Hudson Global Inc (HSON) 2011 Q4 法說會逐字稿

Good afternoon.

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

At this time, I would like to welcome everyone to the Hudson Highland Group, Incorporated fourth quarter 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.

(Operator Instructions)

I would now like to turn the call over to our host, Mr.

David Kirby, Director of Investor Relations.

Sir, you may begin.

Thank you, Christian, and good afternoon, everyone.

Welcome to the Hudson Highland Group conference call for the full year and fourth quarter of 2011.

Our call today will be led by Chairman and Chief Executive Officer, Manolo Marquez, and Executive Vice President, 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 quarterly slides, both posted on our website, hudson.com.

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

They are posted on the website under featured documents, and our speakers will make references to these materials during their remarks.

With that, I will turn the call over to Manolo Marquez.

Thank you, David, and good afternoon, everyone.

Earlier today we released results for the full year and the fourth quarter of 2011.

As I complete my first year at Hudson I am pleased to announce that we achieved double-digit revenue growth and an all-time record net income from operations in the year.

To reach these results, we placed over 16,000 professionals and managed a daily average of 5,800 highly skilled contract consultants to deliver solutions that help our clients grow and address their business challenges.

I would like to thank our clients for the confidence they placed on us and, of course, thank our teams operating in more than 20 countries across the world for their efforts and excellent work.

We have learned from the Company's challenges in the past and the realities of the business cycle the requirements to achieve stable, profitable growth.

The second half of 2011 saw a challenging environment in Europe.

As you know, economic sentiment is a key driver of hiring decisions, and like everyone else we experienced headwinds.

During the fourth quarter investments also declined in Asia-Pacific and our banking clients took additional austerity measures.

These reinforced the reasons why we wanted to move swiftly to set a stronger business foundation for our future, while working very hard to deliver on our committed 2011 earnings trajectory.

And all performance metrics improved significantly in 2011.

Our revenue of $934 million grew 17.5% or 11% in constant currency.

Our gross margin of $364 million grew 19% or 12% in constant currency.

EBITDA was $23.6 million compared with $6.5 million the previous year.

And net income was $10.9 million compared with a net loss of $4.7 million in 2010.

Mary Jane will provide you more details on our financial performance in a few minutes.

We undertook four key strategic initiatives, which contributed positively in 2011 and will be critical in 2012.

Our first strategic initiative encompasses efforts to align our business units globally and capitalize on our best practices across borders.

In 2011 we established global practices for two of our fastest growing lines of businesses, Legal eDiscovery and Recruitment Process Outsourcing, or RPO.

Hudson's Legal eDiscovery solution combines contract-[appropriate] staffing with an integrated system of discovery management and review technology for corporate clients and law firms.

More than half of our legal engagements now include project management compared with only 15% two years ago.

Our RPO teams utilize state-of-the-art recruitment process methodologies and project management expertise to provide recruitment outsourcing, project-based outsourcing, [contingent] workforce solutions, and recruitment consulting.

The majority of the assignments won in 2011 were cross-border.

And the profitability of our RPO line doubled from the previous year.

Together Legal eDiscovery and RPO contributed over 70% of our constant currency gross margin growth in 2011.

We also took steps to unify our operations by organizing our divisions into three regions -- America, Asia-Pacific, and Europe.

And streamlining operations simplifies our operating platform, enables better global coordination and aligns with our clients' needs.

This new organization will allow us to extract cost savings over this year to counter a potential revenue drop in Europe.

Our second initiative comprises actions to improve the capabilities, engagement, and productivity of our teams.

After the appointment of our Chief People Officer we rolled out a company-wide communication and collaboration program, a new compensation structure to better align our management team with shareholder value creation, and a personal performance [agreement] process to provide a consistent way for employees and managers to set objectives and track and measure our progress.

Sharper business focus helped us achieve an adjusted EBITDA leverage on incremental constant-currency gross margin of 49% in 2011.

Our third initiative regards our efforts to critical jobs and more specialized professional contract consulting solutions.

During 2011 a better mix of business expanded our temporary gross margins 100 basis points in constant currency.

Also, half of our permanent placement gross margin growth came from either exclusive or [retain] assignments.

Our fourth initiative delivers a compelling digital presence through the web and social networks to leverage the possibilities that these channels offer for our clients and candidates.

To this end, we created a new Chief Knowledge Office, integrating our existing technology, information, social media, and branding efforts.

In this last fourth quarter we deployed our new search engine optimized website in more than 20 countries, and we are already experiencing an increasing number of meaningful client and candidate web generated inquiries.

We are confident that these four strategic initiatives will help us establish a stronger foundation for profitable growth, even though European conditions remain volatile.

As we shared with you in our press release, we are likely to see a decline in revenue during our first quarter.

But to counteract this we will continue to develop high value strategic services and solutions, like eDiscovery and RPO.

We will nurture global client relationships to generate more cross-border opportunities.

We will remain adaptive to market conditions with our balanced portfolio of business lines and specialty practice.

And we will focus on cost management and productivity gains to deliver our services and solutions with greater efficiencies.

(Inaudible) by the confidence of our investors.

We are pleased our efforts produced sound results in 2011 in spite of the market difficulties.

We reinforce our commitment to progress in 2012.

We will redouble our efforts to withstand the economic challenges that the current year may bring and take advantage of the opportunities presented in an interdependent globalized world.

I will now turn it over to Mary Jane, who will provide more specific details on the year and the fourth quarter.

Thank you, Manolo, and thanks, everyone, for joining us today.

We've posted some slides showing our results on the Hudson website, as David mentioned.

I hope you'll take a minute to access them for reference during this call.

As Manolo said in his remarks, we had a strong year in 2011.

All of our key metrics improved, our gross margin, our earnings, and our cash flow.

Our whole company began 2011 with that commitment and we're proud to have delivered on it.

At the same time, we progressed our new strategic initiatives that are both exciting for us and valuable for our clients.

The financial highlights have great parallels to the strategic highlights.

All of our regions contributed to our revenue growth of 18% on a reported basis and 11% in constant currency.

Our major revenue lines grew and collectively contributed to our improved gross margin mix.

Earnings improvements were driven by both good market focus and better application of our expenses.

Our tax provision on a book basis was $5.3 million, reflecting good tax management, especially when compared to the 2006 and '07 period, and also more balanced earnings contributions from all three regions of the world.

Our cash flow from operations of $13 million is a $28 million improvement over 2010.

With respect to the fourth quarter let's review a few facts, first.

Our revenue of $223 million grew 1% in constant currency over the fourth quarter of 2010.

Gross margin of $84.6 million grew 1.4% in constant currency.

EBITDA of $6 million or 2.7% of revenue in the fourth quarter included $1 million of severance.

This improved from $3.6 million for the fourth quarter of 2010 or 1.6% of revenue.

Net income of $3.3 million or $0.10 a share compared with net income of $1.2 million or $0.04 a share for the fourth quarter last year.

Cash flow from operations in the fourth quarter was $20.4 million and $13 million for the year, as I mentioned before.

Our liquidity increased to $89.1 million composed of $37.3 million in cash and $51.8 million in available borrowings, with $3.4 million of outstanding borrowings on our various revolvers at the year end.

Our cash position improved 26% from a year ago, while available borrowings are up 18% from last year.

As for the sequential decline in our revenue from the third quarter, it is largely, as Manolo mentioned, from the banking sector.

During the last year banking has been about 20% of our business in total, including some of our Legal and eDiscovery clients.

With the ongoing pressures that banks are dealing with regarding the sovereign debt issues and the need to counteract those effects, many of our clients focused squarely on cost efficiencies, including hiring freezes.

What was more pronounced than we expected were the ripple effects in Asia-Pacific.

However, this is an important sector in professional recruitment with a need for talent in all economic conditions, so we have confidence that it will remain a decent source of revenue despite variations from quarter to quarter.

Notwithstanding some softness in the fourth quarter, each region still made a substantial contribution to the year and to the fourth quarter.

Starting with the Americas, the Americas good year was driven by both of our strategic practices, eDiscovery and RPO.

Gross margin increased by 29% from 2010.

Gross margin expansion along with ongoing expense control delivered both $6.4 million in adjusted EBITDA and $1.8 million in net income, with a net income figure including $3 million of the corporate management charge.

As it happens, this is America's first year of positive net income from operations, allowing us to access the NOL.

This adjusted EBITDA of $6.4 million compares with $200,000 in 2010.

Fourth quarter adjusted EBITDA of $2.4 million more than doubled from last year.

Thanks to Legal eDiscovery temporary contracting gross margin grew 19% for the year overall, and the gross margin percentage increased 60 basis points to 22.2% in 2011.

In Asia-Pacific -- Asia-Pacific's gross margin grew in the first half of this year by about 15% in constant currency, but the rate declined in the second half of the year especially in the fourth quarter as both the banking sector and investment in China fell.

This was partially offset by RPO and our growing business in the natural resources sector.

Consequently, along with good expense management, Asia-Pac's adjusted EBITDA remained healthy at 6% return on revenue for both the fourth quarter and the entire year.

For the full year 2011 Asia-Pac's gross margin grew 10% in constant currency.

This was driven by 14% growth in permanent recruitment led by RPO in China, and 5% growth in temporary contracting.

Adjusted EBITDA was $21.3 million, an increase of 56% or $7.6 million from 2010.

Asia-Pac continues to be the most profitable region in our organization.

And, finally, for Europe, for the year overall we made good progress in the UK, Belgium, and the Netherlands.

Our specialty contracting practices, including eDiscovery and the placement of senior leaders on an interim basis were the major drivers of 9% constant currency gross margin growth for the region and adjusted EBITDA of $16.5 million.

The adjusted EBITDA increased 79% from $9.2 million in 2010.

Permanent recruitment had modest growth during the year, but temporary contracting increased 30%.

The temporary contracting gross margin increased to 18.9% of revenue, up from 16.9% last year, primarily driven by higher margins in eDiscovery.

In the fourth quarter many clients delayed permanent hiring decisions, especially in the UK.

The balance of our service portfolio nonetheless helped maintain gross margin flat to the fourth quarter of 2010 in constant currency.

Adjusted EBITDA of $3 million increased 18% over the fourth quarter of 2010.

To give you a few other points of interest, our net income included $400,000 of stock compensation expense in the quarter and $3.2 million for the year compared to $1.7 million in 2010.

As I've mentioned to you previously, there are two drivers of this increase between this year and last year.

The first is that for the 2011 grant the stock price was higher by about 40% compared to the price that was applicable in the 2010 award.

The second reason is that we issued 25% more shares, largely for retention.

Our tax rate was 33% for the year, consistent with expectations.

And our DSO dropped to 47 days at the end of Q4, down from 49 a year ago, with notable improvements in the Americas and Europe.

Our CapEx was $1.7 million in the quarter, just under $7 million for the entire year.

We expect 2012 to be consistent with '10 on a cash basis, not including some landlord-funded improvements for properties where the move to them will greatly increase our operating efficiency.

Our restructuring reserve for prior year programs continues to decline.

It is now about $1.4 million after cash payments in the fourth quarter of $300,000 and $1.8 million for the year.

The remainder of the reserve is mostly property related and will continue to reduce over time.

Turning to our outlook, you'll remember that the first quarter typically delivers about 10% of our earnings for the year.

This quarter is smaller -- in quotes -- largely due the restart of the US payroll taxes and the summer holiday period in the ANZ region.

Our outlook for the first quarter reflects that normal set of circumstances, coupled with the effects of the European debt issues that have been with us during this first quarter.

We expect the first quarter of 2012 to be down 4% to 8% in revenue compared to prior year at prevailing exchange rates and EBITDA to be about breakeven from operations.

As Manolo indicated, we're taking actions to contain the effects of this decline in the first quarter.

Our outlook compares with revenue of $218.5 million and EBITDA of $2.5 million in the first quarter of 2011.

Regionally we expect revenue to be down in Europe, and we don't expect that the Americas or Asia-Pacific will be able to fully offset that decline.

For EBITDA, though, we expect improvements in the Americas and Asia-Pacific compared to prior year and weaker results in Europe.

For the year overall, though, we're cautiously optimistic despite a slower start to the year.

We're heartened by the signs of progress to resolve the European debt issues or at least the early signs, and we are committing to improving our financial position throughout this 2012 year.

Along with closely managing our commercial prospects and our expenses, the early momentum from our strategic initiatives gives all of us confidence in our opportunities for this year.

With that, Manolo and I would be happy to take your questions.

(Operator Instructions)

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

Hi, Jeff.

Hi.

Operator, is Jeff's line open?

I'm sorry, can you hear me?

Now we can hear you, Jeff.

That's great.

Sorry about that.

Okay, we'll try again.

In your prepared remarks you talked about incremental adjusted EBITDA being about 49% of gross margin.

Would it be that high if gross margin goes down?

And, if so, what would the Company do potentially to counteract that?

So, in other words, would it go down that much, as well?

Correct.

Well, what I can tell you is that the Company will work -- the up and down on the leverage can vary considerably, particularly depending on conditions, but I would say that we would work very hard to try and mute that.

Can you give some examples of what you might do?

Well, I mean, obviously, we would look at various actions with respect to the variable compensation, discretionary spending, et cetera, that would allow us to potentially continue to be sure we're focused on revenue generating opportunities, but we're very cautious on the spending of expenses until the revenue line for the year is clear.

Okay, all right, that's helpful.

You talked about some of the weakness in the Asia-Pacific market and the ripple effect there.

If I remember correctly that market is dominated by your businesses in Australia.

Is that where you saw the weakness or was it in some of the other countries in that region?

Well, I think, first of all, the ripple effect we talked about is, first and foremost, primarily through the banking sector, and as you probably know the banking sector is a large part of the economy in both Singapore and Hong Kong.

It is a part of the Australian economy, as well.

So we saw the banking sector around the world affected, particularly in the fourth quarter.

We also saw some lesser investments during the fourth quarter in the China market, as well.

So generally speaking it was not specifically limited to Australia, but was really more driven by the banking comments we made.

Well, actually, that was a segue to my next question about banking.

You mentioned it was about 20% of your global business.

Does it skew higher or lower in any of the regions?

Well, obviously, some markets in the world tend to be more banking centers.

I mean the United Kingdom as a general matter is a very large banking center.

So consequently it is probably the largest -- of our businesses around the world, there's a larger percentage of our business in banking in the UK than there is in Continental Europe.

And then the other regions, just some of the specific areas -- ANZ, Asia, the US are about the same.

Okay, great.

And then just a few numbers questions, and then I'll jump back into the queue.

For both the first quarter and for the year can you tell us what we should model for stock-based compensation, for your tax rate, and for depreciation and amortization?

That's it.

Okay, well, first of all, with respect to stock comp, you should model about $800,000 I'd say for the first quarter.

It's down a bit in the fourth quarter for some true up of the stock award.

So that's the answer on the stock comp.

With respect to the tax rate, we would expect it to be in the low 30s over the year.

So it still may vary quarter to quarter and probably will in the first quarter, but I'd say for the year we're looking at a low 30s rate.

And depreciation, in the beginning of the year we're probably seeing it on the run rate of the 2011 year.

I'd call it about 6.5 to 7, and may increase to a run rate of call it 7.5 to 8 toward the end of the year.

All right.

That's very helpful.

Thanks so much.

Our next question comes from the line of Morris Ajzenman with Griffin Securities.

Kind of a follow-up to the first question.

Do you believe you've lost share in the fourth quarter or in the current quarter?

Any thought on that?

I know you're heavily dependent or focused on the banking sector, which helps drive your placements, but any comment on any share loss?

And then I have a follow-up.

No, I don't think we have.

I think, in fact, that we might have won more market share, but it's difficult to tell.

This is kind of our impression.

I think that in those areas where we saw the economy softening I thought that it was affecting everyone.

I would also like to just be sure on one point.

As I've said, our banking presence is about 20% of our business, but I wouldn't like to leave you with the impression we're heavily dependent on it.

The banking sector as a general matter is a very, very good market for professional staffing.

It's an important part of the major world economy.

So it is important and it did have an effect on the fourth quarter and will in the first, so absolutely that's right.

But it's not so much that we're particularly skewed there.

We would be remiss not to have that in our portfolio, at all.

Okay, fair enough.

And the second question is you're optimistic for the remainder of 2012.

Just help me understand that?

Is the presumption that the banking sector improves?

What is it that makes you optimistic for the remainder of 2012 after a difficult fourth quarter and an upcoming difficult first quarter?

Well, as I have said, hiring is very much reliant on the economic sentiment rather than on the economic factors.

I mean clients switch on and off hiring depending on how they see that the prospects are.

We do see some of the indexes that are available in terms of the economic sentiment, we see that actually improving.

So hiring always picks up faster in the cycle than other [industries,] so that makes us feel positive about the recovery.

And we are seeing all that trend, too.

Thank you.

Our next question comes from Mark Marcon with Robert W.

Baird.

Hi, Mark.

Good afternoon.

I was wondering could you give us a little more color with regards to just Asia-Pac.

We were looking at the organization in terms of the split, so just relative to how things shook out would you expect that maybe Asia was the most variant relative to the expectations or relatively equal?

Between Asia and ANZ, is that what you mean?

Right.

Yes, I would say that there probably was a somewhat bigger effect in the Asia proper market for two reasons.

One, kind of the greater concentration of banking in two of our markets.

And, secondly, it was -- you know, I think a lot of people were very nervous around the world as the European debt situation did not resolve.

Consequently, we saw clients in a lot of places, actually, become very, very cautious about hiring at year end.

Part of that may well have been the fact that they were year end clients and were preserving their earnings.

So we think we had a little bit of a year end effect, as well.

I mean you'll remember that we have a very strong position in multinationals in the Asia region, and from time to time we'll see this at the year end, that there was a little bit of a drawback as those companies get ready for year end.

But generally speaking I would say we've made some very good strides in the natural resources sector in Australia that have counterbalanced our whole portfolio there.

Consequently, having a little bit more bumps, shall we say, in Asia at the end of Q4.

And can you tell us the savings that you were able to gain from combining those two regions?

Well, the savings on the specific actions that we took was in the area of about $1.5 million to $2 million on an annualized basis.

And that began to contribute a bit in the fourth quarter but will be more realized through this year.

Okay, great.

And then how big is the legal practice within the US now?

Well, it's a fairly good part of it.

I mean let me just have David check the exact split for you, but it's certainly in the -- yes, about 50% to 60%.

Because it sounds like you're making really good progress there, both domestically as well as expanding that offering.

Yes.

So I was wondering if you could just give a little bit more color, just in terms of the growth rates that you're seeing specific to that particular segment, and what you think the longer term opportunity is?

Well, we have a dominant position being one of the market leaders in Legal eDiscovery in the US.

We believe the market is getting more sophisticated, and what we are doing, as I described in my address, is moving up the value chain, including more project management and integrating technology in our offer.

And that reinforces our possibilities to win market share in a market that is presenting more international opportunities now.

So it gives us a fantastic opportunity to move the position, the experience that we have in the US throughout the global platform that Hudson has elsewhere.

Great.

And how much did legal grow by in the quarter?

In the quarter 25%, for the year 28%.

And how big is it outside of the US at this point, with the opportunities that you're pursuing?

We don't have specific numbers in terms of what is the market size.

What we are seeing is more opportunities initially -- as eDiscovery moves outside of the US the market which is closer to is the UK, and that is where we are seeing most of our opportunities.

And then we are seeing also opportunities in Continental Europe and we see possibilities, as well, in Hong Kong and Australia [down the path].

Manolo, do you think that those could be sizable over the next year in terms of the opportunities?

In other words, if you're doing roughly $100 million in the US in eDiscovery in 2011, that's something that could ultimately get to 20 to 30 internationally at some point in the near-term future, or is it going to take a little bit longer?

Well, we're not going to kind of give a forecast on what we could do in a year in a specific practice.

But we are doing a specific investment in the UK.

We do think that that's a major market.

And as you have seen in the approach that the new management team and myself are doing we want to provide sharper business focus and prioritize our actions to ensure that we engage in this path of profitable growth.

So I think that you'll see more of our growth outside the US in the UK.

And in 2011 we are already achieved $6 million in gross margin in the UK.

Great.

And then just a few numbers questions.

With regards to the guidance, Mary Jane, you mentioned we're going to be up year over year in both the Americas and ANZ as it relates to EBITDA, but basically implying Europe is really going to get hit, which isn't surprising to anybody who reads the news.

But do you think that things could improve in Europe after the first quarter?

Well, I think that's what we do think.

When I say that we are looking to contain this in the first quarter, obviously, we won't contain all of the world economic events.

But it's at least a hopeful, let's say, that we seem to have some initial workings of some debt resolution.

Because, as you know, Mark, in some ways the economy in Europe outside of Germany has actually never been good since the 2009 recession.

Right.

And so after awhile we sort of get into kind of a downturn fatigue.

But generally speaking I mean we actually had a nice year in Europe because of eDiscovery growth and RPO, the growth in our Belgium business, the growth in our Netherlands business.

And while that's pausing here in the first quarter, I think as people really tried to figure out what was going on as the news changed every day in December, we actually are quite hopeful about our prospects in Europe, the strength of our business, our leadership team there.

And that's why I say, notwithstanding we're not giving guidance for the year, that actually we are positive about this year and the contributions of Europe as time progresses.

And we hope that we can see that getting underway sooner rather than later.

Yes, and on top of that I think that -- I mean we know what's coming in Europe.

I mean we read the press and we know what's coming.

And with the new organization we've put in place we are (inaudible) our people so that we move swiftly to try to take advantage of the opportunities when we find them.

And we talked just a minute ago, just as an example, about eDiscovery.

The drop that we had in the banking sector in the UK, which is a big part of our portfolio there, was more than compensated in 2011 by the growth in eDiscovery.

So we can move swiftly to take advantage of our different business practices and practices lines so that we make sure that we tackle the difficulties in a particular part of the economy.

Great.

And then can you just -- one other numbers question, and I'll jump back in the queue.

As it relates to the corporate expenses for the fourth quarter --

Yes?

-- can you shed some light on that?

Because it actually looks like a net addition, outside of what was allocated to the specific regions.

Well, as I mentioned, we did have some severance in the fourth quarter.

And I would say that overall the fourth quarter compared to last year is actually down.

But possibly, Mark, what we're saying -- and we'll examine this a little more -- is increasingly I think to try and get the Company to work better together and to get some real serious traction behind these four initiatives, we are moving some of the cost in corporate in order to allocate it more effectively back out to the regions.

So bottom line the corporate expenses are really not moving.

We did have severance in the fourth quarter, as I mentioned.

But other than possibly some things moving around net-net, I can tell you that we're very focused on trying to keep the corporate expense down and, in fact, around the world harnessing it better in order to drive it down.

I'm sorry, I didn't explain myself clearly.

If I strip out what was allocated to the specific regions it looks like the fourth quarter number for just outside of what was allocated looks like it ended up being a positive.

In other words, we allocated more than we had?

It appears that way -- and I'll follow-up offline.

No, no, Mark.

I just -- excuse me, I just wanted to be sure I was going to answer your question.

The way the corporate allocation goes is obviously in compliance with all the transfer pricing rules and does include a markup.

But net-net that is -- it kind of washes in the composite consolidation.

But that probably is the main difference you're seeing.

And we can talk to you a little bit more about it, but generally speaking we try and do the corporate management charge very, very carefully and against the rules -- in compliance with the rules -- and that does lead to the inclusion of a markup just to be sure that we have this on a correct basis.

Got it.

Okay, thank you.

(Operator Instructions)

Our next question comes from Ty Govatos with CL King.

How are you?

Good.

Hi, Ty.

A couple of small questions.

The severance involved what?

In other words, what was it for?

Yes.

Well, the consolidation of the regions --

Okay.

-- ended up taking out two leaders.

All right.

You said you'll be accessing the NOL for 2011?

We did.

When you estimate a tax rate in the low 30s, that's a full tax rate without any NOL?

Well, we would not expect the NOL to be enormous in North America, obviously, from a tax planning point of view, but also includes the withholding taxes for the various intercompany loans.

Okay, and, finally, a little broader question -- this is the first time I've heard about an expansion into the natural resource sector.

Could you go a little deeper in that?

I assume that's Australia?

Yes, I mean I think, first of all, the natural resources sector in Australia is a pretty large part of their economy.

And perhaps I haven't described it very well but we've talked about that a little bit for the last several quarters.

Obviously, our initial foray into that was in our very excellent accounting, finance, legal practices, the usual sort of corporate staff type of leaders.

Increasingly, we've expanded that into professional engineering.

But basically those are important companies in the Australian economy.

They are good companies in the Australian economy, and have needs for all sorts of management and leadership talent, and we are privileged to be able to supply some of our clients in that space.

Yes, and also -- I mean as you have seen with eDiscovery and RPO, those are not merely new things that Hudson is doing.

What we are trying to do is identify things that are existing in Hudson that we do well and make sure that we focus more in those areas and expand that expertise to other regions of the world.

So we've done that with eDiscovery and RPO, and Mary Jane just introduced natural resources because that's another of the areas where we do have a specific expertise that we see that has growing potential and that we want to exploit Hudson's specific experience and knowledge in the area.

If I go back, a lot of your business was from Eastern Australia.

When you say you're going into natural resources does that include a whole set of new clients or expanding your reach with existing clients?

Well, I think, first of all, we have had and continue to grow our clients across Asia, including in natural resources and the RPO portfolio.

And some of them, some of these clients we've had for a long time, even if we were only supplying some of the practices to them.

So I think the answer is both.

Yes, and let me also be specific that, even if today most of our business from natural resources comes from Australia, we're not going to restrict ourselves to Australia in natural resources.

We have some presence in the Middle East which is still [insignificant,] but where we could -- where we're already operating natural resources, and we do that as well in other areas of the world, like Scotland.

Okay, thanks an awful lot.

I appreciate the time.

Thank you.

(Operator Instructions)

There seem to be no further questions.

Please continue with any closing remarks.

Thank you, Operator.

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 the Investor Section of our website, hudson.com.

Thank you, and have an excellent evening.

Ladies and gentlemen, this does conclude today's conference call.

You may now disconnect.