Title

Presentation

Hudson Global, Inc. misses on earnings expectations. Reported EPS is $-0.28437 EPS, expectations were $0.18.

Operator: Good morning, and welcome to the Hudson Global Conference Call for the Third Quarter of 2024. Our call today will be led by Chief Executive Officer, Jeff Eberwein; Chief Financial Officer, Matt Diamond; and Global CEO of Hudson RPO, Jake Zabkowicz. 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 materials 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 Eberwein. Please go ahead.

Jeff Eberwein: 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 third quarter 2024 results, then Matt Diamond, our CFO, will provide some additional details on our financials. Lastly, Jake Zabkowicz, Global CEO of our Hudson RPO business will provide us with an update on our RPO business. Our third quarter 2024 results continued to see the impact of lower-than-normal hiring volumes at many of our clients in the markets we serve. For the third quarter of 2024, we reported revenue of $36.9 million, down 8% year-over-year in constant currency, while our adjusted net revenue was $18.6 million, down 5% year-over-year in constant currency.

Our adjusted EBITDA for the third quarter was $0.8 million versus adjusted EBITDA of $2 million a year ago. In addition, we reported a net loss of $0.8 million or $0.28 per diluted share versus net income of $0.5 million or $0.17 per diluted share in the same period of last year. Q3 2024 adjusted net loss per share was $0.13 compared to net income per diluted share of $0.24 in the third quarter of last year. Now, I’ll turn the call over to Matt Diamond to review our financial results by region as well as some additional financial details from the third quarter.

Matt Diamond: Thank you, Jeff, and good morning, everyone. Revenue for our Americas business increased 6% and adjusted net revenue decreased 3% year-over-year in constant currency. We reported adjusted EBITDA of $0.6 million for the quarter, an increase from last year’s adjusted EBITDA of $0.3 million. Revenue for our Asia Pacific business decreased 15% and adjusted net revenue decreased 11% year-over-year in constant currency. In Q3 2024, we reported adjusted EBITDA of $0.9 million compared to adjusted EBITDA of $2.3 million a year ago. Revenue for our EMEA business increased 7% versus the prior year quarter in constant currency and adjusted net revenue increased 5%. Our Q3 2024 adjusted EBITDA was $0.2 million, flat compared to adjusted EBITDA in the third quarter of 2023.

Turning to some additional financial details in the third quarter. We ended the quarter with $16.5 million in cash, including $0.7 million of restricted cash. The company generated $1.3 million in cash flow from operations during the third quarter of 2024 compared to a $0.7 million cash outflow from operations in the third quarter of 2023. Days sales outstanding was 56 days at September 30, 2024, compared to 59 days at June 30, 2024. In connection with our acquisition activity in recent years, our balance sheet as of September 30, 2024 reflects $5.8 million of goodwill and $2.8 million of net amortizable intangible assets. The company’s working capital, excluding cash, was $14 million compared to $12 million at December 31, 2023. I’ll now turn the call over to Jake to discuss our RPO business.

Jake Zabkowicz: Thank you, Matt, and good morning. In the third quarter of 2024, we made multiple strategic hires with a focus on further enhancing our geographical reach and service offerings. These individuals bring deep industry expertise to Hudson RPO, further enhancing our global reputation and capabilities. Our efforts are evidenced by a myriad of recognitions we are proud to receive, including the 16th consecutive year ranking among HRO Today Magazine’s Baker’s Dozen List of Top Enterprise RPO providers. Our land and expand focus and strategy saw incremental gains in Q3 as we’re able to expand into new geographies and territories with some of our existing partners. The hiring volumes for many of our existing partners stabilized in Q3 where we did not see the fluctuations in manners [ph] in previous quarters.

However, new logo sales continued to be a disappointment, with potential clients either delaying or shrinking their scope as they continue to reassess their needs and hiring volumes. Overall, Q3 was marked with us continuing to react to the market and ensure our business is rightsized to support our clients’ demands and that we’re able to provide the breadth of service that they need. I’ll now turn the call back over to Jeff for some closing remarks.

Jeff Eberwein: Thank you, Jake. Before opening the line to questions, I’d like to reinforce Jake’s message that despite today’s talent environment, we’re encouraged by the feedback we’re receiving from our clients and excited by our new business wins and robust sales pipeline. We have a very bright future ahead. Furthermore, the results of the internal changes and cost saving initiatives we’ve implemented across our entire organization should help our bottom line results in the coming quarters. We’re confident in our ability to deliver value to shareholders while serving the needs of existing and new clients going forward. Operator, can you please open the line for questions?

Operator: [Operator Instructions] Our first question today is from Marc Riddick with Sidoti & Company.

Marc Riddick: Hey good morning.

Jeff Eberwein: Good morning, Marc.

Marc Riddick: So, I wanted to sort of start with the differences that you’re seeing in activity. We saw growth year-over-year in the Americas and EMEA as opposed to Asia Pac. Maybe you could talk a little bit about those regional differences and maybe what you’re seeing from clients there?

Jeff Eberwein: Sure, I’ll start and then I’ll turn it over to Jake. I would say this year, the new business wins that we had in 2023 have started and played out pretty similar to our expectations. And what has been a negative surprise is some of our existing base are having hiring volumes significantly below our expectations. And I would – in Q3, it was particularly noticeable in the financial sector in Asia Pac. Long-time clients, for whatever reason in the recent quarters, have hired way below normal and way lower expectations. And we think that’s a temporary thing and we’ll be back to more average levels, historical levels next year, but that has been a headwind we’ve been facing this year. Jake, what would you add?

Jake Zabkowicz: Yes, Jeff. Marc, good morning. I would just also add, too, if you take a look at the fluctuations from last year to this year, last quarter to this quarter, our clients have roughly stabilized but well below, as Jeff mentioned, our expectations and in previous quarters’ and in previous years’ hiring volumes. So while new business is picking up, while we are seeing some efforts in that realm, our base accounts in the current hiring volumes still are below the expectation. The good news is, as I mentioned earlier, that we are seeing our land and expand strategy working. We are expanding in new geographies and new territories with a couple of our key clients, which brings to life a lot of the good work that the team has been doing for them.

Jeff Eberwein: A different way to describe land and expand is we’ve been increasing our share of wallet on some of our accounts and that’s an ongoing initiative. We’re just getting started with it, but so far, we’ve had some successes with that.

Marc Riddick: Okay. And then I was wondering if you could talk a little bit about, you mentioned the challenge as far as the financials. Are there any industry verticals that we should be thinking about or areas that are sort of leading the way picking up activity? Or is there any differentiation that might be a call out there?

Jeff Eberwein: Jake, why don’t you take that one?

Jake Zabkowicz: Yes, Marc, from a sector standpoint, life sciences and the pharmaceuticals sectors continue to be stable across the board for us, which is good. Financial services, as Jeff mentioned, has been lower than expected. And I would say the technology sector, while we’re seeing some incremental improvement, it’s still not that hockey stick type of rebound that I think everybody was hoping for. So I think that would be more of a stable growth for us as we continue to move forward. But from a sector specific, it’s been pretty consistent just across the board.

Marc Riddick: Okay. Thanks. And then switching gears, I mean, I was wondering in midyear, it might be kind of early for this, but I was wondering if there’s any sort of feedback that you received or any thoughts that you have as to the political ramifications and what that might lead to as far as client demand or any feedback that you’re receiving from that standpoint.

Jeff Eberwein: Yes. I think the short version, the short way to answer that question, Marc, is it’s too early to say. We did notice the market rebound yesterday. And just in general, the environment we’ve been in for years now has been a lot of uncertainty. COVID, recovering out of COVID, then the inflation shock, interest rates going up, the cost of everything, including labor going up, and we’ve raised our prices accordingly as has everybody else. So anything that’s a more calm stable environment, pro-business environment is a good thing, especially in those areas that have been under-hiring. And I would highlight, if I had to pick one, I would pick financial services. A lot of those companies have been hiring at very low levels, even the lowest we’ve seen for a really long time.

And they tell us that it’s short term in nature and things will return to normal, but there’s been some rightsizing there. And we do think that sector, in particular, will return to more normal historical levels next year.

Marc Riddick: Okay. And then last one for me. I was sort of curious as to thoughts on free cash flow and cash usage. You mentioned in the press release as far as some share repurchase activity. And I just wanted if you talk a little bit about maybe what you’re seeing in – is there anything out there in the acquisition pipeline that makes sense? Or maybe your thoughts as to what you’re seeing in there as far as volume or valuations or anything like that? Thank you.

Jeff Eberwein: Yes. Really good question, Marc. We’re always looking at acquisition targets. We would almost always prefer to grow organically and we’ve done a lot of that this year. We’ve been upgrading talent. We’ve been building in areas like the Middle East, where in the short run, that cost us money, it hurts EBITDA, but it’s going to be a phenomenal medium- and long-term investment. And investments in our business really show up on the income statement, not the cash flow statement because we don’t have any CapEx. And when we think about acquisitions, we like to be in the market. We like to look. There’s nothing significant that’s imminent. And our main goal there is to find something that’s one plus one equals three, either a geography enhancer or maybe a sector vertical enhancer, or maybe something that would bring a slightly different service, adjacent service where we can increase our share of wallet with existing clients or the target clients.

And so we – the acquisition side is really hard to predict. But if you look at what we’ve done, it’s all been small incremental things. And we’re big fans of buying back stock. As you mentioned, we’ve bought back stock every time the window has been opened. I think we’ve bought $2.5 million worth this year, and our share count is down in absolute terms over any time period you want to look, which is not something many companies can say. And we think our stock is incredibly cheap and we think it’s an excellent use of capital and something we expect to continue to do over time as we can.

Marc Riddick: Thank you very much.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Eberwein for any closing remarks.

Jeff Eberwein: Why don’t we give it one minute just to see if anybody has a question? Operator, could you remind people how to ask a question if they want to?

Operator: [Operator Instructions]

Jeff Eberwein: All right. Operator, any questions?

Operator: There are no questions at this time.

Jeff Eberwein: Okay. Well, that concludes the question-and-answer session. So thanks for joining us today for your interest in Hudson Global. Feel free to contact us any time using the contact information found in our press release or on our Investor Relations website. We look forward to next quarter’s update call. Have a good day, everybody.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.