Q1 2020 Earnings Call

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I call. This morning, the led by Chief Executive Officer, Jeff Eberwein, <unk>, Chief Financial Officer Bye Bye.

Yes, basically statements made during your presentation include forward looking statements under applicable securities laws.

Such forward looking statements involve certain risks enough treating piece that may cause actual results to differ materially from dose campaign at the forward looking statement.

Yes, I discussed in our form 8-K filed today and he's our other filings made with the Securities and Exchange Commission, including her well the reports on form banking.

The company disclaims any obligation to update and forward looking statements.

During the course of this conference call reference so well be meet demand Gi cancers, such as adjusted <unk> I P D and adjusted earnings per diluted share.

So you should probably just naturally is putting good earnings release and part, though these slides bullets boasted our web site Hudson RP Dot com.

I encourage you to actually certainly looking also at this time as they will give us a helpful reference guides during this call.

I'll now turn to call a this is Jeff everyone.

Thank you operator and welcome everyone. We thank you for your interest in Hudson Global and for joining us today.

I'll start by reviewing the first quarter 2020 highlights and maritime and our Chief Financial Officer will provide some additional details on our results I will then give some perspective on how we're navigating current business conditions.

For the first quarter of 2020, we reported revenue of 24.1 million up 55% year over year in constant currency.

Adjusted net revenue, which we formerly referred to as gross profit.

Was 9.8 million, an increase of 8% year over year in constant currency.

And we grew adjusted net revenue and all three regions in constant currency.

We saw particularly strong growth in continental Europe and Q1.

S. DNA costs were 9.9 million in the first quarter down 7% person at the same period last year in constant currency.

We reported and adjusted EBITDA loss of 100000 compared to an adjusted EBITDA loss of 1.5 million a year ago.

In addition, we reported a net loss of 500000 or 17 cents per share versus a net loss of 1.9 million or 58 cents per share in the same period last year.

We reported an adjusted loss per share of eight cents in Q1 2020 versus an adjusted loss per share a 50 cents a year ago.

Turning to performance for the quarter by region.

Our Asia Pacific business had very strong year on year growth in revenue of 109%, while adjusted net revenue grew 5% in constant currency.

The year over year revenue growth was driven by the commencement of a large it must be contract and Australia earlier in 2019 as discussed on previous calls.

Adjusted EBITDA of 600000 increased from an adjusted EBITDA of 200000, a year ago.

Americans had an increase in adjusted net revenue of 4% in constant currency adjusted EBITDA of 100000 versus last years adjusted EBITDA of a loss of 300000.

Our may have business again produced another very solid quarter with adjusted net revenue up 21% in constant currency. The growth was driven by strong results in our businesses in Continental Europe.

Adjusted EBITDA of 100000 increase from an adjusted EBITDA loss of 200000 in Q1 of last year.

I'll now turn the call over to map Diamond, our Chief Financial Officer to review some additional financial details from the first quarter.

Thank you Jeff good morning, everyone.

Our first quarter tax provision from continuing operations was approximately 100000.

The company used 2.7 million in cash flow from operations during the first quarter.

Days sales outstanding was 44 days that March 2020, well improve from Dsos were 64 days back in March 2019.

We ended the quarter was 26.5 million in cash unrestricted cash.

As a reminder in April 20.

Hi, just a new credit facility in Australia to support the expected growth in working capital needs as a result of new client wins in that market.

Well, we had nothing drawn on this facility at the end of Q1.

I'll now turn the call back over to Jeff to give some more perspective on our PEO business.

Okay.

Thank you Matt.

Turning back to our business as disclosed in the company's press releases issued on March 13th and March Thirtyth 2020, as well as our 2019 form 10-K.

Our business has begun to be adversely impacted by the recent virus outbreak in the accompanying economic downturn.

This downturn as well as the uncertainty regarding the duration spread and intensity of the outbreak has led to an initial reduction in demand for our services.

Some of her customers have instituted hiring freezes, while other customers that are more capable of working remotely have been allowed to operate as usual.

The expected timeline for this reduction in demand for our services remains uncertain and difficult to predict considering the rapidly evolving landscape.

We're cutting discretionary costs, where we can and are prepared to cut cost further to protect our business.

We're trying to take a balanced approach to the situation, we don't want to overreaction or under react and we remain focused on our objective of maximizing stockholder value over the long term.

We're visit to Vigilantly monitoring the situation surrounding cobot 19, and its impact on our business and we'll continue to proactively address the situation as it evolves.

Did the flexibility of her workforce in the actions. We've taken were confident we can continue to efficiently manage our business and mitigate risks in this challenging environment, while retaining the ability to meet clients' needs when activity improves.

Importantly, I want to thank all of our highly dedicated employees for their flexibility hard work and dedication to our clients and business in the challenging conditions were working through.

Operator can you. Please open the line for questions.

Ladies and gentlemen, if you have any questions at this time. Please press Star then one on your touched on telephone. If my question has been answered. Thank you mr. removed himself from the Q lease spreads tip alky.

Your first question comes on the line of Josh will go from Sidoti. Your line is open season.

Thank you good morning, Jeff and I hope by Union families both doing well.

I guess my first question is.

You know when we speak about RPL versus a traditional staffing company knowing that you know just.

You know the head hunting side of that is more volatile and transactional or cyclical I think it'd be helpful to understand how your RPL business reaction. This type of environment and how it is it's truly different from a head hunting from thank you.

Yes, Thanks, Josh Yeah, we made the decision that was announced about two years ago to exit the recruitment agency business and focus on ARPU and the thought at the time was that ARPO was a higher growth higher margin.

Business and was what was going to be the future trend that we wanted to build the company around Additionally, we like the fact that it was a steadier more manageable business and less volatile and less cyclical.

We typically have long term contracts a long term clients are clients are a big fortune 500 type of companies that are well capitalized and everybody is impacted by the slowdown but.

I do I do think in a downturn is when you can see what business model is.

More resilient and what what business model is less resilient and.

We think our business will hold up Oh, okay.

In this environment, we have a lot of.

It's just it much better to be in a business with with long term contracts and.

Bigger healthier.

Clients.

So in other words, we're not we're not going to vote will definitely see the impact of the virus and we're expecting our business to decline and then rebound.

Later at some point in the future, but it's not going to be nearly a sharp of the.

But that you would see in of recruitment agency had hunting type of business.

That's helpful. Thank you for the insights around that understanding there's still a lot of uncertainty out there, but I was just wondering if you could talk about.

Some of the trends you were seeing it in your in your business as you were exiting April.

Sure.

Historically weve.

Given guidance.

For the year and not really given guidance by quarter, but we realize is a really fluid situation.

Our business does operate with some lags. So for example, the revenues that we generated in the first quarter well, it's really due to work and effort of our team.

Working with our clients that in the second half of last year, we might work on their talent needs.

It doesn't show up as revenues until those people join a so there is a pretty big lag effect to our business. So.

April was was.

Better than one might think given that the whole world. This is on a quarantine locked down.

But.

The recovery for US will also come with a lag.

So I guess set another way, we're going back to my kind of sharp via analogy.

And ER.

Recruitment agency type of business.

One might see a very sharp decline in Q2, coincident with hiring activity falling sharply and then they might see a sharp rebound.

Whenever activity resumes Q3, or four whenever rebounds, we don't see our business having.

Such a sharp.

Decline and then rebound like that.

Okay, great and.

Maybe this little bit more from Matt can you remind me.

The the.

The facility you have in Australia, and just thinking about cash on working capital.

An update on the overall liquidity position and then maybe for both of you understanding that you have a a fortune 500 client base that.

We'll survive.

Their businesses aren't going to go under let say, but I have you been having any dialogue with any clients, who may be asking for pricing concessions or maybe better payment terms.

Well the answer to the second part is no I'll, let Matt address the first part.

Sure so for the credit facility that we entered into that's the ability to.

Borrow up to 4 million Australian dollars and that is based on it's kind of a factoring.

Relationship, where we get a certain percentage. It's I think is 80% of our accounts receivable invoices that we're able to ascribe over to you know that bank and then we can kind of draw on that so withdrawn that and then we will repay it as as needed.

You can see in a when when we file the cash flow statement at the end of the day today for the in the Q.

You'll see that there is activity there it just happens to be that at the ended the quarter.

Theres nothing drawn on that but to emphasize that that's only for our Australian business.

Okay, Great and just lastly.

Following the transaction in late March.

I guess kind of housekeeping should should the share count be around 2.7 million shares in Q2, and then just thinking around capital allocation is preservation your top priority right now or do you still expect to be opportunistic on the buyback from.

Yeah I think.

2.7, as a good number to use for the a yearend sorry the quarter end.

Share count and.

You can see that on our you'll be able to see that an arb and our balance sheet and that in the 10-Q that's filed.

But we do have some Rs use so the share count on the income statement is a touch higher than that.

Maybe by 100000 shares.

So were income and just thoughts around capital allocation.

Yeah, our top priority is.

Is servicing our clients and.

If we do a good job for clients. That's good for everybody. It's good for stockholders. It's good for employees and it's good for our business. So the most important thing is that we're there to meet the needs of our of our clients.

Managing our liquidity is also incredibly important and it's in everybody's interest for us to maintain a good business and not have a business.

That that believes cash that's not good for anybody.

Including our clients. So we're doing everything in our power to protect our business said another way, we're going to fight extremely hard to be positive EBITDA positive earnings and positive cash flow.

You know there's lot of things outside of our control, but we're going to.

Work very hard on the things that are within our control and our team is doing that.

There is seasonality to our cash flows that.

Seem to happen year after year, where Q4.

Historically has been the best cash generating quarter of the year and Q1 is the worst.

Cash generating quarter of the year and we saw that again this year, where we had a cash outflow in Q1, but I would encourage people to compare to the cash outflow last year, and we had substantial improvement year over year on any metric adjusted EBITDA earnings cash from operations.

So.

That's that's encouraging to see that that year over year improvement.

Well. Thank you for taking my questions and for all the insight and glad to hear you guys are doing well spacing out there. Thanks. Thank you.

Again to ask a question, it's Brian them there number one on your thoughts on keep on.

There are no my questions on the Q that concludes today's question and answer session I would now let's turn the call over to Jeff everywhere.

<unk>.

Thank you all again for joining us today and for your interest in Hudson Global we look forward to next quarter's optical.

Thanks for joining the Hudson Global first quarter conference call today has been recorded and will be available in the investor section of our website Hudson RP Dot com.

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