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Thomas Finser  

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  • Hudson Global - Selling At 30% Less Than Activists' Cost Basis And Offers Significant Upside [View article]
    Nice analysis Derek. I think you’ve done an excellent job in summarizing the investment thesis post eDiscovery. It’s tough to find a credible scenario where sub $3 per share valuation makes sense…unless you believe ANZ or Europe macro is on the verge of collapse. They have transitioned into a specialty RPO/talent company (with a side order of perm). Once this becomes evident, HSON ought to rerate. So double appreciation from positive earnings and rerating as a specialty staffing company.

    A few thoughts on comments posted to your article:

    On share buybacks, cash flow is countercyclical. eDiscovery proceeds are financing working capital for the recovery. This should not be considered a buyback slush fund (yet). I expect more color in the Q4 call. The financial danger zone for staffing companies like HSON lies in the recovery…absorbing cash to finance fee earners. Nolan is on top of this, but something to keep in mind when considering buybacks. In the case of EV, I would tread carefully in assessment of cash. In this case, cash ought to be viewed as long-term asset rather than a current asset.

    Pertaining to some comments on Lone Star, Eberwein obtained several concessions as outlined in the 5/29/14 letter to shareholders. Not all measures were adopted. This bothers me. One can only conclude there is lingering tension in the boardroom and that the status quo contingent continues to hold. This ought not be the case given the clear mandate from the 2014 proxy win. The board has improved somewhat and is very well observed (echoing the sentiment of Nell Minow on quantum objects). So behavior should follow. I was hoping that altered behavior would include a visible display of humility like separation of chairman and CEO. Alas this has not happened. Lone Star has a voice, certainly more than Sagard several years ago, but they haven’t “won” just yet. I’m not sure they need complete boardroom domination to unlock value given the efforts mentioned above. At least we're moving in the right direction.

    My concern pertains to the shareholder exit strategy. In essence HSON is “public” private equity at this point. The paper trail is out there. Note the page-one holders, the recent NOL poison pill and the liquidity constraints in the public market. Top holders were fed up a year ago at $3.50 per share. I can’t imagine they’re celebrating at $2.80 after all this.

    So I fear that critical votes maybe amicable to a hasty exit rather than value maximization. A mere profit for them is still a win for most, but far less than full upside we deserve as outside passive minority shareholders. It’s a high-class problem to have, but mountaintop removal of upper bounds of asymmetric upside alters the HSON equation for some.

    Disclosure: Long HSON
    Feb 23, 2015. 07:47 PM | 2 Likes Like |Link to Comment
  • Make Up Or Break Up: Unlocking Value At Hudson Global [View article]
    This is a good question. I would recheck the '11 and '12 annual reports (see item 12 in the footnotes). Column A of 1.2m to 1.3m is the running total accumulated as of the reporting period...equity comp overhang as of 12/31. If we go back to the '12 10-K, Item #12, roughly one third of this 1.2m share comp overhang relates to the Marquez employment agreement. The weighted avg. exercise price is $5 per share for Marquez and $14 for everyone else. I would also compare the compensation scheme with KFRC, KELYA, and RHI and others. What's interesting here is to peruse through the 14A's for HSON from '11 through '13. Their incentive structure has shifted over time and relative to other players. This is the type of stuff that matters because comp structure often signals shifts within the company--especially with a beaten down name people love to hate.

    I see a compensation structure that is getting "less bad", with incentive targets more akin to top quality HR peers. Long story short, the equity overhang at HSON, is more psychological than fundamental to passive minority shareholders. Philosophically I agree on your management compensation point. However, what matters most in my analysis is the rate of change/direction relative to the dollar-weighted average perception of the marginal buyer/seller. Herein lies the opportunity.
    Sep 23, 2013. 10:33 AM | Likes Like |Link to Comment
  • Make Up Or Break Up: Unlocking Value At Hudson Global [View article]
    Thank you for the great question. I would check out the Q2 earnings slides for a breakdown by geography. It’s important to note that all of Asia/Pac is 40% of Q2 gross margin dollars…ANZ is roughly half of this. While an important driver for HSON, Australia is roughly on par with the U.K. in terms of gross margin contribution. To see the impact of a hard landing, look no further than the U.K., this segment was over-indexed to financial services and banking. ANZ on the other hand, is more diversified by sector, with greater RPO/talent penetration.

    While ANZ is a risk, this variable is more than offset by operational improvements within the broader HSON conglomerate, tepid macro recovery assumptions in Europe, and acceleration in the U.S.

    No doubt, ANZ will remain challenging over the next year. The Manpower Employment Survey of 1,500 employers in Australia found that 17% plan on increasing hiring, 14% plan on decreasing hiring and 69% remain unchanged. This is far less robust than past quarters. The macro headwinds you referenced and the political uncertainty surrounding the election are not helping.

    Another interesting cut on ANZ is to look at Q2 annualized EBITDA margins. If we take the Q2 numbers (ex-corporate allocated) and run some EBITDA multiples, we’re getting a solid franchise in Australia, with growth optionality in Singapore and Hong Kong for free (as I referenced in the article). Americas might be worth $50m + $22m for Europe vs. the recent EV of $70m for HSON. Asia/Pac, even with breakeven Q2 EBITDA margins, is probably worth a lot more than zero.
    Sep 21, 2013. 09:45 AM | Likes Like |Link to Comment
  • Make Up Or Break Up: Unlocking Value At Hudson Global [View article]
    The market already knows this. As with most unloved stocks, HSON is here for the reasons you cited, though I don’t fully agree with your assessment of the CEO. When bad things happen to average management, the market tends to mistake causality with correlation (e.g. revenue is down 30% so management must have caused it). Breakup fees and director comp while frustrating to any decent capitalist, are less relevant to the story...missing the dollars for the pennies. Regarding their ability to unwind the “mishmash” of businesses, you may be right. This could be inefficient, sloppy and expensive…certain segments may not be separable. However this obfuscates the point: even with a sloppy dissolution of their portfolio, these assets are likely worth far more on a stand-alone basis. This being said, the first scenario highlighted above (turnaround) is most probable. The reason I’m sticking my neck out with HSON today, is that the convergence of shareholder pressure with BOD frustration and macro stabilization have created favorable conditions for a certain type of disciplined value investor. HSON is much further down this road than many appreciate today.

    Also, I would be mindful of descriptive language. Words influence perception of reality…they unconsciously trigger a self-perpetuating narrative. Words like “weak” and “disastrous” enfold a broader story about the company in question that is often just an interpretation of the past. This story pre-programs our ability to interpret the present situation and thus, taints our future projections. This is HSON.

    Seems like you’ve done a lot of homework here and I share many of your ideas. Thank you for taking the time to read this article and I appreciate your thoughtful comments.

    Sep 13, 2013. 03:55 PM | Likes Like |Link to Comment
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