeven, or just about $300,000 negative.

Our total liquidity is $78 million, with $35 million in cash and $43 in available borrowings at the quarter-end.

At June 30th, we had $10.1 million borrowed on our credit lines. The capital expenditures this quarter were $2 million. And for the year, we expect that CapEx spend to be about $7 million.

Our restructuring reserve continues to decline. It sits now at just over $2 million. As I mentioned to you last quarter, most of that is property-related. And we expect this to pay out over the next few years.

Cash payments on restructuring were $800,000 in the second quarter, compared with $2.2 million a year ago.

Turning to our guidance, we considered a number of factors in setting the guidance for this quarter. One was our first-half progress of $10 million EBITDA. The second is the various economic trends prevailing in the world, today.

Third was planning for a more traditional Q3 dip in Europe than we had in 2010. Something we've seen many years in the past.

And probably the most important factor was the commitment of our teams to deliver an improved earnings trajectory this year.

We do have some concerns about the economic headlines that we're seeing, particularly in Europe. In this area of the world right now is hardest to predict after several quarters of challenging conditions. But all things considered, we expect the revenue to be $230 million to $240 million at current exchange rates, and EBITDA of $5 million to $7 million.

This guidance compares with revenue of $200.4 million in the third quarter of 2010, and an EBITDA of $1.2 million.

During the third quarter, we expect the regions collectively, excluding Continental Europe, to deliver about the same gross-margin percentages in the second quarter.

The same thing is true for EBITDA, except for Continental Europe. We expect the rest of the regions to collectively deliver roughly about the same EBITDA they did in the second quarter.

As Manolo has said, we are committed to our earnings improvement for this year.

As time goes by, the world seems to get less certain; not more. And if economic concerns persist, this could cause us to be more at the lower end of our guidance range for the year than in the upper end. But our teams around the world are very committed to delivering this year. They're committed to doing this for our shareholders and they're committed to doing it for each other.

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

Thank you, Mary Jane. Mary Jane and I would be happy now to take any of your questions.

And at this time, in order to ask a question, please press *, then the number 1, on your telephone keypad. We will pause for just a moment to compile the q-and-a roster.

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

Thanks so much. Mary Jane, I just wanted to follow up with your comments regarding guidance.

When you talked about gross margin and EBITDA trend, you were specific to pull out Europe. I know there's still a lot of uncertainty there, but what are you looking for in Europe, embedded in your guidance?

Well, first of all, as I mentioned, we are expecting more of a seasonal dip. I don't know how much you would've remembered last year terribly well, but we had a fairly consistent Q2-to-Q3 last year. And that is not our historical pattern, so I am assuming that that could occur.

Similarly, we've seen some more jitters with respect to hiring, on behalf of our clients. Both in Continental Europe, as well as in the UK. We just talked here on the second quarter about how we saw perm down in the second quarter; different than the trends we've seen. We will be coming up on strong comps again, as well.

So all those things considered caused me to not expect to see the kind of growth in the earnings from that region as we've maybe seen in the past.

Would you still expect the region to be EBITDA-positive, though, in the quarter?

Yes.

Okay. All right. That's helpful. Thank you.

Just moving on to Asia. Just comparing to some recent quarters, the EBITDA margins went down pretty dramatically. Was there anything specific going on there in the quarter? And what should we expect, going forward?

Yes, that's a good question. The EBITDA margin was down in the quarter.

I think the answer is that our Asia region is a very good earnings contributor to our Company. In the past, it's had EBITDA margins somewhere between 17 and 19%.

This is a region that's worth investing in. And that's really what we've done.

We've talked about the particular growth we've seen in China. We see a generally strong region in general. So consequently, we've focused on being sure that that region can continue to grow.

With respect to the EBITDA per se, there was a particular increase in the corporate allocations this quarter. Largely because last year, we had a credit for a sort of tax refund. That was absent this year, which makes the increase in the corporate allocation look particularly large.

Having said that, the answer I gave you with respect to investing in that region still applies to a large extent at the adjusted EBITDA, as well. That chart is pretty clear, I think, in the shareholders letter.

Okay. Great.

Just a couple quick numbers' questions.

For the third quarter, what should we expect for corporate expense? And also, I know it's kind of dicey, but the tax rate guidance would be helpful.

Yes.

So with respect to corporate, I think the number that we'll publish for this quarter was about 5.4. We'll still see it in about the $5-millionish range in the third quarter.

One of the things we've mentioned about corporate expense being higher is the bonus accrual.

Last year, the year sort of unfolded as it went on, and we didn't have a real full visibility of what it would like there, so the bonus accrual grew as we had more visibility on the year.

This year it's a little bit more even, and that starts to catch up with us in the third quarter. So the costs should be closer to about 5.

With respect to the tax rate, the tax rate for the whole year, I expect to be in the neighborhood of about 25. As you know, it's a little bit challenging, where exactly it shows up. The earnings.

But having said that, I expect North America to continue their nice trend begun this quarter. And North America contributing to the earnings, and the impact that has in the taxes is very helpful.

So I'm not sure whether it would be precisely 25 in the third quarter, but I think it will continue to be good and be 25 for the year.

All right. Great.

And Manolo, just one for you.

I know you've been there a few months, and I'm just curious -- what's been the most positive surprise, from your perspective, compared to your expectations before you joined the company?

I think I mentioned it several times on my remarks. The quality of our people. I think that unfortunately, because of the pressures from the recession, our people have let them go and discount and enter into a more-commoditized part of our business. But more than two-thirds of our consultants are very seasoned and capable to sustain a much higher-value proposition in the market.

We see that in certain regions with pools of excellence. And just by sharing best practices and initiatives across the network, I think that we can realize the tremendous potential that I see in our teams across the world.

All right. I'll go back in the queue. Thanks so much.

Your next question comes from the line of Mark Marcon with RW Baird.

Good morning!

Hi, Mark.

Good morning.

I was wondering if you could talk a little bit about the nice progress that you saw in Hudson Americas, and specifically, the legal practice.

We did see a nice growth there in terms of both revenue and gross profit. Can you talk a little bit about the investments that you made, and how we should think about the incremental margins in that part of the business on a go-forward basis?

Yes, Mark. So there are four different lines of business, as you know, in North America. Two of those are the ones that are really contributing to the growth this quarter.

The first one being legal. In the last couple of years, we have been adding more e-Discovery and litigation-support capabilities. We are now leveraging on those to secure good cross-border work that goes just beyond North America.

And in that area, we are doing more and more project-management. Especially when we are providing space in our review centers. And as a result, we are seeing less pure staffing supervised by others. And us working more closely with regional e-Discovery vendors, setting up design document, review workflows, for our clients together. And securing alliances with technology providers. That is helping increase the legal-temp margin, which of the US and the UK combined, went up by 5%.

The other practice, which is growing very well in North America, is RPO. RPO contributed more than 40% of our growth in North America, and it's already 12% of our gross margin here.

Kind of the same story, we are focusing RPO to deliver high-quality solutions to the market. So not just trying to compete on volume involving tens of thousands of hires a year, but making sure we focus on clients who really want to outsource the hiring of critical roles. Those where fit and potential need to be thoroughly assessed.

The other two business practices are IT and financial solutions. IT has been doing better. We grew 16% in IT. Half of the growth in IT came from new clients, and that is good. But we know that more work needs to be done there.

We have seen improvement in those three business lines. We can now turn to do the same with financial solutions, which is where we have been struggling most.

Great.

And can you speak a little bit to the incremental margins that we should expect, going forward, in North America? I know that you opened up an e-Discovery Center in Southern California recently. I'm just trying to think of how much of the incremental gross profit should flow down to the EBITDA line.

Yes. That's a good question.

I think it's a little tough to tell exactly, project-to-project. But conceptually, it's important for us to focus particularly on new work really driving the EBITDA returns off that gross margin. We've talked a lot about the importance of leverage, and obviously it doesn't get better if we don't do that on particularly new work.

We have had some increases in space, but we've also seen increases in the COBs, as well. I would not expect to see us opening lots of centers ahead of the client demand, actually. But given that there are always a few vagaries of timing, I would imagine that the leverage still should be roughly around the 40s, let's call it. If not possibly considerably better than that.

We are seeing some good leverage coming out of our business that we are doing in London, and the leader of this practice is very, very focused on increasing the profitability and the gross margin, in general.

So I think we should consider that it will be good. And our goal would be to make it as good as possible.

Great.

And did that cross-sell, in terms of the London e-Discovery work with the 70 contractors? Is that showing up in the European revenue?

Yes.

Okay. Great.

And then can you talk a little bit about how much bigger that can become?

How much bigger the cross-border legal work can become?

Yes.

Well, I think two things are driving it. Right?

We've talked for a long time about how some of this legal contracting or legal e-Discovery is kind of a US phenomenon. Because the US is a lot more litigious. And there are a lot more lawyers.

I think to a large extent in the past, that's actually been true. But increasingly, what we're seeing around the world is two things. US clients in a number of activities; whether they be positive ones like M&A or not-so-positive ones, like regulatory actions -- where the documents that are required do not all reside in the United States.

In order for those things to progress, whether it's a cross-border merger or locations outside the US, documents need to be produced from those non-US locations. And arguably, one would expect that possibly that could go in the other direction; a non-US company buying a US could result in similar sort of antitrust kind of evaluations, requiring documents that way.

There simply is more of that now that we are in the recovery.

But the second area is that we are beginning to see countries outside the United States pass laws that are similar to some of those in the US, that have given rise to document reviews. Whether that's their business-combination law; whether it's foreign-practices act -- whatever. We're simply seeing more of a convergence around the types of law that tend to have discovery activity associated with them.

So to your question of how big it can be, I don't know that I could put a number on that for you, Mark. But I can tell you that in terms of conditions that should drive the business, they are growing. Even though in the past, when we thought that wasn't very big, they are growing from the situation we've seen in the past.

We are happy with the speed at which that's being taken up by clients. It's also a new way of working. I'm not sure people are going to love digging through all their boxes.

But at the end of the day, I think we'll watch that and we'll keep you posted on how we're doing.

Great.

And then as it relates to Europe, I mean there's obviously no shortage of negative headlines out there. Which markets are you specifically seeing the biggest slowdowns in; which ones are you most concerned about? And to what extent can you control the expenses, if in fact demand does drop off?

Well, unfortunately, coming from that country, it's really embarrassing to start mentioning Spain. But Spain is the one country where we are experiencing more of a slowdown.

In the UK, because of the mix that we've got there with perm and temp, and because of the bridge that we are building with the e-Discovery practice in the US, we are containing the slowdown of perm replacements with the temp and e-Discovery increase.

And in France and Belgium, we are having good growth. We are defending ourselves there.

So the other two markets, where we have experienced more of a slowdown, are the Nordics and CEE.

And I think that probably in the Nordics, it's more a factor of us rebuilding our management capabilities there than the market traction. I think market traction is there in the Nordics market. And the CEE is small.

Finally, we have a business in the Netherlands which is very much tied to temp business, with some more exposure to the public sector. Last year, we had a huge dip in that business. This year, we have recovered from last year, but we are not still at the level that we're used to.

Okay.

And so it sounds like the UK and the Netherlands -- of the major markets that you have exposure to in Europe -- it sounds like the UK and the Netherlands would be the ones that you would be the most concerned about, in terms of potential slowing. Is that correct?

Yes. But in the UK, as I said, we have a good balance of practice and business mix. So we are not concerned about the UK business as a whole.

I think we will have one area compensated for the dip in other areas.

Okay.

And so given that your expectation with regards to margins as we get beyond the seasonally slow period would be that we should still be up on a year-over-year basis by the time we get out to fourth quarter; is that correct?

Well, we are in terms of our internal capabilities, strengthening those. As I said, we are exporting best practice from other areas of the world. And our European teams are going to become nothing but stronger.

The uncertainties that we are seeing in the market are impossible to predict. I mean you read the papers every day, as we do, and we're anxious to know more news about Europe. Every week, things change. That uncertainty is impacting the hiring decisions of many of our clients.

In Europe, we have a higher exposure to our perm business, which is where uncertainties impact those more. So we will be ready to pick up when the demand is there, but we are not able to control the demand. And it's very difficult to predict, Mark. Very difficult to predict.

The one thing which is positive, and this is why we are comfortable with the guidance that we're giving you, is that Hudson has a very balanced portfolio. And that some areas with the stronger performance might compensate others that might be lagging.

Great.

How big is RPO, globally? You mentioned it's 12% of the US.

It's about --

It's 15%.

It's about 15% of the gross margin, worldwide.

Then with regards to Asia-Pac, just following on Jeff's question. When should we see the margins bounce back there? Should that occur starting in the third quarter? Or take a little bit longer as you're continuing to invest?

Well, I think with respect to Asia, let's do Asia Proper.

In their case, I think it is important to look at the adjusted EBITDA margin, just so that we don't kind of get twirled around on the management charge, which obviously is an allocation from the US for the services.

Yes.

So you know we had 17.5 in the first quarter, and 17 in the third. Sorry, last year's. 17.5 in the second quarter, this quarter, and 17 last year.

I mean my sense is that if they continue to progress, we should continue to see them coming back steadily. That's an important market for us. And while we do need to invest in it, I think the goal is to be sure that we're also posting numbers onto the adjusted EBITDA, as well.

Great.

And then in terms of just ANZ. You mentioned that there were a lot of clients that ended up hiring towards the end of the quarter.

Yes.

How should we think about seasonality there? And how things are progressing over there? Because we're getting some mixed signals in terms of the Australian economy, at this point.

Sure. Well, so are we.

First of all I think it's a good thing that Australia posted a good quarter for us this quarter. And they've been focused very hard on doing that.

The third quarter for them, as you know, is their winter. So Australia has typically delivered a very, very strong contribution into the third quarter. And that is still a serious working period for them.

We, as well, listen to the tom-toms, too. About whether or not interest rates will move, and what that does for the economy. And how much it's starting to -- a little bit -- cool, after not really having much of a recession during the 2010 year.

But we have made our investments in the Australia market, as we've talked about now for four quarters. And the team is very, very focused on trying to deliver on those.

So while RPO was a good lift in this quarter, we do expect to see continued gains from that market in the third and fourth quarter. And they themselves are very committed to posting those.

Again, if things go particularly left-of-center, that's tough to predict. But I think absent that, we should see good progress in Australia, particularly with respect to their leverage in the second half.

Great. Thanks.

And then final question for Manolo. I know it's still early. You've outlined a number of initiatives.

Manolo, when do you think -- I know it's going to be a constant improvement and constantly monitoring the situation. But in terms of the initiatives that you've outlined, when do you think we should see the fruit from those labors really come to fruition? Assuming the economic environment remains steady, which is obviously difficult to predict.

Well, we're already seeing things. So I mean we are trying to get as much of the low-hanging fruit as possible. And the legal e-Discovery initiative building the bridge with the UK was something that was a decision that I took already three months ago. And we have 70 contractors on billing over there.

So we're already trying to focus the initiatives, so that we have early results.

But as you probably think, given my experience in change-management programs, these things take time. We need to make sure that we move the Company and its practice around the world in the same direction.

With each hire, each client interactions, the service we provide to a client has the same look-and-feel, globally. That's where we will be realizing the full potential of the global platform of Hudson. And realistically, completing a change-management program like this can take a few years.

But I've said I expect to see progress faster, simply because our people in our Company have had already an input to those changes. I have been very careful to involve as many of those, so we create a broad ownership of the change-management program.

And I think we're waiting for this. They have been asking for this, to have a One-Hudson act.

I think that we have a nice earnings' trajectory this year. We're already delivering. We are committed to continue on that earnings' trajectory, and it can only get better.

Great. Thank you very much.

And again, in order to ask a question, that is *, then the number 1, on your telephone keypad.

Your next question comes from the line of Ty Govatos with CL King.

Hi.

Couple of hopefully short questions.

When you issued the second-quarter guidance, did you have any inkling that perm placement would be flat in Europe?

Probably not, actually. The reason that Europe's hard to call is, we've had jitters about Europe for what would you say? 3 years, at this point?

And we had continued to do well.

So consequently, we'd seen that market pull out pretty well, every quarter. Despite all the stuff in the atmosphere.

So the fact that they were lower probably was not what was in our calculation at the time.

Okay. IT growth. Half new customers. Is that the cycle? Or were there some initiatives in there on getting new customers?

I think the cycle helped. I think that definitely the cycle helped. But we are also pushing some initiatives. We are not reaping all the fruit from the new initiatives, because it's early to tell.

I think it was probably 70/30.

Okay. That's fair.

Programs to retain recruiters and get the turnover low.

Yes.

Have you decided what they will be? Or are you still in the process of trying to figure out the best approach?

We appointed Tracy Noon on this role as Chief People Officer, approximately 1.5 months ago. She is still here with us already in New York, this week, working with us on the board on launching these initiatives.

So we've got the program already designed. And this is going to be our key priority. I think that in professional-services business, as you know very well, it's all about managing your people. And making sure that you motivate and retain them. So this will be high-high on our priority list.

Sounds good. Thanks an awful lot.

Thank you.

You have a follow-up question from the line of Mark Marcon with RW Baird.

I'm wondering if you could give us a little bit more detail with regards to the retention rates that you have with your experienced recruiters right now? And where would you expect them to go?

Manolo, it sounds like your expectation or your goal -- part of that -- is to improve the retention rate.

Yes. I mean improving the retention rate would be the one more significant factor that we could use. In order to both improve our profitability, because we will eliminate the fact that we have to continue hiring. And waiting for the new consultants to ramp up. And at the same time, by increasing the tenure, we would be offering higher value to our clients.

So this is why it's key, and it's a very significant factor.

When you look at the average turnover on the staffing industry, we see figures which are around 20%. We are a little bit below that number. But not much lower than that.

I have to say because that was kind of the the average figure of the staffing industry. We got a little bit complacent about it, saying we could not do anything. "This is part of the industry."

However, if we look at other professional-services firms, those that have more of a consultative approach to the way they deliver their services to the market -- the high-value space -- we see figures that are closer to 5%. And that will be our aim.

Which markets are you best at, in terms of retention and development right now? And what are they doing that's different in those markets, relative to the ones that need improvement?

The market where we have the best retention of all is Belgium. And the retention there is absolutely best-in-class. In these surveys about what is the best company, the employer-of-choice, the best company to work for -- Hudson Belgium comes 5 of all companies in Belgium.

I think McKinsey for just a little bit. They are 4 and we are 5. So you cannot get much better than that.

And there is not one of our consultants in Belgium who thinks of going to a competitor, because they think that we've got the stronger brand. It's all about collectively putting our art together, and building a strong brand.

I think that Hudson had been managed more as a portfolio of companies before. And we had not fully leveraged on the opportunity of building a strong global brand that our people would appreciate, with the synergies that the people programs can be built with that global perspective in mind.

Great. Appreciate the color.

Once again, in order to ask a question, please press *, then the number 1, on your telephone keypad.

There are no further questions at this time.

Well, thanks very much for your time and for all your questions. And I look forward to remaining in contact with you. And I'll turn it over to David, now.

Thank you all for joining the Hudson Highland Group's Second Quarter Conference Call. Today's call will be recorded and will be available later today on the investor's section of our website, Hudson.com. Thank you. Have a great day.

This does conclude today's conference call. You may all disconnect.