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spk01: conference operator. Today's conference call is scheduled to begin moments early. Until that time, your lines will again be placed on music hold. Thank you for your patience. Thank you. Thank you. Thank you. Good morning and welcome to the Hudson Global Conference Call. or the first quarter of 2021. Our call this morning will be led by Chief Executive Officer Jeff Eberwine and Chief Financial Officer Matt Diamond. Please be advised that the statements made during the presentation include forward-looking statements under the applicable security 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 8K filed today and in our other filings made with the Securities and Exchange Commission, including our annual report on the Form 10K. The company disclaims any obligations to update any forward-looking statements during the course of this conference call. Reference will be made in the non-GAAP terms, such as constant currencies adjusted EBITDA and adjusted earnings per diluted shares. Reconciliation for these measures are included in our earnings release and quarterly slides, both posted on our website, hudsonrpo.com. I encourage you to access our earnings material at this time. as they will serve as a helpful reference guide during our call. I will now turn the call over to Jeff Eberwine. You may begin.
spk19: 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 first quarter 2021 highlights, and Matt Diamond, our CFO, will provide some additional details on our financial results. I will then give an update on current business conditions. For the first quarter of 2021, we reported revenue of $34.5 million, up 27% year-over-year in constant currency. Adjusted net revenue, formerly referred to as gross profit, was $12.7 million and increased 19% year-over-year in constant currency. SG&A costs were $12 million in the first quarter, up 13% versus the same period last year in constant currency. We reported adjusted EBITDA of 800,000 up from an adjusted EBITDA loss of 100,000 a year ago. In addition, we reported a net loss of 0.2 million or 7 cents a share versus a net loss of 0.5 million or 17 cents a share in the same period last year. We reported adjusted net income per share of 7 cents in the first quarter of 2021 versus an adjusted net loss per share of $0.08 a year ago. Turning to the performance for the quarter by region, our Asia Pacific business grew 29% in constant currency and adjusted net revenue grew 12% in constant currency. Adjusted EBITDA of $1.1 million increased from adjusted EBITDA of $0.6 million a year ago. Our Americas business grew revenue and adjusted net revenue 42% and 46% in constant currency, respectively, mostly due to the acquisition of Coit Group that was made in the fourth quarter of last year. Adjusted EBITDA of $200,000 increased versus last year's adjusted EBITDA of $100,000. Our Europe business grew revenue 6% in constant currency and adjusted net revenue 5% in constant currency. Adjusted EBITDA of $200,000 increased in the first quarter of 2021 increased compared to adjusted EBITDA of 100,000 in the first quarter of last year. Lastly, we believe it's important to highlight that adjusted net revenue for the company as a whole grew at a faster rate than our cost did in Q1, and that was particularly true in Asia Pacific and Europe. This operating leverage that we're seeing is critical to achieving our goal of growing RPO's adjusted EBITDA as a percentage of adjusted net revenue to the 20% level before corporate costs over the long term. I'll now turn the call over to Matt Diamond, our CFO, to review some additional financial details from the first quarter.
spk17: Thank you, Jeff, and good morning, everyone. We ended the quarter with $23.6 million in cash and restricted cash. Day sales outstanding was 41 days at March 2021, below DSO of 44 days we had in March 2020. In connection with the acquisition of Coit Group in the fourth quarter of 2020, our balance sheet, as of March 31, 2021, reflects $2.1 million of goodwill and $1.3 million of net intangible assets. The company's working capital, excluding cash, increased by $2.3 million in the first quarter to $6.8 million, up from $4.5 million at the end of the fourth quarter 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 Q1. The company used $2.4 million in cash flow from operations during the first quarter. The outflow was due to the seasonal moves in working capital we typically see in Q1, as well as the ramp up of a new MSP client in Australia. I'll now turn the call back over to Jeff to give some more perspective on our RPO business and to review current trends in our business.
spk19: Thank you, Matt. Over the last 12 months, the COVID-19 pandemic created numerous challenges for our clients and our business around the world. But we're now emerging from this crisis, as you can see in our Q1 results, where we exhibited solid growth in revenue, adjusted net revenue, and adjusted EBITDA in all three regions. Our Asia-Pacific business continued to perform really well, and we're very pleased about the recovery in our Americas results, which is due to organic improvements that we made last year and the addition of Koi Group in the fourth quarter. The recovery that we're seeing is uneven depending on country, but in general, we're seeing increased activity levels at our existing clients and an improving pipeline of potential clients. Importantly, I want to thank all of our highly dedicated employees for their flexibility, hard work, and dedication to our clients and business and the challenging conditions that we've experienced over the last year. Operator, can you please open the line for questions?
spk01: As a reminder, if you would like to ask a question, please press star 1. The first question comes from the line of Josh Vogel with Sedoti.
spk15: Thank you. Good morning, Jeff and Matt.
spk14: I got a bunch of questions here.
spk15: I guess the first one here, you know, I know it has likely something to do with the nature of the contract being RPO versus MSP, but can you talk about the difference in profitability by region?
spk19: Sure. We look at... Because the MSP contracts, that's where we're managing the temps and contractors for clients, that business results in a lot of revenue, a lot of pass-through revenue, and so we recognize a high amount of revenue, a high amount of cost of goods sold, and the difference is in net revenue, whereas on the RPO side, 100% of the revenue goes to net revenue. And so our preferred metric to look at is adjusted EBITDA divided by adjusted net revenue. And I've talked before about the goal we have of getting to 20% at the whole company, and that's before corporate costs. And the main thing we need is more growth and more scale And you can really see that in our Australia results, our Asia Pacific results, I should say, where that margin is almost at that level. I think it was 19.5% in the first quarter. And the other two regions were much lower than that. And that really just has to do with scale. It's really nothing to do with anything at the client level. So as we grow, especially in those other regions, our profitability will improve. Basically, it's just a classic economies of scale thing where we can allocate our fixed costs that we have in those regions, really our overhead costs, I should say, allocate those overhead costs over a wider base.
spk15: That's helpful. Thank you. That actually leads into my next question, just looking at the operating leverage in the model. You know, on a consolidated basis, SG&A was up 13 percent, but adjusted net revenue was up 19 percent, obviously. Asia Pacific, the best performer there. So really, outside of economies of scale and volume-driven, is there any other areas where we could expect to see leverage in the model, additional cost cuts, internal employee productivity improvement? I'm just curious around that.
spk19: Yeah, I would say all of those things. We have cut costs significantly. over the last three years and made, at the same time, made investments in technology, sales, marketing, also training and developing our people, which is a really important component of our business. So we've built a platform. We have the cost of being global, and as we grow and get scale, we will see substantial benefits from that. I guess all that said, another way, if you look at our company as a whole, and this is before corporate costs, I think our margin, and again, this is based on our preferred metric of adjusted EBITDA divided by adjusted net revenue. Before corporate costs, that number was about 12%, and we have a goal of getting that number to 20%. And the way we do it is that extra dollar of adjusted net revenue we get, we're really pushing hard for 30% of that or 30 cents to drop to the EBITDA line.
spk15: Understood. Thank you. Shifting gears a little bit, nice to see the turnaround in Americas. And I guess outside of COIT, you mentioned a recovery due to organic improvements made last year. Can you just talk a little bit more about that?
spk19: Yeah, sure. We have invested in our sales and marketing team there, brought in more people, and our business has a long sales cycle to it. So once we have a well-functioning sales and marketing effort, you know, it takes a few quarters, sometimes as long as a year or for those results to really start to show up in our financial performance. We can see the leading indicators, but it just takes a few quarters to start winning business and get that business ramped up. We also made some cost reductions last year, and I think I've talked about this on previous calls, where we combined the management teams of Europe and the U.S. together, and that that's working really well and our sales teams are working really well and winning business and so I guess you call it the legacy business that we have in the Americas has improved significantly and then we acquired Coit in the fourth quarter but like if we look at just a quarter over quarter comparison for example first quarter of this year compared to the fourth quarter of last year we did have net revenue growing 33% quarter over quarter, and so that is a like-for-like comparison because the fourth quarter did include a full quarter of COIT. So that's one of the real bright spots of our company right now is the strength we're seeing in the Americas. We're winning a lot of new business, and we're very excited about the team we've put together and the results we're starting to see.
spk15: That's great. And then just thinking about the pipeline activity, so you are seeing some nice activity or wins that is tied to Colt directly?
spk19: Definitely. And the fast movers that we've seen coming out of COVID, I might have mentioned this before, are more medium to, you know, large, medium kind of category type of companies that move really quickly. We're particularly seeing that in life sciences and tech where they're well-funded, they have aggressive growth plans, and they're moving really quickly and want to partner with us right away. A lot of the bigger companies that are always slower to make decisions, they're really big projects when we win them, but they're slower to make decisions, a lot of those conversations were on hold over the last year. And so there was still a need. They still wanted to go forward. It was just delayed, not canceled, which is an important point. And we're starting to see that part thaw out. And a lot of those new business opportunities that have been on hold for six months or 12 months Those conversations have definitely heated up, and we would expect to win some of those as the year progresses.
spk15: That's definitely good to hear. Just a couple quick ones on client and pipeline related, and then I'll jump back in the queue. But you said that even though the recovery isn't even, you're seeing increased levels of activity at existing clients and improving client and potential clients. Just talk a little bit more about this unevenness and which region or regions are showing the strongest pipeline improvement, uh, thus far?
spk19: Sure. Um, the two strongest, um, are right now are the U S and Australia. So if I just think about our Asia Pacific business, um, Australia is, um, got really, really strong growth and a really exciting pipeline of new business opportunities. Same for China. Hong Kong is getting a little bit better than it was, but just a very different tone there. And we're having really good growth in our Southeast Asia operations where we have Singapore as a hub. So if I look across that whole region, You know, we have some really strong areas and then some other areas that are improving off of trough conditions but don't have that same robust growth outlook. And a little bit similar in Europe where the U.K. is performing really well. We are winning new business. And a lot of the conversations with companies for opportunities on continental Europe were in that – deep freeze category, and it is starting to thaw, but it has been slower to rebound than the UK. And, of course, it's highly related to different countries' experience with COVID. When I was talking about Hong Kong, you also have some political, you know, the protests and things like that haven't helped hiring activity by multinationals there, which is who our clients tend to be.
spk15: Sure, it makes sense. And just lastly, maybe a little bit more higher level, of the new business or clients you're either winning or seeing in the pipeline, I'm just curious, the mix between those who either currently work with a competitor versus those who have never used an RPO provider before, I'm just curious about what you're seeing with that regard.
spk19: It's mainly companies that have not used RPO before. or maybe they've used it for one division or one country as kind of a pilot or experiment program, and they've liked what they've seen, and so now they're doing it in a bigger way. Yes, sometimes we win business from competitors and they win business from us, but that is much less common than a company – using RPO for the first time. So a lot of these companies we've called on for a long time and, uh, have been, uh, convincing them about the benefits of an RPO model. And, uh, those conversations, um, have really heated up in the last, uh, six months. So that's a good, um, leading indicator for our, our, our sales team and, uh, they're, they're very busy. And so we hope to convert a lot of that potential into, um, actual clients, and financial and operating performance.
spk15: Well, I do appreciate all the insights and for fielding all my questions. I'll jump back in the queue now. Thank you.
spk19: All right. Thanks, Josh. Good questions.
spk01: Again, if you would like to ask a question, press star 1. The next question comes from the line of Walter Schinker with Moz Partners.
spk06: Hi. I have a question and a comment. First, I'd like to commend you, Jeff, I've rarely seen corporate insiders buy stock as consistently as you have. I realize it's a program, but it's nice to see people inside the company consistently buy stock, especially if they already have a significant position. So kudos to you. It makes me feel good telling the stock. The question I have, and I won't mention the company, but I'm just going to do a headline. Company and WeWork announced partnership to help early and growth stage teams scale effectively, and they talk about offering the WeWork universe, and again, access on demand and technology first hiring solutions, provide teams with resources they need to expand and grow efficiently. This is an electronic platform. I just read some of the press release. How do electronic platforms and and I affect as you look forward your business I realize it's not the same but to a little extent if you make it much easier for people inside a company to to hire and feel comfortable about it would seem it might affect your business so how do you look at I mean this big companies lots of stuff going on in all of course service businesses electronically online sure so
spk19: You know, a lot of these issues aren't so black and white where one company uses a lot of technology and the other one doesn't or that a traditional business gets disintermediated because of everyone using technology. So at our best, we are a... trusted partner to our clients and I think just going through what they've gone through over the last year makes them see their need for a trusted partner more than ever before. Probably the biggest reason why someone wouldn't partner with us or any RPO company is they just don't see their need for it. They think to themselves we can do all this on our own and I think this last year has shown that they're better off with a partner. So we are deeply involved with our clients, helping them use all of those technology tools and there's many, many technology tools out there for them to use and we are technology agnostic in the sense that we're not developing our own tools and have skin in the game in terms of financial incentive for our clients to use tool X instead of tool Y. It's much more, we have that expertise, we can really help them evaluate which tools they should use in the whole talent procurement, talent assessment process. And then the acquisition we made last year of Coit Group, it gets a little bit confusing because they are tech recruiters, but they're also recruitment technology experts. So they know a lot about all the tools coming out of the Bay Area and can answer questions for our clients about the pros and cons of different tools that are out there. So I hope that answers your question. I'd say another really big category that we've been helping our clients with is helping them achieve and improve on their diversity and inclusion hiring initiatives and ESG initiatives. We have a lot of expertise on that, and that's another area where we're a really valuable partner or consultant to our clients.
spk07: Okay. Thank you.
spk19: Sure.
spk01: The next question comes from the line of Josh Hoga with Sedoti.
spk13: Welcome back.
spk15: Hey, thank you. I just had one more. You know, I was checking out your recent investor deck. I had a slide on the centers of excellence and where they're located and then other several pins for places under consideration, India, South Africa, Arizona. Can you discuss any additional plans for SoE's and why these stations in particular?
spk19: Sure. We think this is a really important part of our business model. It helps clients and it helps us. The reason why I say it helps clients is that one of the things that clients say they really like about partnering with the RPO provider is our flexibility. We can scale up, scale down quickly to meet their needs. And we're able to do that by having these centers of excellence in various places around the world. And then it helps us because we have highly trained people who can work for multiple clients, multiple time zones, and we just get greater efficiency at a lower cost. And when we can do that for our clients, it helps us win. So we've had a lot of success with our center in Scotland. And then in Asia, we've had two centers historically, one in the Philippines and another one in China. And we are studying India and having one in that market potentially. Our hearts go out to that country and just all the suffering in that country right now because of COVID. But long-term, we're very bullish on India and having a presence on India. So exploring having a center there. And in Europe, like I said, we've had a lot of success with our center in Scotland. We're exploring opening one in South Africa. And then in the U.S., earlier this year, we opened a center in Tampa And that is really off to a great start. We've already hired quite a few people in that market that are helping us across the Americas and also helping COIT in the San Francisco area. And I think it's just a matter of time before we have one or more centers in the U.S. Probably the next one would be somewhere in the western part of the country. But that's a really important part of our pitch to clients and our delivery. I guess all that said another way, RPO 1.0 might have been having all of our people deeply embedded with the clients in their offices. And I think the new delivery model, especially in the post-COVID world, is to have some of those people in the clients' offices, but some of those people at one of our centers. And It's really a win-win. It's better for the clients and also better for us.
spk15: All right. Well, thank you, and thanks again for taking all my questions. Absolutely.
spk01: Again, if you would like to ask a question, press star 1. The next question comes from the line of Mark Bishop.
spk08: Good morning. Oh, hi. Can you hear me? Hi. Can you hear me?
spk11: Yes. Good. I have a number of questions. First of all, you don't have any forecast in your press release. Would you like to comment on any forecast for the year for adjusted EBITDA or revenue company-wide? And then also, I know you said you had some seasonal growth in working capital. Do you have any outlook for the year's working capital change? Also, you didn't look like you did any buybacks this last quarter. In prior years, you've done a lot around this time or earlier. Are you... At the current stock price, are you less interested in doing buybacks, or do you have other acquisitions that we could expect possibly to happen this year, or would that be later, or what would be your cash use plan? Hi.
spk17: I'm happy to discuss a little bit about the forecast. It's true we don't have any specific guidance in here. I wouldn't want to give precise numbers, but I'm happy to give directional numbers and say that what we're targeting on a constant currency basis is revenue and adjusted net revenue growth of double digits, solid double digit growth in both of those. And then adjusted EBITDA, we expect to grow considerably as well. Adjusted EBITDA was a loss of the full year last year, and we expected that it would be a gain this year. So that's not a measurable percentage there, but we expect that this will be a rebound year. As Jeff was mentioning earlier in the quote you see in the earnings release, we're seeing a lot of strength, especially in our in our Asia-Pacific markets. We're seeing an improving pipeline. We're seeing economies start to bump back as the restrictions are lifted and as the vaccination programs have continued to extend and gain acceptance and the numbers are continuing to increase. You hear every day more governments announcing that there are new restrictions being lifted and new progress being made in reopening business. So we expect that this year will be solid for us. You also asked about cash flow. In terms of cash flow, just a quick comment that typically in Q1 of each year, it's typically down seasonal, primarily because of a number of different factors. There's bonus payments that go out, and a lot of our execs and our entire Asia Pacific business are paid bonuses once a year, and that once a year is in Q1 of each year. So that's a big driver in terms of why we always have a use of cash. In addition, we had a new MSP client in Australia that was starting up that was launched at the very end of Q4 last year. So there's working capital needs that are in place as we ramp up with that client in order to gain momentum there. But that's temporary and that will reverse. For the balance of the year, we expect that cash flow will do better, grow in line with net income as we expect net income to grow. We also expect that X any other things happening. We expect that the cash flow should follow a similar trajectory as it did last year where we had a use, but then it improved in 2019 as well, a use, but then continues to strengthen through the course of the year.
spk19: And, Mark, you asked about capital allocation, and we don't view these things as mutually exclusive, but we are continuing to look at bolt-on acquisition opportunities. I would say we're always in the market, always looking at things, but extremely hard to predict when something might happen and how much. But the acquisition we made last year I think is a decent template to look at in terms of size and what it did for us strategically. I've long said we don't want to buy something just to get bigger. It's got to really have some strategic value and be a great fit. And I would just encourage you to look at what we've done. We think we're a very shareholder-focused company. The board and management own a significant amount of stock. And what the company has done historically is bought back a significant amount of stock and has done it in a lot of different ways through one-off block trades from time to time, through open market purchases, through a 10B5 program. We've also paid dividends a couple times. And there's not too many other companies that have shrunk their share counts as much as we have over the last two years. And we're going to be opportunistic. We do think share repurchases are very attractive, including at today's price. And we're going to be opportunistic. And I would just tell you, look at our history. And no reason to think that we would change versus what we've done in the past.
spk09: Terrific. Thank you very much.
spk19: Thanks for your questions.
spk01: Again, if you would like to ask a question, press star 1. Press star 1 for questions. That concludes today's question and answer session. I will now turn the call back over to Jeff Eberwine for closing remarks.
spk19: Well, thanks, everybody, for joining us today. Really great questions. So we thank you for your interest in our company. And we're always available to take your calls or emails. The contact information is in our press release and our investor relations deck that's on our website. And we look forward to next quarter's call. So have a great day.
spk01: Thank you for joining the Hudson Global first quarter conference call. Today's call has been recorded and will be available on the investor section of our website, HudsonR.com. You may now disconnect. you Thank you. Thank you. Thank you. you Thank you. Good morning and welcome to the Hudson Global Conference Call for the first quarter of 2021. Our call this morning will be led by Chief Executive Officer Jeff Eberwine and Chief Financial Officer Matt Diamond. Please be advised that the statements made during the presentation include forward-looking statements under the applicable security 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 annual report on the Form 10-K. The company disclaims any obligations to update any forward-looking statements during the course of this conference call. Reference will be made in the non-GAAP terms such as constant currencies adjusted EBITDA and adjusted earnings per diluted shares. Reconciliation for these measures are included in our earnings release and quarterly slides. Both Post it on our website, hudsonrpo.com. I encourage you to access our earnings material at this time, as they will serve as a helpful reference guide during our call. I will now turn the call over to Jeff Eberwine. You may begin.
spk19: 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 first quarter 2021 highlights, and Matt Diamond, our CFO, will provide some additional details on our financial results. I will then give an update on current business conditions. For the first quarter of 2021, we reported revenue of $34.5 million, up 27% year-over-year in constant currency. Adjusted net revenue, formerly referred to as gross profits, was $12.7 million and increased 19% year-over-year in constant currency. SG&A costs were $12 million in the first quarter, up 13% versus the same period last year in constant currency. We reported adjusted EBITDA of $800,000 up from an adjusted EBITDA loss of $100,000 a year ago. In addition, we reported a net loss of $0.2 million or $0.07 a share versus a net loss of 0.5 million or 17 cents a share in the same period last year. We reported adjusted net income per share of 7 cents in the first quarter of 2021 versus an adjusted net loss per share of 8 cents a year ago. Turning to the performance for the quarter by region, our Asia Pacific business grew 29% in constant currency and adjusted net revenue grew 12% in constant currency. Adjusted EBITDA of $1.1 million increased from adjusted EBITDA of $0.6 million a year ago. Our Americas business grew revenue and adjusted net revenue 42% and 46% in constant currency, respectively, mostly due to the acquisition of Coit Group that was made in the fourth quarter of last year. Adjusted EBITDA of $200,000 increased versus last year's adjusted EBITDA of $100,000. Our Europe business grew revenue 6% in constant currency and adjusted net revenue 5% in constant currency. Adjusted EBITDA of $200,000 in the first quarter of 2021 increased compared to adjusted EBITDA of $100,000 in the first quarter of last year. Lastly, we believe it's important to highlight that adjusted net revenue for the company as a whole grew at a faster rate than our costs did in Q1, and that was particularly true in Asia Pacific and Europe. This operating leverage that we're seeing is critical to achieving our goal of growing RPO's adjusted EBITDA as a percentage of adjusted net revenue to the 20% level before corporate costs over the long term. I'll now turn the call over to Matt Diamond, our CFO, to review some additional financial details from the first quarter.
spk17: Thank you, Jeff, and good morning, everyone. We ended the quarter with $23.6 million in cash and restricted cash. Day sales outstanding was 41 days at March 2021, below DSO of 44 days we had in March 2020. In connection with the acquisition of Coit Group in the fourth quarter of 2020, Our balance sheet as of March 31st, 2021 reflects $2.1 million of goodwill and $1.3 million of net intangible assets. The company's working capital, excluding cash, increased by $2.3 million in the first quarter to $6.8 million, up from $4.5 million at the end of the fourth quarter 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 Q1. The company used $2.4 million in cash flow from operations during the first quarter. The outflow was due to the seasonal moves in working capital we typically see in Q1, as well as the ramp up of a new MSP client in Australia. I'll now turn the call back over to Jeff to give some more perspective on our RPO business and to review current trends in our business.
spk19: Thank you, Matt. Over the last 12 months, the COVID-19 pandemic created numerous challenges for our clients and our business around the world. But we're now emerging from this crisis, as you can see in our Q1 results, where we exhibited solid growth in revenue, adjusted net revenue, and adjusted EBITDA in all three regions. Our Asia Pacific business continued to perform really well, and we're very pleased about the recovery and our America's results, which is due to organic improvements that we made last year and the addition of Koi Group in the fourth quarter. The recovery that we're seeing is uneven depending on country, but in general, we're seeing increased activity levels at our existing clients and an improving pipeline of potential clients. Importantly, I want to thank all of our highly dedicated employees for their flexibility, hard work, and dedication to our clients and business and the challenging conditions that we've experienced over the last year. Operator, can you please open the line for questions?
spk01: As a reminder, if you would like to ask a question, please press star 1. The first question comes from the line of Josh Vogel with Sedoti.
spk15: Thank you. Good morning, Jeff and Matt.
spk14: I got a bunch of questions here.
spk15: I guess the first one here, you know, I know it has likely something to do with the nature of the contract being RPO versus MSP, but can you talk about the difference in profitability by region?
spk19: Sure. We look at... Because the MSP contracts, that's where we're managing the temps and contractors for clients, that business results in a lot of revenue, a lot of pass-through revenue, and so we recognize a high amount of revenue, a high amount of cost of goods sold, and the difference is in net revenue, whereas on the RPO side, 100% of the revenue goes to net revenue. And so our preferred metric to look at is adjusted EBITDA divided by adjusted net revenue. And I've talked before about the goal we have of getting to 20% at the whole company, and that's before corporate costs. And the main thing we need is more growth and more scale And you can really see that in our Australia results, our Asia Pacific results, I should say, where that margin is almost at that level. I think it was 19.5% in the first quarter. And the other two regions were much lower than that. And that really just has to do with scale. It's really nothing to do with anything at the client level. So as we grow, especially in those other regions, our profitability will improve. Basically, it's just a classic economies of scale thing where we can allocate our fixed costs that we have in those regions, really our overhead costs, I should say, allocate those overhead costs over a wider base.
spk15: That's helpful. Thank you. That actually leads into my next question, just looking at the operating leverage in the model. You know, on a consolidated basis, SG&A was up 13%, but adjusted net revenue is up 19%, obviously. Asia Pacific, the best performer there. So really, outside of economies of scale and volume-driven, is there any other areas where we could expect to see leverage in the model, additional cost cuts, internal employee productivity improvement? I'm just curious around that.
spk19: Yeah, I would say all of those things. We have cut costs significantly. over the last three years and made, at the same time, made investments in technology, sales, marketing, also training and developing our people, which is a really important component of our business. So we've built a platform. We have the cost of being global, and as we grow and get scale, we will see substantial benefits from that. I guess all that said, another way, if you look at our company as a whole, and this is before corporate costs, I think our margin, and again, this is based on our preferred metric of adjusted EBITDA divided by adjusted net revenue. Before corporate costs, that number was about 12%, and we have a goal of getting that number to 20%. And the way we do it is that extra dollar of adjusted net revenue we get, we're really pushing hard for 30% of that or 30 cents to drop to the EBITDA line.
spk15: Understood. Thank you. Shifting gears a little bit, nice to see the turnaround in Americas. And I guess outside of COIT, you mentioned a recovery due to organic improvements made last year. Can you just talk a little bit more about that?
spk19: Yeah, sure. We have invested in our sales and marketing team there, brought in more people, and our business has a long sales cycle to it. So once we have a well-functioning sales and marketing effort, you know, it takes a few quarters, sometimes as long as a year or for those results to really start to show up in our financial performance. We can see the leading indicators, but it just takes a few quarters to start winning business and get that business ramped up. We also made some cost reductions last year, and I think I've talked about this on previous calls, where we combined the management teams of Europe and the U.S. together, and that's working really well and our sales teams are working really well and winning business and so I guess you call it the legacy business that we have in the Americas has improved significantly and then we acquired Coit in the fourth quarter but like if we look at just a quarter over quarter comparison for example first quarter of this year compared to the fourth quarter of last year we did have net revenue growing 33% quarter over quarter. And so that is a like for like comparison because the fourth quarter did include a full quarter of COIT. So that's one of the real bright spots of our company right now is the strength we're seeing in the Americas. We're winning a lot of new business and we're very excited about the team we've put together and the results we're starting to see.
spk15: That's great. And then Just thinking about the pipeline activity, so you are seeing some nice activity or wins that is tied to quote directly?
spk19: Definitely. And the fast movers that we've seen coming out of COVID, I might have mentioned this before, are more medium to, you know, large, medium kind of category type of companies that move really quickly. We're particularly seeing that in life sciences and tech where they're well-funded, they have aggressive growth plans, and they're moving really quickly and want to partner with us right away. A lot of the bigger companies that are always slower to make decisions, they're really big projects when we win them, but they're slower to make decisions. A lot of those conversations were on hold over the last year. And so they were still in need. They still wanted to go forward. It was just delayed, not canceled, which is an important point. And we're starting to see that part thaw out. And a lot of those new business opportunities that have been on hold for six months or 12 months Those conversations have definitely heated up, and we would expect to win some of those as the year progresses.
spk15: That's definitely good to hear. Just a couple quick ones on client and pipeline related, and then I'll jump back in the queue. But you said that even though the recovery isn't even, you're seeing increased levels of activity at existing clients and improving client and potential clients. Just talk a little bit more about this unevenness and which region or regions are showing the strongest pipeline improvement thus far?
spk19: Sure. The two strongest right now are the U.S. and Australia. So if I just think about our Asia Pacific business, Australia has got really, really strong growth and a really exciting pipeline of new business opportunities. Same for China. Hong Kong is getting a little bit better than it was, but just a very different tone there. And we're having really good growth in our Southeast Asia operations where we have Singapore as a hub. So if I look across that whole region, you know we have some really strong areas and then some other areas that are improving off a trough conditions but don't have that same robust growth outlook and a little bit similar in Europe where UK is performing really well we are winning new business and a lot of the conversations with companies for opportunities on continental Europe were in that deep freeze category, and it is starting to thaw, but it has been slower to rebound than the UK. And, of course, it's highly related to different countries' experience with COVID. When I was talking about Hong Kong, you also have some political, you know, the protests and things like that haven't helped hiring activity by multinationals there, which is who our clients tend to be.
spk15: Sure, it makes sense. And just lastly, maybe a little bit more higher level, of the new business or clients you're either winning or seeing in the pipeline, I'm just curious, the mix between those who either currently work with a competitor versus those who have never used an RPO provider before, I'm just curious about what you're seeing with that regard.
spk19: It's mainly companies that have not used RPO before. or maybe they've used it for one division or one country as kind of a pilot or experiment program, and they've liked what they've seen, and so now they're doing it in a bigger way. Yes, sometimes we win business from competitors and they win business from us, but that is much less common than a company – using RPO for the first time. So a lot of these companies we've called on for a long time and, uh, have been, uh, convincing them about the benefits of an RPO model. And, uh, those conversations, um, have really heated up in the last, uh, six months. So that's a good, um, leading indicator for our, our, our sales team and, uh, they're, they're very busy. And so we hope to convert a lot of that potential into, um, actual clients, and financial and operating performance.
spk15: Well, I do appreciate all the insights and for fielding all my questions. I'll jump back in the queue now. Thank you.
spk19: All right. Thanks, Josh. Good questions.
spk01: Again, if you would like to ask a question, press star 1. The next question comes from the line of Walter Schinker with Moz Partners.
spk06: Hi. I have a question and a comment. First, I'd like to commend you, Jeff, I've rarely seen corporate insiders buy stock as consistently as you have. I realize it's a program, but it's nice to see people inside the company consistently buy stock, especially if they already have a significant position. So kudos to you. It makes me feel good to own the stock. The question I have, and I won't mention the company, but I'm just going to do a headline here. Company and WeWork announced partnership to help early and growth stage teams scale effectively, and they talk about offering the WeWork universe, and again, access on demand and technology-first hiring solutions, provide teams with resources they need to expand and grow efficiently. This is an electronic platform. I just read some of the press release. How do electronic platforms and and I affect, as you look forward your business, I realize it's not the same, but to a little extent, if you make it much easier for people inside a company to hire and feel comfortable about it, it would seem it might affect your business. So how do you look at, I mean, there's big companies, lots of stuff going on in all cross-service businesses electronically online?
spk19: Sure. You know, a lot of these issues aren't so black and white where, you know, one company uses a lot of technology and the other one doesn't or that a traditional business gets disintermediated because of everyone using technology. So at our best, we are a... trusted partner to our clients and I think just going through what they've gone through over the last year makes them see their need for a trusted partner more than ever before. Probably the biggest reason why someone wouldn't partner with us or any RPO company is they just don't see their need for it. They think to themselves we can do all this on our own and I think this last year has shown that they're better off with a partner. So we are deeply involved with our clients helping them use all of those technology tools and there's many, many technology tools out there for them to use and we are technology agnostic in the sense that we're not developing our own tools and have skin in the game in terms of a financial incentive for our clients to use tool X instead of tool Y. It's much more, we have that expertise, we can really help them evaluate which tools they should use in the whole talent procurement, talent assessment process. And then the acquisition we made last year of Coit Group, it gets a little bit confusing because they are tech recruiters, but they're also recruitment technology experts. So they know a lot about all the tools coming out of the Bay Area and can answer questions for our clients about the pros and cons of different tools that are out there. So I hope that answers your question. I'd say another really big category that we've been helping our clients with is helping them achieve and improve on their diversity and inclusion hiring initiatives and ESG initiatives. We have a lot of expertise on that, and that's another area where we're a really valuable partner or consultant to our clients.
spk07: Okay. Thank you. Sure.
spk01: The next question comes from the line of Josh Hoga with Sedoti.
spk13: Welcome back.
spk15: Hey, thank you. I just had one more. You know, I was checking out your recent investor deck. I had a slide on the centers of excellence and where they're located and then other several pins for places under consideration, India, South Africa, Arizona. Can you discuss any additional plans for Soez and why these locations in particular?
spk19: Sure. We think this is a really important part of our business model. It helps clients and it helps us. The reason why I say it helps clients is that one of the things that clients say they really like about partnering with the RPO provider is our flexibility. We can scale up, scale down quickly to meet their needs. And we're able to do that by having these centers of excellence in various places around the world. And then it helps us because we have highly trained people who can work for multiple clients, multiple time zones, and we just get greater efficiency at a lower cost. And when we can do that for our clients, it helps us win. So we've had a lot of success with our center in Scotland. And then in Asia, we've had two centers historically, one in the Philippines and another one in China. And we are studying India and having one in that market potentially. Our hearts go out to that country and just all the suffering in that country right now because of COVID. But long-term, we're very bullish on India and having a presence on India. So exploring having a center there. And in Europe, like I said, we've had a lot of success with our center in Scotland. We're exploring opening one in South Africa. And then in the U.S., earlier this year, we opened a center in Tampa And that is really off to a great start. We've already hired quite a few people in that market that are helping us across the Americas and also helping COIT in the San Francisco area. And I think it's just a matter of time before we have one or more centers in the U.S. Probably the next one would be somewhere in the western part of the country. But that's a really important part of our pitch to clients and our delivery. I guess all that said another way, RPO 1.0 might have been having all of our people deeply embedded with the clients in their offices. And I think the new delivery model, especially in the post-COVID world, is to have some of those people in the clients' offices, but some of those people at one of our centers. And It's really a win-win. It's better for the clients and also better for us.
spk15: All right. Well, thank you, and thanks again for taking all my questions. Absolutely.
spk01: Again, if you would like to ask a question, press star 1. The next question comes from the line of Mark Bishop.
spk08: Good morning. Oh, hi. Can you hear me? Hi. Can you hear me?
spk11: Yes. Good. I have a number of questions. First of all, you don't have any forecast in your press release. Would you like to comment on any forecast for the year for adjusted EBITDA or revenue company-wide? And then also, I know you said you had some seasonal growth in working capital. Do you have any outlook for the year's working capital change? Also, you didn't look like you did any buybacks this last quarter. In prior years, you've done a lot around this time or earlier. Are you... At the current stock price, are you less interested in doing buybacks, or do you have other acquisitions that we could expect possibly to happen this year, or would that be later, or what would be your cash use plan? Hi.
spk17: I'm happy to discuss a little bit about the forecast. It's true we don't have any specific guidance in here. I wouldn't want to give precise numbers, but I'm happy to give directional numbers and say that what we're targeting on a constant currency basis is revenue and adjusted net revenue growth of double digits, solid double digit growth in both of those. And then adjusted EBITDA, we expect to grow considerably as well. Adjusted EBITDA was a loss of the full year last year, and we expected that it would be a gain this year. So that's not a measurable percentage there, but we expect that this will be a rebound year. As Jeff was mentioning earlier in the quote you see in the earnings release, we're seeing a lot of strength, especially in our in our Asia-Pacific markets. We're seeing an improving pipeline. We're seeing economies start to bump back as the restrictions are lifted and as the vaccination programs have continued to extend and gain acceptance and the numbers are continuing to increase. You hear every day more governments announcing that there are new restrictions being lifted and new progress being made in reopening business. So we expect that this year will be solid for us. You also asked about cash flow. In terms of cash flow, just a quick comment that typically in Q1 of each year, it's typically down seasonal, primarily because of a number of different factors. There's bonus payments that go out, and a lot of our execs and our entire Asia Pacific business are paid bonuses once a year, and that once a year is in Q1 of each year. So that's a big driver in terms of why we always have a use of cash. In addition, we had a new MSP client in Australia that was starting up that was launched at the very end of Q4 last year. So there's working capital needs that are in place as we ramp up with that client in order to gain momentum there. But that's temporary and that will reverse. For the balance of the year, we expect that cash flow will do better, grow in line with net income as we expect net income to grow. We also expect that X any other things happening. We expect that the cash flow should follow a similar trajectory as it did last year where we had a use, but then it improved in 2019 as well, a use, but then continues to strengthen through the course of the year.
spk19: And, Mark, you asked about capital allocation, and we don't view these things as mutually exclusive, but we are continuing to look at bolt-on acquisition opportunities. I would say we're always in the market, always looking at things, but extremely hard to predict when something might happen and how much. But the acquisition we made last year I think is a decent template to look at in terms of size and what it did for us strategically. I've long said we don't want to buy something just to get bigger. It's got to really have some strategic value and be a great fit. And I would just encourage you to look at what we've done. We think we're a very shareholder-focused company. The board and management own a significant amount of stock. And what the company has done historically is bought back a significant amount of stock and has done it in a lot of different ways through one-off block trades from time to time, through open market purchases, through a 10B5 program. We've also paid dividends a couple times. And there's not too many other companies that have shrunk their share counts as much as we have over the last two years. And we're going to be opportunistic. We do think share repurchases are very attractive, including at today's price. And we're going to be opportunistic. And I would just tell you, look at our history and no reason to think that we would change versus what we've done in the past.
spk09: Terrific. Thank you very much.
spk19: Thanks for your questions.
spk01: Again, if you would like to ask a question, press star 1. Press star 1 for questions. That concludes today's question and answer session. I will now turn the call back over to Jeff Eberwine for closing remarks.
spk19: Well, thanks, everybody, for joining us today. Really great questions. So we thank you for your interest in our company. And we're always available to take your calls or emails. The contact information is in our press release and our investor relations deck that's on our website. And we look forward to next quarter's call. So have a great day.
spk01: Thank you for joining the Hudson Global first quarter conference call. Today's call has been recorded and will be available on the investor section of our website, HudsonR.com. You may now disconnect.
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