Hudson Global Inc (HSON) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hudson Global Fourth Quarter 2015 Earnings conference call.

(Operator Instructions).

I would like to introduce your host for today, Mr. David Kirby . Sir, please go ahead.

Thank you [Michelle] and good morning everyone.

Welcome to the Hudson Global conference call for the fourth quarter of 2015.

Our call this morning will be led by Chief Executive Officer, Stephen Nolan and Chief Financial Officer, Patrick Lyons.

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.

These risks are discussed in our Form 8-K filed today and in 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 in our quarterly slides, both posted on our website at Hudson dot com.

I encourage you to access our materials at this time as they will serve as a helpful reference guide during our call.

As you review our fourth quarter results please remember that we exit a number of businesses in 2015 that are not classified as discontinued operations and thus are part of the prior year reported results.

We have provided a reconciliation from reported to retained revenue and gross margin in the press release and the earnings slides; and we will refer to both sets of numbers.

Retained revenue and gross margin exclude all businesses sold or exited in the current and prior year.

And I would say 2014 and 2015.

With that, I will turn the call over to Stephen Nolan.

Thanks David and good morning, everyone.

I'm pleased to report continuing progress in our financial performance fourth quarter 2015 reported revenue of $106 million.

It came in at the middle of our guidance.

Compared to Q4 last year, it was impacted by a $13 million reduction due to the stronger dollar, and a $19 million reduction due to the sale of two businesses earlier in the year.

On a retained basis, revenue grew just under one percent in constant currency.

Gross margin was $44 million, up 2% year-on-year on a retained basis in constant currency.

Gross margin in our Recruitment business fell 3% year-on-year with perm 5% down while temp contracting grew 1%.

Gross margin in our recruitment process outsourcing or RPO business grew 19%, while Talent Management grew 2%.

Reported SG&A costs were at $43 million or 15% below last year in constant currency.

At quarter end, we had over 1,250 fee earners or consultants, up 10% on last year.

Support costs were substantially lower in corporate and in the Americas.

Fourth quarter adjusted EBITDA was a $1.1 million profit compared with a $2.4 million loss last year on a reported basis.

The year-on-year improvement in adjusted EBITDA in constant currency was $3.6 million.

The improvement was driven by the progress we are making in all areas; with Asia-Pacific up $1.4 million; Americas up $800,000.00; and corporate costs lower by $1.9 million.

Europe's reported numbers are impacted by the exit of businesses.

Adjusted EBITDA in that region was up $100,000.00 on a retained basis.

Turning to regional and country performance in the fourth quarter.

Americas Q4 reported results now include RPO and related businesses.

The comparison to last year was impacted by the sale of IT in June of 2015.

Gross margin grew 8% on last year with growth at new and existing clients.

SG&A costs were lower as we completed the transition to a more cost effective support structure.

The Americas team did a fantastic job over the last 18 plus months.

We are all very happy that they are now fully focused on growing our RPO and related businesses in this region.

Asia-Pacific had a strong fourth quarter with year-on-year growth in revenue and gross margin of six percent in constant currency.

Gross margin improvement was driven by our Recruitment businesses in Australia, New Zealand, and Hong Kong, as well as RPO across APAC.

China recruitment had a soft quarter as prevailing market conditions reduced demand and slowed hiring decisions.

Perm fell 1% while temp contracting grew 8%.

RPO grew 29%, led by Australia and Hong Kong.

Talent management declined 3% in Q4 as we have seen some projects ending there.

That will also impact 2016 performance in the short-term.

In Europe, we saw growth on a year-over-year basis in Belgium and Spain offset by U.K. and France.

Gross margin from our retained business fell 2.5%.

U.K. gross margin fell 13%, mainly perm where accounting, and finance, and legal were below last year.

We closed a number of practices during 2015, including oil and gas in Scotland which impacted gross margin.

RPO gross margin grew 15% driven by new and existing customers.

Continental Europe delivered a gross margin growth of 9% led by 11% growth in Belgium and 40% growth in Spain, offsetting an 8% drop in France.

Turning to the full year, our retained businesses generated $436 million in revenue and $181 million in gross margin.

Our largest business recruitment had a revenue of $326 in 2015, and gross margin of $113 million.

This business is anchored in Asia-Pacific where we saw a 14% year-on-year growth in gross margin and the U.K. where gross margin fell compared to last year where we have seen some recent positive signs in England and in Scotland.

Global RPO had a revenue of $71 million and gross margin of $40 million.

We saw our gross margin growth in every region totaling 11% year-on-year.

Based on the market opportunities, our competitive strength, and long-term customer relateds, we continue to invest and win in this growing of profitable business.

In 2016, we will look to strengthen our position in our core markets and selectively look at new markets.

Talent management had revenue of $37 million in 2015, and gross margin of $28 million.

This is primarily focused in Europe where we grew 3% year-on-year; and Asia-Pacific which was down compared to a strong 2014.

With our R&D centre in Belgium and a deep focus on customer needs, we continued to invest in our differentiated offerings to complement all our business lines.

This past year was important for Hudson.

In 2015, we have delivered constant currency growth in gross margin in three of the four quarters.

We invested in consultant headcount, up 10% from last year to continue driving further growth in 2016.

We reduced our corporate and support costs by $10 million plus on an annualized run rate basis.

In our retained business, and adjusting for foreign exchange and unusual items, we have improved adjusted EBITDA by more than $8 million compared to last year.

We successfully divested and exited a number of noncore businesses and markets helping to bring focus and investment to core opportunities.

We launched a $10 million share buyback program.

We announced our regular dividends of $0.05 per share per quarter, which will start later this month.

We are encouraged by these improvements and continue to work hard to realize the full potential of Hudson.

In 2016, we expect to continue growing gross margin in our core markets and to deliver full year profitability at the adjusted EBITDA level to higher productivity and focused execution.

Even as our business fundamentals continued to improve, the international economic scenarios remain uncertain.

And as we cross our break even point, our profitability will be sensitive to topline variations.

I'll now turn the call over to our Chief Financial Officer, Patrick Lyons to review some additional data points from the fourth quarter as well as our 2016 first quarter outlook.

Thank you Stephen, and good morning everyone.

We incurred $200,000.00 in restructuring charges and continuing operations in the fourth quarter at a $5.8 million for the full year.

We have completed most of our initiatives but continue to look at cost saving ideas.

Our new stock buyback programs started in August 2015.

We have purchased 265,000 shares in the fourth quarter at a cost of $700,000.00.

From inception [since that rate], we have purchased over 750,000 shares at a cost of $2 million.

Our fourth quarter tax provision for continuing operations was $2 million.

For the full year 2015, the tax provision was $600,000.00.

Stock compensation expense was $300,000.00 in the quarter and $4.2 million for the full year, including the $2.5 million charge related to the change of control in June 2015.

Capital expenditure was $700,000.00 in the fourth quarter, and $3.1 million for 2015.

We expect approximately $3 million of CapEx for 2016.

We ended the quarter with [27] -- or with $37.7 million in cash and $20.5 million in available borrowings, totaling $58 million in liquidity.

We had $2.4 in borrowings on our credit facilities at the end of Q4.

Days sales outstanding or DSO was 47 days, an improvement of one day over last quarter, but three days higher than a year ago; mainly driven by year-end working capital management by some large clients in Asia-Pacific.

Looking to Q1 used in our projected average exchange rates for the quarter, we expect a revenue range of $95 to $105 million.

Reported Q1 2015 revenue was $124.3 million, which translates to $170 million of constant FX rates.

Adjusting for the businesses we have sold or exited, Q1 2015 revenue was $99 million at constant rates.

So our Q1 2016 revenue guidance ranges from 4% down to 6% up from prior year in constant currency.

Regionally, we expect Asia-Pacific revenue will be more or less flat year-over-year in constant currency depending on product mix.

With continued growth in contracting and RPO offset in part by the weaker market conditions we were seeing in our higher margin perm and Talent Management businesses.

We expect adjusted EBITDA to be lower due to the challenging conditions in China and talent management.

We expect the Americas RPO revenue and adjusted EBITDA to be up of 2015.

In Europe, we expect revenue for our retained businesses to be flat to down slightly from prior year, and improved from recent quarters as the UK starts to improve while the rest of Europe remains steady.

Adjusted EBITDA in the retained business should be improved from prior year just as we saw in Q4.

Starting in Q1, our adjusted EBITDA results and outlook will exclude stock compensation costs.

On this basis for Q1, we expect adjusted EBITDA of between negative $1 million and negative $2.5 million, which compares to a reported loss in Q1 2015 of $4.3 million or of $3.7 million ex-stock compensation costs.

We expect the year-on-year improvement in adjusted EBITDA to mainly driven by the Americas business as well as lower corporate costs.

Michelle, please open the lines for Q&A.

+++a-and-a

Thank you.

(Operator Instructions) I am now showing a question from Unger Sagger with [Devi Capital].

Please go ahead.

Good morning.

The question that I had is I think on the last call on which we spoke.

You mentioned there had been some efforts from the Company to basically increase the fee earners and show some growth on the RPO sideline.

The guidance that you actually put out today for Q1, does it reflect that?

Or, is there still time for those efforts to actually produce the results?

Unger, yes, I mean, we referenced the number of fee earners as over 1,250, which is up fairly substantially over prior year.

RPO, we absolutely continue to invest in our core markets.

We've seen very good growth there.

I think we saw about 29% growth in Asia-Pacific in the fourth quarter.

We are continuing to bid and to win new business there all of the time; and retain existing clients.

That is a huge focus of ours.

In our portfolio, we obviously have a Recruitment business of Talent Management and RPO.

RPO is in great shape and it continues to do well, we think in 2016.

[We'll] continue to be invested in some of the investment that we have done in recruitment.

[We will be] working now on productivity to make sure that the new folks we brought in are as productive as they can be.

That is sometimes the functions [thought] about having strong leaders in the practices that we have particularly in the U.K. and in Asia-Pacific.

There is a mix there.

That is really what I could say is that the pieces are as normal have different opportunities and different challenges.

We try to manage the whole thing to come up with what we see now as our outlook.

As you mentioned, the fee earners have basically grown year-over-year and quarter-over-quarter sequentially.

Is it despite that?

I mean, basically are they not engaged in active project right now?

Or, I mean, what goes in the guidance?

I mean, we are all aware there has been some weakness in China and Asia-Pacific as a whole.

But can you just kind of elaborate a little more as to what goes into the guidance?

What sort of the segment decline and geographically?

Are those fee earners that are basically increased?

Are they just not actually earning right now?

They are still not in active projects?

Well, I mean, there is business across the board.

I was in Shanghai two weeks ago and meeting with our teams there.

There is absolutely activity in the market.

Our sales people are chasing what is mostly a perm business there.

There is RPO as well and maybe projects.

But I mean, there the activities are still there.

People are hiring.

It is just taking longer, I would say.

There are the process.

It is not unusual.

I think in the U.K., we have had some internal challenges.

Again, I was there a few weeks ago as well.

It is definitely, it feels like there is more traction there with the folks we have brought in; and also our tenured people in terms of the market opportunities that we are going to be able to capitalize on.

It is a combination really of the product mix we have as well as some of the tenure of the consultants.

As well as some of the market conditions, I would say.

That is really the function of the guidance we have given.

But with the investments that we have been making there, which we have been funding somewhat from cost savings and other areas.

We will be looking now for gross margin growth there, 2016 as these folks will become more productive.

We hope that the stability remains.

Or, I'm not sure remains is as helpful as it can be in terms of the market.

Basically on an annual basis for 2016, your guiding to be profitable incomes of adjusted EBITDA on the full year basis?

Yes.

OK.

One last question regarding the recent divestitures.

Do you think the business that you have as of today; I mean, is it sort of at the right mix in terms of scale and profitability?

There has always been a question about Hudson.

Basically in too many geographies - too many areas - but obviously you need scale in the Recruitment business as well.

What do you feel about it?

I mean, do you think it is the right mix?

Will the Company be able to basically [grow] and produce consistent profitability with this in the business that you have as of today?

That's the path that we've been on, Unger.

I think we see - I mean, the first quarter is always hard because Australia, it is their summer.

It is a very soft activity.

In January, in Asia, we have the Chinese New Year.

Several weeks are lost.

It is always going to be a tough quarter for us to make a profit in.

We are showing, we believe still good progress from what we saw last year.

For the rest of the year, yes, I mean, when we look at the mix of businesses we have.

If you look at, for example, slide 16 in the deck that we sent out.

We are, I think looking at a more balanced portfolio as we grow RPO; as we invest as well in talent management.

We're seeing growth in temporary contracting now, which is a good thing to have, a contracting book of business.

Our permanent recruitment is a huge part of our business and it will always be.

But that is the one that can sometime be more fickle to either economic conditions or potentially losing some talent.

Then we lose the gross margin.

We are trying to balance out the portfolio.

We are seeing I think good progress there.

I mean, 12 months from now, it will be interesting to see how the gross margin pie on '16 actually looks compared to where we have been and where we are at this moment.

OK.

Great, thank you for taking my questions.

Good luck.

A Pleasure, and thank you [for it].

OK, (inaudible) thank you.

Thank you.

Our next question comes from the line of David Sachs with Hocky Capital.

Please go ahead.

Thank you.

Stephen, congratulations on the solid end of the year performance in reducing the cost structure for the new Hudson.

(multiple speakers)

Hi.

If we look at the competitive dynamics of your talent management market, what differentiates your product offering versus others?

Are the features that Hudson offers unique?

Or, you just do something better?

Then what elements of the RPO business are showing signs of growth?

Is it geographic where you are seeing more account wins?

Or, is it a function of adding some of the consultants to the pipeline in that market that is providing you a more positive outlook on your RPO business?

Thanks.

OK.

On the talent management side, David, it is kind of a mixed bag.

We have some firms who are in the starting space who have some talent management offerings, which they have purchased.

We have others who don't have any.

We have a very strong base in Belgium, both in terms of the team that actually delivers business there; but also, like an R&D facility who are working with institutions whether it's with educational folks or just some smart people in the space.

We've kind of married that up then with where see customer needs.

It allows us I think to deliver actually very good content that can help clients with their talent challenges.

That can be a specific project.

Or, it can be just about an ongoing set of individual talent assessments or the organization itself.

There is an array of services that we offer there.

We are finding some very good sort of cross selling opportunities or at least being able to sort of differentiate ourselves when we're talking to someone about how we can help.

On RPO, the wins are about the geographies.

I mean, we've had some very good wins in North America recently as Lori and the team have been able to focus more on that aspect.

Europe, we've been winning business and Asia-Pacific.

The wins are driven by our sales team.

With RPO, you have to also then be going as fast as you can on implementation, which is really when you start to get to the revenue that you can [bill].

We focus as well on that second element of helping clients implement as fast as possible and able to guess improvements but also revenue.

I think it is a good story.

When I was in Sydney a few weeks ago, we were also talking about where it would help us to be in other markets in that geography.

We are planning sometime in '16 to actually go down that road as well; which I think is a very positive signal.

Are you winning as a result of an expertise that Hudson brings to the equation whether it is in talent management or RPO?

Or, are you winning based on price?

Or, are you winning based on some other set of attributes?

I mean, David we're winning names that you would know.

We're winning, I think because of the way that the customers feel about the solutions that we can offer them.

We're not one of the mega firms in this space.

But we have some very big -- we have global capabilities.

We have some good software.

We have some very talented people who are able to point to [referenceable] clients whether it's in financial services or life sciences, or consumer products.

I think they look at us and say, you know what?

We feel comfortable that we can hand over the talent challenges we have to the Hudson team.

It's not really a price issue with us.

Because it's going to be very hard for us to compete against some of the [megas] on price.

The client in a sense ends up making a choice there about the services we can offer.

[Obviously], our competitive pricing and sometimes it's because of the geography.

Or sometimes it's because we have reputable clients.

Or, there is just a comfort level with the teams who are a very tenured talented group of people who are able to deliver for them.

OK.

Hopefully 2016 delivers on positive EBITDA as you suggested earlier and the trend in organic growth continues.

Good work in '15, thank you.

Thank you David.

Thank you David.

Thank you.

(Operator Instructions) I'm showing no further questions at this time.

I would like to turn the conference back over to Mr. David Kirby for any closing remarks.

Thank you Michelle.

Thank you everyone for joining the Hudson Global Fourth Quarter Conference Call.

Our call today has been recorded.

It will be available on the investor section of our website Hudson dot com later today.

Thank you.

Have a great day.

Ladies and gentlemen, Thank you for participating in today's conference.

This does conclude the program.

You may all disconnect.