Q2 2020 Hudson Global Inc Earnings Call

Good morning, and welcome to the Hudson Global Conference call for the second quarter 2020.

Our call. This morning will be led by Chief Executive Officer, Jeff Eberwein, and Chief Financial Officer, Matt Diamond.

Please be advised that the statements made during the presentation include forward looking statements under applicable security laws.

Such forward looking statements involve.

Certain risks and uncertainties that may cause actual results to differ materially from those contained and the forward looking statements.

These risk are discussed in our form 8-K filed today and in our other filings made with the Securities Exchange Commission, including our annual report on form 10-K.

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 and adjusted earnings per diluted share.

Reconciliations of these measures are included in our earnings release and quarterly slides.

Both posted on our website Hudson RP, Oh Dot com.

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

I will now turn the conference over to Jeff Eberwein. Please go ahead Sir.

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 second quarter 2020 highlights and Matt Diamond, Our Chief Financial 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 second quarter of 2020, we reported revenue of 24.6 million down 3% year over year in constant currency.

Adjusted net revenue, formerly referred to as gross profit was 8.9 million and decreased 21% year over year in constant currency.

S unit costs were 9.3 million in the second quarter down 16% versus the same period last year in constant currency.

We reported an adjusted EBITDA loss of 400000 compared to adjusted EBITDA of positive 300000, a year ago.

In addition, we reported a net loss of 800000 were 27 cents per share versus a net loss of 900000 or 29 cents per share in the same period last year.

We reported an adjusted net loss per share of 13 cents in Q2 2020 versus versus an adjusted net loss per share of seven cents a year ago.

Turning to performance for the quarter by region.

Asia Pacific business grew 14% in constant currency and revenue.

Well adjusted net revenue declined 7% in constant currency.

Adjusted EBITDA of 1 million increased from adjusted EBITDA of 700000, a year ago.

I'm very proud of the results of our Asia Pacific team, they were able to generate despite the headwinds facing them in the second quarter.

Our Americas business had a difficult quarter with revenue and adjusted net revenue declining 45, and 47% respectively.

Adjusted EBITDA.

Was a loss of 600000 compared to last years adjusted EBITDA positive 600000.

Our made business saw revenue declined 27% in constant currency and adjusted net revenue declined 14% in constant currency.

Adjusted EBITDA of 100000 decreased from adjusted EBITDA of 200000 in Q2 of last year.

At the end of Q2, we consolidated management of the Americas in a major regions under the leadership of Dare in Lancaster, formerly CEO of Oromia business.

Those darn it and the company are excited to leverage his skills and expertise to realize synergies and grow the Americas business overtime.

Once this integration is fully complete later this year, we anticipate realizing approximately 1 million an annual cost savings due to this change.

I'll now turn the call over to Matt time in our CFO to review some additional financial details from the second quarter.

Thank you Jeff good morning, everyone.

Our second quarter tax provision for hearing operations was approximately 300000.

The company generated 1.9 million in cash flow from operations during the second quarter.

Day sales outstanding was 42 days at June Twentytwenty comparable to DSO of 45 days that we had back in June 29 team.

We ended the quarter was 29.9 million in cash unrestricted cash.

As a reminder, in April 2019, we finalized a new credit facility in Australia to support the expected growth in working capital needs as result of new client wins in that market. However, we had nothing drawn in this facility at the end of Q2.

In April 2020, we received along through the S.P.A.P.P. program for 1.3 million.

We intend to apply for forgiveness for this loan in the third quarter 2020.

To the extent that all or a portion of this loan is forgiven you will be reflected in other income.

In addition to the PPP loan in the U.S.. We also received government assistance in other countries of approximately 300000 in exchange for maintaining certain levels of compensation and other costs in response to the corporate 19 pandemic.

This is reflected in other income in the second quarter results.

I'll now turn the call back over to Jeff give some more perspective on our RPL business Hudson's corporate costs and to review current trends in our business.

Thank you, Matt turning back to our business as disclosed in previously issued company press releases as well as in various SEC filings. Our business has been adversely impacted by the cobot 19 outbreak in the accompanying economic downturn.

This downturn as well as the uncertainty regarding the duration speed and intensity of the outbreak.

Led to an initial reduction in demand for our services in the first half of 2020.

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

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

We've cut discretionary cost, where we can enter prepared to cut costs further if necessary to protect our business.

But we're also well positioned as activity improved.

I'm trying to take a balanced approach to the situation and we don't want to overreact or under react as we remain focused on our objective of maximizing stockholder value over the long term.

We're vigilantly monitoring the situation surrounding cobot 19, and its impact on her business and we will continue to proactively address the situation as it evolves.

Globally, we've now rightsized the business to better match clients' needs, while retaining the ability to respond quickly as activity rebounds.

We're pleased with the resilience of our business, thus far which is a testament to the strength of our clients and the flexibility of our team.

Our partnerships with our clients have deepened during this challenging time, and we're well positioned to emerge from this crisis as a stronger partner for for our clients.

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

Operator can you. Please open the line for questions.

Yes, Sir.

If you would like to ask a question you want me to press Star one on your telephone to withdraw your question press the pound key please stand by we compile the Q and a roster.

Your first question comes from the line of Josh Vogel with Sidoti and company.

Good morning, Josh.

Got a couple of questions for you here I guess first one is.

The strength, we're seeing in Asia Pac relative to the other regions.

With the specific to your positioning there in the end markets or.

Just set that pandemic overhang, there earlier than the Americas in Europe.

Yeah, <unk> really good question I think the answer to that is both.

First off the pandemic started in China, and our China business felt the most impact in Q1 and was starting to recover at the end of Q1 and that recovery continued into Q2 and.

Sure.

Pretty much all back to work or.

Employees are allowed to go to offices, they have to where a protective.

What that at all times.

But that wasn't the first a country to rebound and Australia had a really good quarter.

But the mix also was helpful.

This the clients that we have there.

Held up really well during the pandemic. One example is we have a pharmaceutical client in China, whose main product deals with a respiratory issues. So that was.

Helpful Positioning and then our clients in Australia.

Held up.

Really really well and the second quarter and a exceeded our expectations.

Thanks for the insight there.

Maybe it would be helpful, which took a little overview on the business in your strongest end markets.

Obviously, you have presence in strength in life Sciences, and I believe financial and business services.

What do you think is driving that and what are some of the opportunities that you see out there and other verticals, whether it's in Asia Pac Americas EMEA.

Yeah really are really really good question. So the way we are positioned.

Is our specialty and expertise is on professional rolls a white color roles.

And.

We typically our typical clan hires anywhere from a 500 to 5000 people a year that tends to be our sweet spot smaller than that.

Often too small for us and bigger for that is typically some sort of.

Global manufacturing business or a business with a with a lot of bodies.

The which might not be it in a best fit for us. So if you. If you think about the sectors that have a lot of people in those roles white color professional.

Tends to be health care, that's about a third of our business financial services tends to be another third and there's a lot of diversity within our financial services.

Folio clients.

And then the other third.

Yes, you could call that other but it's everything from a consumer companies and there are some industrial and manufacturing companies and there are some food.

Food consumer staples type of companies, but even within those companies were typically filling the white color roles at those companies and more so than tens of thousands of people on the on the factory floor.

I think the one.

Vertical that were very good fit for that we would like to be bigger. It is technology, we do have some technology clients, but.

Fast growing space with a with a lot of need for our service and so that's that's when it comes to mind that we think we're a good fit for and we'd like to be we'd like to be vigor and.

All right, maybe digging a little deeper into the client base and the impact of coal bid.

You mentioned some of instituted hiring freezes others are more capable of working remotely is it possible to maybe give us a percentage of your client base that you would classify as being able to operate somewhat as normal during these times or what you saw in Q2.

Yeah, I think most of them are able to to work remotely.

Both our clients and our team.

We we.

Don't typically have a lot of clients, where the employees have to physically show up at a specific location like a factory in order to do their their job <unk>. Most of our clients have have jobs, where they can they can work remotely I think the bigger issue and maybe.

We didn't explain the super well is how are they responding to the crisis and there is a very small number that have had just a very hard hiring freeze on kind of until further notice and one of those big clients.

Within the Americas and said that did was was one of the factors for weak America's results in a in Q2.

That's kind of one into the spectrum spectrum, which is a really hard.

Hiring freeze that this has got to uncertain.

Duration to it the other into the spectrum is that there are a few companies that are actually doing better and are hiring more people than they otherwise would the vast majority of our clients or somewhere in the middle Ware.

Just a wait and see attitude they are doing some hiring not nearly as much as they expected at the beginning of the year. So we have scaled back our teams and that's one thing that clients really like about about our service is that we're very flexible and we can scale up and down with with their needs.

So the vast majority are in that kind of middle level, where they're doing some hiring not as much as they thought and they're just watching and waiting and even they don't know exactly what they're going to do in Q3 in Q4 and into 2021. So we're just.

Saying in close contact and close partnership with them.

And trying to be ready for any scenario that unfolds and on a side note one hopeful thing on the other side of everything that's going on in the World is that we strongly think our clients.

See their need for a partner and coming out of this will will.

Be more.

Open minded to partnering with us if they're not already a partner or strengthening their partner ship with us if we're already in partnership with them.

So that that's that's one thing that that's definitely emerging that we're seeing is.

More and more companies are just seeing their need for partner.

I appreciate the insights there.

Shifting gears, a little bit could you just give a little bit more commentary around.

The consolidation of the Americas EMEA under Mr. Lancaster, and maybe just talk to me about the management team in General do you feel that you had a rounded out today or or any additions or changes needed.

Well, we have a really really strong team.

They've been through downturns before and know how to manage downturns and a I'm very very proud of the team we have a really really good team and this was.

Situation, where our AMEA business is had.

Really good growth I think it was our fastest growing region last year, which is particularly impressive given that the market itself isn't the fastest growing market.

And we also have a very well developed center of excellence and Scotland.

And borough, we would estimate about 10% of all of our global employees are at that center and we felt a lot of benefits to combining the leadership of the Americas region with the EMEA region, how we think theres going to be synergies that come out of that.

Hi, cross selling opportunities.

Where.

Clients that we service in Americas weekend call on them and it may and vice versa.

So it was really just.

To drive greater efficiency and to drive faster growth.

Alright, great and one last one.

Obviously, you maintain very strong cash position and I know that.

Stock buybacks are one of your priorities, but maybe.

If you could talk about the acquisition pipeline as well as any appetite you have for internal investments and and I guess when we also think about potential deals with the potentially be more focus in the U.S. because you have the NFL here.

Sure I'll all good.

Good stuff I guess, we would say de all the above a on the internal investments when we made the big strategic change about two years ago to sell off the recruitment agency businesses and just focus on our PEO and related.

Businesses.

We did that because.

We really think.

Carpio and other managed services businesses are the future and we haven't been we have been investing in that future and those investments have mainly been in the areas of technology sales and marketing so we've been making internal investments.

All along.

We did slow that down a little bit this year due to the slowdown in business, but we're going to continue to make those investments and those position us really well for the future they enable us to grow and they're just flat out required.

By our clients. That's one thing second thing is we have long thought our stock was really cheap really really attractive and.

A good use of capital allocation when a company stock is cheap is to buy back stock and Weve pretty consistently done that in recent years and could continue to do that I'm in the future and then on the last one on acquisitions that is always tricky.

Okay.

Because it takes a willing buyer and a willing seller and we have looked at.

Small targets.

That would be a good fit for our portfolio and we have had dialogues with with different people on again off again.

But.

We're hoping that this environment will.

Be more conducive to to finding something that meets our criteria.

We have pretty strict criteria were very value oriented it did.

Seem to us like we were in a sellers market a year ago or just in recent years sellers' expectations were.

Fairly high and we're hoping that that turns into more and more of a buyers market where.

We can find something that's a really good addition to our business and our team and if it makes sense.

Every way we look at it.

Makes sense to our clients mix makes sense.

Sure team and makes sense to our stockholders, so that's or that's what we're looking for.

Well, great well, thank you for taking all my questions.

Your next question comes from the line of Walter Schenker with it May see partners.

Good morning, hopefully everyone.

Has power, an internet, which I don't have.

Since we are you I guess in the northeast richer nothing in northeast.

First could you just give us your thoughts.

On your ability to continue to get.

Lot.

Larger what's your contracts will launch or.

No.

Outsourcing contracts in light of the pandemic.

Since that has been the major avenue of growth for the company and who really in a hiatus pretty much through 2020.

Yeah.

Very good question and hard to answer so.

As you might imagine in an environment like this new most new business discussion.

Have at least a short term pause.

Yes big companies.

Who or our main.

Targets.

To partner with our.

Highly focused on adjusting to covert 19.

And thats been a distraction and has slowed down some of the new business opportunities we're chasing.

But most in most cases, it's just a delay we don't know how long of a delay but weird. We're definitely still have a lot of discussions with a lot of interesting prospects. We do think our business will continue to grow we think we're in a growth business and.

We think we're well positioned to grow with it.

And it's very hard to quantify but.

We strongly think that are prospective clients.

Great see their need for a partner more than ever before if you think about what a lot of them are talking about in dealing with this year.

First it was the pandemic and now it's not only the pandemic, but a lot of them are talking to us about how we can help them on things like improving their diversity and inclusiveness and they're in their hiring and that's something we have a lot of expertise on and can be very helpful. On have a lot of case studies on.

So like I said is hard to quantify that benefit, but I think thats a very real.

Factor.

Coming out of the environment that we're in.

Okay and just.

As a statement.

So your question, but it's a more recent shareholder who was part attracted to the balance sheet.

The company's going on in restructuring I'll repeat the balance sheet.

I am have been very please.

At the repurchase program and again as a shareholder would be very supportive realize they will be uncertainties in the world that the company continue to buy back shares as available and if need be we expand the buyback I realize there's something left in it as long as well.

Or buying stock had around or below cash it seems to me.

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Clearly accretive on a long term basis to shareholders, but thank you very much.

We agree thank you.

Once again to ask a question. Please press star is there's a number one on your telephone keypad.

Your next question comes from my two office.

Hey, guys that thanks for the call my comments and a and your efforts here.

The question regarding client concentration and I know from reading and listening in the past that you give us your guidance towards gross profits.

If you look at your gross profits could you tell us your top three clients what person what percent they are.

Yeah, I don't think that.

Publicly disclosed anywhere I would refer you to our 10-K, where we do talk about a concentration.

In terms of.

Revenue.

Right I was hoping that on this call you could comment about on the gross profit side, because I understand that the topline revenue number.

Can be a little bit I don't know if misleading if the right word, but if you like in the case you sort of guide US we're on the calls you've guided us to say you know don't.

I really look at the top line right Yeah, no. It's it's a very fair question, we just haven't public publicly disclose that.

The one thing I would say is we have some.

Very long term relationships that were very proud of and in general.

We get.

Deeper and deeper with our clients over time and the relationship gets and gets stronger and stronger and so that's that's a really good thing.

But the mix has also changed quite a bit over time so.

If we were to look at the top three or top five or top 10. However, one wants to look at it.

Five years ago, it will look different than today.

And could look different five years from now I.

I think the most important thing.

Focused on is that were.

We're in a growth business, there's two or three industry consultants out there.

This industry didn't even exist 10 years ago.

Sorry, 20 years ago.

It's a small industry, but it's a fast growing and we think it's taking share.

So the industry consultants granted this is pre cobot.

Forecasts the industry to be growing.

10% plus on annual basis for the next few years for the foreseeable future.

And we strongly expect to participate in that growth and were.

In touch with a lot of bigger companies and.

We're very hopeful that we continue to add new new clients in the coming years and if were successful in that that top three top five top 10, everyone wants to look at it will.

We will look very different a few years from now than it will.

Today.

Great I appreciate that you might ask that maybe you would consider going forward. If there's a way to look at it differently than just the top line, whether its gross profits or something else that would be helpful. It's a shareholder wish I am.

You know one thing I think it's fair for me to want to know would be how much risk do I have if one client accounts for 40 or 50% of your gross profit that's I feel like important for me to know.

Yep understood.

If this.

Helps in any way, we don't have any major contracts.

Coming due.

In 2020.

Got to 21.

Okay, great. Thank you.

That concludes today's question and answer session I will now turn the call over to Jeff separate wine for closing remarks.

So thank you for joining us today and your interest in Hudson Global we look forward to next quarter's update call.

Thank you for joining the Hudson Global second quarter Conference call. Today's call has been recorded and will be available on the investor section of our website Hudson our P.O. Dot com.

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