Hudson Global Inc (HSON) 2013 Q1 法說會逐字稿

Good morning, my name is Amy and I will be your conference operator today.

At this time, I would like to welcome everyone to the Hudson Q1 2013 earnings call.

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

After the speaker's remarks, there will be a question-and-answer-session.

(Operator Instructions).

Mr. David Kirby, you may begin your conference.

Thank you, Amy, and good morning everyone.

Welcome to the Hudson Global conference call for the first quarter of 2013.

Our call this morning will be led by Chairman and Chief Executive Officer, Manolo Marquez 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' estimates or expectations, 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 those documents at this time.

They are posted on our website under Future Documents and will serve as a helpful reference guide during our speakers' remarks.

With that I will turn the call over to Manolo.

Thank you, David, and good morning everyone.

Earlier today we released results for the first quarter of 2013.

Compared to the year-ago period, revenues declined by 17% and gross margin by 23%.

During the quarter we delivered an adjusted EBITDA of minus $4.9 million.

While these numbers were within the range of our guidance, we certainly are not satisfied with declines of that magnitude or negative quarterly EBITDA performance.

Unfortunately, overall market conditions continue to be harsh, impacting the entire industry including key competitors that are also suffering declines in their businesses, most particularly in Australia and Continental Europe.

We already embarked on our strategy to optimize our operations and activate the synergies of our global platform in late 2011.

Our business can succeed in good conditions but is not yet fully equipped to effectively withstand a tough economic environment.

But we also know that, when the global economy rebounds, our industry rebounds as well.

During the first quarter of 2009 in the aftermath of a global financial crisis, our permanent placement gross margin dropped by almost 60% and yet, when the economy improved in 2010 and 2011, we also enjoyed several quarters of near 40% year-over-year growth in our Permanent Placement business.

Despite last year's challenges our total gross margin was only down 5% during the two-year period from 2010 to 2012.

And while we are disappointed with our current quality performance we are pleased that, in less than two years, we have made substantial progress in the execution of our strategy.

This will eventually make the company more resilient to the kind of conditions we are facing today.

When I first addressed you after our second quarter in 2011, I shared with you the four key initiatives that would allow us to make major in-roads on our strategy to position Hudson as a world-class global provider of talent solutions delivering the highest quality of service to our clients and candidates.

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

We established global practices to focus on Legal eDiscovery and RPO.

Gross margin from these practices has increased 13% and over 50% respectively since 2010 despite the ups and downs in the economy.

In the first quarter of 2013, they together represented 24% of our total gross margin up from 15% two years ago . We simplified our operating platform organizing into three regions -- America, Asia-Pacific and Europe -- to better coordinate our global activities, utilize our resources more efficiently, and align our operations with those of our multi-national clients.

Multi-country client relationships now represent meaningful revenue in each of our key markets.

And we have worked hard to realize efficiency improvements and added effectiveness through the establishment of cross-border shared service centers and back office consolidation.

These efforts have generated $3 million in annual savings to date.

However, our work insures services if at an earlier stage.

Once completed a full shared service operation will bring our SG&A more in line with our industry benchmarks.

Our second initiative included actions to improve the capabilities, engagement and productivity of our people.

With mild economic headwinds in 2011 we grew gross margins by 18% and achieved the highest income from continuing operations in the Company's history.

In 2012 when the economy weakened, we responded swiftly accelerating our transformation to protect our early success and improving our ability to withstand poor market conditions.

We created a leaner structure, consolidated offices, and lowered costs in our most expensive global properties.

In total, we reduced our annualized 2012 SG&A by almost $29 million in constant currency from 2010.

During this quarter these actions enabled us to offset $13 million of the $17 million year-over-year gross margin decline from the first quarter of 2012 including 7% decline in occupancy cost from a year ago.

Importantly, we combined these reduction in costs on headcount with the launch of the comprehensive suite of people programs to engage and motivate our employees, provide the training they need, and create a highly productive work environment.

87% of our people participated in the annual employee survey conducted by an independent consulting firm.

In spite of the restructuring and challenging conditions, 80% of them were identified as engaged or nearly engaged increasing slightly year-over-year.

Going forward we need to remain focused on preserving and improving productivity levels.

To this end we are concentrating efforts in retaining key staff as well as ensuring we continue to attract strong experienced talent from our industry.

Our third initiative redirected our efforts to critical jobs and higher added value talent solutions.

We have won numerous awards for the quality of the work we do.

We once again made the RPO Baker's Dozen as the leading global provider of RPO services moving up in the rankings in 2011 and 2012.

We earned the award for the best executive and talent search company in Belgium.

We received the best office staffing award in the Americas from [Univero] for a third consecutive year.

And we have continued investing in our state-of-the-art R&D tools and Talent Management business to meet the growing need for more sophisticated assessment and development services.

With annual gross margins close to $40 million our talent management business has shown substantial strength.

Still we need to integrate our assessment and development tools into our recruitment and selection business to make Talent Management a true competitive advantage for Hudson.

Finally, our fourth initiative addressed the delivery of the compelling digital presence to the web and social networks to leverage the possibilities this channel offers for our clients and candidates.

We have advanced our use of technology to deliver better service, provide differentiation, and realize regional efficiencies.

We integrated our client databases to allow for (inaudible) and sharing of information on our activity with all clients around the globe including work we are doing, divisions we work with and consultants handling each assignment.

We have launched 26 websites in 12 languages that are generating hundreds of qualified leads.

Our RPO business, in particular, has benefitted meaningfully from the web client leads generated.

And we have embedded social media capabilities throughout all augmentation, engaging all our consultants and recruiters in extensive Linked In training on business and candidate development through that service.

Still critical to our future success will be the globalization and investment of our front office technology platform to facilitate the capture and sharing of in depth knowledge of our clients, candidates and assignments.

So we have completed much of the difficult foundational work in less than two years.

This will ultimately allow us to better withstand the economic down-cycles.

I'm sure that's an engine for superior performance in the future yet we still have critical work to do to enhance our short-term revenue generation abilities from a now more aligned and efficient company.

There are still no signs of a solid economic recovery on the near-term horizon.

We realize that we will continue to face challenges during 2013.

We will stay laser-focused on improving our financial performance as quickly as possible and we will continue to drive our strategy to ensure that we achieve our long-term visions for the business.

As we move through 2013 we will first work to protect and grow our revenues namely by attracting, engaging and retaining the best talent, investing in other value capabilities and services, and expanding client relationships and service models globally.

And secondly, we will push harder to gain performance improvements on productivity, namely by improving our operating efficiency and quality of service delivery, advancing shared services and lower cost operating structures, and ensuring appropriate liquidity to endure the market downturn.

I would like to thank, once more, the investors who have been with us over the years and reiterate our commitment to create a successful, powerful, and highly valued company in Hudson.

With that, I will now turn the presentation over to Mary Jane who will provide further details on our first quarter results.

Thank you, Manolo, and thanks to all of you for joining us this morning.

Turning to the specifics of the quarter, you have from our press release, our reported results.

They show that all regions are experiencing downward shifts in demand so let me provide some of the details to give you color on that.

First of all, overall, our clients worldwide are focusing on controlling costs as a major routine business practice.

This is an important defense in these economic conditions that, as the phrase on Bloomberg goes, are described as a state of certain uncertainty.

Some of the main areas that clients are not growing are their management and support roles in corporate, namely those professional roles in IT, Legal, Finance, HR and General Management.

These type of roles can be seen as more or less important depending on exactly the client conditions but this is where our recruitment business has historically been focused because these tend to be the majority of professional roles.

We had expected clients to become more and more efficient in their support ranks more gradually but, without strong demand, clients continued to revive their business models and we need to be nimble and adapt to that ongoing change.

That said, this is exactly why it's important for us to grow our RPO, Legal eDiscovery and Talent Management businesses.

It is also why better positioning with clients is important and those are the important relevant aspects of the strategy points that Manolo went through earlier.

RPO, for example, gives us greater access to the client leaders and gives us the chance to see how client business strategies are evolving.

And that, in turn, improves our overall effectiveness with respect to recruitment and selection.

In addition RPO assignments expose us to a wider variety of roles.

In fact it's from our experience in RPO that we have advanced our capability in front office roles.

Our strategy to grow talent management includes making advancements in the tools both for selection but also for development.

The development suite of tools provides us more opportunities to work with clients even when they're not hiring.

And all of these offerings just keep us closer to clients and position us to better identify complex roles and some of the more intangible aspects of fit.

So turning to the Americas region, revenue in the first quarter declined 18% and gross margin declined 31%.

This result was very similar to the fourth quarter.

At the gross margin level 25% of the decline is from unprofitable businesses that we elected to exit last year in IT and Finance and Accounting.

Another 25% was in RPO with the remainder in Legal eDiscovery.

Consistent with the fourth quarter we saw lower levels of activity in RPO driven by a few major clients who significantly reduced their expansion plans.

The wider gross margin decline, when compared to revenue, is due to the mix effect of lower perm placements.

And that is where the RPO businesses and the businesses that we exited last year are concentrated.

In our RPO and Legal eDiscovery businesses, we've looked into the lower levels of activity that we've been experiencing and have put in place some changes with our sales approach that we believe will counteract these trends.

Our restructuring program and other cost reduction efforts offset 83% of the $3.7 million gross margin decline or $3.1 million.

This resulted in a small EBITDA loss of $350,000.

In Asia-Pacific, in constant currency, revenue in the first quarter declined 24% and gross margin declined 26%.

For the quarter the majority of the revenue decline was in temporary contracting in Australia however, at the gross margin level, the decline in permanent placement had the most significant effect.

Part of the issue in Asia-Pac is that so much of our business has been focused on multi-nationals, particularly in China.

We've talked in past quarters about our ability to find unique people for our clients across our company and certainly throughout the Asia-Pac region.

We're able to find, for example, in China, people who are multi-lingual, able to take on management roles, and who thrive in large companies often with matrix-management organizations.

This has been and continues to be a huge strength for us but the demand is evolving.

The growth is stronger outside the major cities and is moving beyond the more senior roles.

The fall in the China PMI and the government's intention to invest in infrastructure underscores the rebalancing going on between domestic and international activity and so this further requires us to penetrate our existing multi-national clients as they expand within China and begin to work with select local clients.

Our leadership in Asia-Pac has put in place some very targeted business development goals that we believe will continue to leverage the strengths we have.

Of the $7.6 million constant currency decline in gross margin in the quarter, almost 70% was offset by our restructuring program and other related cost reductions.

Adjusted EBITDA was also close to break-even at a loss of $400,000.

In Europe, also in constant currency, the revenue declined 10% and the gross margin declined 15%.

This year was also similar to the fourth quarter.

The revenue decline in Europe was proportional over Temp, Perm and Talent Management.

The Temporary contract in decline was largely in the UK and most of the declines in Perm and Talent Management were in continental Europe.

At the gross margin level, half of the Permanent Placement decline in continental Europe was in France.

You will see that we have a restructuring charge in Europe in this quarter as we expected to have.

We are working to narrow our focus in France and reset our economic model there to help regain a healthier position in continental Europe though we do feel this could take several quarters given the general business conditions prevailing.

Of the $5 million constant currency decline in gross margin, 70% was offset by our restructuring programs and related actions.

The European market delivered close to break-even results for the first quarter at a loss of $100,000 at the adjusted EBITDA level.

A few other points in anticipation of some of your questions, our restructuring charge of $2 million in the quarter was nearly all for France with a small complement in other continental European countries.

We still expect about $4 million for the year and about $1 million in the second quarter though we will look to complete as many actions as we can.

Our Q1 results included $700,000 of stock compensation compared to $900,000 a year ago.

As you may remember we mentioned last quarter the 2013 management grant will be allotted in May as opposed to our traditional February timing and this timing difference is part of what reduced this year's first quarter cost.

The full-year cost for equity this year is expected to be about $2.5 million.

Our tax benefit in the quarter was pretty small, about $177,000 for the year.

We're working on about a 35% tax rate.

Our DSO was 51 days improving two days from the same period last year but deteriorating 4 days from last quarter.

The quarter ended December 31.

CapEx spending in the quarter was $950,000 and we expect the full-year CapEx to be between $6 million and $8 million.

We ended the quarter with $33 million in cash and $37 million in available borrowings totaling $70 million in liquidity.

We used $3.8 million in operating cash flow during the quarter with no borrowing on our revolvers worldwide.

This decline in liquidity from Q4 to Q1 is broadly typical of our seasonality even when we compare it to years with a similar relatively low level of bonus pay-up.

I want to take a moment and just remind you how our global credit facilities are organized.

In the summer of 2010 we split our single major facility into two different facilities -- one for the US and the UK and one for ANZ.

In Q1 about 40% of our availability came from the US and UK facility with RBS and another 40% came from our ANZ facility with Westpac Bank.

The remaining 20% came from smaller facilities in continental Europe and Asia.

The majority of this availability can grow with revenue and receivables.

We are very confident in our ability to fund the company effectively both in good and bad economic conditions with the capital structure we have in place now.

Let me turn to our guidance.

We expect the second quarter revenue to be between $170 million and $180 million, a decline of 12% to 17% at prevailing exchange rates.

We expect adjusted EBITDA will range from negative $2 million to positive $1 million.

The operating actions and investments that we have put in place are focused on topline performance.

They are the most important things we can do to begin to turn the tide on our revenue now with the foundational elements we have built.

We will work hard during the second quarter to achieve our guidance with the goal for the management team of delivering break-even adjusted EBITDA.

All of the good foundational progress that we have made has made the readiness of our people around the world to deal in the markets that we have with us today and to work with our clients to help them win.

With that, I'll open the lines for questions.

Operator.

(Operator Instructions).

We have no questions at this time.

We'll pause another minute to see if there are any questions, Operator.

Thank you very much.

Okay.

We have a question from Ty Govatos with TG Research.

I wasn't going to let you off the hook that easily.

Hi Ty.

Have you seen any signs of stabilization or improvement in any of your geographies?

Yes, I mean, we are -- it's kind of, talk about green shots, Ty, it's something that people talk about and that's what we are seeing.

We're seeing those green shots.

And I'm more and more optimistic that 2013, even if it's challenging, will be helping us turn the corner.

We've seen much more optimism on our current troops.

We've seen, in several markets, sideline improvements.

This is something that we have already seen in some of the specific geographies.

One of our larger geographies, UK, has the decline moderated already since the last three quarters.

In the Netherlands the revenue is more or less stabilized.

And in other major countries we are also seeing the pipeline is starting to improve and the sentiment which, on a people business, on a professional services company, it's always very, very important.

It's creating more enthusiasm and it's helping us attract great talent from the industry.

So we have our pipeline of candidates, top performers, including (inaudible) topline who wants to join Hudson improving as well.

So all of that are good signs.

I'm very conscious because I know that when you look at all the macroeconomic indicators all across the world, if you don't see signs of improvements it's again going to be a market share game but I think we are ready for the fight with the very highest (inaudible) to win.

Okay, sounds good.

Thanks an awful lot.

Thank you.

(Operator Instructions).

We have no questions.

Thank you, operator, and thank you all for joining us today.

We'll close the call now.

Thank you for joining the first quarter conference call for Hudson Global.

Our call has been recorded and will be available later today on the Investors section of our website Hudson.com.

Thank you.

Have a great day.

This concludes today's conference call.

You may now disconnect.