Hudson Global Inc (HSON) 2018 Q4 法說會逐字稿

Good morning, and welcome to the Hudson Global Conference Call for The Fourth Quarter of 2018.

Our call this morning will be led by Chief Executive Officer, Jeff Eberwein; 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 Securities and Exchange Commission, including our annual report on Form 10-K as amended.

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 adjusted EBITDA.

An adjusted EBITDA reconciliation is included in our earnings release and quarterly slides, both posted on our website, hudsonrpo.com.

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

I will now turn the call over to Jeff Eberwein.

Thank you, operator, and welcome, everyone.

We thank you for your interest in Hudson Global and for joining us today.

I'll review the fourth quarter 2018 results, then give some perspective on our RPO business, Hudson's corporate costs and trends we see going forward.

Patrick Lyons, our CFO, will then provide some additional details on our fourth quarter 2018 results.

I will then review our preliminary outlook for 2019.

For the fourth quarter of 2018, we reported revenue of $16.6 million, up 13% year-over-year in constant currency.

Gross profit of $10.3 million was up 5.5% year-over-year in constant currency, as strong growth throughout Asia and the U.K. was partially offset by weaker volumes at our existing clients in Australia and the Americas.

SG&A costs were $10.6 million in the fourth quarter, which is flat versus the same period last year in constant currency.

We reported an adjusted EBITDA loss of $300,000 compared to an adjusted EBITDA loss of $600,000 a year ago.

Turning to regional and country performance in the fourth quarter.

Asia Pacific once again had a great quarter with strong year-on-year growth and revenue up 15%, gross profit up 10% in constant currency.

Growth in Q4 was particularly strong in China and Hong Kong with gross profit overall in Asia growing 46%, driven by new client wins implemented in 2018.

Gross profit in Australia grew 1% year-over-year.

Americas gross profit was down 15% year-over-year due to weaker volumes at 2 clients.

Despite that slowdown, the region still recorded positive adjusted EBITDA of $200,000, down from $500,000 a year ago.

In Europe, revenue was up 44%, and gross profit increased 26% in constant currency.

This growth was driven by the U.K., which generated strong growth profit growth of 26% in Q4 versus a year ago.

While the overall results were mixed for our company in the fourth quarter compared to last year, our team around the world remains very focused and very dedicated to serving clients and generating results.

We have a great team, and I want to thank all Hudson employees for their hard work in 2018.

We believe our business has strong momentum, we have a very exciting pipeline of new business opportunities and we're excited about improving our operating and financial results going forward.

Turning back to 2018 for Hudson.

This year has been one of significant transition for us, with tremendous internal focus on creating our own structures, systems and processes following our separation from the legacy businesses we sold in March.

Since that time, we've created new legal entities and obtained new business licenses in each country in which we operate, in addition to creating new finance, accounting, IT systems along with a new website.

Now that the platform for the operating business has been built and corporate overhead costs have been right-sized, the company has begun to look at bolt-on acquisition opportunities in addition to focusing intensely on organic growth.

As highlighted in our investor presentation, we will focus on acquisition targets that are profitable, complementary to our RPO business and accretive to stockholder value.

During this transition period, we've examined our cost structure, particularly our corporate costs.

We've made significant changes over the past year to reduce our corporate costs and we envision further changes going forward.

We believe that in 2019 the run rate for corporate costs should be approximately $4 million, which is about 50% lower than in 2018, including severance costs or about 1/3 lower excluding severance costs.

Note that the reductions in corporate costs have not had and are not expected to have any impact on our operating business.

Turning to stockholder value creation, you should know that the company's Board and management team are strongly focused on growing stockholder value over the long term, and we believe that investing in our RPO business is one of the best ways to achieve this goal.

As mentioned on last quarter's earnings call, we've begun to make several key investments in sales and technology, which we expect to drive growth in the medium to longer term.

These investments are minor and we believe they will have fast paybacks.

As an example, we now have 8 full-time salespeople versus 2 a year ago.

We think this investment will begin to pay off in the second half of 2019.

Turning to our stock buyback program.

We continue to view share repurchases as an attractive use of capital, and we expect to be more aggressive in repurchasing shares going forward.

During the fourth quarter, we repurchased 143,000 shares for $205,000.

Since the inception of this program, in the third quarter of 2015, through the end of the fourth quarter of 2018, the company has purchased 3.8 million shares for $7.6 million.

After the current $10 million authorization is completed, we expect to approve a new share repurchase authorization.

To accelerate buyback activity at these attractive stock price levels, on February 19, the Board of Directors announced the tender offer to buy up to 3.15 million shares of the company's common stock at a price of $1.50 per share.

The tender offer commenced on February 22 and expires on March 22.

I'll now turn the call over to our Chief Financial Officer, Patrick Lyons, to review some additional details from the fourth quarter.

Thank you, Jeff, and good morning, everyone.

As a reminder, on March 31, 2018, we completed the sale of the recruitment and talent management businesses in Europe and Asia Pacific in 3 separate transactions.

We recorded a pretax book gain of $14 million in 2018 related to those sales.

Under U.S. GAAP, the divestitures met the criteria for treatment of discontinued operations and are reported as such in our statement of operations and balance sheet for all periods presented.

I would also highlight again that under GAAP any previously shared corporate assets or supporting costs do not get allocated proportionally between continuing and discontinued operations in the prior period numbers.

Rather the accounting is determined by whether the asset or support cost was included as part of the sale or retained by Hudson Global.

Under the sales transactions, most of the regional support costs and infrastructure in Europe and Asia Pacific transferred to the buyers.

And thus, such costs are fully reflected in discontinued operations in the historical numbers, which distorts the year-over-year comparison at the EBITDA level.

Our adjusted EBITDA for 2018 includes $2.4 million related to the termination of several corporate executives in the first half of 2018 following the divestitures.

Our fourth quarter tax provision from continuing operations was a tax benefit of $300,000.

The company generated $2.8 million in cash flow from operations during the fourth quarter due to improvements in working capital.

Days sales outstanding was 49 days in December compared to 62 days in December 2017.

We had a cash outflow for capital expenditure of $200,000 in the fourth quarter and $500,000 for the full year 2018.

We ended the quarter with $41.1 million in cash and restricted cash and no borrowings.

We are currently in discussions with various lenders about the establishment of new credit facilities for the stand-alone RPO business.

I'll now turn the call back over to Jeff to review our preliminary outlook for 2019.

Thank you, Patrick.

For 2019, we continue to expect to see greater than 10% growth in revenue and gross profit over the prior year in constant currency.

In addition, adjusted EBITDA before corporate cost is expected to grow faster than this rate.

Given this growth in the RPO business and a reduction in corporate costs that we mentioned earlier, we expect the company to generate positive adjusted EBITDA in 2019 at the corporate level.

We also believe it is important for investors to focus on our gross profit line rather than our revenue line.

The reason for this is we have a large MSP contract going live in the beginning of Q2, where we're managing the contractors for an Asia-based tech company.

This will inflate revenues going forward due to labor cost pass-throughs.

Since the payroll costs of our contractors and MSP projects are accounted for above the gross profit line, their gross profit margins are much lower than for RPO projects where the delivery costs are mainly below the gross profit line.

We [believe] MSP in our service offering is an important part of being a total talent solutions provider and also, positions us well to win RPO business in the future.

Another key metric to focus on is adjusted EBITDA before corporate cost as a percentage of gross profit.

Over the long term, we're targeting 20% for this metric for our RPO business.

Operator, can you please open the line for questions.

(Operator Instructions) And I am showing no questions from our phone lines at this time.

I would now like to turn the conference over to Jeff Eberwein for any closing remarks.

Well, thank you, everyone, for your interest in Hudson Global.

We're very excited about the future and we think momentum is building in our business and we look forward to showing this in future results.

Have a great day.

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

This does conclude the program.

You may all disconnect.

Everyone, have a wonderful day.