Hudson Global, Inc (HSON) CEO Jeff Eberwein on Q1 2019 Results - Earnings Call Transcript

May 11, 2019 2:36 AM ETHudson Global, Inc. (HSON)
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Hudson Global, Inc (NASDAQ:HSON) Q1 2019 Results Earnings Conference Call May 9, 2019 10:00 AM ET

Company Participants

Jeff Eberwein - CEO

Patrick Lyons - CFO

Conference Call Participants

Operator

Good morning, and welcome to the Hudson Global Conference Call for the First Quarter of 2019. Our call this morning will be led by Chief Executive Officer, Jeff Eberwein; and Chief Financial Officer, Patrick Lyons.

Please be advised that except for historical information, the statements made during the presentation constitute 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. The 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 this conference call, references will be made to non GAAP terms such as adjusted EBITDA. An adjusted EBITDA reconciliation is included in our earnings release and quarterly slides, both posted on our website hudsonrpo.com. I encourage you to access our earnings materials at this time as they will serve you as the helpful reference guide during our call.

I will now like to turn the call over to Jeff Eberwein, sir.

Jeff Eberwein

Thank you, Operator. And welcome, everyone.

We thank you for your interest in Hudson Global and for joining us, today. I'll review the first quarter 2019 results, then give some perspective on our RPO business, Hudson's corporate cost and trends we see going forward. Patrick Lyons, our CFO will then provide some additional details on our first quarter 2019 results. I'll then review our outlook for 2019.

For the first quarter of 2019, we reported revenue of $16.2 million, up 9% year-over-year in constant currency. Gross profit of $9.4 million was down 2% year-over-year in constant currency as strong growth throughout Asia was offset by weakness in the Americas year-over-year.

SG&A costs were $11.2 million in the first quarter, down 5% versus the same period last year in constant currency. We reported an adjusted EBITDA loss of $1.8 million compared to an adjusted EBITDA loss of $2.2 million a year ago.

Turning to regional and country performance in our first quarter. Asia Pacific, once again had a great quarter with solid year-on-year growth in revenue up 13% and gross profit up 3% in constant currency. Growth in Q1 was particularly strong in Hong Kong and Singapore with gross profit overall in Asia growing 11%, driven by new client wins.

Gross profit in Australia was flat year-over-year. America's gross profit was down 12% year-over-year, due to weaker volumes from existing clients but also due to the end of a client engagement in the media sector that occurred at the end of Q1 2018, which weren't announced. Adjusted EBITDA loss of $300,000 was down from adjusted EBITDA of $400,000 a year ago.

In Europe, revenue was up 27% while gross profit was flat in constant currency. The revenue growth was driven by both the U.K. and Continental Europe. While the overall results were mixed for our company in the first quarter compared to last year, our team around the world remains very focused and very dedicated to serving clients and generating results. We have a great team and I want to thank all Hudson RPO employees for their hard work so far this year.

We believe our business has strong momentum and we're excited about improving our operating and financial results going forward. As new wins across all three regions are beginning to come online, we are encouraged by the momentum the business is building. For example, we won a large RPO contract covering North and Central America, which went live in March. This client win is already contributing significantly to the region's performance in Q2 and is outperforming our expectations.

In Europe, we recently won a large RPO contract in the Netherlands, which we expect to go live in July. This marks Hudson RPOs entry into the Netherlands and represents a significant step towards expanding our presence throughout continental Europe.

In Asia Pacific, we had an exciting new client relationship commenced in April with an Asia based technology company, which I will discuss further later in the call. All-in-all, we are encouraged by the flow of new prospects into our sales pipeline and are pleased with the rate at which we are winning new business. We believe our business has strong organic growth ahead.

Turning to our stock buyback program, we continue to view share repurchases as an attractive use of capital, and we expect to continue to be aggressive in repurchasing shares going forward.

During the first quarter, we repurchased 106,000 shares for $154,000. Since the inception of this program in the third quarter of 2015 through the end of the first quarter of 2019, the company has purchased 3.9 million shares for $7.7 million. After the current $10 million authorization is completed, we expect to approve a new share repurchase authorization.

In addition to accelerate buyback activity at these attractive stock price levels, the company completed a tender offer in March for 2.5 million shares of the company's common stock for an aggregate cost of $3.7 million, excluding fees and expenses related to the tender offer. Our share count declined by a total of 8% in the first quarter. We are pleased to report, in addition, that all of the items on the ballot overwhelmingly passed at our annual meeting on Monday. The official results will be disclosed in an 8-K filing later this week.

I'll now turn the call over to our Chief Financial Officer, Patrick Lyons to review some additional details from the first quarter.

Patrick Lyons

Thank you, Jeff and good morning, everyone.

As a reminder, on March 31, 2018, we completed the sale of the recruitment and talent management businesses in Europe and Asia Pacific in three separate transactions. And we recorded a pretax book gain of $40 million in 2018 related to those sales. Under U.S. GAAP, the divestitures met the criteria for treatment as discontinued operations and are reported as such in our statement of operations in balance sheet for all periods presented.

Our first quarter tax provision from continuing operations was $65,000. The company used $6.2 million in cash flow from operations during the first quarter. This was due primarily to normal seasonal changes in working capital, we see in quarter one each year as well as the payment of annual bonuses.

In addition, the company spent $4 million in the quarter on the repurchase of our shares, mainly to the tender offer that Jeff just mentioned. Days sales outstanding was 64 days at March, well improved from the 70 day DSO, we had at March 2018. We ended the quarter with $30.8 million in cash and restricted cash.

In April, we finalized the new credit facility in Australia to support the expected growth in working capital needs as a result of new win in that market. I'll now turn the call back over to Jeff to review our outlook for 2019.

Jeff Eberwein

Thank you, Patrick.

For 2019, we continue to expect to see greater than 10% growth in revenue and gross profit over the prior year in constant currency.

In addition, adjusted EBITDA before corporate cost is expected to grow faster than this rate. Given this growth in the RPO business and a reduction in corporate cost that we mentioned earlier, we expect the company to generate positive adjusted EBITDA in 2019 at the total company level.

We encourage investors to focus on our gross profit line rather than revenue as our key growth metric. The reason for this is we had a large MSP contract go live in April, where we're managing the temps in contractors for a large Asia based tech company that's a Household name.

This new project will inflate revenues going forward, due to labor cost pass-throughs. Into payroll costs of our temps in contractors in MSP projects are accounted for above the gross profit line, their gross profit margins are much lower than for RPO projects because delivery costs are mainly below the gross profit line. Including MSP in our service offering is an important part of being a total talent solutions provider and also positions us well to win RPO business in the future, both with this new client as well as other potential new clients.

Another key metric to focus on is adjusted EBITDA before corporate costs as a percentage of gross profit. Over the long term, we're targeting 20% for this metric.

Operator can you please open the line for question.

Question-and-Answer Session

Operator

Jeff Eberwein

Okay well, we have earnings call slides on our website as well as an updated Investor Relations deck. And any questions feel free to give us a call or send an email to ir@hudsonrpo.com. Thank you for joining the Hudson Global First Quarter Conference Call. Today's call been reported and will be available on the Investor section of our website HudsonRPO.com. Have a great day.

Operator

Ladies and gentlemen thank you for participating in today's conference. This does conclude the call, you may now disconnect. Have a wonderful day.

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