Hudson Global, Inc.

Good morning and welcome to the Hudson Global conference call for the fourth quarter of 2024. Our call today will be led by Chief Executive Officer Jeff Eberwine, Chief Financial Officer Matt Diamond, and Global CEO of Hudson RPO Jake Zabkiewicz. 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 earlier 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 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 material at this time, as they will serve as a helpful reference guide during our call. Please note, today's conference is being recorded. I will now turn the call over to Jeff Eberwine. Please go ahead.

Thank you, operator, and welcome, everyone. First off, apologize for my voice. Secondly, more importantly, we thank you for your interest in Hudson Global and for joining us today. I'll start by reviewing our fourth quarter 2024 results. Then Matt Diamond, our CFO, will provide some additional details on our financials. Lastly, Jake Zabkiewicz, global CEO of our Hudson RPO business, will provide us with an operations update. Our fourth quarter 2024 results reflect modest improvement over the prior year quarter. Overall for the year, we were impacted by generally low levels of global hiring activity, as well as unusually low attrition rates at certain clients. Despite these challenges, we spent significant time in 2024 restructuring and repositioning our business for growth. I'll let Jake expand on some of these initiatives later on in the call. In the fourth quarter of 2024, we reported revenue of $33 $3.6 million, down 2% year-over-year in constant currency, while our adjusted net revenue was $17.6 million, up 5.7% year-over-year in constant currency. Our fourth quarter 2024 adjusted EBITDA was $0.9 million, up from adjusted EBITDA of $0.1 million a year ago. In addition, we reported a net loss of $0.6 million, or $0.20 per Duluth share versus net income of $0.7 million or $0.23 per diluted share in the same period of last year. Q4 2024 adjusted net loss per diluted share was $0.05 compared to our adjusted net income per diluted share of a positive $0.04 in the fourth quarter of last year. Now I'll turn the call over to Matt Diamond to review some financial results by region as well as some additional financial details from the fourth quarter.

Thank you, Jeff, and good morning, everyone. Q4 2024 revenue for our America's business increased 18%, and adjusted net revenue increased 5% year-over-year in constant currency. We reported Q4 2024 adjusted EBITDA of $0.5 million, an increase from last year's adjusted EBITDA of $0.2 million. Q4 2024 revenue for our Asia-Pacific business decreased 10%, while adjusted net revenue increased 6% year-over-year in constant currency. This contrast is attributable to a decline at a large MSP client, where, as a reminder, adjusted net revenue margins are significantly lower than those of our RPO accounts. In Q4 2024, we reported adjusted EBITDA of 0.9 million, which was flat versus adjusted EBITDA of 0.9 million a year ago. Q4 2024 revenue for our EMEA business increased 7% versus the prior quarter in constant currency, and adjusted net revenue increased 5%. Our Q4 2024 adjusted EBITDA was $0.2 million compared to adjusted EBITDA of $0.6 million in the fourth quarter of 2023. Turning to some additional financial details, base sales outstanding was 51 days at December 31, 2024, compared to 56 days at September 30, 2024. The company generated $2.0 million of cash flow from operations during the fourth quarter of 2024, compared to $3.3 million of cash flow from operations in the fourth quarter of 2023. We ended the year with $17.7 million in cash, including $0.7 million of restricted cash. In connection with our acquisition activity in recent years, Our balance sheet as of December 30, 2024, reflects $5.7 million of goodwill and $2.5 million of net amortizable intangible assets. The company's working capital, excluding cash, was $11.9 million compared to $12.0 million at December 31, 2023. I'll now turn the call over to Jake to discuss our RPO business.

Thank you, Matt, and good morning. Although we faced many challenges in 2024 that were largely out of our control, our business is better positioned for growth today than ever before. We restructured our organization and streamlined our operations, including our sourcing, screening, and onboarding procedures. During the year, we invested $3.4 million in sales, marketing, and technology above maintenance levels to enhance our future growth. We have also enhanced our go-to-market strategy by expanding our service offerings to existing and prospective clients alike. In 2024, we made multiple strategic hires with a focus on further enhancing our geographical reach and service offerings. We recently launched our digital division and hired Stephanie Edwards as Chief Digital Officer to revolutionize our digital capabilities and enterprise strategies to deliver innovative, efficient, cost-effective, and high quality talent solutions to our clients worldwide. Despite the challenging global talent environment, we continue to consistently deliver best in class service to a growing number of clients on a global scale. For the full year, we secured approximately $56 million of adjusted net revenue from renewals and extensions at existing clients, plus approximately $7 million in new logo wins. Our efforts are evident by a myriad of recognitions that we're proud to have received, including the 16th consecutive year ranking among the HRO Today magazine's Baker Dozen list of top enterprise RPO providers, the 12th consecutive year as a top RPO provider in APAC, and the 8th consecutive year as a top RPO provider in EMEA. I'll now turn the call back over to Jeff for some closing remarks.

Thank you, Jake.

Before opening the line to questions, I'd like to reinforce Jake's message that despite operating in a challenging global talent environment, we improved our internal operations and have simultaneously made growth investments as well as realized cost savings across our entire organization. These should improve our top and bottom line results in the coming quarters. Our talented team continues to provide excellent service and maintain high levels of client satisfaction. We're encouraged by the size and breadth of our sales pipeline and believe we are poised to convert this pipeline into actual sales once market conditions improve. Operator, could you please open the line for questions?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Again, it's star 1 to ask a question. At this time, we will pause momentarily to assemble our roster.

Our first question today is from Mark Riddick with Sudoti. Please go ahead. Hey, good morning.

Good morning, Mark. I wanted to see if we could spend a little time going over. I guess when we last spoke, it was, I guess, when you reported 3Q results was right after the election, if I recall correctly. Maybe you could spend a little bit of time discussing the demand environment that you're seeing and maybe whether there's some differentiation geographically or by industry vertical since the election and given everything that's taking place now with tariffs and the like and how you feel that's impacting client demand trends at this point.

Jake, why don't you handle that one?

Yeah, Mark, good morning, and thanks for the question. I think a couple of things. Coming out of Q4 of last year, we definitely felt a momentum and an uptick of client behavior. We felt some positivity of growth and hiring activity, not necessarily in one specific area or geography, but in specific pockets within clients. Commercial has always been a growing piece. Technology is growing. hit and miss and bouncing back on the functional area. But now coming into Q1 and what we're looking at now is there's still that momentum, but there's a little bit of a hesitation still and uncertainty in the market. And that uncertainty is having our partners question some of their hiring initiatives and hiring volumes, but still a more positive viewpoint than what we saw in beginning of 2024 a year ago today.

Okay, great. And then in prepared remarks, there was the commentary on the investments for future growth. Can you talk a little bit about maybe what you might be looking at for 2025 and then how that might play into CapEx levels vis-a-vis, you know, maintenance versus growth? Jake, why don't you answer that one as well?

Yeah, yeah, Mark, another great question. Thank you. So, In 2024, our growth strategy was really focused on a couple different factors. You take one pillar of M&A and acquiring two businesses in the Middle East, and M&A will continue to be a growth strategy for us as we look at companies to help support both our geographical expansion and also our product portfolio expansion. The other thing we did in 2024 is we really enhanced our go-to-market and our commercial sales teams more than doubling our sales team size in 2024 to make sure that we can touch every geography that our clients are asking us to touch, as well as enhancing our support in our sales and management functions. So we're going to continue to be able to do that as we look for 2025 and onward. But the other piece of the puzzle, Mark, I think we spoke about last time, is about our organic growth. And we're really excited about this. And what I mean by organic growth is looking at our current market share or share of wallet with our existing partners to be able to accommodate their needs in other geographies, other functional areas that we don't support them today. And so we're really excited about that. We're expanding that with our digital product portfolio, as I mentioned earlier, with hiring of Steph Edwards and launching Hudson Digital. That solution is going to help streamline not only our operations, but if you think about clients today, every client, has a talent ecosystem that they look at, right? And their talent ecosystem is a digital footprint, partnerships, multiple initiatives on talent fronts, internal mobility, internal careers. So as we look at the digital side of the house, right, the digital will be able to really give us more of an improved candidate and hiring manager experience. We're going to be able to automate routine tasks. We're going to create more value for our clients, and we can't forget that we're in the business of people, right? So we want to make sure that the experience on both the candidate and hiring managers is top-notch, and that is going to come through with our digital footprint and our digital solutions as we move forward.

Okay, great. And then I was wondering if you could spend a little time on – talk a little bit about cash usage and prioritization. Maybe you could talk a little bit about what the acquisition pipeline might be looking like, and maybe just general thoughts on maybe what's out there, valuation levels, and whether it's about the same or maybe a little more or less attractive than it was maybe six months ago.

Yeah, Mark, this is Jeff. Good question. So our first priority is... internal growth projects, like we highlight the over $3 million we spent in future growth enhancing things that's over and above maintenance levels. We think those investments have an incredibly high ROI and are often better return and lower risk than doing an acquisition. But They are a little bit like doing an acquisition in our sector just because in both cases we're really adding people and capability. So, you know, there's a few geographic areas we would like to enhance. And so we're always looking. There are, you know, often some interesting things out there. And the valuation part is important, but also important is the cultural fit and the one plus one equals three aspect. We have to look at something and say, you know, inside of Hudson, can we double or triple this business? You know, is it really more valuable inside of Hudson than if they just continue as a standalone or... inside somebody else's organization. So all I can say is that we're, we're always looking, we're still looking, um, you know, the, there's still a gap between, um, the bid ask spread, you know, what we're willing, what, what we think the value is and what sellers think the value is. And we can be creative, but, um, I would just tell you, you know, stay, stay tuned on that, but there's, There's nothing big. There's nothing imminent. There's nothing transformative that we're seriously looking at at this time.

Okay. And then I wanted to touch a little bit on maybe what you're seeing for lead time trends with RPO. I wasn't sure if the client – How should we think about maybe how that is now versus historically within RPO? Yeah.

Jake, why don't you start on that one?

Mark, great question again. And what I would share with you is that the sales cycle hasn't really changed a lot for an enterprise RPO client. That still sits anywhere from nine to, you know, call it 14, 16 months ago. from the RFP initiation to potential signature and start. There's a lot of factors that go into it. What we saw in 2024 was a lot of hurry up and wait. And what I mean by that is we had clients and potential partners go out and ask for proposals, have multiple conversations, thinking about their hiring volumes for 2024 and into the future years. And then what would come to fruition was a fraction of that hiring volume and that hiring initiative. So as just an example, you know, we would talk to a client about hiring a thousand people globally. And when it came to the final signature on the contract, it might've been, you know, a quarter of that. Right. And now in 2025, what's, what's promising we're seeing a little bit is we're seeing, you know, a lot more inquiries, a lot more activity as Jeff mentioned earlier, the pipeline is continuing to grow. But there's still some uncertainty on what that future volume is going to continue to look like with the macroenvironment conditions that we're living in today. but there's still that momentum that we're having. So I would share with you that we would still expect that sales cycle to be consistent throughout. I hope and I have confidence that we will start to see more decisions coming in 2025 as things were put on hold in 2024 and also at the end of 2023. But only time will tell what the market and the conditions, but we are better poised to not only react, but to answer and to consult with our clients by the investments that we've made this last year, which we're extremely excited about.

Excellent. Thank you very much.

The next question is from David Siegfried, a private investor. Please go ahead.

Hey, good morning, guys. How are you today? Good morning, David. Thanks. Yeah, good morning. Thanks for taking my call. So I noticed the biggest RPO spend comes out of America and EMEA markets. Do you see these markets as your biggest growth targets?

Yeah, David, I'll take that one. So if you think about our current, you know, where Hudson RPO is today, you know, we are a dominant force in our APAC region and through recognitions, through revenue and through clients. And if you look at the Americas and the EMEA market, there's a huge opportunity for growth and expansion in both of those markets, both from a new logo perspective and organic perspective. And they're going to be our focus across the board in the future years to come. And we're investing heavily in those markets right now as well with operational leaders, with sales and our go-to-market team and strategies alike. So you are 100% correct that those are huge growth markets for us. But I also don't want to forget about specific areas in our APAC market that we're seeing significant opportunities as well, such as Southeast Asia, Japan, Manila area is always a strong growth area for us. But the U.S. and America's market is key as well as the EMEA market, and you can continue to see our focus and growth in those areas.

Got it. And so then the $7 million in new logo wins... and the $62 million in renewables and expansions. Do you see that trend continuing, particularly with new logo wins?

David, I hope that our new logo wins increases with that as the market picks up and the investment that we're making. But definitely our renewals and expansions, we are building better positioned right now to expand with our current client base, and again, from a geographical expansion and from a product portfolio expansion. We're seeing a huge increase in requests for more talent intelligence. That is looking at market mapping, looking at factors that will impact their overall talent acquisition strategy. We're seeing an increase in digital requests, how to leverage AI as part of the overall process, how to think about your talent ecosystem and be able to respond and enhance that client's and that partner's a talent agenda. So when we look at the growth trajectory, the hope and the drive of our team is continuing on the upward trajectory. And the pipeline is encouraging as we continue to move forward.

Okay, good. I think I read somewhere that the attrition rate right now is about 4%, which is low and that you anticipate it reverting back to high single digits. or maybe low double digits, are you beginning to see that trend take place? How do you see that happening over the next few quarters?

Another great question. If you think about the last three years, during the great resignation, attrition in 21 and 22 was at all-time record highs. in lifetime highs in some instances, in some areas and geographies. In 2023, that pendulum shifted, and we saw very low attrition in 2023 and 2024, and partially because the previous years you had such high attrition, people made jumps and made moves. So we are starting to see the pendulum shift back to more of that center mass and the normalcy, How fast will that happen? You know, there's a lot of macroeconomics and factors that we just can't control. And, you know, obviously a lot of changes in different geographies across the board. But we are starting to see in pockets that attrition is starting to normalize. And obviously as attrition normalizes, hiring lines pick up, which will obviously help our business overall. But not to mention, too, we will keep a close eye as clients look for you know, help around internal mobility and skills-based hiring and consulting on, you know, what are the skills for the future that we're currently participating with many of our partners today. Okay.

So I got two more questions. One other question. The September investor presentation, I think I mentioned right now we're about 20,000 annual hires. The goal is over the next three years to reach 60,000 annual hires. and to grow the RPO clients by 50%. Is that still the goal?

Very much so. We want to continue to grow organically with our partners and increasing our share of wallet with them and showing them that Hudson RPO is their partner of choice across their entire account spectrum. With our current client base, we have a great opportunity to be able to do that, again, as we bring on and made investments, both in our operational talent and also our go-to-market talent. The number of clients, our go-to-market team is definitely hunting for new logo partners and signing new logo contracts into our business today, which we are also excited about. But we are doing it in a thoughtful and a careful approach. We're making sure that we don't jeopardize the quality of service that our clients have come to known Hudson RPO to be able to deliver. We have many partners that have been with us for 12, 13, 14 years that's unheard of in our industry, right? And so we want to continue to provide that quality level of service and that individual level of service to our clients. So, yes. Long-winded answer, sir, to your simple question. We do still have that growth trajectory in mind and definitely targets to keep that pace.

Okay, excellent. Now, I noticed in the Q2 call in August, it was just mentioned that a soft goal perhaps to repurchase 10% of the shares in 2024. So in the first three quarters, you bought back 154,000 shares. just an average cost of about $16. Nothing was repurchased in the fourth quarter. So, I mean, the price is where it is right now. Where do you see, do you have any goals for 2025 when it comes to repurchase activity?

Yeah, this is Jeff. I can talk about that. Yeah, it's, you know, we say it's a soft goal just because it's, you know, there's things outside our control. Sometimes the window isn't open. And the most efficient way we have found to buy back stock, especially in meaningful quantities, is through negotiated transactions. So if a shareholder needs to exit or needs to reduce a position, we have a standard agreement that they can sign and that allows us to trade anytime, even if the window is closed. And we have found that's the most efficient way to buy that stock over time. And we didn't have any of those in Q4. The 10% threshold is what's allowed by our NOL. So you can think of that as a maximum that we would do in any one calendar year. But I would say that, you know, that was a soft goal in 2024. We didn't quite hit it, but it's, you know, another soft goal that we have in 2025. We think our stock is significantly undervalued by a very long stretch. So as long as that's the case, we're going to have that as a softball to buy back a significant amount of stock every year. But like I said, there's some things outside our control. We're a willing buyer. You need a willing seller, at least on the negotiated deals. In the past, we have bought in the open market. That is difficult given how liquid our stock is and the 10B18 rules. We have done... tender offers in the past, and I would just say all those tools are in the toolkit and are ones we consider all the time.

Okay, excellent. Well, very good. It sounds like you're making nice progress, and thank you for the time. Thank you. Thank you, David.

Again, if you have a question, please press star then 1. Showing no further questions, this concludes our question and answer session. I would like to turn the conference back over to Jeff Eberwine for any closing remarks.

Well, very good questions today. We really appreciate the interest in the company and the dialogue, the Q&A. We're always open to hearing from you. The contact information is in our press release as well as our investor presentations. We look forward to talking to you next quarter, and thanks again for your interest in the company.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.