Q4 2021 Hudson Global Inc Earnings Call

Pardon Me D. C. C. Operator today's program is scheduled to begin shortly please continue to standby and thank you for your patience.

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Good morning, and welcome to the Hudson Global Conference call for the fourth quarter of 2021, our call. This morning will be led by chief.

Officers, Jeff Eberwein, and Chief Financial Officer, Matt.

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.

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 now our.

I know 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 constant currency adjusted EBITDA and adjusted earnings per diluted share.

Reconciliations for these measures are included in our earnings release and quarterly slides both posted on our web site Hudson RPE L Dot com.

I encourage you to access our earnings materials at this time as they will serve as a helpful freshmen sky doing 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 the fourth quarter of 2021 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 2021 we reported revenue of $50 1 million up 83% year over year in constant currency.

Adjusted net revenue was $22 3 million and increased 97% year over year in constant currency.

Organic revenue growth, excluding the impact of the chronic acquisition, we made in the fourth quarter of 2021 was 77% in constant currency.

Adjusted net revenue growth was 83% in constant currency.

SG&A costs were $17 7 million in the fourth quarter up 67% versus the same period last year in constant currency.

We reported adjusted EBITDA of $4 6 million up from 700000, a year ago.

In addition, we reported net income of $2 1 million or <unk> 67 per diluted share versus net income of $1 2 million or 41 cents per diluted share in the same period last year.

We reported adjusted net income per diluted share of a dollar in two cents in the fourth quarter of 2021 versus 'twenty.

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 fourth quarter.

Thank you Jeff good morning, everyone.

Our Asia Pacific business grew revenue, 61% and adjusted net revenue of 46% in constant currency.

Adjusted EBITDA of $2 4 million increase from adjusted EBITDA of $1 5 million a year ago.

Our Americas business grew revenue and adjusted net revenue, 222% and 242% in constant currency respectively.

With approximately 80% of this growth attributable to organic growth, while the remainder was due to the acquisition of <unk> in the fourth quarter of 2021.

Adjusted EBITDA of $2 $7 million increased versus last year's adjusted EBITDA loss.

One 1 billion.

Our EMEA business grew revenue, 66% and adjusted net revenues, 30% in constant currency.

Adjusted EBITDA of <unk> 5 million in Q4 of 2021 increase compared to adjusted EBITDA of <unk> 2 million in Q4 of last year.

Lastly, we believe it is important to highlight that adjusted net revenue again grew at a faster rate than SG&A across each of our regions in Q4.

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 fourth quarter.

We ended Q4 with $22 1 million in cash and restricted cash.

Days sales outstanding was 43 days at December 2021, slightly higher than DSO of 41 days in December 2020.

In connection with the acquisition of quite group in the fourth quarter of 2020, and Connie and the fourth quarter of 2021, our balance sheet as of December 31, 2021 reflects $4 2 million of goodwill and $5 5 million of net intangible assets.

The company's working capital excluding cash increased to $7 8 million in the fourth quarter 2021 from $4 5 million at the end of 2020.

As a reminder, in April 2019, we finalized a 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 Q4.

Our balance sheet as of December 31, 2021 reflects the $2 million promissory note payable as a result of the <unk> acquisition.

1.25 million shown as a long term note payable on the balance sheet.

And the remainder of 750000 is included within other current liabilities.

The company generated $1 7 million in cash flow from operations during the fourth quarter.

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

Thank you Matt.

In Q4, 2020 , one we continue to see activity levels rebound globally offer the trough created by the COVID-19 pandemic.

And our teams 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 all three of our regions in the fourth quarter of 2021 versus the prior year.

This growth was strongest in the Americas, where both the legacy Americas business.

And the Kuwait business performed.

Exceptionally well.

I'm proud to say that in the fourth quarter of 2021. The company recorded its highest revenue adjusted net revenue and adjusted EBITDA since its reorganization in early 2018.

Our sales activity levels and pipeline remain very robust and I continue to be encouraged by the increasing level of collaboration across our teams globally.

Our technology team in 2020 acquisition quite group significantly outperformed our expectations in 2021 and has flourished inside of Hudson RVO.

I'm very pleased with the progress we've been making with the integration of Gorani. Our recent acquisition and continued to be very excited about its growth potential as part of Hudson RPM.

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 had been working through in recent years.

We have a great team and it's exciting to see their efforts to be reflected in our financial performance.

Operator could you. Please open the line for questions.

Thank you and to ask a question simply press star one on your telephone to withdraw your question press, the pound or hashed E. One moment, while we compile the Q&A roster that is star one to ask a question.

We have a question from the line of Walter Schenker with them as partners.

Actually just a couple of questions and first congratulations on the quarter.

Congratulations on astutely buying some stock.

I realize it should tend to be five.

The report for the quarter and the year the tax provision includes.

No tax in the U S. Due to the NOL. So its all international tax or it includes a provision for U S taxes, even though you don't pay them.

No it's a.

Hey, this is Matt thanks for the question. It's it's it's the.

It's basically the mix of countries the U S.

You are correct because of the NOL. It doesn't include taxes in the U S. So.

So those are real taxes.

So not an accounting between those are actual taxes.

Okay, Yeah, you can.

When we file our Walter when we file our 10-K.

You'll be able to see the cash flow statement and you can see what we paid in cash and there are some jurisdictions, where we where we pay cash taxes, Australia, Hong Kong U K are the three that come to mind.

Okay, and then not necessarily trying to.

Backdoor a forecast but.

This was a very good quarter I realize there are seasonal patterns in lots of other stuff, but you've had two acquisitions, you've got economic recoveries in parts of the world.

Hum.

What happened in this quarter.

That was it.

So a typical that in a very broad brush.

Should not look for the quarters in 2022, two again broadbrush b in the same ballpark.

Yeah. So.

Really great question.

<unk>.

In our business in.

Q4 was one of those quarters, where business was strong across the board.

Every sector every region and it doesn't always happen like that and as you pointed out there is some seasonality to our business.

First quarter for example is almost always the weakest quarter of the year.

And.

That's just due to less less hiring activity in general in the first quarter than the fourth quarter, and that's especially true in Asia Pac kind of.

Odd for us to think about.

In our in the U S. But most of Australia is as an extended beach vacation in the month of January and then you also have Chinese new year, and and in China and Hong Kong.

So it typically is the slowest quarter of the year, So I wouldn't expect Q1.

To equal the Q4 results.

The flip side of that though is that the fourth quarter only included two months of the chronic acquisition.

And so starting obviously in 2022 every quarter, we'll have three months and we're just getting started and integrating that business to our existing business and where we're excited about the one plus one equal three potential there but for right now business.

<unk> is really strong and we think we're going to have another good year and in 2022.

And you would anticipate.

Through the year 2022 to two question to pick up additional contracts. Some way. It was some places around the world. So that there should be organic growth in 2022.

Yes in a word yes.

I think Scott said another way.

If someone were to look at our our trailing four quarter performance.

There'll be there will continue to be a rising trend in our and our rolling 12 month performance.

Another way to say that same thing is that.

We expect.

Year over year growth.

Every quarter.

And 2022.

Okay, which means the fourth quarter I mean in some ways. The tide is higher you have chronic so you start ahead, but that also means that for the fourth quarter of 2022, which was annualizing. The acquisition two thirds of it anyway, you would expect the business to be doing more year out who.

Notes.

But we would expect to have growth year over year, even in the fourth quarter, which annualized is the acquisition largely.

Well, it's hard to.

It's hard to.

Have a ton of visibility on Q4, you know here in March.

We have a lot of visibility on the next on the first half of the year.

So a lot of confidence that Q1 is going to show good year over year growth versus Q1 last year same thing for Q2, probably the same thing for Q3.

And let's talk about Q4, when we get closer to it.

Okay.

Thank you very much.

Thanks for the questions.

Thank you.

Again as a reminder to ask a question simply press star one on your telephone.

Yeah.

Okay.

Yeah.

Okay.

And we have a question coming from the line of will Hamilton with minor Tokyo.

Hey, good morning, guys.

Congrats again on the quarter.

I was just a couple of quick questions.

The net revenue retention, if I were to say it that way is.

Music row, I know, that's partly driven is mainly driven by the acquisitions America, where you.

How are.

You retain more of that but.

But I'm just wondering if that mid fifties as kind of a good <unk>.

Number on a collective basis to use going forward.

Yes.

Yes.

Some are with some of you talked about a quarter to quarter.

Like are you tired.

I'm talking about growth are you talking about our margin percentages.

I'm talking about.

Well I'm, sorry, flip it around the direct costs or the.

The difference between the gross and the net revenues.

Narrowed.

And that I know is driven by your acquisitions in Americas, where you retain more of that.

Where there's less direct costs.

I'm sorry.

So I was just wondering in terms of for modeling purposes.

Is that percentage that we saw here in fourth quarter is a good number to use going forward.

Yeah why.

Why don't I don't know if this is exactly answering your question, but we focus a lot more on.

Net revenue than the gross revenue because of the pass through effect.

That's one thought in the second thought is we are.

Seeing operating leverage as we grow.

So I think that's that's true even if we did did no acquisitions, we would still be having some.

Operating leverage and then putting the acquisitions on top of it and it enhances the operating leverage and by operating leverage what I mean is.

Our SG&A costs.

Our growing at a slower don't grow as quickly as the topline is growing.

Hence the margin.

No growth you've seen here again.

Thank you.

Okay. I was just wondering also in terms of the environment and we're obviously very tight labor could.

Could you speak to what you're seeing in terms of pricing.

Fees paid either for new clients or existing clients.

Yeah, no that's good.

Good.

Good question, you know, it's a strong business environment for both.

Volume and price.

Big companies.

We typically work for them.

Mid to larger sized companies.

In general there's a lot of competition for talent, especially in the three sectors that we predominantly focus on.

Health care and financial services and.

So.

Clients are really struggling to acquire the talent they need and.

They need as much help as they can get and so we're seeing strong volume.

And less price.

Sensitivity.

But then you might see at other times.

I would just say another way to summarize it is that our clients are.

Much more outcome focused.

Then beating us up on price.

Alright, Great last one for me is just.

Two acquisitions recently.

Great is obviously paying off nicely just maybe you could speak to what you have in the pipeline right now.

Yeah that'd be great.

Sure No no no.

Another good question.

You know the bar to look is low but the bar to act is high.

Not just looking to add revenue.

We're really looking for those situations where.

There is one plus one equals three where we can.

Look at the acquisition target.

And honestly say Gee inside of Hudson RP O is going to be so much more valuable and we've certainly seen that with the.

Cui group.

Combination of their team and our team.

Attacking the market together has been.

Successful beyond has been better than the best cases.

It's gone incredibly well, we think the crying acquisition also is going to have.

A lot of synergies one plus one equals three that it's more valuable as part of Hudson RP O than it would've been.

Just continuing on their own and that's really what we're looking for so I would say we're always looking.

There's not a ton of acquisition targets.

In in the RP O space its a small industry.

But we do look all the time.

And it's helpful to be in the market looking for bolt on acquisitions, we've learned a lot from doing so and I think in a in a perfect scenario we.

We would find.

One a year.

Similar to the last two in terms of size and in terms of one plus one equals three but.

We don't have to do anything and so if we don't find anything that fits our criteria fine. We'll just keep executing on our current plan, which is a really good plan.

But if we find several to do.

Our team would get Mad at me, but we.

You know, we can do more than one year, if the opportunities were there but.

So so far do not doing.

The two we've done it's been about the right size and about the right pace.

Pacing in terms of having to be a year apart.

Okay. Thank you.

Thank you and this concludes today's question and answer session I will now turn the call over to Jeff.

<unk> for closing remarks.

Well good questions everybody. Thank you again for joining us today and for your interest in Hudson Global feel free to contact us anytime using the contact information found in our press release or on our Investor Relations website. We look forward to next quarter's update call.

Thanks and have a good day.

And thank you for joining the Hudson Global fourth quarter Conference call. Today's call has been recorded and will be available on the investors section of our web site Hudson RPE L Dot com.

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