Q4 2020 Hudson Global Inc Earnings Call

Good morning, and welcome to the Hudson Global Conference call for the first quarter of 'twenty.

Our call. This morning are the ladder by Chief Executive Officer, Jeff Eberwein on Chi.

<unk> financial Officer Napp guidance. Please be advised that the statements made during the presentation include 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.

Risks are discussed in our form 8-K filed today or there are other filings made with the Securities and 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 day non-GAAP trends such as constant currency adjusted EBITDA and adjusted earnings per diluted share.

Reconciliations for this measure is included in our earnings release on quarterly slides, both posted on our web site Hudson I P O dotcom.

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 start by reviewing our fourth quarter 2020 highlights and Matt Diamond our CFO will provide some additional details on our financial results.

I'll, then give an update on current business conditions.

For the fourth quarter of 2020, we reported revenue of 23, $27 3 million up 2% year over year in constant currency.

Adjusted net revenue, formerly referred to as gross profit.

Was $11 3 million and decreased 2% year over year in constant currency.

SG&A costs were $10 5 million on the fourth quarter down 1% versus the same period a year ago.

We reported adjusted EBITDA of 700000 compared to adjusted EBITDA of 900000, a year ago.

In addition, we reported net income of $1 2 million or <unk> 41 per share versus net income of $1 5 million or 48 cents per share in the same period last year.

We reported adjusted net income per share of 20 cents in the fourth quarter 2020 versus adjusted net income per share of 51 cents a year ago.

Yeah.

Turning to performance for the quarter by region, Our Asia Pacific business grew 5% in constant currency, while adjusted net revenue declined 8% in constant currency.

Adjusted EBITDA of $1 5 million.

Increased from adjusted EBITDA of $1 2 million a year ago.

For the full year 2020, our Asia Pacific business grew adjusted EBITDA to $3 9 million from $3 3 million in 2019.

To generate this level of growth in 2020 is an amazing accomplishment and I'm very proud of the results our Asia Pacific team have been able to produce given the headwinds facing them. This year.

Our Americas business grew revenue and adjusted net revenue, 20% and 16% in constant currency respectively.

Adjusted EBITDA loss of 100000 decreased versus last year's adjusted EBITDA of positive 200000.

Our main business saw revenue declined 20 per cent and constant currency adjusted net revenue declined 9% in constant currency.

Adjusted EBITDA of 200000 in the fourth quarter decreased compared to adjusted EBITDA of 400000 in the fourth quarter of last year on.

Now I'll turn the call over to Matt Diamond, our CFO to review some additional financial details from the fourth quarter.

Thank you, Jeff and good morning, everyone.

In connection with the acquisition of quick group, our balance sheet as of December 31, 2020 reflects $2 1 million of goodwill and $1 4 million of net intangible assets.

The company used 100000 cash flow from operations during the fourth quarter.

Day sales outstanding was 41 days at December 2020, which was slightly below DSO of 42 days, we had at December 2019.

We ended the quarter with $26 2 million in cash and restricted 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 a result of new client wins in that market, but.

But we had nothing drawn down on this facility at the end of Q4.

In April 2020, we received a loan through the SBA PPP program for $1 3 million.

In the fourth quarter of 2020, we received full forgiveness for this loan. This is split out into its own line item labeled PPP loan forgiveness, and our fourth quarter results.

I'll now turn the call back over to Jeff to give some more perspective on our view of business and to review current trends in our business.

Thank you, Matt 'twenty 'twenty was a uniquely challenging year for our clients on our business due to the impacts of the COVID-19 pandemic.

Although the recovery from COVID-19 is uneven and uncertain, we've begun to see activity levels rebound, especially in the life Sciences and technology sectors, and we believe we're well positioned to return to growth alongside our clients in 2020 one.

As a reminder, we acquired quite group in the fourth quarter and are very pleased with its integration thus far.

So we believe we have improved our sales and marketing effectiveness, while also lowering our cost structure, particularly in the Americas, which will enable us to drive profitable growth as our business recovers in 2020 one.

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

Operator can you. Please open the line for questions.

Absolutely. Thank you Sir.

Ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your Touchtone telephone again Thats Star then the number one key on your Touchtone telephone.

Your question has been answered or you wish to move yourself on the queue. Please press the pound key we'll pause for just a moment to compile the Q&A on case.

Again, ladies and gentlemen, thank you have a question at this time. Please press Star then the number one key on the Touchstone telephone. Please on your first question will come from the line of trash in Socal Hudson 30 and company. Your line is now lifestyle go ahead. Please.

Yeah.

Good morning, guys. Thanks for taking my questions.

Jeff you just mentioned that the integration with Kuwait was going well.

I know, it's still relatively early in the game here and I guess actually it's we're about five or six months in but you know there was talk about how that business expands your tech presence. It also potentially positions due to serve.

Clients within that region on a global basis I was curious if you were seeing any oh on any of that come to fruition or opportunities in the pipeline around that yeah.

No.

Good good question.

They they've had a good business for a really long time and are really really good growth.

And if they are thought and partnering with them was that if they just keep doing what they're doing it'll be a really good acquisition and really good partnership, but the two areas of potential synergy where one plus one equals three is being out.

We're able to go after larger Tech company.

On projects that neither one of US could've done separately and then the other is international and interestingly, we're seeing more momentum on some of the international.

On projects that.

We couldn't have done or might not have done separately. So for example.

We've we've won on its ramping up a medium sized technology project in Australia through a referral that they that that came through quite so they couldn't have done it on their own because they historically haven't had a presence in Australia and I'm you know, it's a client win we might not.

Known about had we not acquired Kuwait. So we are starting to see some some nice synergies and we think that's only going to grow and get bigger and better over time.

That's helpful. Thanks, and when we think about the pipeline can you just talk about.

Where you're seeing.

More opportunity today with.

With regard to small and medium sized projects versus those those larger projects of years past.

No good question.

<unk> of our clients are.

Larger fortune 500 companies and our two biggest sectors are health care and financial services, and we are seeing that business start to improve.

Start to thaw and in conversations on a new business.

Our our emerging but.

But that has always been a slow moving phenomenon I said another way our business has a long.

Sales cycle to it.

And this this recovery is no different in that regard, but where we are seeing a lot of.

Good wins and good momentum is in a more medium size businesses medium sized projects and particularly in the life Sciences.

And technology sectors, and where that business is different and that having a rapid response and being able to help them quickly is really really important on a.

A lot of cases, there are less.

<unk> sensitive and much more time sensitive.

And we've developed teams in each region and in order to respond to that to that market demand and and we call. It rapid response teams, but each region is developing that and that's that's our fastest growing them.

Client base, and where are our new wins have been in recent months.

I appreciate the insight there.

Shifting gears, a little bit we know last quarter, you consolidated the management of the Americas and Europe under Darren and I was just curious you know how is that going and are there any other potential strategic moves that you've made me either.

Rationalize our bench costs or drive efficiencies.

Yeah. Good question.

That that has gone really really well thus far.

We have.

Like you said the management team.

Of we combined the management team of Americas, and in Europe, and we are seeing some really good synergies there were people that do things like HR or marketing or working on client proposals are doing market research, we're able to do that in both.

It's rather than just doing it in one market and then we've taken some of those savings.

And invested that in sales and marketing. So we have been growing the sales team in the U S and is debt.

That investment is starting to pay off because we.

<unk> been winning a lot of new business in the Americas and that was.

For a variety of reasons the geographic area that was hit the hardest for us and 2020, and that's going to be the area that has the strongest.

Rebound we believe.

Great and one more question I'll jump back in the queue.

Obviously.

Your your balance sheet remains very robust.

Just when we think about capital allocation strategy in 2021, especially.

In an environment, where COVID-19 related challenges are easing.

Appetite.

For acquisitions also maybe just some commentary around.

What youre seeing with asking prices are they too high or they you know somebody in your wheelhouse and just what your priorities are around capital allocation. Thank you yeah, I know that that's.

A really important are really really important area, particularly over over the medium medium to long term.

And our top priority has been.

And internal growth investments and we've talked previously about those being focused on.

Technology sales and marketing and <unk>.

Those will always be areas of investment.

But maybe it won't grow quite as much as it has in the past few years, we had some some catching up to do in that regard, but internal growth investments are the highest priority and then we look at.

Acquisition opportunities all the time and we look at.

Buybacks, all the time and we have a history of buying back a significant amount of stock in the past and it's a really great tool to have on the toolkit, particularly when.

Our stock price is cheap and so I would just encourage people to look at our past actions as.

As a guide there and on acquisition front, you know we are looking at things and Ah.

It's a really it's a really good environment to be looking but it's so hard to predict which ones are ones that are going to be over the go line and you know it takes a willing willing buyer and willing seller.

And I guess, the most important thing I would say in that regard is we're not looking to get bigger per.

Per se growth is just a means to on and we're really looking at those situations, where there is a strong one plus one equals three where we can.

Look at the targets business and team and say Gee inside our company. There's so many things we could do together to make it a one plus one equal three.

Right.

Right well great well. Thank you for taking my question I'll hop back in the queue. Okay great.

Thank you, Sir and well done at this time, ladies and gentlemen, they make you have a question. Please press Star then the number one on your telephone keypad.

Yeah.

Presenting on speed you have a follow up question coming from the line of Josh Vogel from Sidoti and company Theyre Hudson.

Yep me again, thank you.

In the absence of.

Any sort of guidance, but just you know.

Directionally when when we think about 2021 and the geographic split of your business exiting 2020, how how should we think about you know potential geographic mix.

Just on what Youre seeing today.

And.

Like if we're sitting here a year from today, just curious your thoughts around that.

Yep.

Good good good question.

Yeah.

Rough a rough rule of thumb and and this is on a adjusted net revenue in particular is that Asia Pac is around 50%.

America's around 25 per cent and you're up around 25 per cent.

But because of the Asia Pac is so much bigger.

And this is just a basic.

Math problem.

You know if everyone has the same day.

The dollar growth its a lower percentage for them because it's a it's a much bigger base in that business held up incredibly well and are in 2020, our team did a really good job managing.

Managing costs in transitioning to a virtual environment that was that was part of it.

Another part of it is just our client base.

It wasn't.

Heavily heavily impacted you know, we don't really have exposure to travel.

Travel hospitality luxury retail some of the areas that we're really hit hard last year.

And then Australia, which is our biggest country and in the whole company.

It was not as impacted by Covid as the Europe or the U S.

<unk>.

It was and so you know that business held up really really well.

So its just starting at a higher level and the Americas was hit the hardest and.

Did have some client loss there and just the declines that we that we had.

Disproportionately had more hiring freezes and.

Reduced activity.

And our debt and we've we've we've lowered the cost structure and our business is rebounding rebounding. So.

Americas is going to see the highest growth by far in 2021, but it's off a lower base.

And then we think we're going to have good growth in Europe and good growth in Asia Pac and we have a goal for all of our regions to grow at least 10 per cent a year and we think that that growth.

We will be met Covid, just reiterate we think the strongest growth will be seen in the in the Americas.

That's helpful. Thank you and just one last one when we spoke back in on the.

November call.

And thinking just about.

Reinvesting in the business you mentioned about looking to add more centers of excellence over time and I was just curious how we should think about that from a timing and low keisha perspective, what do you need to see.

And where before you feel comfortable opening one of those coes.

I know that's a I'm really glad you asked that debt question.

Because it's a really important part of our business model and its a key to winning business and it's a key to them being being flexible which is what people.

Like about our P O and it's also a key and developing knees rapid.

Response teams are which is in high demand and in life Sciences and technology, So I'm happy to say that we.

Just in Q1 opened a center of excellence in Tampa and so the office is open where we're hiring aggressively.

In that office and that team is going to support our Americas business and we've mentioned before that we have a center of excellence in Scotland, and we have two in Asia Pac.

And we're studying other areas to open centers of excellence and so I think it's just a matter of time before we see a second one in the U S probably somewhere in the West and then there could be a second one in Europe at some point and.

In the EMEA region, and there could be a third one in Asia Pac at some point so.

At the beginning of the year, we had three centers of excellence. We now have four and I think there'll be a point in the future where we have more like six.

Alright, great well, thanks, again for taking my questions and for all the insights.

Thanks, Josh.

Thank you, Sir ladies and gentlemen, if you have a question Congrats star one on your telephone keypad.

Okay.

Yeah.

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

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

Thank you. Thank you so much percentage Cindy Janet Thank you for joining the Hudson Global fourth quarter Conference call. Today's call has been recorded on it will be available on Investor section of our web site Hudson IPO at that time.

I have a lovely day.

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