Hudson Global Inc (HSON) 2015 Q2 法說會逐字稿

Good morning. Thank you for standing by and welcome to the Q2 2015 earnings conference call. (Operator Instructions)

Thank you. Mr. David Kirby, you may begin your conference.

Thank you, Toni. Good morning, everyone. Welcome to the Hudson Global conference call for the second quarter of 2015. Our call this morning will be led by Chief Executive Officer Stephen Nolan.

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 that may cause actual results to differ materially from those contained in the forward-looking statements. The risks are discussed in our Form 8-K filed today and our other filings made with the SEC. The Company disclaims any obligation to update any forward-looking statements.

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 materials at this time. They are posted under featured documents on the website and will serve as a helpful reference guide during our remarks.

I will now turn the call over to Stephen.

Thanks, David; and good morning, everyone. Before I discuss the second-quarter results I wanted to reflect on where we are after a busy six months. We completed a number of teaching actions, including selling our US IT and Dutch businesses and ceasing direct operations in four European countries. We continue to make progress on refocusing our leaner and more disciplined Company in our core markets and practices, and I'm very grateful for the hard work and dedication of our teams.

We entered the second half of 2015 with a focus on three distinct businesses -- number one, recruitment, which is both perm and temp positions, global RPO, and talent management -- in 13 countries. We have $35 million in cash and we have line of sight to positive adjusted EBITDA. With all the changes I thought it would be helpful to give some insight now on how our three businesses finished the first six months of 2015.

If we exclude the businesses we sold or exited, our retained businesses generated $220 million in revenue and $92 million in gross margin. Our largest business, recruitment, had revenue of $165 million in the first half of the year and gross margin of $58 million or 35% of revenue. This business is anchored in Asia-Pacific, where we saw 20% year-on-year growth in gross margin, and the UK, where we have struggled recently and gross margin fell compared to a very strong first half of last year. We are investing in the UK and expect to see improvements in the second half and beyond.

Global RPO had revenue of $36 million in the first half of the year and gross margin of $19 million or 53% of revenue. Based on the market opportunities, our competitive strengths, and long-term customer relationships we continue to invest and win in this growing and profitable business. Hudson RPO continues to be recognized as a leader in the marketplace by those in the industry, and we continue to expand our roster of blue-chip clients in diversified industries including financial services, life sciences, consumer products, energy, and technology, among others.

Our third business, talent management, had revenue of $19 million in the first half of the year and gross margin of $15 million or 79% of revenue. This is primarily focused in Europe and Asia-Pacific. With our R&D center in Belgium and a deep focus on customer needs, we continue to invest in our differentiated offerings that complement all our business lines.

We have made a lot of progress in simplifying the Company's structure and offerings in the last six months, including some recent significant reductions in corporate costs and real estate, as we push to translate all our efforts into tangible improvements in our results. We enter again the second half of 2015 prepared and energized to return what is now a smaller, simpler, more-focused business to profitable growth which delivers shareholder value.

On the second quarter our reported results are impacted by a number of items that are worth noting. Number one, we recorded a $20 million gain on the sale of our US IT and Dutch businesses; and due to tax losses carried forward, we have minimal tax liability on these gains.

We ceased direct operations in Ukraine, Czech Republic, Slovakia, and Luxembourg. While none of the above actions qualify for discontinued operations treatment, we have provided a reconciliation from reported to retained revenue and gross margin in our second-quarter press release and earnings slides, and I will refer to both sets of numbers in my remarks. Retained revenue and gross margin exclude all the businesses sold or exited in the current and prior year.

Number three, because a majority of our Board of Directors are new in the past year we realized $2.5 million in accelerated stock compensation expense in the quarter. Finally, over 90% of our business is now outside the US, and the stronger dollar resulted in a $19 million negative impact on our reported revenues compared to the second quarter of last year.

So second-quarter 2015 reported revenue of $123 million came in at the middle of our guidance. These reported numbers included one month of the Dutch business, and two and a half months of the US IT business. On a retained basis, our revenue was $113 million, up 1% year-on-year in constant currency.

Reported gross margin was $50 million and retained was $48 million, up 1% year-on-year in constant currency. RPO gross margin grew it 6%; perm recruitment grew 1%; while temp contracting fell 2%, mainly due to weakness in the UK.

Reported SG&A costs were $51 million, and $49 million on a retained basis, 1% below last year in constant currency. We continue to offset our investments in fee earners with savings in real estate and support costs, and we expect to see additional progress in the UK and the US.

Second-quarter 2015 adjusted EBITDA was an $800,000 loss, within our guidance range, and compared to a $300,000 loss last year on a reported basis.

Turning now to regional and country performance in the second quarter, Americas Q2 reported results are impacted by the sale of IT effective June 14. Last year's numbers reflect a full quarter of IT.

Americas RPO continues to perform well with a 15% year-on-year increase in gross margin. SG&A costs in the business unit were higher than last year, due to investments in RPO sales and delivery capabilities. The reported numbers are impacted by stranded costs that remain after the sale of IT and also eDiscovery in the fourth quarter last year.

Asia-Pacific had a strong second quarter with year-on-year growth in revenue and gross margin of 4% and 11%, respectively, in constant currency. Gross margin improvement was driven by our recruitment businesses in Australia and China.

Perm grew 22%, and temp contracting grew 11%. RPO and talent management were below a very strong second quarter in 2014 as a number of projects ended.

SG&A costs were 5% higher due to increased compensation for fee earners. And adjusted EBITDA in the second quarter was $1.9 million, $900,000 better than last year.

In Europe, Q2 reported results were impacted by the sale of our Dutch business effective April 30 and the exit of four countries. Last year's reported numbers included a full quarter's results for those businesses.

In the retained business performance was mixed, with growth in Belgium and Spain offset by UK and France. Gross margin from our retained business dropped 11% in constant currency. Adjusted EBITDA was $1 million or $1.7 million lower than last year, almost all of that in the UK.

UK gross margin fell 17%, mainly due to weakness in perm, primarily the IT and legal practices. We have replaced leadership in both practices in England with experienced industry veterans.

Our RPO business grew 18% gross margin as we implemented new business wins. Continental Europe was down slightly with gross margin growth of 2% in Belgium and 40% in Spain, offsetting a 19% fall in France as we recover from a fall-off of two of our biggest customers there.

In the second quarter we incurred $2 million in restructuring charges in continuing operations, mostly severance and real estate costs in corporate and Europe. At the end of June we had $2.6 million remaining under our existing 2014 plan, which we expect to spend in the second half of 2015.

We ended the quarter with $35 million in cash and $22 million in available borrowings, totaling $57 million in liquidity. We had $1 million in credit facility borrowings.

The use of cash from operations in the quarter was $4.6 million. Days sales outstanding, or DSO, was 50 days, three days lower than June of last year.

A few additional data points from second quarter. Q2 results included $3.2 million of stock compensation, including the $2.5 million relating to the accelerated vestings that I mentioned earlier. Our Q2 tax provision for continuing operations was $500,000. Capital expenditures were $600,000 in the quarter, and we expect $3 million to $4 million of CapEx in full-year 2015.

Looking to the third quarter, using prevailing exchange rates we expect a revenue range of $105 million to $115 million. Our reported third-quarter 2014 revenue was $149 million, which translates to $130 million at our estimated rates for Q3 this year.

Adjusting for businesses we have sold or exited, Q3 2014 revenue was $111 million at constant rates. So therefore our Q3 revenue guidance for 2015 ranges from 5% down to 4% up compared to prior year using constant currency.

Regionally we expect Asia-Pacific revenue and adjusted EBITDA will grow year-on-year in constant currency.

Americas RPO revenue and gross margin will be up on 2014. Adjusted EBITDA will be lower than last year due to stranded costs as well as some of the investments in the RPO business. We still expect to end 2015 with a run rate in SG&A that can be sustained by the RPO business we now have in the Americas.

In Europe reported revenue is expected to be lower than last year due to no discontinued operations reporting for the businesses we have sold or exited. We expect our retained business to be down 3% to 5%. Adjusted EBITDA will be lower due to the weaker results in the UK.

I met with our teams in London, Glasgow, and Edinburgh two weeks ago and I continue to work directly with the UK business, which does appear to be stabilizing. We have hired some excellent leaders there and continue to retain many of our top producers. We will continue to drive improved performance through selective investments and improving the operating model in the UK.

The rest of Europe is expected to be flat to slightly down compared to Q3 last year in constant currency, as weaker conditions in France should be offset by continued good performances in Belgium and Spain.

Overall for the third quarter we expect adjusted EBITDA of between breakeven and a $2 million loss, which compares to a $2.8 million loss in Q3 last year on a constant-currency basis, with year-on-year improvement driven by growth in Asia-Pacific and a greater than 30% drop in corporate costs. We remain committed to achieving positive adjusted EBITDA during the second half of 2015 and believe the traction we have shown over the last few months provides a roadmap to achieve this important goal.

In addition, considering the Company's current stock price, the Board of Directors of Hudson has authorized a share repurchase program for up to $10 million of the Company's common stock which will commence in the third quarter. Toni, please open the line for Q&A.

(Operator Instructions) [Josh Beebe].

Thanks for taking the question. Can you just briefly speak about the revenue split between each of the core businesses and if you see that changing potentially over the next -- the following year?

Josh, hi; it's Stephen. Are you looking for the, say, third-quarter view or on a more annualized view?

I was thinking annualized, thanks.

Okay; just give me one second there. Within Europe we see it probably running at about $200 million; that's all-in. Americas running probably $18 million to $20 million. Then the balance will be in Asia Pacific, probably coming to roughly $450 million annualized.

Again a lot depends on the exchange rate, Josh. That's using probably prevailing rates.

That's helpful. Thanks.

(Operator Instructions) There are no further questions at this time.

All right, operator. We'll just wait another minute to see if we get any questions. But if not, I'll read our closing remarks and certainly if we do get a question in the next moment, feel free to let us know.

Thank you all for joining Hudson's second-quarter conference call. Our call today has been recorded and it will be available on the Investors section of our website, Hudson.com.

If we have no further questions we will conclude the call. Thank you very much.

There are no further questions and this does conclude today's conference call. You may go ahead and disconnect your line.