Q3 2021 Hudson Global Inc Earnings Call

[music].

And welcome to the Hudson Global Conference call for the third quarter of 2021.

Our call this morning.

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 Securities law.

Such forward looking statements involve certain risks.

Certainties.

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.

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

During the course of out of this conference call references will be made to non-GAAP terms such as constant currency.

EBITDA and adjusted earnings per diluted share.

Reconciliations for these measures are included in our earnings release and quarterly slides both posted on our website Hudson RP 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.

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

I'll start by reviewing the third quarter 2021 highlights and Matt Diamond, our CFO, who will provide some additional details on our financial results.

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

For the third quarter of 2021, we reported revenue of $45 million up 72% year over year in constant currency.

Adjusted net revenue, formerly referred to as gross profit was $18 million and increased 93% year over year in constant currency.

SG&A costs were $15 1 million in the third quarter up 51% versus the same period last year in constant currency.

We reported adjusted EBITDA of 3 million up from an adjusted EBITDA loss of 700000, a year ago.

In addition, we reported net income of $1 5 million or <unk> 49 per diluted share versus a net loss of $1 2 million or 41 per diluted share in the same period last year.

We reported adjusted net income per diluted share of <unk> 78 in the third quarter 2021 versus an adjusted net loss per share of 38 cents a year ago.

I'll now turn the call over to Matt Diamond, our CFO to review, our financial results by region as well as some additional financial details from the third quarter.

Thank you, Jeff and good morning, everyone.

Our Asia Pacific business grew revenue, 58% and adjusted net revenue was 54% in constant currency.

Adjusted EBITDA of $2 2 million increase from adjusted EBITDA of 900000, a year ago.

Our Americas business grew revenue and adjusted net revenue, 280% and 315% in constant currency respectively.

Over 40% of this growth attributable to organic results, while the remainder was due to the acquisition of quiet group.

Adjusted EBITDA of $1 $4 million increased versus last year's adjusted EBIT loss of 800000.

Our EMEA business grew revenues, 39% and adjusted net revenue, 22% in constant currency.

Adjusted EBITDA of $2 2 million in Q3, 2021 increased compared to breakeven adjusted EBITDA in Q3 of last year.

Lastly, we believe it's important to highlight that the adjusted net revenue grew at a faster rate than SG&A across each of our three regions in Q3.

This operational leverage we are seeing is critical to achieving our goal of growing adjusted EBITDA before corporate costs as a percentage of adjusted net revenue to the 20% level over the long term.

Turning to some additional financial details from the third quarter.

Ended Q3, with $26 5 million in cash and restricted cash.

Net sales outstanding was 39 days at September 2021 in line with DSO, We had at September 2020.

In connection with the acquisition of the quick group in the fourth quarter of 2020, our balance sheet as of September 30.

2021 reflects $2 1 million of goodwill and $1 2 million of net intangible assets.

The company's working capital excluding cash increased to $5 7 million in the third quarter of 2021 from $4 5 million at the end of 2020.

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 we had nothing drawn on this is on this facility at the end of Q3.

The company generated $2 3 million in cash flow from operations during the third quarter.

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

Thank you Matt.

In the third quarter of 2021, we saw activity levels continue to rebound globally off the trough created last year by the COVID-19 pandemic.

Our teams are capitalized strongly on this resurgence in demand for our services.

Our business exhibited very strong growth in revenue adjusted net revenue and adjusted EBITDA across our three regions in the third quarter of 2021 versus the prior quarter.

This growth was particularly strong in Australia, and the Americas. These economies have reopened and rebounded more so that economies in other areas.

I'm proud to say that in Q3, the company reported its strongest levels of growth and profitability of any quarter since its reorganization in early 2018.

I continue to be particularly encouraged by the success and collaboration of our sales teams globally as our new business pipeline remains robust and growing.

Coit group, our 2020 acquisition has significantly outperformed our expectations. This year and we're very excited to see what Connie our new 2021 acquisition announced earlier this week, we'll be able to do as part of Hudson RVO.

The addition of <unk> will enhance Hudson <unk> global delivery capability and open up opportunities to win new business in India and other new markets.

As a combined company, we expect to expand cronies offering beyond the U S leveraged the capability of the chronic team for Hudson <unk> projects and clients.

Penetrate the enterprise RVO markets in India, and the Philippines.

And strengthen Hudson <unk> expertise and technology recruitment.

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, we've been working through.

Operator can you. Please open the line for questions.

Absolutely as a reminder to ask a question you will need to press star one on your telephone.

We got your question fresh capacity.

Yeah.

Okay.

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

Thank you.

Good morning, Jeff and Matt Hope you guys are doing well.

<unk>.

I got a bunch of questions here first I just had a couple on <unk>.

Ronnie just kind of some housekeeping type items I was curious if you could discuss that.

Timeline to fully integrated any near term costs.

That may be involved as well and then <unk>.

Also just.

Yeah.

You know what.

Type of revenue profile, what they've done over the last 12 months and.

I know that we will see inherent efficiencies emerge over time, just like we have with Kuwait, but what was the margin profile on the <unk> business versus your legacy business. Thank you.

Yeah sure. Thanks for the question Josh.

As always so we think the integration will be.

Pretty pretty seamless.

You know they have existing clients existing revenue I think they have about 150 clients and Hudson IPO actually became a client earlier this year before we acquired them and so we already started a a nice working relationship together.

And I think we mentioned in our press release that it's going to be.

Accretive on on day, one and interestingly the <unk>.

Natural metrics are.

Very similar to the Coit acquisition that we made about a year ago.

We filed an 8-K earlier this week with the <unk> acquisition and inside the 8-K, you can see that.

The purchase price was roughly $8 million $6 million cash upfront that we paid at closing on November 1st and then another $2 million.

That comes over time, and that's roughly the same purchase price as we had for coit.

The financial numbers are similar in terms of the.

EBITDA contribution that we expect like if you go back to the Coy deal.

We bought it in October one of 2020, and the expectation was $2 million of EBITDA in 2021.

Sure.

Touching wood, they've they've surpassed that this year, which is really great to see.

It gave us confidence to do acquisition number two and that's roughly the same number we're expecting.

For 2022 four for chronic.

That's helpful. Thank you.

Wanted to shift gears a little bit.

You've talked about the robust and growing new business pipeline. So just.

A few questions around that I know that it's a.

Across the three regions, but are there any specific and you mentioned Americas and Australia, but are there any.

Sectors that youre seeing the most end market demand today, and just a little bit higher level any any.

Changes you're seeing in sales conversion ratios the length of the sales cycle the scope of the work or duration of engagements. Thank you.

Yes, no really good questions Josh.

I would put it there's so many different categories and waste ways to describe it but.

One thing we're seeing in the <unk>.

I guess you could call it.

Middle market or medium sized company market is speed is incredibly important.

And that's really driven by technology companies and life Sciences companies, and that's where we see.

The strongest growth coming out of the downturn, particularly in the Americas was those two sectors Tech and life Sciences and there the sales cycle can be.

The conversion can be very quick and it's all about having the capability being able to start working for the client.

As soon as possible.

Ramping quickly and as an example of that what we've been able to do with coit inside of Hudson.

Has really been encouraging it really has been we joke that.

We look for one plus one equals three and acquisitions and that one has been more like a one plus one equals five.

Five we have been able to do a lot more together than either one of us could separately I think.

Our employee count at the time, we acquired them was in the twenties.

And.

It's already.

We've probably triple that over the last year and it looks like by the end of this year entering next year, we'll have 100 people.

On the on the Coit.

Team, that's largely focused on <unk>.

Tech and we've won some.

Larger accounts.

Fast growing accounts and it's very exciting to see what we've been able to.

To do together.

Kind of one category the other category are.

More.

Additional Hudson clients, which is the fortune 500. These are these are typically.

Global multinational companies our strength historically has been in health care and financial services.

And now, we're adding tech and some other sectors.

And the dynamic there is is different they are coming out of the downturn.

But those companies see their need for a partner like us more so than they ever have before if you think about what we've been through over the last couple of years with dealing with Covid and.

Ramping down the workforce in remote work and ramping back up the workforce and then heightened awareness of.

Diversity and inclusion initiatives.

The typical fortune 500 company.

Realizes that they need a partner need an expert.

Also there's.

So many technology tools. These days and we're experts in all of those technology tools and we're good at helping clients navigate which one of those tools are the best ones for them and so we've really deepened our relationships with clients one new clients.

And really become an even more trusted partner with with some of those clients, which is a really good position.

Positioned to be in.

I appreciate all those insights that I had a question on when looking at our appeal recruitment adjusted net revenue surged last quarter up about $3 million sequentially, if I'm doing my math right.

America is making up.

Two thirds of that.

Sequential improvement was that all coit and the traction youre getting in tech or you're also seeing.

Good traction in the legacy business there.

Yeah no it is.

Really both.

Good good traction in both we.

Uh huh.

Leg.

Legacy business, we had a pharma.

Pharmaceutical clients.

<unk>.

Does that does do some work associated with with Covid and we used to work for them in several countries and we've kind of doubled our business with them in North America.

And that really just is ramping up in Q3 and into Q4.

And so that was a nice.

Kind of expansion with an existing client. So we're seeing really strong growth on both of those Josh.

Alright, great and.

I just wanted to switch over to the contracting work.

Youre one of the few companies out there that really powered through the pandemic and we're still seeing really good growth there.

I was just curious is the bulk of the growth there coming from new business or is it increasing activity in hires within the existing base or really just a good mix of both.

Yes, it's mainly.

New business.

We and it's mainly in Australia.

And it really has to do with the separation that we made.

Three years ago from.

The recruitment agency businesses, we made a strategic decision to.

We enter the contracting business in Australia, and we had a lot of relationships there and it's one of those situations where.

Success to get success and we talked about.

Landing a contracting project with a large tech.

Technology Company, that's headquartered in Asia Pacific.

And.

We've won new business since then that's like that.

<unk>.

It's heavily in Australia, we think we have number one market share in Australia.

And.

It's just one of those situations where success begets success.

And wed like to replicate that in other markets.

But if you look at our numbers.

Most of our contracting businesses in Australia.

Alright, okay.

And just last one for me if I could squeeze it in.

Hearing commentary from a lot of other companies just wanted to hear your thoughts both at the recruitment in contracting because can you talk a little bit about the pricing environment and then at the client level what impact of wage inflation may be having on their business and as well as how that comes into play when you are looking to help them step up.

Yes no.

A it's a huge issue across the board.

But it stems from.

An issue below that issue, which is.

Just finding enough talent and the right talent to meet the needs of the business.

Every region every sector I would say is is trying to hire trying to add talent.

And struggling to do so.

Sure.

That's where the need for a trusted partner like us comes in and is helpful.

It's good for what we do but we think the wage inflation stem.

Stems.

From that kind of.

Lack of workers and one thing we've noticed that hasn't gotten a lot of press is that many countries around the world.

Historically have had.

Immigration flows the U S is like that the UK is like that Australia is like that and Thats basically stopped for 18 months now.

And.

Everything is reopening and the supply of workers isn't isn't what it used to be.

Yes that makes sense I appreciate you taking all my questions.

Thanks, Josh good questions.

Your next question comes from the line of Adam Waldo Lismore Partners. Your line is open.

Good day, Jeff and Matt Thanks, very much for taking my questions I Hope you can hear me okay.

Sure Dan.

Okay, So really a very strong quarter, congratulations to the whole Hudson team on that.

And I Wonder you find yourselves really with a high class problem as I see it right now assuming reasonably good visibility and sustainability of the ongoing business operating results.

Let's talk about the sustainability, if we may have the business' operating results within the high class capital allocation problem that you have for.

Capital allocation opportunities that you have in that context.

You did 18 million of net revenue in the latest quarter, and obviously have karate layering them on top of that here from November 1st. So how comfortable are you given that you come pretty much walking out of the pandemic how comfortable are you with the visibility and sustainability of that.

Net revenue on a quarterly basis is about $18 million range that you just posted.

Yeah, I'd say very very comfortable for the foreseeable future.

There's always things that could come out of left field.

Resurgence of the pandemic or economic downturn.

And it's so hard to separate these with precision, but there is a cyclical aspect in a secular aspect and of course, we're very excited about both.

But the secular aspect is we do think and then normal economic environment.

<unk> business should grow about 15% a year.

The industry consultants say, I think ones as high as 18% and others might be in.

11%, 12% range, but that's kind of the consensus and there's good reasons behind that is that.

Our scientific forecast in and no. It's not it's their best educated guess.

But theres a lot of strong reasons behind that and we expect to participate in that growth and we have a goal of gaining share, but we want to at least grow with the market I E maintain share. So we think there is an underlying secular growth trend here.

For the next few years, maybe the next five years of an industry growing 15% a year.

So that's kind of point number one and then the cyclical aspect is we had a cyclical downturn in 2020 because of the pandemic.

Our business mix helped us really well just being.

Focused on the health care sector, and then even within financial services.

Very diversified suite of companies in financial services is not all investment banking for example, it's insurance companies pension funds.

Thanks.

Wide variety of financial services.

So we think the business held up pretty pretty well in what was a cyclical downturn and now were.

Having a strong rebound out of that and so that's really the cyclical.

On top of the secular.

For right now for the foreseeable future and I am sure. We will have another cyclical downturn at some point.

In the future.

And we will deal with it similar to how we dealt with it last year, but.

We.

I'm really hopeful that that secular trend is is there the way the industry forecasters say it is it's certainly what we're seeing and it makes a lot of sense.

So so very well stated that would be clearly a growth cyclical business model with both drivers really firing at this point.

Hugh.

You have about 26 million of unrestricted cash at the end of the quarter $20 million net of what you are paying upfront for karate.

And if we sort of start with the $26 million of net cash it but obviously the stock's up a lot today, but youre still trading on.

If we net out the cash you're trading on an equity market value based on 3 million shares of about $40 million at given your comments on the <unk>.

Near to intermediate term visibility and sustainability to run rate revenue you have a business that's doing in the vicinity of eight $9 million of Europe run rate free cash flow and EBITDA.

$13 million range, if I'm extrapolating fairly from the quarter. So is that a fair extrapolation and if it is youre able to repurchase your stock at a year one cash on cash return in the 25% range Youre able to acquire.

Very attractive bid.

Businesses like Covid crummy yet.

Year, one cash on cash returns somewhat lower but with good growth prospects. So how do you think about sort of capital allocation.

Between those two opportunities given the high class problem you face.

Yes.

Really good question and it's.

And Thats again, Thats kind of part part art part part science.

And so far.

We haven't had to.

Choose between a or b or C. We've we've done.

All of the above.

We have bought back a significant amount of stock and we think we've been opportunistic on that.

We did a tender offer at $15 a share a couple of years ago and Thats when.

Numbers were lower end.

We're we're valued type investors and so we wouldn't have done it at $15 a share if we didn't think.

The stock was cheap and have added.

Added net.

Net asset value per share doing that and then in the midst the downturn, we were able to by about 9% of the company.

At a stock price that was below cash per share, which you don't see very often.

So we've liked doing buybacks historically.

We would hope to do buybacks again in the future. The tricky thing is that the window is closed.

A lot of the year and then it was closed with this karate acquisition.

That we just announced and so.

Window is not always open but that's a tool in the toolkit that we have done in the past we've also pay dividends.

A couple of times in the past and we're continuing to look for.

Bolt on acquisitions I think in.

Perfect World. If we if we found interesting businesses to buy and that was clearly one plus one equals three.

And maybe we would do one of these bolt ons a year, but we don't have to do anything.

We're super excited about the two that we've done over the last 12 months.

And we will continue to look at.

It's been helpful to us to be in the market and looking but.

We don't feel like we have to do anything at all it's more.

You're right. It's the right one comes along.

Really accretive.

Not just on the financial metrics that to our business into our clients.

We will strongly give it a look and so.

What im long winded way of saying I think the future will be like the Paas will.

Those are all tools in the toolkit and we're going to look at all of them in and just be opportunistic.

So final one I appreciate it just final one if you'll permit me $1 7 million on the existing buyback authorization of $10 million you, obviously bought back very thoughtfully.

Gently.

Our chief good returns on those buybacks.

Free essentially right.

Maybe if you can go with 25% risk return of buying back your stock ignore this future growth I should say, 25% year, one cash on cash return ignoring the future growth of the business. That's a homerun right. So we're getting close to the end of the existing buyback is it fair to for investors to assume that we could expect the board to sort of authorized a new buyback authorization.

As you complete this one given.

Given where the valuation of the company's stance.

Yes, I think Thats, a fair assumption, we've talked about that we think.

Stock buybacks are a really good tool to have in the toolkit.

So.

It's a board level decision not not a management decision, but the.

Expectation would be we want to have that.

Tool in the toolkit, so when we complete the existing plan I would expect us to.

Instituted a new plan.

Thank you very much and can continue to good.

Success.

Thank you.

Your next question comes from the line of Walter Schenker MAZ Partners. Your line is open hi.

Hi, Jeff.

Morning.

So two different sets of questions one on <unk>, one on coit on corny.

The 8-K.

<unk> I wish it was a fair number are largely in Asia, India and the Philippines and then there is a periodic referenced the United States is their business at this point largely in Asia.

Yeah.

It is a little.

Complicated so the clients are in the U S.

And the clients are typically.

Staffing firms and recruitment agencies.

And then we became a client earlier this year and they didn't have any other <unk> clients, where they were the only one so the clients are in the U S.

The headquarters is Chicago. So the sales team is in Chicago The management team is in Chicago.

But the employees, who do all the work are in India, and the Philippines, So think about it like a.

And India operation.

For those staffing and recruitment firms that don't have that in house.

Okay.

So they are making calls are contacting people I mean, it's not a backlog to service.

Well, they do a lot of sourcing.

Finding candidates, helping onboard those candidates screening candidates.

And they also have a day shift and a night shift so like if you think about.

Staffing firm in the U S or recruitment firm in the U S. They are constantly looking for people constantly looking for.

Good candidates.

To then place with their clients and having.

500 people in India, who can help you overnight, while the U S is sleeping.

Makes makes your team.

More productive more efficient.

And.

And that's the value out of the service.

Okay, which actually took the lead in rubles was meant to be which is value add.

On Coit I was surprised at how.

Significantly you've increased the number of employees there.

A two part question one how do you find large numbers of employees that fit what you're looking for at.

Coit secondly.

No.

How do those new employees or what are they doing to generate revenue.

Yeah. So.

The.

A few things there and.

The pandemic was in <unk>.

Full event for.

For the globe.

And I don't want to.

Minimize the human suffering there, but there has been a big adjustment.

Because of Covid in that technology companies, who used to have all of the employees.

In the office.

And then switch to all the employees working remotely are much more open minded than they were before.

Having people work in our center of excellence rather than at their offices and it is incredibly hard to find people in Silicon Valley.

And if you do find them.

There's heavy demand heavy poaching of good people and so we've been able to staff those accounts, so clients or silicon valley, but we've been able to find very talented recruiters and at our center in Tampa we.

And a lot of people in Canada.

But really all over the country St. Louis Arizona.

And so we've just collected.

And this is what we do we're experts at recruiting recruiters.

We've assembled some very experienced tech recruiters.

Throughout North America.

To serve the clients and that's really what's led to the growth.

Okay.

Just think of it that way.

Those people out on the West coast.

Pretty impressive.

<unk> been finding that many people.

It would make sense, what you said.

And the only other question and you answered it but I tend to ask the same question repeatedly just because I like hearing you.

Which was the last.

Speaker there was nothing.

It gives me in this quarter.

That was significantly unusual or atypical and therefore and I know you've answered this already but when might you do it again.

Looking at this seasonality.

Et cetera, but in the intermediate to short term. This is a reasonable base to look at broadly is through operating level pre <unk> of the business.

And yes, unless there's another downturn of some sort.

The economic downturn.

Covid or other natural disaster downturn.

But we think our business has really solid momentum.

A lot of the things that.

The numbers tell the story, but with a lag and a lot of these things have been in the work in the works for some time and it's nice to see a plan coming together and.

There is some seasonality in our business I mean, we do tend to see.

The fourth quarter.

You have holidays fewer hours worked and then the first quarter is particularly slow for us because of our Asia Pac exposure.

It sounds odd to us in North America, but Australia is basically at the beach from.

Christmas through mid mid January.

And.

Chinese new year, which slows down.

Kinda in Hong Kong operations, but we keep winning new business.

Revenues are increasing.

And.

We think we're going to continue to see.

Good growth going forward so in other words despite.

Slowdown from holidays, Q4 should be better than Q3 and 2022.

Should be better than 2021, and that's what we're seeing good thank you and congratulations.

Thank you.

Again to ask a question you will need to press star one on your telephone keypad again that is star one on your telephone keypad.

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

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

Feel free to contact us anytime using the contact information found in the press release or on our Investor Relations website.

We look forward to next quarter's update call. Thank you for your time today.

Thank you for joining for Hudson Global third quarter Conference call. Today's call is being recorded and will be available on the investors section of our web site Hudson RP O dotcom.

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Okay.

And welcome to the Hudson Global Conference call for the third quarter of 2021.

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

Please be advised that the statements made during the presentation include forward looking statements under applicable Securities law.

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.

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

During the course of out of this conference call references will be made to non-GAAP terms such as constant currency.

Adjusted EBITDAR and adjusted earnings for diluted share.

Reconciliations for these measures are included in our earnings release and quarterly slides both posted on our website Hudson RP 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.

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

I'll start by reviewing the third quarter 2021 highlights and Matt Diamond, our CFO, who will provide some additional details on our financial results.

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

For the third quarter of 2021, we reported revenue of $45 million up 72% year over year in constant currency.

Adjusted net revenue, formerly referred to as gross profit was $18 million and increased 93% year over year in constant currency.

SG&A costs were $15 1 million in the third quarter up 51% versus the same period last year in constant currency.

We reported adjusted EBITDA of 3 million up from an adjusted EBITDA loss of 700000, a year ago and.

In addition, we reported net income of $1 5 million or <unk> 49 per diluted share versus a net loss of $1 2 million or <unk> 41 per diluted share in the same period last year.

We reported adjusted net income per diluted share of <unk> 78 in the third quarter 2021 versus our adjusted net loss per share of 38 cents a year ago.

I'll now turn the call over to Matt Diamond, our CFO to review, our financial results by region as well as some additional financial details from the third quarter.

Thank you, Jeff and good morning, everyone.

Our Asia Pacific business grew revenue, 58% and adjusted net revenue of 54% in constant currency.

Adjusted EBITDA of $2 2 million increase from adjusted EBITDA of 900000, a year ago.

Our Americas business grew revenue and adjusted net revenue of 280% and 315% in constant currency, respectively with over 40% of this growth attributable to organic results. While the remainder was due to the acquisition of quiet group.

Adjusted EBITDA of $1 $4 million increased versus last year's adjusted EBIT loss of 800000.

Our EMEA business grew revenue, 39% and adjusted net revenue, 22% in constant currency.

Adjusted EBITDA of $2 two.

$2 million in Q3, 2021 increased compared to breakeven adjusted EBITDA in Q3 of last year.

Lastly, we believe it is important to highlight that adjusted net revenue grew at a faster rate than SG&A across each of our three regions in Q3.

This operational leverage we are seeing is critical to achieving our goal of growing adjusted EBITDA before corporate costs as a percentage of adjusted net revenue to the 20% level over the long term.

Turning to some additional financial details from the third quarter.

We ended Q3 with $26 5 million in cash and restricted cash.

The net sales outstanding was 39 days at September 2021 in line with DSO, We had at September 2020.

In connection with the acquisition of the quick group in the fourth quarter of 2020, our balance sheet as of September 32021 reflects $2 1 million of goodwill and $1 2 million of net intangible assets.

The company's working capital excluding cash increased to $5 7 million in the third quarter of 2021 from $4 5 million at the end of 2020.

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 we had nothing drawn on this facility at the end of Q3.

The company generated $2 $3 million in cash flow from operations during the third quarter.

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

Thank you Matt.

In the third quarter of 2021, we saw activity levels continue to rebound globally. After trough created last year by the COVID-19 pandemic.

Our teams are capitalized strongly on less resurgence in demand for our services.

Our business exhibited very strong growth in revenue adjusted net revenue and adjusted EBITDA across our three regions in the third quarter of 2021 versus the prior quarter.

This growth was particularly strong in Australia, and the Americas. These economies have reopened and rebounded more so that economies in other areas.

I'm proud to say that in Q3, the company reported its strongest levels of growth and profitability of any quarter since its reorganization in early 2018.

I continue to be particularly encouraged by the success and collaboration of our sales teams globally as our new business pipeline remains robust and growing.

Coit group, our 2020 acquisition has significantly outperformed our expectations. This year and we're very excited to see what Connie our new 2021 acquisition announced earlier. This week, we will be able to do as part of Hudson RVO.

The addition of <unk> will enhance Hudson <unk> global delivery capability and open up opportunities to win new business in India and other new markets as a combined company, we expect to expand cronies offering beyond the U S.

Leverage the capability of the crowning team for Hudson <unk> projects and clients.

Straight to our enterprise RVO markets in India, and the Philippines.

And strengthen Hudson Rps expertise and technology recruitment.

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, we have been working through.

Operator can you. Please open the line for questions.

Absolutely as a reminder to ask a question you will need to press star one on your telephone.

So we got your question fresh capacity.

Okay.

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

Thank you.

Good morning, Jeff and Matt Hope you guys are doing well.

I got a bunch of questions here first I just had a couple on.

Connie.

Kind of some housekeeping type items I was curious if you could discuss.

The timeline to fully integrated any near term costs.

That may be involved as well and then also just.

Uh huh.

What.

Type of revenue profile, what they've done over the last 12 months and.

I know that we will see inherent inefficiencies emerge over time, just like we have with Kuwait, but what was the margin profile on the <unk> business versus your legacy business. Thank you.

Yes sure. Thanks for the question Josh.

As always so we think the integration will be.

Pretty pretty seamless.

They have existing clients existing revenue I think they have about 150 clients and Hudson IPO actually became a client earlier this year before we acquired them and so we already started a a nice working relationship together.

And I think we mentioned in our press release that it's going to be.

Accretive on day, one and interestingly the <unk>.

Natural metrics are.

Very similar to the Coit acquisition that we made about a year ago.

We filed an 8-K earlier this week with the <unk> acquisition and inside the 8-K, you can see that.

The purchase price was roughly $8 million 6 million cash upfront that we paid at closing on November one and then another $2 million.

Comes over time, and that's roughly the same purchase price as we have for Kuwait and financial numbers are similar in terms of the.

EBITDA contribution that we expect like if you go back to the Coy deal.

We bought it in October one of 2020, and the expectation was $2 million of EBITDA in 2021 and.

Touching what data they've surpassed that this year, which is really great to see.

It gave us confidence to do acquisition number two.

And that's roughly the same number we're expecting.

For 2022 four for chronic.

That's helpful. Thank you.

Wanted to shift gears a little bit.

You've talked about the robust and growing new business pipeline. So just.

Few questions around that I know that it's.

Across the three regions, but are there any specific and you mentioned Americas and Australia, but are there any.

Sectors that youre seeing the most end market demand today.

And just a little bit higher level any any.

Changes you're seeing in sales conversion ratio is the length of the sales cycle the scope of the work or duration of engagements. Thank you.

Yes no.

Good questions Josh.

I would put it there's so many different categories and waste ways to describe it but one thing we're seeing in the.

I guess you could call it that.

Middle market or even medium sized company market is speed is incredibly important and that's really driven by technology companies and life Sciences companies.

And that's where we saw.

<unk>.

The strongest growth coming out of the downturn, particularly in the Americas was those two sectors.

Tech and life Sciences, and there the sales cycle can be the conversion can be very quick.

And it's all about having the capability being able to start working for the client.

As soon as possible.

Ramping quickly and as an example of that.

We've been able to do with Coit inside of Hudson has really been encouraging it really has been.

Joke that we.

When we look for one plus one equals three and acquisitions and that one has been more like a one plus one equals five.

We've been able to do a lot more together than either one of us could separately I think.

Our employee count at the time, we acquired them was in the twenties.

<unk>.

It's already.

It was probably triple that over the last year and it looks like by the end of this year entering next year, we'll have 100 people.

On the on the Coit.

Team Thats largely focused on <unk>.

Tech and we've won some.

Larger accounts.

Fast growing accounts and it's very exciting to see what we've been able to.

To do together.

Kind of one category the other category are.

More traditional Hudson clients, which is the fortune 500. These are these are typically.

Global multinational companies our strength historically has been in health care and financial services.

And now, we're adding tech and some other sectors.

And the dynamic there is is different they are coming out of the downturn.

But those companies see their need for a partner like us more so than they ever have before if you think about what we've been through over the last couple of years with dealing with Covid and.

Ramping down the workforce in remote work and ramping back up the workforce and then heightened awareness of.

Diversity and inclusion initiatives.

Typical fortune 500 company.

Realizes that they need a partner need an expert.

Also there is.

So many technology tools. These days and we're experts in all of those technology tools and we're good at helping clients navigate which one of those tools are the best ones for them and so we've really deepened our relationships with clients, one new clients and really become an even more trusted partner.

With with some of those clients, which is a really good.

Positioned to be in.

I appreciate all those insights that I had a question on when looking at our Apio recruitment adjusted net revenue surged last quarter up about $3 million sequentially, if I'm doing my math right.

America is making up.

Two thirds of that.

The sequential improvement was that all coit and the traction youre getting intact or you're also seeing.

Good traction in the legacy business there.

Yes, it's really both.

Good good traction in both we.

At.

A leg.

Legacy business, we have.

<unk> client that.

Does that does do some work associated with with Covid.

And we used to work for them in several countries and we've kind of doubled our business with them in North America.

It really just is ramping up in Q3 and into Q4, and so that was a nice.

Kind of expansion with an existing client. So we're seeing really strong growth on both of those Josh.

Alright, great.

I just wanted to switch over to the contracting work.

Youre one of the few companies out there that really powered through the pandemic and we're still seeing really good growth there.

Was curious is the bulk of the growth there coming from new business or is it increasing activity in hires within the existing base or really just a good mix of both.

Yes, it's mainly <unk>.

New business.

We and it's mainly in Australia.

Sure.

And it really has to do with.

The separation that we made.

Three years ago from.

The recruitment agency businesses, we made a strategic decision to re.

Reenter the contracting business in Australia, and we had a lot of relationships there and it's one of those situations where.

Success Begets success, and we talked about.

Landing in contracting project with a large.

Technology Company, that's headquartered in Asia Pacific.

And.

We've won new business since then that's like that.

<unk>.

It's heavily in Australia, we think we have a number one market share in Australia.

And.

It's just one of those situations where success begets success.

And wed like to replicate that in other markets.

But if you look at our numbers.

Most of our contracting businesses in Australia.

Alright, okay.

And just last one for me if I could squeeze it in.

Hearing commentary from a lot of other companies just wanted to hear your thoughts both at the recruitment and contracting business can you talk a little bit about the pricing environment and then at the client level what impact of wage inflation may be having on their business and as well as how that comes into play when you are looking to help them step up.

Yes no.

A it's a huge issue across the board.

But it stems from.

An issue below that issue, which is.

Just finding enough talent and the right talent to meet the needs of the business.

Every region every sector I would say is is trying to.

We're trying to add talent.

And struggling to do so.

Sure.

That's where the need for a trusted partner like us comes in and is helpful.

It's good for what we do but we think the wage inflation stem.

Stems.

From that kind of.

Lack of workers and one thing we've noticed that hasn't gotten a lot of press is that many countries around the world.

Historically have had.

Immigration flows the U S is like that the UK is like that Australia is like that and Thats basically stopped for 18 months now.

And.

Everything is reopening and the supply of workers isn't isn't what it used to be.

Yes that makes sense I appreciate you taking all my questions.

Thanks, Josh good questions.

Your next question comes from the line of Adam Waldo Lismore Partners. Your line is open.

Good day, Jeff and Matt Thanks, very much for taking my questions I Hope you can hear me okay.

Sure Dan.

Okay, So really very strong quarter, congratulations to the whole Hudson team on that.

And I Wonder you find yourselves really with a high class problem as I see it right now assuming reasonably good visibility and sustainability of the ongoing business operating results. So.

Let's talk about the sustainability, if we may have the business' operating results within the high class capital allocation problems that you have for capital allocation opportunities that you have in that context.

You did $18 million of net revenue.

The latest quarter.

Obviously have karate layering them on top of that here from November one so.

How comfortable are you given that you come pretty much going out of the pandemic, how comfortable are you with the visibility and sustainability of that.

Net revenue on a quarterly basis in that $18 million range that you just posted.

Yes, I'd say very very comfortable for the foreseeable future.

There's always things that could come out of left field.

And a resurgence of the pandemic or economic downturn.

And it's so hard to separate these with precision, but there is a cyclical aspect in a secular aspect and of course, we're very excited about both but.

Secular aspect is we do think.

Normal economic environment, the <unk> business should grow about 15% a year.

That's what the industry consultants say I think ones as high as 18% and others might be in the <unk>.

12% range, but that's kind of the consensus and there is there's good reasons behind that is that.

Our scientific forecast in and no. It's not it's their best educated guess.

But theres a lot of strong reasons behind that and we expect to participate in that growth and we have a goal of gaining share, but we want to at least grow with the market I E maintain share. So we think there is an underlying secular growth trend here.

For the next few years, maybe the next five years of an industry growing 15% a year.

So that's kind of point number one and then the cyclical aspect is we had a cyclical downturn in 2020 because of the pandemic.

Our business mix helped us really well just being.

Focused on the health care sector, and then even within financial services, it's a very diversified.

Sweet of companies in financial services, not all investment banking for example.

Insurance companies pension funds.

Thanks, a lot.

Good variety of financial services.

So we think the business held up pretty pretty well in what was a cyclical downturn and now we're having a strong rebound out of that and so that's really the cyclical.

On top of the secular.

For right now for the foreseeable future and I am sure. We will have another cyclical downturn at some point.

In the future.

And we will deal with it similar to how we dealt with it last year, but.

<unk>.

I'm really hopeful that.

That secular trend is is there the way the industry forecasters say it is certainly what we're seeing and it makes a lot of sense.

So so very well stated that would be clearly a growth cyclical business model with both drivers really firing at this point.

Hugh.

You have about 26 million of unrestricted cash at the end of the quarter $20 million net of what you are paying upfront for karate.

And if we sort of start with the $26 million of net cash at that obviously, the stock's up a lot today, but youre still trading on.

If we net out the cash you're trading on an equity market value based on 3 million shares of about $40 million at given your comments on the.

Near to intermediate term visibility and sustainability to run rate revenue you have a business that's doing that.

Vicinity of $89 million of euros run rate free cash flow and EBITDA.

The $13 million range, if I'm extrapolating fairly from the quarter. So is that a fair extrapolation and if it is youre able to repurchase your stock.

One cash on cash return in the 25% range Youre able to acquire.

Very attractive.

Businesses like Covid crummy yet.

Year, one cash on cash returns somewhat lower but with good growth prospects. So how do you think about sort of capital allocation.

When those two opportunities given the high class problem you face.

Yes.

Really good question and it's.

And Thats again thats.

Kind of part part art part science.

And so far.

We haven't had to.

Choose between a or b or C. We've we've done that.

All of the above.

We have bought back a significant amount of stock and we think we've been opportunistic on that.

We did a tender offer at $15 a share a couple of years ago and Thats when <unk>.

Number is were lower end.

We're we're value type investors and so we wouldn't have done it at $15 a share if we didn't think.

The stock was cheap and that that was added.

Added net.

Net asset value per share doing that and then in the midst of downturn, we were able to by about 9% of the company.

Our stock price that was below cash per share, which you don't see very often.

So we've liked doing buybacks historically.

We would hope to do buybacks again in the future. The tricky thing is that the window is closed.

A lot of the year and then it was closed with this Corona acquisition that we just announced and so.

The window is not always open but that's a tool in the toolkit that we have done in the past we've also pay dividends.

A couple of times in the past and we're continuing to look for.

Bolt on acquisitions I think in.

Perfect World. If we if we found interesting businesses to buy and it was clearly one plus one equals three.

And maybe we would do one of these bolt ons a year, but we don't have to do anything.

We're super excited about the two that we've done over the last 12 months.

And we will continue to look at.

Been helpful to us to be in the market and looking but.

We don't we don't feel like we have to do anything at all it's more.

The right. It's the right one comes along that's really accretive.

Not just on the financial metrics that to our business into our clients will.

We will strongly give it a look and so.

What im long winded way of saying I think the future will be like the Paas will.

Those are all tools in our toolkit and we're going to look at all of them in and just be opportunistic.

So final one I appreciate it Jeff I'm wondering if you'll permit me $1 7 million on the existing buyback authorization of $10 million and you've obviously bought back very thoughtfully and intelligently and are achieving good returns on those buybacks.

Free essentially right.

Maybe if you could go to 25% risk return of buying back your stock ignore this future growth I should say, 25% year, one cash on cash return ignoring the future growth of the business that is a homerun right. So we're getting close to the end of the existing buyback is it fair to for investors to assume that we could expect the board to sort of authorized a new buyback authorization.

As you complete this one given.

Given where the valuation of the company stands.

Yes, I think Thats, a fair assumption, we've talked about that we think.

Stock buybacks are a really good tool to have in the toolkit.

So.

It's a board level decision not not a management decision, but the.

Expectation would be we want to have that.

Tool in the toolkit, so when we complete the existing plan I would expect us to.

Instituted a new plan.

Thank you very much and can continue.

Continued good success.

Thank you.

Your next question comes from the line of Walter Schenker MAZ Partners. Your line is open hi.

Hi, Jeff.

Morning.

So two different sets of questions one on Corona and one on Coit on karate.

The 8-K, they are employees of wish it was a fair number are largely in Asia, India and the Philippines and then there is a periodic referenced in the United States is their business at this point largely in Asia.

Yes.

It is a little.

Complicated so the clients are in the U S.

And the clients are typically.

Staffing firms and recruitment agencies.

And then we became a client earlier this year and they didn't have any other <unk> clients, where they were the only one so the clients are in the U S.

The headquarters is Chicago. So the sales team is in Chicago The management team is in Chicago.

But the employees, who do all the work are in India, and the Philippines, So think about it like a.

And India operation.

For those staffing and recruitment firms that don't have that in house.

Okay.

So they are making calls are contacting people I mean, it's not a backlog to service.

Well, they do a lot of sourcing.

Finding candidates, helping onboard those candidates screening candidates.

And they also have a day shift and a night shift so like if you think about.

Staffing firm in the U S or recruitment firm in the U S. They are constantly looking for people constantly looking for.

Good candidates.

To then place with their clients and having.

500 people in India, who can help you overnight, while the U S is sleeping.

Makes makes your team.

More productive more efficient.

And.

And that's the value out of the service.

Okay, which actually lead in rubles was meant to be which is value add.

On Coit I was surprised at how.

Significantly you've increased the number of employees there.

Two part question one how do you find large numbers of employees that fit what you're looking for at.

Kuwait and secondly.

If.

But how do those new employees or what are they doing to generate revenue.

Yeah. So.

The.

A few things there and.

The pandemic was in <unk>.

Our fall event for.

For the globe.

And I don't want to.

Minimize the human suffering there, but there has been a big adjustment.

Because of Covid in that technology companies, who used to have all of the employees.

In the office.

And then switch to all the employees working remotely are much more open minded than they were before.

Having people work in our center of excellence rather than at their offices and it is incredibly hard to find people in Silicon Valley.

And if you do find them.

There is heavy demand heavy poaching of good people and so we've been able to staff those accounts, so clients or silicon valley, but we've been able to find very talented recruiters.

At our center in Tampa, we.

We found a lot of people in Canada.

But really all over the country St. Louis Arizona.

And so we've just collected and this is what we do we're experts at recruiting recruiters.

We've assembled some very experienced tech recruiters.

All throughout North America.

To serve the clients and that's really what's led to the growth.

Okay.

Think of it that way I sort of all those people out on the West coast.

Pretty impressive achievement finding that many people.

Makes sense, what you said.

And the only other question and you answered it but I tend to ask the same question repeatedly just because I like hearing it.

Which was the last.

Speaker there was nothing excuse me in this quarter.

That was significantly unusual or atypical and therefore and I know you've answered this already but I'm going to do it again.

Looking at this seasonality.

Et cetera, but in the intermediate to short term.

A reasonable base to look at broadly is through operating level pre <unk> of the business.

Yes.

Theres another downturn of some sort.

Economic downturn.

Covid or other natural disaster downturn.

But we think our business has really solid momentum.

Lot of the things that.

The numbers tell the story, but with a lag and a lot of these things have been in the work in the works for some time.

And it's nice to see a plan.

Coming together.

<unk>.

There is some seasonality in our business I mean, we do tend to see the <unk>.

Fourth quarter.

You have holidays fewer hours worked.

In the first quarter is particularly slow for us because of our Asia Pac exposure.

It sounds odd to us in North America, but Australia is basically at the beach from <unk>.

Christmas through mid mid January and.

Chinese new year, which slows down.

China and Hong Kong operations.

But we keep winning new business revenues.

Revenues are increasing.

And.

We think we're going to continue to see.

Good growth going forward so in other words.

Despite.

Slowdown from holidays, Q4 should be better than Q3 and 2022.

It should be better than 2021, and that's what we're seeing great. Thank you and congratulations.

Thank you.

Again to ask a question you will need to press star one on your telephone keypad again that is star one on your telephone keypad.

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

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

Feel free to contact us anytime using the contact information found in the press release or on our Investor Relations website.

We look forward to next quarter's update call. Thank you for your time today.

Thank you for joining for Hudson Global third quarter Conference call. Today's call is being recorded and will be available on the investors section of our web site Hudson RP O dotcom.