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spk03: Good morning and welcome to the Hudson Global Conference call for the second quarter of 2022. Our call today will be led by Chief Executive Officer Jeff Eberwine and Chief Financial Officer Matt Diamond. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And please note that this conference is being recorded. 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 annual report on Form 10-K. The company disclaims any obligation to update any forward-looking statements. During the course of the 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 website, hudsonrpo.com. I encourage you to access our earnings materials at this time as they will serve as a helpful reference guide. during our call. And I will now turn the call over to Jeff Eberwine. Please go ahead, sir.
spk01: 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 second quarter 2022 highlights, and Matt Diamond, our CFO, will provide some additional information and then give an update on our current business conditions. For the second quarter of 2022, we reported revenue of 51 million of 37% in constant currency. Adjusted net revenue, which we used to refer to as gross profit, was 27.3 million and increased 91% year-over-year in constant currency. SG&A costs were 21.6 million in the second quarter, up 68% versus the same period a year ago. We reported adjusted EBITDA of $5.7 million up $1.7 million from a year ago and reported net income of $3.1 million, $0.98 per share versus a net loss of $100,000 or $0.04 a share in the same period a year ago. We reported adjusted net income per diluted share of $1.25 in Q2 versus $0.15 a year ago. I'm now going to turn the call over to Matt Diamond, our CFO, to review some financial results by region, as well as some additional details from the second quarter.
spk04: Thank you, Jeff, and good morning, everyone. Our Americas business grew revenue and adjusted net revenue 169% and 177% in constant currency, respectively, with approximately 70% of this growth attributable to organic growth, and the remainder coming from the acquisition of Karani in the fourth quarter of 2021. Adjusted EBITDA of $3.4 million increased versus last year's adjusted EBITDA of $0.5 million. Our Asia-Pacific business grew revenue 12% in constant currency and adjusted net revenue 42% in constant currency. Adjusted EBITDA of $2.6 million increased from adjusted EBITDA of $1.4 million a year ago. Our EMEA business grew revenue 34% and adjusted net revenue 49% in constant currency. Adjusted EBITDA of $0.8 million in Q2 2022 increased compared to adjusted EBITDA of $0.6 million in Q2 of last year. Lastly, we believe it is important to highlight that adjusted net revenue again grew at a faster rate than SG&A in the second quarter. This operational leverage we have been 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 second quarter, we ended Q2 with $26.2 million in cash and restricted cash. Day sales outstanding was 52 days at June 2022, up from DSO of 41 days in June 2021. In connection with the acquisition of Coit Group in the fourth quarter of 2020 and Karani in the fourth quarter of 2021, our balance sheet, as of June 30, 2022, reflects $4.2 million of goodwill and $4.9 million of net amortizable intangible assets. The company's working capital, excluding cash, increased to $8 million in the second quarter of 2022 from $7.8 million at the end of 2021. As a reminder, in April of 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 Q2. The company generated cash flow from operations of $7.6 million during the second quarter. 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.
spk01: Thank you, Matt. In Q2 2022, we continued to see strong activity levels as our teams in each region capitalized on the strong demand for our services. Our business exhibited very strong growth in revenue, adjusted net revenue, and adjusted EBITDA across all three regions in the second quarter of 2022 versus the prior quarter. Globally, our sales teams continue to deliver New business wins while our delivery teams continue to provide excellent service to our clients. The strong momentum and organic growth that we've been generating is a testament to the dedication and quality of our team. Consistent with our growth strategy, we continue to invest in organic growth and evaluate potential bolt-on acquisition opportunities. Importantly, I want to thank all of our highly dedicated employees for their flexibility, hard work, and dedication to our clients and business in a challenging business environment. Operator, can you please open the line for questions?
spk03: Thank you, sir. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Walter Schenker with MAZ Partners. Please proceed with your question.
spk00: Hi, Jeff. A couple of questions, and it may have been old, but I didn't find it. Why, and many companies have it, given your balance sheet, why would you file a shelf?
spk01: Yeah, good question. You know, our thought is that any company of size typically has a shelf on file. Historically, we've had one on file, and they – expire and have to be renewed every few years. I think it's every three years. So our previous one expired at some point, and we just thought it was prudent to put a new one in place. It's a pretty low-cost thing to do. And it's just kind of in the category of you never know. I mean, we have no plans to issue any securities. We have, as you pointed out, cash and no debt. But in the event some large acquisition opportunity came along, you know, it's good to be prepared even if there's a low probability of ever meeting it or using it.
spk00: Okay. Second question, year over year there's been a 5%, 6% share creep, you know, but in no way complaining about using stock in part to profit. as part of management compensation, if we look at the first half of the year, you're running almost at a $5 per share rate, which with a $30 stock is six times earnings. You're not forecasting the second half. I'm not forecasting the second half, but you're surely earning a fair amount of money this year. Why are you not buying back stock – I understand there are quiet periods. I know you, and don't tell me you bought a lot over time because I know you bought a lot of time. That's history. You weren't earning $5 a share when you were doing that. You were buying an asset very cheap. Now you're buying something. If you buy it at six times earnings or seven times earnings, you know, it's a 15 to 20% return on investment.
spk01: Right. Yeah. Agree with everything you said, Walter. Um, And we have bought back stock in a lot of different ways historically. The easiest one we've ever done is buying back blocks from large shareholders who wanted to exit. And that's the easiest way to do it. And we have tried to do that. Haven't been able to shake loose any blocks thus far, but The board talks about it every board meeting. We're well aware that we have a share repurchase authorization and have $1.7 million left on that authorization, as we talked about in the press release. So over time, we're going to invest in organic growth and we're going to opportunistically buyback stock when we can. And, you know, companies do it a lot of different ways. At a minimum, we'd like to offset the share creep. But historically, we have shrunk the share count meaningfully in absolute terms. So it's very much on the radar. You're right. Sometimes the window is open, sometimes it's closed. So it's, you know, it's not always a quick, easy thing to do, but it is very much on our minds.
spk00: And lastly, which only sounds like I'm trying to get you to make a forecast, in the first half of the year, we've now had two quarters where you've earned roughly in the ballpark the same amount. The business is growing. You're getting new customers, understanding more than normal. There's uncertainties in the world economically. central banks are acting differently, blah, blah, blah. We all understand there's lots of uncertainties, but unless something dramatically changes on a macro level, what we've seen in the first half is broadly what you look forward being the operating rate for the company.
spk01: In a word, I'm going to say yes. Uh, but the reality is always more complicated. Um, and nuanced than that so our approach and we stay we try to stay on top of our environment we try to stay very very close to our our clients um and we want to be nimble and respond quickly to their needs but we also don't want to be overstaffed and have excess resource So what we're seeing in the environment is the only, despite all the macro headlines and stock market going down earlier this year, the only places where we've seen some weakness is what I would call kind of the medium-sized tech companies who maybe they hope to go public, haven't gone public yet. or maybe they were hoping for that next round of financing, and they had a mentality previously of growth at any cost. They'll spend any amount of money to hit their growth targets. And now if the IPO window is not open for a while, the mentality more is, hey, let's take the accelerator off a bit and pace ourselves, and maybe we don't have to grow as fast as we previously thought. So we have seen a little bit of weakness in that segment, The vast majority of our clients are large Fortune 500 companies, publicly traded, well-known companies in the marketplace. And the mentality there is very different. The mentality is that there's a shortage of talent. They feel like if they take their foot off the accelerator for one minute, the competitors will grab the talent and they'll be at a disadvantage. And there's still... a short, a talent shortage mentality amongst those big companies. And, um, as long as we stay close to them and we're doing everything in our power to help them with everything related to talent, it's not just hiring people, but it's also, um, advising, consulting on a whole lot of different things, whether it's technology tools, diversity, hiring initiatives. Um, we're, we're, we're in, uh, We're in good shape. So, you know, it is a confusing environment, but what we're seeing on the bottom up is still largely positive. So there's no reason to think that the second half would be radically different than the first half. We do, I've talked about this before, do have seasonality in our business. Usually Q2 or Q3 is the strongest quarter of the year, and Q4 and Q1 tend to be Weaker quarters, just less hiring activity. But at least for what we're seeing right now, there's nothing to suggest that the second half would be radically different than the first half. Okay.
spk00: Okay. Thank you very much. Let's buy back some stock. Bye. All right.
spk03: And our next question comes from the line of Mark Riddick with Sedoti. Please proceed with your question.
spk01: Hey, good morning. Good morning, Mark.
spk05: So thanks for the color that you've already given. I wonder if you could touch a little bit about what you're seeing in general with the utilization levels that you're seeing seem to be quite strong. I was wondering if you could sort of talk about maybe your own internal needs as far as investing in both talent and technology for the remainder of the year.
spk01: Yeah, thank you for the question, Mark. So when we talk about investments, it's largely in people, technology, sales, and marketing. And we are hiring and adding to our teams globally. So each region we're hiring. But I would say at the margin, we're trying to grow our centers of excellence as a percentage of total and I think there's a slide in our slide deck that has all our centers around the world and we think that's a win-win for us and our clients and that's where the acquisition of Karani last year is really going to help just having hundreds of people in India and Manila just makes our team more effective, and enables us to go after bigger projects and better serve our clients. So I hope that answers the question. But I would say, in general, labor is tight for our clients and for us. But we're in the business of recruiting, and if we can't recruit recruiters, I think I said this before, we're in the wrong business. I mean, it's what we do. It's what we're good at. And we're navigating the current environment as best we can, but it requires more creativity and more flexibility and open-mindedness, hiring people in different locations, flexible work hours, work from home, et cetera, all the same themes our clients are experiencing or ones we're experiencing ourselves.
spk05: Great. And then you touched on this a bit on the client side as far as the pace of Global M&A and sort of maybe sort of where it is now versus maybe where it was at the beginning of the year or this time last year. So I wonder if you'd talk maybe a little bit about what you're seeing on your end from an acquisition pipeline and opportunity perspective and maybe sort of the level of competition that you're seeing for those assets and evaluation levels and the like.
spk01: Yeah, no, it's a good question. We like to always be in the market, always looking at acquisition targets. It's a skill set that we're, I think, much better at today than we were two or three years ago. And as you know, we've completed two medium-sized acquisitions, medium for us. And what we've seen is – seller's expectations are still high, I would say. And so at least for us, we tend to be pretty value oriented. There's still often a gap between the seller's expectations and what we would value at that. But the single biggest thing that we're looking for is one plus one equals three. We're looking for something we don't have or can't build ourselves or would take a long time to build. and so putting that business inside of Hudson would lead to accelerated growth, and fortunately that's been the case with the two acquisitions we've done. We're always looking for additional acquisitions, but we're in a really good position. We don't have to do anything. The two acquisitions we've done have added a lot of value. We have a lot of exciting organic growth. We are continuing to add new clients, and importantly, we're continuing to invest in sales and marketing, which is a little bit like an acquisition. It hurts our bottom line in the short term, but it's a really important part of being successful over the long term in this business. So having the best people we possibly can is the best way to get people get new clients and retain those clients once we get them. So we're focused on both organic growth and acquisitions. And if we find something great and if we don't, that's no problem. There is a small one we've been working on in the Asia Pacific region that if all goes well, we hope to announce soon. But it's significantly smaller than the two that we've done previously.
spk05: Okay, great. And then the last one for me, you touched on sort of the industry vertical from the tech perspective. I was wondering if there were any areas or particular verticals that are maybe performing well or standing out either specifically to the second quarter or just sort of the general pace that may be a little stronger than some of us may be thinking.
spk01: If I had to pick one, it would probably be the life sciences space. You know, healthcare has always been a really important, uh, sector for us, uh, the three main sectors that our clients are in are healthcare, financial services, and tech. Um, all three are, are strong. You know, I did mention that there's, um, a little bit of weakness in the medium sized tech category, but, but not the larger tech category actually. Um, but the, the sector that continues to be really, really strong is, is life sciences. And, um, Healthcare is a very big sector. There's other RPO providers that focus on the healthcare provider space, so hospitals, et cetera. Our focus in healthcare is much more on pharma, life sciences, and medical devices. And that area is really, really strong. And we're winning new business. In that sector, and as everyone knows, it's a sector historically that hasn't been that cyclical or that economically sensitive. And so it's A, holding up well, and B, experiencing a high growth rate. And we're a really good fit for that sector.
spk05: Thanks. And then just one more, if I could sneak it in. I wonder if you could talk a little bit about the pricing dynamic and maybe if you're getting much in the way of pushback there and sort of what you're experiencing, whether or not you made it. You touched on this a little bit when you made mention as far as some folks who may not necessarily, maybe a little bit more price sensitive than they were on the tech side. I was wondering if you could sort of just talk about the general sort of pricing dynamic that you're seeing out there.
spk01: Yeah, I mean, in a word, no, we're not really experiencing pricing pressure. I mean, clients always want a lower price. They always want more service for a lower price. So in another way, they always want to extract as much value as they possibly can. But our clients, for the most part, are very value for price oriented. So in other words, they're not going for the lowest price, they're going for the best value and so clients that are hyper hyper focused on the lowest price and there are some out there um it's typically not ones that we're a good fit for we tend to have a very white glove high service level approach to add a lot of value to our clients and a vast majority of our clients pay for that value added and think it's a good value because we do save them money. We're not the most expensive firm out there, but we're also not the cheapest. And our thought is if we provide a high level of customer service and we're typically ranked the highest in the industry or very high in the industry on our customer service, usually the pricing side takes care of itself. It's always a discussion. It always comes up. But we feel like we do pretty well in that area and hold our own in that area. Great. Thank you very much. Yeah, thank you. Good questions.
spk03: And our next question comes from the line of Edward Riley with EF Hutton. Please proceed with your question.
spk02: Hi, Jeff. Thanks for taking my question. I'm just curious on what's driving organic growth. Is it signing on new customers or existing customers? And what's the opportunity set look like for existing customers?
spk01: Yeah, if I understood you correctly, it's really D, all the above. We are having growth with existing customers, which is always good to see. Our motto is land and expand, and there's a lot of examples where when we're starting a new relationship, we might get one country or one division, especially if the client has never used RPO before. And our strategy is provide a good level of service, really prove that we can save them money and deliver good outcomes, And usually that leads to more business over time, more divisions getting turned over to us, more countries getting turned over to us. And we do focus on companies that are growing. So as they grow, we grow. So it's always good to see growth with existing clients. That's probably the number one thing, important thing that we focus on. And then we do, when we win new clients, most of the time, this kind of growth area, number two, most of the time, a new client is someone who's never used RPO before. And especially with bigger companies, it's a long sales cycle, takes a lot of meetings, a lot of case studies, a lot of modeling, just kind of showing, um, what, what we do, how we save them money, how it leads to better outcomes. We try to quantify as much of that as possible. Um, and really, really kind of make the case for RPO in general and then hiring us specifically. And then the third thing that does happen is we do occasionally win business from competitors and occasionally they win business from us. Um, usually it comes down to fit issues. You know, we're, we're a good fit with some clients, but not all clients. And we have competitors that might be a better fit with, uh, with certain clients than we are. Um, And we're seeing growth in all three of those right now. So growth with existing clients, new business from clients that have never used RPO before, and then occasionally a few situations where we win business from a competitor. It's typically contracts coming up for renewal, and for whatever reason it's not working out as great as the client hoped, and they're open to, they love the RPO model, want to stick to RPO, but are open to other providers in that That does happen from time to time.
spk02: Okay, great. Thanks for that. And then given that the NOLs are U.S.-based, I'm wondering how that impacts the decision-making process about where geographically you guys decide to grow.
spk01: I missed the first part of your question. I think the question was given that the NOLs are in the U.S., how does that factor into our decision-making?
spk02: Yep, that's right. Yep.
spk01: Yeah. So when it comes to tax, our thought is that it is the tail, not the dog, in that we want to make the best business decision first and then optimize for tax later on. So in other words, if there's a great acquisition target in the UK or in Asia-Pac, we'll pursue it. even though we don't have NOLs in those areas, and in fact, we pay cash taxes in some of those countries. But I would say if everything is equal, which it never is, if everything is equal, of course, we prefer to grow in the U.S., whether it's organic growth or acquisitions, because of our large NOL in the U.S., and we effectively, for the foreseeable future, have a 0% effective tax rate in the U.S.,
spk02: Okay, great. That's it for me. Thank you.
spk03: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing any star keys. One moment while we poll for any additional questions. At this time, I'm not seeing any questions coming in. I would now like to turn the call back over to Jeff Eberwine for any closing remarks.
spk01: Well, thanks, everybody, for joining us today and for your interest in Hudson Global. Feel free to contact us anytime using the contact information in our press release or on our investor relations website. We look forward to next quarter's call, and have a great day.
spk03: Thank you for joining the Hudson Global second quarter conference call. Today's call has been recorded and will be available on the investor section of our website, HudsonRPO.com. Thank you. You may disconnect your lines. Have a great rest of the day.
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